• Expenses associated with developing our water assets; and

• Cash available to continue development of our water rights and service agreements.

The following Management's Discussion and Analysis ("MD&A") is intended to help the reader understand our results of operations and financial condition and should be read in conjunction with the accompanying financial statements and the notes thereto and the financial statements and the notes thereto contained in our 2008 Annual Report on Form 10-K. This overview summarizes the MD&A, which includes the following sections:
Our Business - a general description of our business, our services and our business strategy.

Results of Operations - an analysis of our results of operations for the periods presented in our financial statements.
Liquidity, Capital Resources and Financial Position - an analysis of our cash position and cash flows, as well as a discussion of our financing arrangements Critical Accounting Policies and Estimates - a discussion of our critical accounting policies that require critical judgments, assumptions and estimates. Our Business
Our Water Assets
Our water assets are comprised of the following annual entitlements which are described in greater detail in our 2008 Annual Report on Form 10-K:
• Approximately 60,000 acre-feet of senior water rights in the Arkansas River and its tributaries;

• Approximately 11,650 acre-feet of water located in Arapahoe County, Colorado at property known as the Lowry Range (an approximately 27,000 acre property located in Arapahoe County, Colorado, owned by State Board of Land Commissioners (the "Land Board")), which we can "export" from the Lowry Range to supply water to nearby communities and developers in need of additional water supplies (this water asset is referred to as our "Export Water");

• Approximately 321 acre-feet of groundwater located in Arapahoe County acquired pursuant to an Agreement for Water Service (the "County Agreement") with Arapahoe County (the "County");

• Approximately 89 acre-feet of water located beneath Sky Ranch together with the right to purchase an additional 671 acre-feet of water (for a total of 760 acre-feet) pursuant to the Sky Ranch Agreements (however, see information on Sky Ranch bankruptcy in the Risk Factors section of the 2008 Annual Report on Form 10-K); and

• Conditional water rights in western Colorado that entitle us to build a 70,000 acre-foot reservoir to store Colorado River tributary water and a right-of-way permit from the U.S. Bureau of Land Management for property at the dam and reservoir site (collectively known as the "Paradise Water Supply").

In addition to the water we own as described above, we also have the exclusive rights to provide water and wastewater services to approximately 24,000 acres of the Lowry Range through 2081 using approximately 15,050 acre-feet of water. This water is required to be used solely on the Lowry Range (collectively we refer to the 15,050 acre-feet of water designated for use on the Lowry Range and the 11,650 acre-feet of Export Water as our "Rangeview Water Supply"). For further details on our current service agreements please refer to our 2008 Annual Report on Form 10-K.
We provide water and wastewater services utilizing water assets we own, concentrating our services to customers along the Front Range of the metropolitan Denver area. We currently provide water services to approximately 247 single-family-equivalent water connections and 157 single-family-equivalent wastewater connections located in the southeastern Denver metropolitan area. We plan to utilize our significant water assets, which are summarized below, to provide residential/commercial water and wastewater services to other customers located along the Front Range, principally targeting the "I-70 corridor" which is located east of downtown Denver and south of the Denver International Airport. This area is predominately undeveloped and is expected to experience substantial growth over the next 30 years. Our ability to increase our customer base is dependent on new development in our targeted service area and on our ability to enter into contracts to deliver water and wastewater service with land owners, land developers, home builders, and municipalities.
We own nearly 12,000 acre-feet per year of decreed groundwater and surface water rights in the Denver area and have the exclusive rights to use, through the year 2081, approximately 16,700 acre-feet per year of decreed groundwater and surface water located at the Lowry Range (the Lowry Range is described in further detail in Item 1 of our 2008 Annual Report on Form 10-K). In addition to these Denver based assets, we also own approximately 60,000 acre-feet per year of Arkansas River water that is currently being used to irrigate approximately 17,000 acres of land owned by the Company in southeastern Colorado and 70,000 acre-feet of conditionally decreed Colorado River water rights on the western slope of Colorado.
We contract with land owners, land developers, home builders, cities, and municipalities to design, construct, operate and maintain water and wastewater systems using our balanced water portfolio consisting of surface water and groundwater supplies, surface water storage, alluvial aquifer storage, and reclaimed water supplies. We generate cash flows and revenues by (i) selling taps (connections) to our water and wastewater systems and/or (ii) monthly service fees and consumption charges from metered deliveries. Tap fee (connection) charges are a one-time fee typically paid by developers which are used to recoup the cost of the Company's water rights and for construction of the various facilities required to withdraw, store, treat and deliver water to customers and reclaim, store, treat and deliver treated effluent water to satisfy irrigation demands. Monthly service fees and consumption charges from metered deliveries of water and flat monthly fees for wastewater are paid by customers - homeowners, business owners or consumers of water and wastewater services. Monthly service fees include (i) base monthly fees, (ii) monthly metered water usage fees (both potable and irrigation uses which are charged at different rates) and (iii) other service related fees.
We did not sell any water taps or wastewater taps during the three or nine months ended May 31, 2009 and 2008. We received approximately $31,800 and $36,900 from the sale of water during the three months ended May 31, 2009 and 2008, respectively, and we received approximately $88,400 and $102,000, respectively, from the sale of water during the nine months ended May 31, 2009 and 2008, respectively. We received approximately $16,700 from monthly wastewater service fees during both three month periods presented, and approximately $50,200 from monthly wastewater service fees during both nine month periods presented. Currently all monthly water and wastewater fees are generated utilizing our "Rangeview Water Supply" which is defined below. See Critical Accounting Policies below regarding our revenue recognition policies for tap fees and construction fees.

The water rights we own in the Arkansas River in southeastern Colorado are currently being used for agricultural purposes on farms that we own, which are being leased to area farmers. Pursuant to agreements we entered into with High Plains A&M, LLC ("HP A&M"), described in greater detail in Note 3 to the financial statements contained in our 2008 Annual Report on Form 10-K, the management of these farm leases is being performed by HP A&M through August 31, 2011. After that date, depending on certain factors described in Note 3 to the financial statements contained in our 2008 Annual Report on Form 10-K, HP A&M may extend the management services agreement, or we may assume management of the farms. Pursuant to the farm management agreement, while HP A&M is managing the leases, HP A&M is responsible for all expenses associated with maintaining the leases with the exception of the water assessment fees paid to the Fort Lyon Canal Company ("FLCC"), which are borne by us. The FLCC is the canal that supplies the water to the farms. As compensation for their farm management responsibilities, HP A&M retains all lease and other income associated with the farms and the water used thereon.
Since our Arkansas River water is currently being used for agricultural purposes, in order to use this water for municipal purposes we must file a change of use application with the Colorado Water Court. This will likely be a long-term process, which may extend from one to more than three years, and require a substantial amount of capital for legal and engineering services. If we successfully change the use of our water rights to include municipal uses, we would then need to construct a pipeline and other infrastructure to transport the water to the Front Range, which could cost in excess of $500 million. We have not yet filed a change of use application. However, we are diligently working with local interests to determine the least intrusive method of transferring water off our farms to serve customers along the Front Range. We are conducting a rotational crop study program and participating in discussions with area interests including the Lower Arkansas Valley Super Ditch ("Super Ditch"), which is a group of Arkansas Valley irrigators that have assembled to study alternatives to traditional "buy and dry" agricultural to municipal water transfers. See also our Risk Factors in our 2008 Annual Report on Form 10-K for additional information on the risks associated with a water transfer case and other risks associated with the Arkansas River water. Recent Developments
On June 1, 2009, the Colorado Supreme Court upheld the decision of the District Court, Water Division I, State of Colorado (the "Water Court") requiring the City of Aurora to remove certain reservoir sites from its Water Court applications because the reservoir sites were already adjudicated to us pursuant to agreements with the Land Board.
Results of Operations
Executive Summary
The results of our operations for the three months ended May 31, 2009 and 2008 are as follows:

                                Summary Table 1

                                                 Three Months Ended:
                                           May 31, 2009        May 31, 2008        $ Change        % Change
Millions of gallons of water delivered               7.6                  10            (2.4 )           -24 %
Water revenues generated                  $       31,800      $       36,900      $   (5,100 )           -14 %
Operating costs to deliver water
(excluding depreciation and depletion)    $       10,200      $        9,200      $    1,000              11 %
Water delivery gross margin %                         68 %                75 %

Wastewater treatment revenues             $       16,700      $       16,700      $        -               0 %
Operating costs to treat wastewater       $        4,500      $        4,900      $     (400 )            -8 %
Wastewater treatment gross margin %                   73 %                71 %

General and administrative expenses       $      455,500      $      588,000      $ (132,500 )           -23 %

Net losses                                $    1,325,200      $    1,728,400      $ (403,200 )           -23 %

The results of our operations for the nine months ended May 31, 2009 and 2008 are as follows:

                                Summary Table 2

                                                  Nine Months Ended:
                                           May 31, 2009        May 31, 2008        $ Change        % Change
Millions of gallons of water delivered              19.2                25.5            (6.3 )           -25 %
Water revenues generated                  $       88,400      $      102,000      $  (13,600 )           -13 %
Operating costs to deliver water
(excluding depreciation and depletion)    $       38,000      $       38,700      $     (700 )            -2 %
Water delivery gross margin %                         57 %                62 %

Wastewater treatment revenues             $       50,200      $       50,200      $        -               0 %
Operating costs to treat wastewater       $       16,100      $       13,500      $    2,600              19 %
Wastewater treatment gross margin %                   68 %                73 %

General and administrative expenses       $    1,547,900      $    1,810,400      $ (262,500 )           -14 %

Net losses                                $    4,438,500      $    5,273,000      $ (834,500 )           -16 %

Water and Wastewater Usage Revenues
Our water service charges include a base monthly fee and a usage fee which is based on a tiered pricing structure that provides for higher prices as customers use greater amounts of water. Our rates and charges are established based on the average of three surrounding communities as specified in our agreements with the Land Board.
Our wastewater customers are charged flat monthly fees based on their number of tap connections.
Comparison of usage fees and gross margins Water deliveries for the three and nine months ended May 31, 2009, decreased 24% and 25%, respectively, over the comparable periods in 2008. This was mainly attributable to above average precipitation in Colorado during the spring months which results in reduced water demands and reduced water usage fees. Water usage fees decreased 14% and 13%, for the three and nine months ended May 31, 2009, respectively, as a result of the decreased water usage described above, partially offset by the July 2008 rate increase.
The decreased usage also led to decreases in the water operating gross margins for the three and nine months ended May 31, 2009 over the comparable periods in 2008. In addition we also incurred certain tri-annual testing fees during our first fiscal quarter of 2009 which resulted in lower gross margins for the nine months ended May 31, 2009 compared with the comparable period in 2008. Wastewater operation gross margin for the three months ended May 31, 2009 was comparable with the three months ended May 31, 2008, while the gross margin for the nine months ended May 31, 2009 decreased approximately 5% over the comparable period in 2008 mainly a result of higher testing costs during the current fiscal year and higher energy costs in the current year. Tap Fees
We recognized approximately $3,600 of water tap fee revenues during each of the three month periods ended May 31, 2009 and 2008, related to the County Agreement. We recognized approximately $10,700 of water tap fee revenues during each of the nine month periods ended May 31, 2009 and 2008, related to the County Agreement. In accordance with accounting principles generally accepted in the United States of America ("GAAP"), we began recognizing the water tap fees as revenue ratably over the estimated service period upon completion of the Wholesale Facilities in fiscal 2006. The water tap fees to be recognized over this period are net of the royalty payments to the Land Board and amounts paid to third parties pursuant to the Comprehensive Amendment Agreement No. 1 (the "CAA") as further described in Note 6 to the accompanying financial statements. We recognized approximately $10,400 of "Special Facilities" funding as revenue during each of the three month periods ended May 31, 2009 and 2008. We recognized approximately $31,100 of Special Facilities funding as revenue during each of the six month periods ended May 31, 2009 and 2008. This is the ratable portion of the Special Facilities funding proceeds received from the County pursuant to the County Agreement as more fully described in Note 3 to the financial statements contained in our 2008 Annual Report on Form 10-K.

As of May 31, 2009, we have deferred recognition of approximately $1.5 million of water tap and construction fee revenue from the County, which will be recognized as revenue ratably over the estimated useful accounting life of the assets constructed with the construction proceeds as described above. General and Administrative Expenses
General and administrative expenses for the three and nine months ended May 31, 2009 decreased 23% and 14%, respectively, over the comparable periods in 2008. These decreases were a result of our cost reduction efforts in response to the economy and the delay in the development of the Lowry Range as a result of the developer's withdrawal from its development agreement with the Land Board. Our general and administrative expenses for the three months ended May 31, 2009 and 2008, respectively, are comprised of approximately:
• $124,900 and $124,700 of salary and salary related expenses, which does not include approximately $64,900 and $93,400, respectively, of stock-based compensation expenses recognized pursuant to Statement of Financial Accounting Standard No. 123 (revised 2004), Share Based Payment ("SFAS 123(R)"),

• $83,900 and $82,600 of water assessment expenses associated with canal systems (the majority of which are related to the FLCC), which provide water to the farms we own in the Arkansas River Valley in southern Colorado as described further in the Liquidity and Capital Resources section below,

• $80,400 and $161,300 of professional fees, which decreased because the 2008 figure includes a significant amount of expenses associated with negotiations with the former developer of the Lowry Range related to our provision of water services to the development per our agreements with the Land Board,

• $13,700 and $11,500 of expenses associated with being a public company, generally related to press releases, NASDAQ listing fees, and EDGAR filing fees,

• $13,500 and $17,600 of fees and insurance premiums related to our board of directors, and

• $12,400 and $37,500 of consulting fees, generally related to negotiations with the Lowry Range project and other pending water service agreements which decreased due to a reduction in the number of consultants we were using as a result of the withdrawal of the developer from the Lowry Range as noted above.

Our general and administrative expenses for the nine months ended May 31, 2009 and 2008, respectively, are comprised of approximately:
• $369,800 and $367,300 of salary and salary related expenses, which does not include approximately $218,500 and $263,800, respectively, of stock-based compensation expenses recognized pursuant to SFAS 123(R),

• $272,700 and $297,400 of professional fees, the decrease is mainly attributable to withdrawal of the developer of the Lowry Range as noted above,

• $258,100 and $249,300 of water assessment expenses associated with canal systems as described above, the increase is mainly attributable to higher FLCC assessment fees for the acquisition of additional water by the FLCC for irrigation purposes,

• $125,700 and $123,600 of fees and insurance premiums related to our board of directors,

• $74,800 and $190,200 of consulting fees, generally related to negotiations with the Lowry Range project and other pending water service agreements which decreased due to a reduction in the number of consultants we were using as a result of the withdrawal of the developer from the Lowry Range as noted above, and

• $50,000 and $115,900 of expenses associated with being a public company, the decrease is mainly attributable to the reincorporation into Colorado, which resulted in our no longer having to pay Delaware franchise fees.

Other Income and Expenses
Interest income totaled approximately $12,900 and $52,700 for the three months ended May 31, 2009 and 2008, respectively. Interest income totaled approximately $70,500 and $250,400 for the nine months ended May 31, 2009 and 2008, respectively. This represents interest earned on the temporary investment of capital, interest accrued on our notes receivable from related parties and interest accrued on the construction proceeds receivable from Arapahoe County. The decrease is due to the continued decline in interest rates both on our invested capital and for the notes receivable from related parties. Our temporary investments were invested in overnight money market funds related to treasury obligations until March 2009 when we transferred approximately $3.0 million into federally insured certificates of deposit with scheduled maturities and set interest rates which are not subject to market risk. Our certificates of deposit are held by various financial institutions in amounts less than federally insured limits.
Imputed interest expense related to the Tap Participation Fee payable to HP A&M (as defined in the Liquidity and Capital Resources section below) totaled approximately $858,000 and $1.1 million for the three months ended May 31, 2009 and 2008, respectively. Imputed interest expense related to the Tap Participation Fee payable to HP A&M totaled approximately $2.9 million and $3.3 million for the nine months ended May 31, 2009 and 2008, respectively. This represents the expensed portion of the difference between the estimated fair value of the liability and the net present value of the liability recognized under the effective interest method. See also Note 1 to the accompanying financial statements for discussion on the revaluation of the Tap Participation Fee and its impact to the nine months ended May 31, 2009 financial statements. During the nine months ended May 31, 2009, we received a $5,000 land use payment from an energy company searching for natural gas on certain of our Arkansas Valley properties and we received $2,100 for our engineer providing water system consulting services to various non-water customer commercial water users. Net losses for the three and nine months ended May 31, 2009 decreased approximately 23% and 16%, respectively, over the comparable periods in 2008. The decrease is attributable to the changes in the operating items described above, and during the three and nine months ended May 31, 2009, we recognized approximately $22,200 and $59,700, respectively, of gains related to the sale of non-irrigated land we owned in the Arkansas River Valley in Southern Colorado. Liquidity and Capital Resources
At May 31, 2009, we had working capital (current assets less current liabilities) of approximately $4.1 million, and cash, cash equivalents and marketable securities totaling approximately $3.9 million. We believe that at May 31, 2009, we have sufficient working capital and cash and cash equivalents to fund our operations for the next year. However, there can be no assurance that we will be successful in marketing the water from our primary water projects which we require to fund our long-term operations. In order to generate working capital to support our operations, we may incur additional short or long-term debt or seek to sell additional equity securities. We have an effective shelf registration statement pursuant to which we may elect to sell up to another $5.7 million of stock at any time and from time to time. Development of the water that we own, have rights to use, or may seek to acquire, will require substantial capital investments. We anticipate that capital required for the development of the water and wastewater systems will be financed through the sale of water taps to developers. A water tap fee refers to a charge we impose to fund construction of "Wholesale Facilities" ("Wholesale Facilities" are further defined in our 2008 Annual Report on Form 10-K) and permit access to our water delivery system. We anticipate tap fees will be sufficient to generate funds with which we can design and construct the necessary Wholesale Facilities. However, once we receive tap fees from a developer, we are contractually obligated to construct the Wholesale Facilities for the taps paid for, even if our costs are not covered by the fees we receive. We cannot assure you that these sources of cash will be sufficient to cover all our capital costs.
On a monthly basis, water customers are charged a flat base fee and usage fees, generally charged per 1,000 gallons of water delivered to the customer, and wastewater customers are charged flat monthly service fees. These fees are used to fund on-going operational expenses, including general and administrative expenses.

As further described in our 2008 Annual Report on Form 10-K, Critical Accounting Policies below and Note 1 to the accompanying financial statements, pursuant to the Arkansas River Agreement we agreed to pay HP A&M 10% of our water tap fees received on the sale of the next 40,000 water taps we sell from and after the date of the Arkansas River Agreement (the "Tap Participation Fee"). As of May 31, 2009, we have estimated the ultimate value of the Tap Participation Fee payable to HP A&M at approximately $113.1 million. The balance reflected on the accompanying balance sheet of approximately $56.7 million excludes the discount of $56.4 million based on a discounted cash flow valuation analysis, which was . . .