The following discussion and analysis of financial condition and results of operations should be read together with the Unaudited Condensed Consolidated Financial Statements and accompanying Notes included elsewhere in this report, and the Consolidated Financial Statements and accompanying Notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Note About "Forward-Looking Statements"
This Quarterly Report on Form 10-Q (including the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section) contains "forward-looking statements," as defined in Section 21E ofthe United States Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended regarding our business, financial condition, results of operations, and prospects, including, without limitation, statements about our expectations, beliefs, intentions, anticipated developments, and other information concerning future matters. Words such as "may," "will," "could," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "should," "target," "projects," "contemplates," "predicts," "potential," "continue," and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report on Form 10-Q. Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on current expectations and assumptions. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and the actual results and outcomes could differ materially from what is expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those discussed under the headings "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , in "Item 1A: Risk Factors" of Part II of this Quarterly Report on Form 10-Q, and in other filings made from time to time with theUnited States Securities and Exchange Commission ("SEC") after the date of this Quarterly Report on Form 10-Q. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to (and we expressly disclaim any obligation to) revise or update any forward-looking statement, whether as a result of new information, subsequent events, or otherwise (except as may be required by law), in order to reflect any event or circumstance which may arise after the date of this Quarterly Report on Form 10-Q. Readers are urged to carefully review and consider the various disclosures made in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K and other filings with theSEC .
Business Strategy and Goals
Our business is to source, develop and provide sustainable potable water
resources to fast-growing communities throughout the
Our objective is to maximize long-term shareholder value. Currently, we believe the highest potential return to shareholders is from a return of capital. As we monetize assets, rather than reinvest the proceeds, we intend to return capital back to shareholders through a stock repurchase program or by other means such as special dividends. Nonetheless, we may, from time to time, reinvest a portion of proceeds from asset monetizations in further development of existing assets, if we believe the returns on such reinvestment outweigh the benefits of a return of capital. As ofMarch 31, 2022 , our major consolidated subsidiary wasVidler Water Company, Inc. a water resource and water storage business with assets and operations primarily in theSouthwestern United States , includingNevada ,Arizona ,Colorado , andNew Mexico . Our revenue and cash generation from the sale of our water resource and real estate assets can vary significantly from quarter to quarter and largely depends on when actual sale transactions close. We are unable to predict with any certainty the timing of any future asset sales and revenue and cash generation, which could adversely affect our liquidity. OnApril 13, 2022 , the Company, Parent, and Purchaser, entered into the Merger Agreement. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Parent has agreed to cause Purchaser to commence the Offer to purchase all of the outstanding Shares at an offer price of$15.75 per Share, less any applicable withholding taxes and without interest. Following the successful closing of the Offer, and subject to the terms and conditions of the Merger Agreement, Purchaser will be merged with and into the Company pursuant to Section 251(h) of the DGCL, with the Company continuing as the surviving corporation in the Merger and a wholly owned subsidiary of Parent. At the effective time of the Merger, each Share that was not tendered in the Offer, other than the Cancelled Shares and Dissenting Shares (as each are 9 -------------------------------------------------------------------------------- defined in the Merger Agreement), will be converted into the right to receive the Offer Price, less any applicable withholding taxes and without interest. Purchaser commenced the Offer onApril 27, 2022 , with a scheduled expiration time of one minute following11:59 pm Eastern Time onMay 24, 2022 , unless the offer is extended or terminated. There is no guarantee that the Offer or the Merger will be consummated within the proposed timeline, or at all. Refer to Note 5 "Subsequent Events" of our unaudited condensed consolidated financial statements for more information related to the Merger.
Results of Operations
Shareholders' Equity (in thousands):
March 31, 2022 December 31 ,
2021 Change
Shareholders' equity$ 207,502 $
208,596
Shareholders' equity per share $ 11.34 $
11.39
The decrease in our shareholders' equity during the three months ended
Income Statement (in thousands):
Three Months Ended March 31, 2022 2021 Change Revenue and other income$ 966 $ 2,933 $ (1,967) Cost of sales 213 375 (162) Project and general and administrative expenses 2,284 1,844 440 Net Income (loss) before income taxes$ (1,531)
Revenue and other income (loss)
The majority of our revenue recorded for the three months endedMarch 31, 2022 was from the sale of 16.7 acre-feet of water rights atFish Springs Ranch , for total proceeds of$713,000 . Project and general and administrative expenses for the three months endedMarch 31, 2022 included approximately$100,000 of non-applicable option payments (not applicable to the purchase price) for water rights purchases inLyon County, Nevada (three months endedMarch 31, 2021 ,$75,000 ) and legal fees and other expenses incurred of approximately$614,000 (three months endedMarch 31, 2021 ,$145,000 ) the majority of which was incurred in connection with the definitive merger agreement datedApril 13, 2022 between the Company and D.R. Horton Inc. (see note 5 'Subsequent Events').
Income Taxes
Based on the analysis conducted atDecember 31, 2021 , we recorded a tax benefit of$18.1 million primarily due to the reversal of another portion of the valuation allowance of$21.7 million due to the increased likelihood that we will be able to utilize a significant portion of our Net Operating Losses prior to their expiration. For the three months endedMarch 31, 2022 andMarch 31, 2021 the Company has recorded a tax provision of$0 and$182,000 respectively. 10
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Liquidity and Capital Resources - Three Months Ended
A substantial portion of our historical revenue and cash flow has, and is expected in the future, to come from one-time sales of our assets that are primarily long-term water resource development projects that we expect to support economic growth in the local markets where those assets are located. We classify such sales and costs incurred to acquire and develop our water assets as operating activities in our consolidated statement of cash flows. The timing and amount of sales and cash flows depend on a number of factors which are difficult to predict, and cannot be directly compared from one period to another. However, given our cash balance atMarch 31, 2022 , we currently believe that we have sufficient resources to cover our expenses for at least the next 12 months. Our revenue and cash generation from the sale of our water resource and real estate assets can vary significantly from quarter to quarter, and largely depends on when actual sale transactions close. We are unable to predict with any certainty the impact on the timing of any future asset sales and revenue and cash generation due to the economic contraction in theU.S. as a result of the COVID-19 pandemic. If an economic contraction in theU.S. persists for several quarters, it is likely that future asset sales will be delayed, which could adversely impact our liquidity. In the long-term, we estimate that cash from asset sales will provide us with adequate funding for future operations. However, if additional funding is needed, we may defer significant expenditures (including stock repurchases), sell assets, obtain a line of credit, or complete a debt or equity offering. Any equity or convertible debt offering may be dilutive to our shareholders, and any debt offering may include operating covenants that could restrict our business. We are currently not subject to any debt covenants that limit our ability to obtain additional financing through debt or equity offerings.
As of
Cash Flows
Cash Flows From Operating Activities
Our operations used$2.5 million of cash during the first three months of 2022. The principal operating cash inflow was approximately$966,000 from the sale of various water rights assets and other income. This was offset by$3.5 million of cash used for overhead and various project expenses. Our operations provided$1 million of cash during the first three months of 2021. The principal operating cash inflow was approximately$2.9 million from the sale of various real estate and water rights assets and other income. This was offset by$1.9 million of cash used for overhead and various project expenses.
Cash Flows From Investing Activities
There were no significant cash flows from investing activities during the three
months ended
Cash Flows From Financing Activities
We used
Off-Balance Sheet Arrangements
As ofMarch 31, 2022 , we had no off-balance sheet arrangements, that have, or are reasonably likely to have, a material current or future effect on our consolidated financial condition, revenues or expenses, results of operations, liquidity, capital expenditure, or capital resources. 11
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