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

In March 2020, Congress enacted the CARES Act to provide certain relief because of the 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. COVID-19 delayed the second phase of the Sky Ranch development construction progress due to the extended time taken to approve the platted lots through the County Government. Other than the delay of the approval of the platted lots, there has not been a material impact to the Company’s consolidated financial statements as a result of the CARES Act.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less. The Company had no cash equivalents as of August 31, 2021 or 2020. At various times during the fiscal year ended August 31, 2021, the Company’s main operating account exceeded federally insured limits. To date, the Company has never suffered a loss due to such excess balance.

Land Development Inventories

Land development inventories primarily includes land, stated at cost, the Company is developing with plans to sell. The Company began developing its Sky Ranch property in 2018. The Company capitalizes certain legal, engineering, design, permitting, land acquisition, and construction costs related to the development of finished lots at Sky Ranch that meet the Company’s capitalization criteria for improvements to a lot. These costs are capitalized as incurred. 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 sold. Costs included in Land Development Inventories historically included common area costs the Company funded through the Sky Ranch Community Authority Board (the "Sky Ranch CAB") when collectability of such reimbursable costs was not considered probable. However, in fiscal 2021, because the Company believes these costs will be reimbursed by the Sky Ranch CAB, those costs are now reflected in a note receivable account from the Sky Ranch CAB and collectability was deemed probable due to increases in mill levies resulting from remaining phases being in a different taxing district, the increased tax base resulting from completed homes and lots under contract, as well as other relevant factors impacting the Sky Ranch CAB’s future liquidity so that the land development inventory accounts contain costs directly attributable to lots to be sold, which will not be reimbursed; and expensed as land cost of sales as lots are being completed and sold on a lot-by-lot basis.

The Company measures land development inventories 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 comparable sales prices. If recent sales prices are not available, the Company will consider several factors, including, but not limited to, current market conditions, nearby recent 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.

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. government treasury obligations. To date, the Company has not experienced significant losses on any of these investments.

Trade Accounts Receivable

The Company records accounts receivable net of allowances for uncollectible accounts. The Company has recorded an allowance for uncollectible accounts in receivables from continuing operations totaling less than $0.1 million and $0.2 million for the periods ended August 31, 2021 and 2020. The allowance for uncollectible accounts was determined based on a specific review of all past due accounts.

Costs to construct water and wastewater systems that meet the Company’s capitalization criteria are capitalized as incurred, including interest, if applicable, 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.

Revenue Recognition

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

The Company currently generates revenues through its two business segments. Revenues are derived through its wholesale water and wastewater business and through the sale of developed land primarily for residential lots, both of which businesses are described below.

Water and Wastewater Resource Development Segment Revenues

The Company generates revenues through its wholesale water and wastewater business predominantly from the items described below. Because these items are separately delivered and distinct, the Company accounts for each of the items separately.

Monthly water usage and wastewater treatment fees – The Company provides water and wastewater services to customers, for which the customers are charged monthly usage fees. Water usage fees are assessed to 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 is based on a tiered pricing structure. The Company recognizes wholesale water usage 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.”

The Company also sells raw water for industrial uses, mainly to oil and gas companies for use in the drilling processes (referred to as “O&G operations”). O&G operations revenues are recognized at a point in time upon delivering water to the customer, unless other special arrangements are made.

During the years ended August 31, 2021 and 2020, the Company delivered 257.8 million and 76.2 million gallons of water to customers. Of this, 60% and 1% was used for O&G operations.

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.

Water and wastewater tap fees and construction fees/special facility funding – The Company has various water and wastewater service agreements, components of which may require the payment of tap fees. A tap constitutes a right to connect to the wholesale water and wastewater systems through a service line to a residential or commercial building or property, and once granted, the customer may make a physical tap into the wholesale line(s) to connect its property to the Company’s water and/or wastewater systems. The right stays with the property upon sale or transfer. The Company has no obligation to physically connect the property to the lines. Once connected to

the water and/or wastewater systems, the customer has live service and the ability to receive metered water deliveries from the Company’s system and send wastewater into the Company’s system. Thus, the customer has full control of the connection right as it can obtain all the benefits from this right. As such, management has determined that tap fees are separate and distinct performance obligations that are recognized at a point in time.

The Company recognizes water and wastewater tap fee revenues at the time the Company grants a right for the customer to connect to the water or wastewater service line to obtain service, and the customer pays the tap fee. During the years ended August 31, 2021 and 2020, the Company recognized $4.4 million and $4.8 million of water tap fee revenues. The water tap fees recognized are based on the amounts billed by the Rangeview District to customers, after deduction of royalties due to the Land Board for water taps, if applicable, and net of amounts paid to third parties pursuant to the CAA as further described in Note 7 – Long-Term Obligations and Operating Lease.

During the years ended August 31, 2021 and 2020, the Company recognized $0.8 million and $0.9 million of wastewater tap fee revenues.

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 permanent water and wastewater systems or transmission pipelines to transfer water from one location to another are examples of special facilities. Management has determined that special facilities are separate and distinct performance obligations because these projects are contracted to construct a specific water and wastewater system or transmission pipeline and typically do not include multiple performance obligations in a contract with a customer. For the years ended August 31, 2021 and 2020, the Company recognized $0.4 million and $0 of special facilities revenue.

As of August 31, 2021 and 2020, the Company had no contract liabilities related to water tap and construction fee/special facility funding revenue.

Consulting fees – The Company receives, typically monthly, fees 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. During each of the years ended August 31, 2021 and 2020, the Company recognized less than $100,000 of consulting fees. These fees are classified in Special facility projects and other income.

Land Development Segment Revenues

The Company generates revenues through its land development business predominantly from the sources described below. Because these items are separately delivered and distinct, the Company accounts for each of the items separately.

Sale of finished lots – The Company acquired approximately 930 acres of land zoned as a Master Planned Community known as Sky Ranch. The Company has entered into purchase and sale agreements with home builders pursuant to which the Company agreed to sell, and each builder agreed to purchase, residential lots at Sky Ranch. The Company began the first development phase in March 2018 and broke ground on the second development phase in February 2021. The first development phase is nearly complete and includes 509 lots, of which 505 were sold to three homebuilders and the remainder were retained by the Company for use in its build-to-rent business. The second development phase is planned to have 850 lots (804 under contract with homebuilders and 46 retained for use in the build-to-rent business), is being developed in four subphases (the first subphase is what broke ground in February 2021, which includes a total of 229 lots, 219 lots are sold to home builders with 10 being retained for use in the build-to-rent business).

The timing of cash flows from the second development phase, consistent with the first development phase, 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.

The Company sells lots at Sky Ranch pursuant to distinct agreements with each home builder. These agreements follow one of two formats:

Reimbursable Costs for Public Improvements – The Sky Ranch CAB is obligated to construct certain public improvements at Sky Ranch. Public improvements are items that are not associated with an individual lot or 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. These public improvements are constructed pursuant to design standards specified by local governmental jurisdictions including the Sky Ranch Metropolitan District Nos. 1, 3, 4, 5,6 7 and 8 (collectively, the “Sky Ranch Districts”), the Sky Ranch CAB, Arapahoe County, and the local stormwater authority and, after inspection and acceptance, are turned over to the applicable governmental entity to own, operate and maintain.

Pursuant to agreements between the Company and the Sky Ranch CAB (see Note 14 – Related Party Transactions), the Company is obligated to provide advance funding to the Sky Ranch CAB related to the construction of these public improvements pursuant to a note. Because public improvements are utilized by more than just a single home, the costs are typically reimbursed through property tax assessments, fees and other funding mechanisms like municipal bonds. During the first development phase at Sky Ranch, the Sky Ranch CAB expended $32.6 million to build these public improvements, including construction support activities totaling $29.7 million and accrued interest of $2.9 million, for which the Company provided the funding. Pursuant to the funding agreement between the Company and the Sky Ranch CAB, the constructions costs, the accrued interest, and project management fees are payable to the Company since the Company provided the initial funding. In November 2019, the Sky Ranch CAB issued $13.2 million of bonds to recover a portion of the total $32.7 million expected to be received related to the public improvements constructed for the first development phase 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. Additionally, in January 2021, the Sky Ranch CAB paid the Company $0.4 million as a result of unencumbered funds from a 2020 budget surplus. With the first development phase nearing completion, 804 lots under contract in the second development phase sold (with 152 in the first subphase sold), the Sky Ranch CAB has established a tax base with revenue and fee generation from expected tax collections. Historically, the recognition of these costs was contingent upon the Sky Ranch CAB repaying the Company, but as a mill levy increase was approved due to the remaining development phases at Sky Ranch being in a different taxing district, higher than projected assessed values on completed homes, and the growing lots paying taxes, the Sky Ranch CAB has established a revenue base  which the Company has determined provides the Sky Ranch CAB the ability to repay the Company. The Company has determined the reimbursement of these public improvement costs, for which the Company has an enforceable right to payment for costs incurred, are probable of collection due, as such, the Company has recognized the reimbursable public improvements costs incurred to date at Sky Ranch. During the year ended August 31, 2021, the Company recognized an initial $21.7 million related to the Note receivable – related party related which was recorded to Project management revenue, Other income, and Interest Income - related party.

For the second development phase and beyond, the Company will continue to assess the collectability of reimbursable public improvement expenditures. The Sky Ranch CAB has an obligation to repay the Company but the ability of the Sky Ranch CAB to repay the Company before the contractual termination of December 31, 2060, is dependent upon the continued establishment of a sufficient tax base or other fee generating activities sufficient to recover reimbursable costs incurred. Public improvements are considered contract fulfillment costs of the Sky Ranch CAB which are payable to the Company, for which the Company has determined collectability is deemed to be probable and the public reimbursable expenditures incurred related to the second development phase are; therefore, reflected as Notes receivable - related party. During the year ended August 31, 2021, the Company recognized $3.1 million of project management revenue, other income, and interest income related to the amounts owed to the Company by the Sky Ranch CAB related to both development phases.

The Company will evaluate the Notes receivable - related party for indicators of impairment each reporting period and an impairment charge will be incurred for any amounts deemed uncollectible. The note receivable from the Sky Ranch CAB bears an interest rate of six percent (6%) per annum until paid.

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 qualifying construction costs of Sky Ranch CAB-eligible public 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 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 project management fees unless and until the Sky Ranch CAB and/or the Sky Ranch Districts have sufficient funds from tax assessment, fees or the issuance of municipal bonds in an amount sufficient to reimburse the Company for all or a portion of advances provided, or expenses incurred for construction of public improvements that qualify as reimbursable expenses. Historically, the recognition of project management revenue was deferred as the payment was deemed contingent on a sufficient tax base and or the issuance of municipal bonds for collectability to be considered probable. Due to an approved increase in the mill levy due to the remaining phases being in a different taxing district, the completion of the first development phase, higher than projected assessed home values, and the increase in lots under contract, the Company has determined that it is probable that the Sky Ranch CAB can pay the Company its project management fee, for which service has previously been provided. The Company has determined that payment from the Sky Ranch CAB is probable and as such, during the fiscal year ended August 31, 2021, the Company recognized $1.7 million of project management revenue from construction activities at Sky Ranch. The $1.7 million is included with the Notes receivable - related party and accrues interest at six percent (6%) per annum. Future amounts will be added to Land development inventories or Notes receivable – related party, dependent upon whether collectability is deemed to be probable of occurrence.

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. For Phase 1, these activities are invoiced to the Sky Ranch CAB upon completion and will be recognized as Land development inventories or Notes receivable – related party, dependent upon whether collectability is deemed to be reasonably assured. The second development phase activities are invoiced based on an agreement between the Company and the Sky Ranch CAB.  The amounts are invoiced and recognized in Special facility projects and other and is a component in Trade accounts receivable, net.

The following table summarizes the amounts the Company paid, what was repaid by the Sky Ranch CAB and amounts still owed to the Company by the Sky Ranch CAB:

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The Company believes it will incur an additional $0.2 million before the end of its second quarter of fiscal 2022, to complete the construction related to public improvements in the first development phase at Sky Ranch, and $14.2 million related to the first subphase of the second development phase through the end of its fiscal 2022.

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.

Share-based Compensation

The Company maintains a stock option plan for the benefit of its employees and non-employee directors. The Company recognizes share-based compensation costs as expenses 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 each of the years ended August 31, 2021 and 2020, was immaterial.

During the years ended August 31, 2021 and 2020, the Company recognized $0.5 million and $0.5 million of share-based compensation expense.

Earnings per Common Share

Basic earnings per common share is computed by dividing net income by the weighted-average number of shares outstanding during each period. Diluted earnings per share is computed similarly but reflects the potential dilution that would occur if dilutive options were exercised and all unvested share-based payment awards were vested. 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).