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 March 31, 2022

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 033-36383

VIDLER WATER RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-2723335
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

3480 GS Richards Blvd, Suite 101, Carson City, NV 89703

(Address of principal executive offices, including zip code)

(775) 885-5000

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par Value $0.001	VWTR	Nasdaq Stock Market LLC

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 ☐

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 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 not 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 ☒

On May 2, 2022, the registrant had 18,299,879 shares of common stock, $0.001 par value per share outstanding.

Vidler Water Resources, Inc.

Form 10-Q

For the Three Months Ended March 31, 2022

Table of Contents

		Page No.
Part I: Financial Information
Item 1:	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	2
	Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	4
	Notes to the Condensed Consolidated Financial Statements	5
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 4:	Controls and Procedures	12
Part II: Other Information
Item 1:	Legal Proceedings	12
Item 1A:	Risk Factors	12
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3:	Defaults Upon Senior Securities	22
Item 4:	Mine Safety Disclosures	22
Item 5:	Other Information	22
Item 6:	Exhibits	23
Signatures		24

Part I: Financial Information

Item 1: Condensed Consolidated Financial Statements (Unaudited)

Vidler Water Resources, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets - Unaudited

(In thousands, except par value)

	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	25,535	$	28,181
Real estate and tangible water assets, net	34,495		34,495
Intangible assets	119,750		119,963
Right of use assets, net	200		240
Deferred income tax asset	27,505		27,505
Other assets	2,350		2,274
Total assets	$	209,835	$	212,658
Liabilities and equity
Lease liabilities	$	200	$	240
Other liabilities	1,342		3,392
Accounts payable and accrued expenses	791		430
Total liabilities	2,333		4,062
Commitments and contingencies (Note 4)
Preferred stock, $0.001 par value; authorized 10,000 shares, none issued
Common stock, $0.001 par value; authorized 100,000 shares, 18,312 issued and 18,300 outstanding at March 31, 2022, and 18,312 issued and 18,311 outstanding at December 31, 2021	18		18
Additional paid-in capital	330,257		329,691
Accumulated deficit	(122,630)		(121,099)
Treasury stock, at cost (common shares:12 at March 31, 2022 and 1 at December 31, 2021)	(143)		(14)
Total shareholders’ equity	207,502		208,596
Total liabilities and shareholders’ equity	$	209,835	$	212,658

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Vidler Water Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations - Unaudited

(In thousands, except per share data)

	Three Months Ended March 31,
	2022		2021
Revenues and other income:
Sale of real estate and water assets	$	776	$	2,718
Other income, net	190		215
Total revenues and other income	966		2,933
Cost of sales and expenses:
Cost of real estate and water assets sold	213		375
General, administrative, and other	2,236		1,796
Depreciation and amortization	48		48
Total cost of sales and expenses	2,497		2,219
Income (loss) before income taxes	(1,531)		714
Provision for federal and state income taxes	—		(182)
Net income (loss)	$	(1,531)	$	532
Net income (loss) per common share – basic and diluted	$	(0.08)	$	0.03
Weighted average shares outstanding	18,206		18,544

The accompanying notes are an integral part of the condensed consolidated financial statements.

2

Vidler Water Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity - Unaudited

Three Months Ended March 31, 2022

(In thousands)

	Shares of Common Stock Issued	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Shares of Treasury Stock	Treasury Stock, at Cost		Total
Beginning balance, December 31, 2021	18,312	$	18	$	329,691	$	(121,099)	1	$	(14)	$	208,596
Stock-based compensation expense				566							566
Purchases of treasury stock								11	(129)		(129)
Net loss						(1,531)					(1,531)
Ending balance, March 31, 2022	18,312	$	18	$	330,257	$	(122,630)	12	$	(143)	$	207,502

The accompanying notes are an integral part of the condensed consolidated financial statements.

Vidler Water Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity - Unaudited

Three Months Ended March 31, 2021

(In thousands)

	Shares of Common Stock Issued	Common Stock		Additional Paid-in Capital		Accumulated Deficit		Shares of Treasury Stock	Treasury Stock, at Cost		Total
Beginning balance, December 31, 2020	18,586	$	19	$	332,290	$	(154,009)	3	$	(30)	$	178,270
Stock-based compensation expense				42							42
Purchase of treasury stock								107	(986)		(986)
Retirement of treasury stock	(104)	(1)		(959)				(104)	959		(1)
Net income						532					532
Ending balance, March 31, 2021	18,482	$	18	$	331,373	$	(153,477)	6	$	(57)	$	177,857

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Vidler Water Resources, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows - Unaudited

(In thousands)

	Three Months Ended March 31,
	2022		2021
Operating activities:
Cash provided by (used in) operating activities	$	(2,517)	$	1,066
Net cash provided by (used in) operating activities	(2,517)		1,066
Investing activities:
Proceeds from sale of property, plant and equipment	—		23
Net cash provided by investing activities	—		23
Financing activities:
Purchases of treasury stock	(129)		(986)
Net cash used in financing activities	(129)		(986)
Increase (decrease) in cash and cash equivalents	(2,646)		103
Cash and cash equivalents, beginning of the period	28,181		9,388
Cash and cash equivalents, end of the period	$	25,535	$	9,491

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Vidler Water Resources, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Footnote Index

	Page No.
1. Basis of Presentation and Summary of Significant Accounting Policies	5
2. Tangible Water Assets and Real Estate, Net	5
3. Intangible Assets	6
4. Commitments and Contingencies	6
5. Subsequent Events	7

1. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying unaudited, condensed consolidated financial statements of Vidler Water Resources, Inc. and subsidiaries (collectively, the “Company” or “Vidler”) have been prepared in accordance with the interim reporting requirements of Form 10-Q, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete consolidated financial statements.

In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation of the financial statements presented have been included and are of a normal recurring nature. Operating results presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.

Smaller Reporting Company

The Company qualifies as a smaller reporting company (“SRC”) under the SEC’s definition and therefore certain disclosures that are no longer required have been removed in accordance with the SEC’s disclosure requirements for SRCs.

Use of Estimates in Preparation of Financial Statements

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses for each reporting period. The significant estimates made in the preparation of the Company’s condensed consolidated financial statements relate to intangibles, real estate and water assets, deferred income taxes, stock based compensation and contingent liabilities. While management believes that the carrying value of such asset and liabilities were appropriate as of March 31, 2022 and comparative periods, it is reasonably possible that actual results could differ from the estimates upon which the carrying values were based.

2. Tangible Water Assets and Real Estate, Net

The costs assigned to the various components of tangible water assets and real estate, net, were as follows (in thousands):

	March 31, 2022		December 31, 2021
Real estate and improvements held and used, net of accumulated depreciation of $12,003 at each of March 31, 2022, and December 31, 2021	$	9,469	$	9,469
Other real estate inventories	3,359		3,359
Tangible water assets	21,667		21,667
Total real estate and tangible water assets	$	34,495	$	34,495

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3. Intangible Assets

The Company owned the following intangible assets, which primarily represent indefinite-lived intangible water assets (in thousands):

	March 31, 2022		December 31, 2021
Pipeline rights and water credits at Fish Springs Ranch	$	80,684	$	80,860
Pipeline rights and water rights at Carson-Lyon	26,323		26,323
Other	12,743		12,780
Total intangible assets	$	119,750	$	119,963

4. Commitments and Contingencies

The Company leases its office under a non-cancelable operating lease that expires in 2023. Rent expense for office space was $39,000 and $39,000 for the three months ended March 31, 2022 and 2021, respectively.

Future minimum payments under all operating leases are as follows (in thousands):

Year ending December 31,
2022	120
2023	81
Total	$	201

Neither the Company nor its subsidiaries are parties to any potentially material pending legal proceedings during the quarter. The Company is subject to legal proceedings described in Item 3 of the Company’s 10-K filed March 22, 2022, which are incorporated herein by reference. Except as described below, there have been no material changes in the litigation since then.

On April 28, 2022, in connection with the proposed acquisition of the Company by an affiliate of D.R. Horton, Inc. (the “Transaction”), a purported individual stockholder of the Company filed a complaint in the United States District Court for the Southern District of New York, captioned Stein v. Vidler Water Resources, Inc., et al, No. 1:22-cv-3468 (“Stein”), naming as defendants the Company and each member of the Company’s board of directors as of the date of the Merger Agreement (as defined below). On May 2, 2022, one additional case was filed by a purported individual stockholder of the Company in the same court, captioned Casey v. Vidler Water Resources, et al, No. 1:22-cv-3528 (“Casey”). On May 2, 2022 and May 6, 2022, two additional cases were filed by purported individual stockholders of the Company in the United States District Court for the Eastern District of New York, captioned, respectively, Rabinovich v. Vidler Water Resources, Inc, et al, No. 1:22-cv-2509 (“Rabinovich), and Koh v. Vidler Water Resources, Inc., et al, No. 1:22-cv-2631 (“Koh”). On May 12, 2022, three additional cases were filed by purported individual stockholders of the Company in the United States District Court for the District of Delaware, the United Stated District Court for the Eastern District of Pennsylvania, and the United States District Court for the Eastern District of New York, captioned, respectively, Wilhelm v. Vidler Water Resources, Inc., et al, No. 1:22-cv-00631 (“Wilhelm”), Waterman v. Vidler Water Resources, Inc., et al, No. 2:22-cv-01854 (“Waterman”), and Whitfield v. Vidler Water Resources, Inc., et al, No. 1:22-cv-02788 (“Whitfield”). On May 13, 2022, one additional case was filed by a purported individual stockholder of the Company in the United States District Court for the Southern District of New York, captioned Taylor v. Vidler Water Resources, Inc., at al, No. 1:22-cv-03909 (“Taylor”). The Stein, Casey, Rabinovich, Koh, Wilhelm, Waterman, Whitfield, Taylor, and any similar subsequently filed cases involving the Company, the Company’s board of directors or any committee thereof, and/or any of the Company’s directors or officers relating directly or indirectly to the Merger Agreement, the Transaction, or any related transaction, are referred to as the “Transaction Litigations.”

The Transaction Litigations filed to date generally allege that the Solicitation/Recommendation Statement on Schedule 14D-9 (the “Schedule 14D-9”) filed by the Company with the SEC on April 27, 2022, in connection with the Transaction is materially incomplete and misleading by allegedly failing to disclose purportedly material information relating to the sale process leading to the Transaction, the Company’s financial projections, and the analyses performed by Duff & Phelps Opinion Practice, Kroll LLC in connection with the Transaction. The Transaction Litigations assert violations of Section 14(e), Section

6

14(d), and Section 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14d-9 promulgated thereunder. The Transaction Litigations seek, among other things: an injunction enjoining consummation of the Transaction, rescission of the Merger Agreement, dissemination of a revised Schedule 14D-9, damages, a declaration that the Company and the board of directors violated Sections 14(e), 14(d), and 20(a) of the Exchange Act and Rule 14d-9 promulgated thereunder, costs of the action, including plaintiff’s attorneys’ fees and experts’ fees and expenses, and any other relief the court may deem just and proper.

In addition, on May 2, 2022 and May 10, 2022, the Company received demand letters from purported stockholders of the Company alleging that the Schedule 14D-9 omits purportedly material information relating to the Transaction (the “Demand Letters”).

The Company cannot predict the outcome of the Transaction Litigations or the Demand Letters, nor can the Company predict the amount of time and expense that will be required to resolve each. The Company believes that the Transaction Litigations and Demand Letters are without merit and intends to vigorously defend against each, and any subsequently filed similar actions.

The Company is also subject to various litigation matters that arise in the ordinary course of its business. Because litigation is inherently unpredictable and unfavorable results could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated, or unrelated to possible outcomes, and as such, are not meaningful indicators of the potential liability. The Company regularly reviews contingencies to determine the adequacy of accruals and related disclosures. The amount of ultimate loss may differ from these estimates, and it is possible that the financial statements could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.

Whether any losses finally determined in any claim, action, investigation, or proceeding could reasonably have a material effect on the Company’s business, financial condition, results of operations, or cash flows will depend on a number of variables, including: the timing and amount of such losses; the structure and type of any remedies; the significance of the impact any such losses, damages or remedies may have on the Company’s condensed consolidated financial statements; and the unique facts and circumstances of the particular matter that may give rise to additional factors.

5. Subsequent Events

Kane Springs

On April 19, 2022, Clark County District Judge Bita Yeager issued her Decision in the Eighth Judicial District Court Consolidated Case No. A-20-816761-C which granted the petition for judicial review of the Nevada State Engineer’s Order 1309 filed by Petitioners, Lincoln County Water District and Vidler’s wholly-owned subsidiary, Vidler Water Company, Inc. The Court also granted similar petitions by Coyote Springs Investments, LLC as well as other Petitioners impacted by the State Engineer’s actions.

The Court ordered that State Engineer’s Order 1309 be vacated in its entirety because the Nevada State Engineer exceeded his statutory authority in creating a “Super Basin” out of multiple distinct and already established hydrographic basins.

Merger Agreement

On April 13, 2022, the Company, D.R. Horton, Inc., a Delaware corporation (“Parent”), and Potable Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Purchaser”), entered into an Agreement and Plan of Merger (the “Merger Agreement”).

Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Parent agreed to cause Purchaser to commence a tender offer (the “Offer”) to purchase all of the outstanding shares of common stock of the Company, par value $0.001 per share (the “Shares” and each, a “Share”), at an offer price of $15.75 per Share, less any applicable withholding taxes and without interest (the “Offer Price”). 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 (the “Merger” and, together with the Offer, the “Transactions”) pursuant to Section 251(h) of the General Corporation Law of the State of

7

Delaware (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 defined in the Merger Agreement), will be converted into the right to receive the Offer Price, less any applicable withholding taxes and without interest (the “Merger Consideration”). Purchaser commenced the Offer on April 27, 2022, with a scheduled expiration time of one minute following 11:59 pm Eastern Time on May 24, 2022, unless the offer is extended or terminated.

The board of directors of the Company (the “Company Board”) has unanimously (i) approved, adopted and declared advisable the Merger Agreement and the Transactions, (ii) determined that the Transactions are in the best interest of the Company and its stockholders, (iii) resolved that the Merger shall be governed by and effected under Section 251(h) of the DGCL and (iv) resolved to recommend that the stockholders of the Company accept the Offer and tender their Shares to Purchaser pursuant to the Offer.

The Merger Agreement provides that each option to acquire Shares (each a “Company Option”) that is outstanding and exercisable immediately prior to the Effective Time (as defined in the Merger Agreement) shall be cancelled and converted into the right to receive from Parent an amount of cash, without interest, equal to the product of: (a) the aggregate number of Shares subject to such Company Option, multiplied by (b) the excess, if any, of the Merger Consideration over the per share exercise price under such Company Option, less any taxes required to be withheld. If the per share exercise price under any Company Option is equal to or greater than the Merger Consideration or if any Company Option is not exercisable immediately prior to the Effective Time, such Company Option shall be cancelled as of the Effective Time without payment and shall have no further force or effect.

The Merger Agreement also provides that each restricted stock unit award issued by the Company (each a “Company RSU”) that is outstanding immediately prior to the Effective Time will vest in full and become free of restrictions and shall be cancelled and converted automatically into the right to receive from Parent an amount in cash, without interest, equal to the Merger Consideration less any taxes required to be withheld.

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 ended December 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 of the 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 ended December 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 the United 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 the SEC.

Business Strategy and Goals

Vidler Water Resources, Inc. is a holding company. In this Quarterly Report, Vidler and its subsidiaries are collectively referred to as “Vidler,” “the Company,” or by words such as “we” and “our.”

Our business is to source, develop and provide sustainable potable water resources to fast-growing communities throughout the Southwest U.S. that lack, or are running short of, available water resources.

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 of March 31, 2022, our major consolidated subsidiary was Vidler Water Company, Inc. a water resource and water storage business with assets and operations primarily in the Southwestern United States, including Nevada, Arizona, Colorado, and New 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.

On April 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 on April 27, 2022, with a scheduled expiration time of one minute following 11:59 pm Eastern Time on May 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	$	(1,094)
Shareholders’ equity per share	$	11.34	$	11.39	$	(0.05)

The decrease in our shareholders’ equity during the three months ended March 31, 2022, was due primarily to the net loss of $1.5 million.

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)	$	714	$	(2,245)

Revenue and other income (loss)

The majority of our revenue recorded for the three months ended March 31, 2022 was from the sale of 16.7 acre-feet of water rights at Fish Springs Ranch, for total proceeds of $713,000.

Project and general and administrative expenses for the three months ended March 31, 2022 included approximately $100,000 of non–applicable option payments (not applicable to the purchase price) for water rights purchases in Lyon County, Nevada (three months ended March 31, 2021, $75,000) and legal fees and other expenses incurred of approximately $614,000 (three months ended March 31, 2021, $145,000) the majority of which was incurred in connection with the definitive merger agreement dated April 13, 2022 between the Company and D.R. Horton Inc. (see note 5 ‘Subsequent Events’).

Income Taxes

Based on the analysis conducted at December 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 ended March 31, 2022 and March 31, 2021 the Company has recorded a tax provision of $0 and $182,000 respectively.

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Liquidity and Capital Resources — Three Months Ended March 31, 2022 and 2021

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 at March 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 the U.S. as a result of the COVID-19 pandemic. If an economic contraction in the U.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 April 13, 2022 our stock repurchase program has been terminated.

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 March 31, 2022, and March 31, 2021.

Cash Flows From Financing Activities

We used $129,000 and $986,000 in cash to repurchase 10,900 and 107,000 shares of our common stock during the three months ended March 31, 2022 and 2021, respectively.

Off-Balance Sheet Arrangements

As of March 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.

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Item 4: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of, and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Although we believe our disclosure controls and procedures and internal control over financial reporting are effective, management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all errors, misstatements, or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide definitive assurance that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II: Other Information

Item 1: Legal Proceedings

The Company is from time to time involved in various claims, legal proceedings and complaints arising in the ordinary course of business. Please refer to Note 4 — Commitments and Contingencies to the condensed consolidated financial statements contained in this report for certain information regarding our legal proceedings.

Item 1A: Risk Factors

The following information sets out factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report on Form 10-Q and those we may make from time to time. Investors evaluating our business and prospects should carefully consider the following risks, together with other matters described in this Quarterly Report on Form 10-Q or incorporated herein by reference. If any of the following risks occur, our business, financial condition or operating results could be harmed. In such case, the trading price of our securities could decline, in some cases significantly.

1.Risks Relating to the Pending Transaction with Purchaser

We may not complete the pending transaction with Parent within the time frame we anticipate, or at all, which could have an adverse effect on our business, financial results and/or operations.

On April 13, 2022, we entered into the Merger Agreement with Parent and Purchaser. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, on April 27, 2022, Purchaser commenced a cash tender offer, or the tender offer, to acquire all of the issued and outstanding shares of our common stock at a price per share of $15.75, in cash, subject to any applicable withholding taxes and without interest. Following the successful closing of the tender offer, and subject to the terms and conditions of the Merger Agreement, Purchaser will merge with and into our company, with our company surviving as a wholly owned subsidiary of Parent, and each issued and outstanding share of our common stock (other than shares of common stock held by us or our direct or indirect subsidiaries (including shares held in treasury), shares held by Parent, Purchaser or any of Parent’s other direct or indirect wholly owned subsidiaries, shares validly tendered and irrevocably accepted for payment by Purchaser in the tender offer and shares held by stockholders who are entitled to demand, and who properly demand, appraisal rights under Delaware law) will be converted into the right to receive $15.75 per share in cash, without interest and subject to any required tax withholding.

The completion of the transaction is conditioned on the satisfaction or waiver, to the extent permitted under applicable legal requirements, of customary conditions, including (i) there being validly tendered and not properly withdrawn Shares that, considered together with all other Shares (if any) beneficially owned by Parent and Purchaser, represent one more Share than

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50% of the total number of the then-issued and outstanding Shares at the expiration of the offer (the “Minimum Condition”), (ii) the accuracy of the Company’s representations and warranties (subject to customary materiality and “material adverse effect” thresholds), (iii) the Company’s compliance or performance in all material respects of the obligations, covenants and agreements it is required to comply with or perform at or prior to the expiration of the Offer, (iv) the absence, since the date of the Merger Agreement, of a Company Material Adverse Effect (as defined in the Merger Agreement) that is continuing as of the time of the Purchaser accepts Shares for purchase pursuant to the Offer, (v) the expiration or termination of the waiting period (or any extension thereof) applicable to the Transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (vi) the absence of any law or order prohibiting the consummation of the Offer or the Merger, and (vii) the Merger Agreement not having been terminated in accordance with its terms.. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a change in the recommendation of our Board of Directors or a termination of the Merger Agreement by us to enter into an agreement for a Superior Offer (as defined in the Merger Agreement). As a result, we cannot assure you that the transaction with Parent will be completed, or that, if completed, it will be exactly on the terms set forth in the Merger Agreement or within the expected time frame.

If the transaction is not completed within the expected time frame or at all, we may be subject to a number of material risks. The price of our common stock may decline to the extent that current market prices reflect a market assumption that the transaction will be completed. We could be required to pay Parent a termination fee of approximately $10.9 million if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement. The failure to complete the transaction also may result in negative publicity and negatively affect our relationship with our stockholders, employees, collaborators, customers, vendors, regulators and other third parties. We may also be required to devote significant time and resources to litigation relating to the Merger Agreement, including the Offer, the Merger, and other transactions contemplated thereby, including claims raised by stockholders challenging the proposed transactions, or claims relating to any failure to complete the merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement.

The announcement and pendency of the transaction with Parent could adversely affect our business, financial results and/or operations.

Our efforts to complete the transaction could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the transaction will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the transaction is pending because employees may experience uncertainty about their roles following the transaction. A substantial amount of our management’s and employees’ attention is being directed toward the completion of the transaction and thus is being diverted from our day-to-day operations. Uncertainty as to our future could adversely affect our business and our relationship with collaborators, vendors, customers, regulators and other business partners. For example, vendors, collaborators and other counterparties may defer decisions concerning working with us, or seek to change existing business relationships with us. Changes to or termination of existing business relationships could adversely affect our results of operations and financial condition, as well as the market price of our common stock. The adverse effects of the pendency of the transaction could be exacerbated by any delays in completion of the transaction or termination of the Merger Agreement.

While the Merger Agreement is in effect, we are subject to restrictions on our business activities.

While the Merger Agreement is in effect, we are subject to restrictions on our business activities, generally requiring us to conduct our business in the ordinary course, consistent with past practice, and subjecting us to a variety of specified limitations absent Parent’s prior consent. These limitations include, among other things, restrictions on our ability to acquire other businesses and assets, dispose of our assets, make investments, enter into certain contracts, repurchase or issue securities, hire or terminate employees (other than for cause), pay dividends, make capital expenditures, take certain actions relating to intellectual property, amend our organizational documents and incur indebtedness. These restrictions could prevent us from pursuing strategic business opportunities, taking actions with respect to our business that we may consider advantageous and responding effectively and/or timely to competitive pressures and industry developments, and may as a result materially and adversely affect our business, results of operations and financial condition.

In certain instances, the Merger Agreement requires us to pay a termination fee to Parent, which could require us to use available cash that would have otherwise been available for general corporate purposes.

Under the terms of the Merger Agreement, we may be required to pay Parent a termination fee of approximately $10.9 million if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement. If the Merger Agreement is terminated under such circumstances, the termination fee we may be required to pay under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes and other uses.

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For these and other reasons, termination of the Merger Agreement could materially and adversely affect our business operations and financial condition, which in turn would materially and adversely affect the price of our common stock.

We have incurred, and will continue to incur, direct and indirect costs as a result of the pending transaction with Parent.

We have incurred, and will continue to incur, significant costs and expenses, including fees for professional services and other transaction costs, in connection with the pending transaction. We must pay substantially all of these costs and expenses whether or not the transaction is completed. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses.

2.    Asset and Market Concentration Risk

Our water resource and water storage operations are concentrated in a limited number of assets and markets, making the success of our operations highly dependent on the conditions and fluctuations of the local economies where those operations and assets are located.

We anticipate that a significant amount of our water resource and water storage revenue, results of operations, and cash flows will result from a limited number of assets that primarily consist of our water rights in Nevada and our water storage operations in Arizona. Our two most significant assets are our water credits to serve the North Valleys area of Reno, Nevada, and our water storage operations in Arizona. As a result of this geographic concentration, we expect the ultimate return on our invested capital, results of operations, and cash flows will be closely associated with the conditions and fluctuations of the local economies, including any changes in local and regional government land use, zoning, permitting approvals, and other regulatory actions in these regions. Any economic downturn, or additional permitting, zoning or planning regulatory requirements in these markets, would adversely impact our results of operations, cash flows, and our financial condition. Any prolonged weak demand or lack of permitting approvals for new homes and residential and commercial development would adversely affect our assets in Nevada and Arizona and would have a material adverse effect on our future revenues, results of operations, cash flows, and the return on our investment from those assets.

Our Fish Springs Ranch project to sell water credits to the North Valleys area of Reno, Nevada could adversely affect our results of operations, if we are unable to sell water credits.

We constructed a pipeline approximately 35 miles long to deliver water from Fish Springs Ranch to the North Valleys area of Reno, Nevada. As of March 31, 2022, the total cost of the pipeline project, including our water credits (net of impairment losses incurred to date), carried on our balance sheet was approximately $80.7 million. To date, we have sold only a small amount of the water credits, and we cannot provide any assurance that the sales prices we may obtain in the future will provide an adequate economic return, if at all. Demand for these water credits is anticipated to come primarily from both local and national developers planning to construct new projects in the North Valleys area of Reno, Nevada. The success of these projects is dependent on numerous factors beyond our control, including local government approvals, employment growth in the greater Reno area, and the ability of the developers to finance these projects.

Our inability to sell all or part of our Arizona Long-Term Storage Credits could adversely affect our profitability.

Our Arizona Recharge Facility is one of the few private sector water storage sites in Arizona. At March 31, 2022, we had approximately 195,682 acre-feet of Long Term Storage Credits stored at the facility. In addition, at December 31, 2021, we had approximately 27,397 acre-feet of Long Term Storage Credits stored in the Phoenix Active Management Area. We have not stored any water on behalf of any customers and, as of March 31, 2022, we had sold 55,000 acre-feet of Long Term Storage credits to a single large customer in late 2021. However, we can not be certain that we will ultimately be able to sell the remaining stored water at a price sufficient to provide an adequate economic return, if at all.

The fair values of our water assets are linked to the rate of growth in the local markets in which our assets are concentrated; we may be unable to realize the value of our water assets in our projected time frame, and the value of those assets may be affected by broader economic issues.

Both the demand for, and fair value of, our water assets are significantly affected by the growth in population and the general state of the local economies where our real estate and water assets are located. The local economies where our real

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estate and water assets are located, primarily in Arizona and northern Nevada, but also in southern Nevada, Colorado, and New Mexico. One or more of these economies may be adversely affected by factors such as the local level of employment, the availability and cost of financing for real estate development, and the affordability of housing. The unemployment rate in these states, as well as credit market conditions, may result in a slowdown of the local economies where our real estate and water assets are located. These developments, if they occur, could materially and adversely affect the demand for, and the fair value of, our real estate and water assets and, consequently, adversely affect our growth and revenues, results of operations, cash flows, and the return on our investment from these assets.

3.    Business, Operational and Financial Risks

Our future revenue is uncertain and depends on a number of factors that may make our revenue, profitability, cash flows, and the fair value of our assets volatile.

Our future revenue and profitability of our water resource and water storage operations will primarily depend on our ability to develop and sell or lease our water assets. Because our water resource and water storage operations represent almost the entirety of our business at present, our long-term profitability and the fair value of the assets related to our water resource and water storage operations could be adversely affected by various factors that may affect our assets, including drought in the southwest, regulatory approvals and permits associated with those assets, transportation arrangements, and changing technology. We may also encounter unforeseen technical or other difficulties which could result in cost increases for our water resource and water storage development projects. Moreover, our profitability, and the fair value of our water resource assets and water storage operations, are significantly affected by changes in the market price of water. Future sales and prices of water may fluctuate widely, as demand is affected by climatic, economic, demographic, and technological factors, as well as the relative strength of the residential, commercial, financial, and industrial real estate markets in the areas where our water assets are located. Additionally, to the extent that we hold junior or conditional water rights, during extreme climatic conditions, such as periods of low river flow or drought, our water rights could be subordinated to superior water rights holders. The factors described above are not within our control. One or more of the above factors could negatively affect our revenue and profitability, our financial condition and cash flows, cause our results of operations to be volatile, and could adversely affect our rate of return on our water assets and cause us to divest such assets for less than our intended return on our investment.

The novel coronavirus, or COVID-19, pandemic, or an outbreak of another highly infectious or contagious disease, could adversely affect our business, financial condition, results of operations, and cash flow.

We believe that the economic downturn resulting from the COVID-19 pandemic has adversely affected the pace of residential and commercial real estate development in the regions in which our assets are located. Any downturn in residential and commercial real estate development in our markets is likely to adversely affect the demand for, and value of, our water resources and real estate assets, and our ability to sell these assets. The length and effect of any economic downturn is uncertain, but a prolonged downturn could adversely affect our liquidity, and could limit or entirely curtail the repurchase of our stock. We have observed that governmental precautions taken in response to the COVID-19 pandemic have delayed the permitting process for real estate development and housing permits, potentially delaying our ability to monetize our water assets, particularly in the Reno, Nevada, area. A prolonged recession or market correction resulting from the COVID-19 pandemic or another highly infectious disease (the results of its aftermath) could materially and adversely affect our business and value of our common stock. We do not yet know the full extent of potential delays or impacts on our business or the global economy that may result from the COVID-19 pandemic, but we intend to continue to monitor the situation as more information becomes available.

The fair values of our water assets may decrease, which could adversely affect our results of operations with losses from asset impairments. The timing and amount of our water asset sales will affect the value and return we are able to attain on our assets.

The fair value of our water resource and water storage assets depends on market conditions. We have acquired water resources and land for expansion into new markets and for replacement of inventory and expansion within our current markets. The valuation of real estate and water assets is inherently subjective, based on the individual characteristics of each asset and the demand for that asset. Factors such as changes in regulatory requirements and applicable laws, political conditions, the condition of financial markets, local and national economic conditions, change in efficiencies of water use, the financial condition of customers, potentially adverse tax consequences, and interest and inflation rate fluctuations subject our asset valuations to uncertainties. In addition, our valuations are made on the basis of assumptions that may not prove to reflect economic or demographic reality. If population growth and, as a result, water and/or housing demand in our markets, fails to meet our expectations when we acquired our real estate and water assets, our profitability may be adversely affected, and we

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may be unable to recover our costs when we sell our real estate and water assets. We regularly review the value of our water assets. These reviews have resulted in recording significant impairment losses in prior years to our water resource assets. Such impairments have adversely affected our results of operations and our financial condition in those years.

If future market conditions, including, without limitation, delays or slowdowns resulting from the COVID-19 pandemic, delays and/or increased prices resulting from labor and supply shortages, and increased prices resulting from such shortages adversely affect the anticipated timing and the volume of sales of our water assets, we may be required to record further significant impairments to the carrying value of our water assets, which would adversely affect our results of operations and our financial condition.

If our assets decline in value, our financial condition and the return on our investment could suffer and our ability to make future dispositions of assets may be limited.

Historically, we have acquired and invested in businesses and assets that we believed were undervalued or that would benefit from additional capital, restructuring of operations, strategic initiatives, or operational efficiencies. If any previously acquired business, investment or asset fails or its fair value declines, we could experience a material adverse effect on our business, financial condition, the results of operations, and cash flows. If we are not successful in managing our previous acquisitions and investments, our business, financial condition, results of operations and cash flows could be materially and adversely affected. Such business failures, declines in the fair value of our assets, and/or failure to manage acquisitions or investments, could result in a negative return on equity. We could also lose part or all of our capital in these businesses and experience reductions in our net income, cash flows, assets and equity.

Future dispositions of our businesses, assets, operations, and investments, if unsuccessful, could reduce the value of our common stock. Any future asset dispositions may result in significant changes in the composition of our assets and liabilities. Consequently, our financial condition, results of operations and the trading price of our common stock may be affected by factors different from those historically affecting our financial condition, results of operations, and trading price at the present time.

Our plan to monetize assets and return capital to our shareholders may lead to a permanent reduction in our market capitalization and adversely affect the trading volume and liquidity for our stock.

Our current business plan is to monetize our assets and return capital to our shareholders through a stock repurchase program or by other means such as special dividends. As of April 13, 2022 we have terminated our stock repurchase program. However as of March 31, 2022, we had used $51.3 million to repurchase approximately 4.9 million of our common shares. As we continue to monetize assets, it is possible that our market capitalization will permanently decline, which could adversely affect the trading volume and liquidity for our stock.

We may need additional capital in the future to fund our business and financing may not be available on favorable terms, if at all, or without dilution to our shareholders.

We currently anticipate that our available capital resources and operating cash flows will be sufficient to meet our expected working capital and capital expenditure requirements for at least the next 12 months. However, we provide no assurances that our resources will be sufficient to fund our business over longer periods. We may be required to raise additional funds through public or private debt, equity, warrants or hybrid securities financings, including, without limitation, the issuance of securities.

We may experience difficulty in raising necessary capital in view of the recent volatility in the capital markets and increases in the cost of finance, especially for a small capitalization company like ours. Increasingly stringent rating standards could make it more difficult for us to obtain financing. If we raise additional funds through the issuance of equity, warrants or convertible or other debt securities, the ownership of our shareholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing shareholders. Indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. The additional financing we may need may not be available to us, or available on favorable terms. If adequate funds are not available or are not available on acceptable terms, if and when needed, our ability to fund our operations or otherwise execute our business and operating plan would be significantly limited. In any such case, our business, operating results, or financial condition could be materially adversely affected.

Purchasers of our real estate and water assets may default on their obligations to us and adversely affect our results of operations and cash flow.

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In certain circumstances, we finance our sales of real estate and water assets, and we secure that financing through deeds of trust on the property, that are only released when we have been fully paid. Purchasers of our real estate and water assets may default on their financing obligations. Any defaults may result in enforcement expense and have an adverse effect on our business, financial condition, and the results of operations and cash flows.

4.    Legal and Regulatory Risks

We may not receive all of the permitted water rights we expect from the water rights applications we have filed in Nevada.

We have filed water rights applications in Nevada. The filings are primarily as part of the water teaming agreement with Lincoln County. We deploy the capital required to enable the filed applications to be converted into permitted water rights over time as and when we deem appropriate, or as otherwise required. We expend capital in those areas where our initial investigations lead us to believe that we can obtain a sufficient volume of water to provide an adequate economic return on the capital invested in the project. These capital expenditures largely consist of drilling and engineering costs for water production, costs of monitoring wells, legal and consulting costs for hearings with the relevant State Engineer, and other compliance costs. Until the Nevada State Engineer, or other authority in the relevant state, permits the water rights we are applying for, we cannot provide any assurance that we will be awarded all of the water that we expect based on the results of our drilling and our legal position, and it may be a considerable period of time before we are able to ascertain the final volume of water rights, if any, that will be permitted by the Nevada State Engineer or other relevant authority. Any significant reduction in the volume of water awarded to us from our original base expectation of the amount of water that could be permitted may result in the write down of capitalized costs that could adversely affect the return on our investment from those assets, our revenues, results of operations, and cash flows.

Variances in physical availability of water, along with environmental and legal restrictions and legal impediments, could adversely affect profitability.

We value our water assets, in part, based upon the volume (as measured in acre-feet) of water we anticipate from water rights applications and our permitted water rights. Our water and water rights, and the transferability of these rights to other uses, persons, and places of use, are governed by the laws concerning water rights in the states of Arizona, Colorado, Nevada, and New Mexico. The volumes of water actually derived from the water rights applications or permitted rights may vary considerably based upon physical availability and may be further limited by applicable legal restrictions, including, with limitation, restrictions on transfer of water rights.

As a result, the volume of water anticipated from the water rights applications or permitted rights may not in every case represent a reliable, firm annual yield of water, but in some cases describe the face amount of the water right claims or management’s best estimate of such entitlement. Additionally, we may face legal restrictions on the sale or transfer of some of our water assets, which may adversely affect their commercial value. If the volume of water yielded from our water rights applications is less than our expectations, or we are unable to transfer or sell our water assets, we may be unable to achieve some or all of our anticipated returns, which may adversely affect our revenues, profitability, and cash flows.

Our sale of water assets may be subject to environmental regulations which would adversely affect revenues, profitability, and cash flows.

The quality of the water assets we lease or sell may be subject to regulation by the United States Environmental Protection Agency, acting pursuant to the United States Safe Drinking Water Act, and with other federal, state and local regulations. While environmental regulations may not directly affect us, regulations regarding the quality of water distributed affect our intended customers and may, therefore, depending on the quality of our water, affect the price and terms upon which we may in the future sell our water assets. If we need to reduce the price of our water assets in order to make sales to our intended customers, our balance sheet, return on investment, results of operations, and financial condition could suffer.

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Our water assets may be adversely affected by legal and political opposition in certain locations.

The water assets we hold, and the transferability of these assets and rights to other uses, persons, or places of use, are governed by the laws and regulations concerning water rights in the states of Arizona, Nevada, Colorado and New Mexico, and may be directly or indirectly affected by other federal, state and local laws and regulations related to water and land use. Our development and sale of water assets is subject to the risks of delay associated with receiving all necessary regulatory approvals and permits, or the refusal to issue regulatory approvals or permits, and possible litigation. Additionally, the transfer of water resources from one use to another may affect the economic base or impact other community issues, including development, and will, in some instances, be met with local opposition. Moreover, municipalities who may regulate the use of water we sell to them in order to manage growth could also impose additional requirements that we must satisfy to sell our water assets.

If we are unable to effectively transfer, sell, and convey water resources, our ability to monetize those assets will suffer, and our return on investment, revenues and financial condition would decline.

Our water rights are subject to challenge in judicial and administrative proceedings. Adverse outcomes may change our water rights priorities or require that we impair the value of our assets.

In all of the states in which we have operations, water rights are subject to a high degree of regulation. As a result, water rights that we have may be subject to challenge in judicial or administrative proceedings, or we may be required to bring such proceedings to protect our rights. These proceedings can adversely affect the priority of our water rights claims or the right to sell or transfer those rights, among many other things. Legal and administrative challenges to our water rights claims, or our initiation of proceeding to defend our claims, may be expensive, and adverse determinations may impair the value of our investment and adversely affect our ability to monetize our investment.

Our ability to utilize net operating loss carryforwards and certain other tax attributes may be limited.

Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), if we undergo an “ownership change” (generally defined as a greater than fifty-percent (50%) change in the percentage of stock owned by one or more five percent (5%) or more shareholders (measured by the relative fair market value of that shareholder’s stock compared to the total value of all outstanding stock, excluding changes in ownership attributable to fluctuations in value between different classes of stock)) as of the testing date, measured over a three year period, or a period beginning with any previous testing date, whichever is shorter, the ability to use our pre-change net operating loss carryforwards (“NOLs”) and other pre-change tax attributes to offset our post-change income may be limited. The Company’s previous plan to protect NOLs from loss due to ownership changes expired on July 24, 2020. Our Board of Directors adopted a new tax benefit preservation plan dated July 24, 2020, which was ratified by our shareholders at our 2021 annual meeting. The Company could experience ownership changes in the future as a result of shifts in our stock ownership. If the new tax benefit preservation plan were triggered by a change in ownership, acquiring shareholders and certain other shareholders could experience substantial dilution. Furthermore, Section 382 (and other tax code and regulatory provisions relating to NOLs) has recently been subject to proposed regulations by the Treasury Department and Internal Revenue Service which, if finalized in their current form, may have the effect of further reducing the value of NOLs, in certain circumstances, of a corporation that undergoes an ownership change. As of December 31, 2021, we had federal and state net operating loss carryforwards of approximately $139.7 million and $125.9 million, respectively, which, depending on ownership changes, could be limited by Section 382 of the Code.

5.    General Economic Risks

General economic conditions could have a material adverse effect on our financial results, financial condition, and the demand for and the fair value of our assets.

Our operations are sensitive to the general economic conditions in the local markets in which our assets are located. International, national, and regional economic conditions may also affect our markets. General weak economic conditions and either slow or nonexistent rates of growth in the markets in which we operate could have a material adverse effect on the demand for and value of our water assets. Weak economic conditions include higher unemployment, inflation, deflation, decreases in consumer demand, changes in buying patterns, a weakened dollar, higher consumer debt levels, higher interest rates, especially higher mortgage rates, higher tax rates, and other changes in tax laws or other economic factors that may affect commercial and residential real estate development.

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Our business could be negatively affected if the recent supply chain and inflation rates persist.

In the last 15 months, the United States economy has experienced a relatively high rate of inflation that, along with supply chain disruptions, has increased, among other things, the cost of transportation and of commercial and residential construction. Increases in home and commercial construction costs may reduce demand for commercial and residential space and, as a result, may adversely affect the demand for our water resources that are sold or leased to support new commercial and residential development.

The performance of real estate markets in the short and long-term and the state of the economy, nationally and locally where our assets are concentrated, could affect the value of our existing water assets; a decline in the market could adversely affect the value of our water assets or cause us to retain these assets longer than we initially expected, which would negatively affect our rate of return on our water assets, cause us to divest such assets for less than our targeted return on investment, or cause us to impair the book values of such assets to estimated fair value.

A downturn in the homebuilding and land development sectors in our markets would materially adversely affect our business, results of operations, and the demand for and the fair value of our assets.

The homebuilding industry experienced a significant and sustained downturn in past years, resulting from factors that include, but are not limited to, weak general economic and employment growth, limited access to capital, a lack of consumer confidence, large supplies of resale and foreclosed homes, a significant number of homeowners whose mortgage loan balances exceeded the market value of their homes, and tight lending standards for mortgage loans that limited consumers’ ability to qualify for mortgage financing to purchase a home. These factors resulted in an industry-wide weakness in demand for new homes and caused a material adverse effect on the growth of the local economies and the homebuilding industry in the southwestern United States (“U.S.”) markets, where all of our water assets are located, including the states of Nevada, Arizona, Colorado, and New Mexico.

The continued improvement in residential and commercial real estate development activity is essential to our ability to generate revenue and operating income in our water resource and water storage business. We are unable to predict whether and to what extent this improvement will continue. Any future slow-down in real estate and homebuilding activity could adversely affect development projects within the markets in which our water assets are located, and could adversely affect the demand for and the fair value of our assets and our ability to monetize them. Declines and weak conditions in the U.S. housing market in prior years have reduced our revenues and created losses in our water resource and water storage, and land development and homebuilding businesses and could do so in the future. Additionally, the recent tax law changes limiting, among other things, deductibility of mortgage interest and of state and local income taxes may have a negative effect on the national housing market and in the markets in which we operate, although the Nevada market may be less affected due to the lack of a state income tax.

Constricted National and Local Labor Markets and Product Supply Chains May Adversely Affect the Demand for our Assets and Our Ability to Sell Our Assets Timely.

As the COVID-19 pandemic has begun to subside, many national and local labor markets and product supply chains are constrained, resulting in substantial price increases for labor and materials, including the cost of constructing residential and commercial projects. Price increases in the cost of finished products to account for more expensive inputs may result in lower demand for residential and commercial projects, as potential purchasers are priced out of markets, affecting the demand for our water assets that are necessary to support these projects, or may slow the rate at which such projects come onto the market. Product shortages may result in delays in commencing and bringing projects to market and may affect the size of projects that are undertaken. It is unclear how long these conditions may persist, or what the ultimate effect of these developments may have on the Company’s ability to execute its business plan to monetize our water assets.

6.    Other General Risks

Our business could be negatively impacted by cyber security threats.

In the ordinary course of our business, we use our data centers and our networks to store and access our proprietary business information. We face various cyber security threats, including without limitation, cyber security attacks to our information technology infrastructure and attempts by others to gain access to our proprietary or sensitive information. The procedures and controls we use to monitor these threats and mitigate our exposure may not be sufficient to prevent cyber security incidents. The result of these incidents could include disrupted operations, lost opportunities, misstated financial data, liability for stolen assets or information, increased costs arising from the implementation of additional security protective

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measures, litigation and reputational damage. Any remedial costs or other liabilities related to cyber security incidents may not be fully insured or indemnified by other means, and our payment of these costs could adversely affect the results of our operations.

Fluctuations in the market price of our common stock may affect your ability to sell your shares.

The trading price of our common stock has historically been, and we expect will continue to be, subject to fluctuations. The market price of our common stock may be significantly affected by:

•quarterly variations in financial performance and condition of our business;

•shortfalls in revenue or earnings from estimates forecast by securities analysts or others;

•changes in estimates by such analysts;

•the ability to monetize our water assets for an adequate economic return, including the length of time any such monetization may take;

•our competitors’ announcements of extraordinary events such as acquisitions;

•litigation;

•general economic conditions and other matters described herein;

•the number of analysts who follow our stock and their understanding of our business; and

•the volume of trading in our stock.

Our results of operations have been subject to significant fluctuations, particularly on a quarterly basis, and our future results of operations could fluctuate significantly from quarter to quarter and from year to year. Causes of such fluctuations may include one time transactions and impairment losses. The price of our stock may be negatively affected by irregular cash flows due to the timing and variances in the amount of our assets sold or leased. Statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to the markets in which we do business or relating to us specifically could result in an immediate and adverse effect on the market price of our common stock. Fluctuations in the market price of our common stock could affect the value of your investment and your ability to sell your shares.

Litigation may harm our business or otherwise distract our management.

Substantial, complex or extended litigation could cause us to incur large expenditures and distract our management. For example, lawsuits by employees, shareholders or customers could be very costly and substantially disrupt our business. Additionally, from time to time we or our subsidiaries will have disputes with companies, governmental and tribal entities, special interest groups, or individuals which may result in litigation that could necessitate our management’s attention and require us to expend our resources. We may be unable to accurately assess our level of exposure to specific litigation, and we cannot provide any assurance that we will always be able to resolve such disputes out of court or on terms favorable to us. We may be forced to resolve litigation in a manner not favorable to us, and such resolution could have a material adverse impact on our consolidated financial condition or results of operations.

We may not be able to retain key management personnel we need to succeed, which could adversely affect our ability to successfully operate our businesses.

To run our day-to-day operations and to successfully manage our businesses we must, among other things, continue to retain key management. We rely on the services of a small team of key executive officers. If any key executive departs, it could have a significant adverse effect upon our business. Also, increased competition for skilled management and staff employees in our businesses could cause us to experience significant increases in operating costs and reduced profitability.

We may suffer uninsured losses or suffer material losses in excess of insurance limits.

We could suffer physical damage to our assets and the losses resulting from any damage may not be fully recoverable by insurance. In addition, certain types of risks, such as personal injury claims or other tortious conduct, may be, or may become in the future, either uninsurable or uneconomical to insure, or may not be currently, or in the future, covered by our insurance or subject to significant deductibles or limits. If an uninsured loss, or a loss in excess of insured limits, occurs or is subject to a large deductible, we could sustain financial loss or lose capital invested in the affected asset(s), as well as anticipated future income from that asset. In addition, we could be liable to repair damage or meet liabilities caused by risks that are uninsured or subject to deductibles.

We have been the subject of shareholder activism efforts that could cause a material disruption to our business.

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In the past, certain investors took steps to involve themselves in the governance and strategic direction of our Company due to governance and strategic-related disagreements with us. While we have formally settled with certain of those activists, other investors could take steps to involve themselves in the governance and strategic direction of our Company. Such shareholder activism efforts could result in substantial costs and diversion of management’s attention and resources, harming our business and adversely affecting the market price of our common stock.

Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us more complicated and the removal and replacement of our directors and management more difficult.

Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions may also make it difficult for stockholders to remove and replace our board of directors and management. For example, these provisions limit who may call a special meeting of stockholders and establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings. In addition, on July 24, 2020, our board of directors adopted a tax benefits preservation plan designed to preserve our ability to utilize our NOLs as a result of certain stock ownership changes, which may have the effect of discouraging transactions involving an actual or potential change in our ownership.

Analysts and investors may not be able to evaluate us adequately, which may negatively influence the price of our stock.

We own assets that are unique, complex in nature, and difficult to understand. In particular, our water resource business is a developing industry in the United States with very little historical and comparable data, complex valuation issues, and a limited following of analysts. Because our assets are unique, analysts and investors may be unable to adequately evaluate our operations and enterprise as a going concern. This could cause analysts and investors to make inaccurate evaluations of our stock, or to overlook the Company in general. As a result, the trading volume and price of our stock could suffer and may be subject to excessive volatility.

If equity analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

The market for our common stock will in part be affected by the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our stock could decline if one or more equity analysts downgrade our stock, issue other unfavorable commentary, or cease publishing reports about us.

THE FOREGOING FACTORS, INDIVIDUALLY OR IN AGGREGATE, COULD MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS, CASH FLOWS, AND FINANCIAL CONDITION AND COULD MAKE COMPARISON OF HISTORICAL FINANCIAL STATEMENTS, INCLUDING RESULTS OF OPERATIONS, CASH FLOWS, AND BALANCES, DIFFICULT OR NOT MEANINGFUL.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes repurchases of our common stock made during the three months ended March 31, 2022:

Period	Total number of shares of common stock repurchased	Average price paid per share of common stock (including commissions)		Total number of shares of common stock repurchased as part of publicly announced plans or programs	Maximum dollar value of shares of common stock that may yet be repurchased under the plans or programs (in thousands) (1)
January 1 to January 31, 2022	4,888	$	11.77	4,923,746	$	48,624
February 1 to February 28, 2022	3,773	$	11.94	4,927,519	$	48,579
March 1 to March 31, 2022	2,217	$	12.04	4,929,736	$	48,553
Total	10,878

(1) The stock repurchase program authorization was terminated on April 13, 2022 pursuant to the 10b5-1 plan due to consummation of a Definitive merger agreement between the Company and D.R. Horton, Inc..

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Item 3: Defaults Upon Senior Securities

None

Item 4: Mine Safety Disclosures

Not applicable

Item 5: Other Information

Not applicable

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Item 6. Exhibits

Exhibit Number	Description
2.1	Plan of Merger dated April 13, 2022 among Vidler Water Resources, Inc.. D.R. Horton, Inc., and Potable Merger Sub, Inc. (4)
3.1A	Certificate of Incorporation of PICO Holdings, Inc. (now known as Vidler Water Resources, Inc.)(1)
3.1B	Certificate of Amendment of Certificate of Incorporation of PICO Holdings Inc. (now known as Vidler Water Resources, Inc.) (3)
3.2	Amended and Restated Bylaws of Vidler Water Resources, Inc. (3)
3.3	2020 Amended Certificate of Designation of Series A Junior Participating Preferred Stock of PICO Holdings, Inc. (now known as Vidler Water Resources, Inc.) (2)
4.1	2020 Section 382 Rights Agreement, dated as of July 24, 2020, by and between PICO Holdings, Inc (now known as Vidler Water Resources, Inc.). and Computershare Trust Company, N.A. (2)
4.2	Vidler Water Resources, Inc. Stock Certificate
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File: the cover page XBRL tags are embedded within the Inline XBRL document and are contained within Exhibit 101

(1)	Incorporated by reference to the Current Report on Form 8-K filed with the SEC on June 1, 2017.
(2)	Incorporated by reference to the Registration Statement on Form 8-A filed with the SEC on July 24, 2020.
(3)	Incorporated by reference to Form 8-K filed with the SEC on March 8, 2021.
(4)	Incorporated by reference to Form 8-K filed with the SEC on April 14, 2022.

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VIDLER WATER RESOURCES, INC. AND SUBSIDIARIES

SIGNATURE

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

		VIDLER WATER RESOURCES, INC.
Date:	May 13, 2022	By: /s/ Maxim C.W. Webb
		Maxim C.W. Webb
		Chief Financial Officer
		(Principal Financial Officer and Authorized Signatory)

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