Quarterly report pursuant to Section 13 or 15(d)

2. FAIR VALUE MEASUREMENTS

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2. FAIR VALUE MEASUREMENTS
 6 Months Ended
Feb. 28, 2015
Fair Value Measurements  
FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market. The Company uses a fair value hierarchy that has three levels of inputs, both observable and unobservable, with use of the lowest possible level of input to determine fair value.

 

Level 1 — Valuations for assets and liabilities traded in active exchange markets, such as the NASDAQ. The Company had one of these instruments as of February 28, 2015 and August 31, 2014.

 

Level 2 — Valuations for assets and liabilities obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company had no Level 2 assets or liabilities as of February 28, 2015 or August 31, 2014.

 

Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. The Company had one Level 3 liability as of August 31, 2014, the TPF liability, which is described in greater detail in Note 4 – Long-Term Obligations and Operating Lease below. The Company had no Level 3 assets or liabilities as of February 28, 2015.

 

The Company maintains policies and procedures to value instruments using what management believes to be the best and most relevant data available.

 

The Company’s non-financial assets measured at fair value on a non-recurring basis consist entirely of its investments in water and water systems and other long-lived assets. See Note 3 –Water and Land Assets below.

 

Level 3 Liability – Tap Participation Fee. Prior to the Company’s settlement with HP A&M eliminating the TPF, the Company’s TPF liability was the Company’s only financial liability measured on a non-recurring basis. As further described in Note 4 – Long-Term Obligations and Operating Lease, the TPF liability is valued by projecting new home development in the Company’s targeted service area over an estimated development period.

 

Although not required, the Company deems the following table, which presents the changes in the TPF for the six months ended February 28, 2015, to be helpful to the users of its consolidated financial statements:

 

   

Fair Value Measurement using Significant

Unobservable Inputs (Level 3)

  
   

Gross Estimated

Tap Participation

Fee Liability

    

Tap

Participation

Fee Reported

Liability

     Discount - to be imputed as interest expense in future periods  
Balance at August 31, 2014   $ 12,038,300     $ 7,935,300     $ 4,103,000  
Total gains and losses (realized and unrealized):     -       -       -  
Imputed interest recorded as "Other Expense"     -       23,800       (23,800 )
Purchases, sales, issuances, payments, reductions resulting from foreclosures, and HP A&M settlement     (12,038,300 )     (7,959,100 )     (4,079,200 )
Transfers in and/or out of Level 3     -       -       -  
Balance at February 28, 2015   $ -     $ -     $ -