1. PRESENTATION OF INTERIM INFORMATION (Policies)
|9 Months Ended
May. 31, 2015
|Presentation Of Interim Information Policies
|Use of Estimates
The preparation of consolidated financial statements in accordance with 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
|Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments with original maturities of three months or less. The Companys cash equivalents are comprised entirely of money market funds maintained at a high quality financial institution. At various times during the nine months ended May 31, 2015, the Companys main operating account exceeded federally insured limits.
|Financial Instruments - Concentration of Credit Risk and Fair Value
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash equivalents with high quality financial institutions. The Company has historically invested its idle cash primarily in certificates of deposit, money market instruments, commercial paper obligations, corporate bonds and U.S. government 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 instruments for which it is practicable to estimate that value.
Cash and Cash Equivalents The Companys 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 Companys 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.
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 and an off-balance sheet or contingent obligation associated with the Companys acquisition of its Rangeview Water Supply (defined in Note 4 Water and Land Assets to the 2014 Annual Report). The amount payable is a fixed amount but is repayable only upon the sale of Export Water (defined in Note 4 Water and Land Assets to the 2014 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.
The recorded balance of the Tap Participation Fee liability (described below) as of August 31, 2014, is its estimated fair value determined by projecting new home development in the Companys targeted service area over an estimated development period.
Notes Receivable Related Party The market value of the note receivable related party: Rangeview Metropolitan District (the District) is not practical to estimate due to the related party nature of the underlying transaction.
Receivable from HP A&M In conjunction with High Plains A&M, LLC (HP A&M) defaulting on certain promissory notes in fiscal year 2012, the Company had the right to collect from HP A&M any amounts the Company spent to cure the defaulted notes. Accordingly, through the date of the settlement the Company had recorded the entire amount of the HP A&M notes at default as well as expenses incurred to cure the defaults as a receivable from HP A&M less proceeds received from the sale of shares pledged by HP A&M as security. As described further in Note 9 Litigation Loss Contingencies, the Company has settled its claims against HP A&M relating to the defaults on these promissory notes and the Company has written off the receivable from HP A&M.
Promissory Notes Payable During fiscal year 2013, the Company began acquiring the defaulted and non-defaulted promissory notes that were payable by HP A&M. The majority of the notes issued by the Company to acquire the HP A&M notes have a five-year term, bear interest at an annual rate of five percent and require semi-annual payments with a straight-line amortization schedule. The carrying value of the notes payable approximate the fair value as the rates are comparable to market rates.
During October 2014, the Company borrowed $4,450,000 from the First National Bank of Las Animas. The note has a 20-year term, requires semi-annual payments, and carries a 5.27% per annum rate for the first five years. After the first five years, the interest rate on the note is subject to change (no more often than annually) based on the changes in the First National Bank of Las Animas Ag/Commercial Real Estate Rate. The Company may pay the note in full at any time without penalty. The carrying value of this note approximates the fair value as the rate is comparable to market rates.
As described further in Note 4, in December 2014, the District entered into an agreement to finance approximately $1.4 million of the purchase of certain WISE (defined in Note 4 below) infrastructure. The $1.4 million is repayable in equal annual installments over the next three years and accrues interest at the rate of 3%. The carrying value of this obligation approximates the fair value as the rate is comparable to market rates.
Off-Balance Sheet Instruments The Companys 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.
|Tap Participation Fee
This note should be read in conjunction with Note 4 Long-Term Obligations and Operating Lease and Note 9 Litigation Loss Contingencies below.
Pursuant to the Asset Purchase Agreement dated May 10, 2006 (the Arkansas River Agreement), the Company was obligated to pay HP A&M a defined percentage of a defined number of water tap fees the Company receives after the date of the Arkansas River Agreement. A Tap Participation Fee (TPF) was due and payable once the Company had sold a water tap and received the consideration due for such water tap. The Company did not sell any water taps during the three or nine months ended May 31, 2015 or 2014. As further discussed in Note 9 Litigation Loss Contingencies, the Company has settled its claims against HP A&M relating to the defaults, and the parties have eliminated the TPF.
Prior to the settlement, the Company imputed interest expense on the unpaid TPF using the effective interest method over an estimated period that is utilized in the valuation of the liability. The Company did not impute interest during the three months ended May 31, 2015. The Company imputed interest of $248,800 during the three months ended May 31, 2014. The Company imputed interest of $23,800 and $1,309,100 during the nine months ended May 31, 2015 and 2014, respectively.
As a result of the Companys settlement with HP A&M, no water taps remain subject to the TPF as of May 31, 2015. As of August 31, 2014, there were 2,184 water taps subject to the TPF.
Wholesale Water and Wastewater Fees Monthly wholesale water usage charges are assessed to the Companys customers based on actual metered usage each month plus a base monthly service fee. The Company recognizes wholesale water usage revenues upon delivering water to its customers or its governmental customers end-use customers, as applicable. The water revenues recognized by the Company are shown gross of royalties to the State of Colorado Board of Land Commissioners (the Land Board) and, when applicable, amounts retained by the District. The Company recognized $73,500 and $314,200 of metered water usage revenues during the three months ended May 31, 2015 and 2014, respectively. The Company recognized $893,700 and $1,028,600 of metered water usage revenues during the nine months ended May 31, 2015 and 2014, respectively.
The Company recognizes wastewater treatment fees monthly based on usage. The monthly wastewater treatment fees are shown net of amounts retained by the District. The Company recognized $12,300 and $11,400 of wastewater treatment fees during the three months ended May 31, 2015 and 2014, respectively. The Company recognized $37,200 and $33,500 of wastewater treatment fees during the nine months ended May 31, 2015 and 2014, respectively. Costs of delivering water and providing wastewater services to customers are recognized as incurred.
Tap and Construction Fees The Company has various water and wastewater service agreements, a component of which may include tap and construction fees. The Company recognizes water tap fees as revenue ratably over the estimated service period upon completion of the Wholesale Facilities (defined in Part I, Item 1 of the 2014 Annual Report) constructed to provide service to Arapahoe County, Colorado (the County). The Company recognized $3,600 of water tap fee revenues during each of the three months ended May 31, 2015 and 2014, respectively. The Company recognized $10,700 of water tap fee revenues during each of the nine months ended May 31, 2015 and 2014, respectively. The water tap fees to be recognized over this period are net of the royalty payments to the Land Board and amounts paid to third parties pursuant to the CAA as further described in Note 4 Long-Term Obligations and Operating Lease below.
The Company recognized $10,400 of Special Facilities (defined in Part I, Item 1 of the 2014 Annual Report) funding as revenue during each of the three months ended May 31, 2015 and 2014, respectively. The Company recognized $31,100 of Special Facilities funding as revenue during each of the nine months ended May 31, 2015 and 2014, respectively. This is the ratable portion of the Special Facilities funding proceeds received from water agreements as more fully described in Note 2 Summary of Significant Accounting Policies to the 2014 Annual Report.
As of May 31, 2015, and August 31, 2014, the Company has deferred recognition of approximately $1,183,200 and $1,232,200, respectively, of water tap and construction fee revenue from the County, which will be recognized as revenue ratably over the estimated useful accounting life of the assets constructed with the construction proceeds as described above.
Agriculture Farming Operations The Company leases its Arkansas River water and land to area farmers who actively farm the properties. The Company records farm lease income ratably each month based on estimated annual lease income the Company anticipates collecting from its land and water leases. The Company records these amounts as receivables, less an estimated allowance for uncollectible accounts. The allowance as of May 31, 2015 and August 31, 2014, was determined by the Companys specific review of all past due accounts. The Company has recorded allowances for doubtful accounts totaling $26,300 as of May 31, 2015 and August 31, 2014. As of May 31, 2015, the Company has recorded deferred revenue of $74,400 on its farm income related to billings for future periods. As of August 31, 2014, the Company has accrued a receivable of $79,000 of farm income related to future billings. The Company manages the farm lease business as a separate line of business from the wholesale water and wastewater business.
|Royalty and Other Obligations
Revenues from the sale of Export Water are shown net of royalties payable to the Land Board. Revenues from the sale of water on the Lowry Range (described in Note 4 Water and Land Assets in Part II, Item 8 of the 2014 Annual Report) are shown net of the royalties to the Land Board and the amounts retained by the District.
|Oil and Gas Lease Payments
As further described in Note 2 Summary of Significant Accounting Policies in Part II, Item 8 of the 2014 Annual Report, on March 10, 2011, the Company entered into a Paid-Up Oil and Gas Lease (the O&G Lease) and a Surface Use and Damage Agreement (the Surface Use Agreement) with Anadarko E&P Company, L.P. (Anadarko), a wholly owned subsidiary of Anadarko Petroleum Company. In December 2012, the O&G Lease was purchased by a wholly owned subsidiary of ConocoPhillips Company. Pursuant to the O&G Lease, during the year ended August 31, 2011, the Company received an up-front payment of $1,243,400 for the purpose of exploring for, developing, producing and marketing oil and gas on approximately 634 acres of mineral estate owned by the Company at its Sky Ranch property (described in Note 4 Water and Land Assets to the 2014 Annual Report). The Company began recognizing the up-front payments as income on a straight-line basis over three years (the initial term of the O&G Lease) on March 10, 2011. The Company received an additional payment of $1,243,400 during February 2014 to extend the O&G Lease an additional two years through February 2016, which will be recognized as income on a straight-line basis over two years (the extension term of the O&G Lease). During the fiscal year ended August 31, 2014, the Company received an up-front payment of $72,000 for the purpose of exploring for, developing, producing, and marketing oil and gas on 40 acres of mineral estate the Company owns adjacent to the Lowry Range (the Rangeview Lease). During the three months ended May 31, 2015 and 2014, the Company recognized $161,400 and $149,900, respectively, of lease income related to the up-front payments received pursuant to the O&G Lease and the Rangeview Lease. During the nine months ended May 31, 2015 and 2014, the Company recognized $484,300 and $363,400, respectively, of lease income related to the up-front payments received pursuant to the O&G Lease and the Rangeview Lease.
As of May 31, 2015 and August 31, 2014, the Company has deferred recognition of $541,200 and $1,025,500, respectively, of income related to the O&G Lease and the Rangeview Lease, which will be recognized into income ratably through February 2016 and July 2017, respectively.
During the three and nine months ended May 31, 2015, two wells were drilled within the Companys mineral interest. Beginning in March 2015 both wells were placed into service and began producing oil and gas and accruing royalties to the Company. In May 2015, certain gas collection infrastructure was extended to the property to allow the collection of gas from the wells and accrual of royalties attributable to gas production. During the three and nine months ended May 31, 2015, the Company received $262,100 in royalties attributable to these two wells.
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. Based on the Companys procedures, the Company determined that land and water shares held for sale related to the Arkansas River Assets were impaired as of August 31, 2014. See further discussion in Note 3 Water and Land Assets below under Land and Water Shares Held for Sale.
|Capitalized Costs of Water and Wastewater Systems and Depletion and Depreciation of Water Assets
Costs to construct water and wastewater systems that meet the Companys capitalization criteria are capitalized as incurred, including 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.
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. Because the Company has a full valuation allowance on its deferred tax assets, the granting and exercise of stock options has no impact on the income tax provisions. The Company recognized $53,700 and $68,800 of share-based compensation expense during the three months ended May 31, 2015 and 2014, respectively. The Company recognized $186,300 and $183,100 of share-based compensation expense during the nine months ended May 31, 2015 and 2014, respectively.
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 May 31, 2015.
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 2012 through fiscal year 2014. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.
The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At May 31, 2015, 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 or nine months ended May 31, 2015 or 2014.
|Income (Loss) per Common Share
Income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each period. Common stock options and warrants aggregating 328,600 and 380,100 common share equivalents were outstanding as of May 31, 2015 and 2014, respectively, and have been included in the calculation of net income per common share but excluded from the calculation of loss 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 Companys financial reporting, the Company undertakes a study to determine the consequence of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Companys consolidated financial statements properly reflect the change. During the current period, there were no new accounting pronouncements issued that will significantly impact the Companys financial reporting.