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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission file number 0-18756

Western Water Company

Registrant’s telephone number, including area code: (510) 234-7400

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

Common Stock, $.001 par value

      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 filing requirements for the past 90 days.     Yes þ          No o

      The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 30, 2002 was approximately $1,821,967 (based on last reported sale price of $.25 per share of common stock on that date). All directors are considered affiliates.

      There were 8,069,012 shares of registrant’s common stock outstanding as of June 27, 2003.

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of 1934).     Yes o          No þ

DOCUMENTS INCORPORATED BY REFERENCE:

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Forward-Looking Statements

      In addition to historical information, this Annual Report contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof based on information currently available to management. Western Water Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described herein and in other documents the Company files from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by the Company in 2003 and 2004 and any Current Reports on Form 8-K filed by the Company.

PART I

Introduction

      The principal business of Western Water Company (the “Company”) has been to identify, manage, acquire, develop, sell and lease water and water rights in the western United States. Prior to 2000, the Company had been developing this business through the acquisition of water rights and other interests in water, the purchase of real estate for the water rights associated with such real estate, and the sale or lease of water. The Company, directly and indirectly, owns certain water rights, as well as a limited amount of real estate, in California and Colorado.

      The Company’s principal activity had been to acquire and develop water assets in California and in the Cherry Creek basin in Colorado. The Company did so because it believes that there is a growing demand for water resources in both of these areas in which demand is expected to exceed the water resources currently available. However, the Company has encountered significant regulatory obstacles to its attempts to develop and transfer water for delivery to potential customers in California. During 2001, these regulatory obstacles were compounded by the electric energy crisis in California, which rendered many transfers uneconomic because of the high and unrecoverable cost of pumping water over long distances. During 2002, these regulatory obstacles were compounded by the Company’s weakened financial condition. In addition, the process for developing the regulatory framework and physical infrastructure necessary to complete commercial deliveries in Colorado has taken longer than originally anticipated. As a result, the Company’s water sales were lower during the fiscal year ended March 31, 2001 than in the prior fiscal year. The Company did not complete any new water sales during the fiscal year ended March 31, 2002, and the Company completed only one water sale during the fiscal year ended March 31, 2003.

      Based on its inability to generate revenues from water sales, the Company suspended its asset acquisition program, reduced its marketing activities, curtailed other overhead expenditures, and deferred development activities other than activities related to its Cherry Creek assets in Colorado.

      The Company is continuing its efforts to develop its own existing water assets in both Colorado and California. The Company’s principal Northern California water assets consist of certain riparian and appropriative water rights, together with certain groundwater rights, associated with approximately 9,055 acres of real property (the “Yuba Goldfields”) located along the Yuba River, and the water rights associated with approximately 1,372 acres of California rice farms and ranches located in Yuba County (the “Farm Properties”). The Company does not own the fee title to the Yuba Goldfields, but the Company does own fee title to the Farm Properties. During the fiscal year ended March 31, 2003, the Company continued to concentrate its efforts in Yuba County on protecting and developing both its water and real estate assets. During the fiscal year ended March 31, 2003, the Company completed the annexation of certain of the Farm

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      Another one of the Farm Properties in Yuba County is being developed as an environmental mitigation site for regional construction projects. In connection with developing the mitigation site, the Company solicited and received a letter of interest from the California Department of Transportation to use the site to offset projected impacts from local road improvement projects. However, in light of California budgetary impacts and priorities, a number of construction and transportation projects have been deferred, and it is not possible to predict when regional construction activity will create demand for the environmental mitigation credits that the Company may be able to produce on the Yuba County site.

      At March 31, 2003, the Company’s remaining Southern California water assets included shares in the Bear Valley Mutual Water Company (“BVMWC”). On June 18, 2003, the Company sold its interest in the BVMWC shares to a local city water department as a part of its previously announced program of selling non-strategic assets. Upon disposition of the BVMWC shares, the Company received cash proceeds of approximately $723,000 and realized a gain on the sale of approximately $79,000.

      The Company also owns approximately 247 acres of real estate in San Bernardino County. The Company has listed this real estate for sale and expects to dispose of the real estate as subdivision approvals and market conditions allow.

      The Company also owns 242 acre-feet per year of West Basin (Los Angeles County, California) groundwater pumping rights. These rights, together with certain West Basin groundwater pumping rights that the Company has leased from others, have been pledged to meet the Company’s obligations to sell water to the City of Inglewood, California. During the fiscal year ended March 31, 2003, the Company repaid the remaining principal of the bank loan arranged in 1998 to support the Inglewood transaction and thereby cancelled the bank’s security interest in the West Basin groundwater pumping rights. The five-year term of the Inglewood transaction will expire during fiscal year 2004. The Company has not yet determined how it will use or whether it will sell its residual West Basin groundwater pumping rights when the Inglewood transaction expires.

      The principal Colorado water interests owned by the Company consist of the water rights associated with an aggregate of 4,559 acres of land and certain other water rights in the Cherry Creek basin. This land is in the drainage area of Cherry Creek, south of Denver, in Douglas County, Colorado. It was purchased by the Company in 1992 and most of the land has since then been sold. However, the Company has retained almost all water rights from the land that was sold. The Cherry Creek assets were acquired primarily for the purpose of developing, selling or leasing water in the Cherry Creek basin. The Company’s real estate holdings in Colorado currently consist of approximately 372 acres of primarily undeveloped land located in the Cherry Creek basin.

      The Company’s principal executive office is located at 102 Washington Avenue, Point Richmond, CA 94801. Its telephone number is (510) 234-7400. Unless the context requires otherwise, references to the “Company” in this report include Western Water Company and all of its subsidiaries. On September 18, 1992, the Company changed its name from “YG Development Company” to “Western Water Company,” and on March 23, 1994, the Company changed its state of incorporation from California to Delaware.

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Overview of Water Markets

      There is a developing public policy to expand water markets in the western United States to help meet the need for increased water supply and reliability because of population growth and both periodic and chronic imbalances between areas of water abundance and areas of deficit. The objectives of this developing public policy include improved clarity of water rights, access to existing conveyance facilities at a fair price, and competitive, price-sensitive allocation of scarce water resources. These policies favoring voluntary water transfers as a means for meeting long-term imbalances between supply and demand were emphasized in the August, 2000 Record of Decision for CALFED, an ambitious water resource planning agenda for the federal and state agencies which oversee water resource and environmental planning in California.

      Southern California has been experiencing a water shortage that is projected to become worse. According to the current State Water Plan (Bulletin 160-98) of the California Department of Water Resources (“DWR”), last updated in November 1998, the amount of water used in Southern California is estimated at 10.5 million acre-feet in 1995, and is expected to grow to 11.4 million acre-feet in 2020. Even assuming the development of a number of new water resources and significant additional conservation efforts over the forecast period, the shortage of water estimated at 200,000 acre-feet in 1995 is estimated to grow to 1.3 million acre-feet by 2020, as the available supply is expected to decrease from 10.3 million acre-feet in 1995 to 10.1 million acre-feet in 2020. Although such deficits have historically been made up through overdraft of groundwater, this source is already under severe strain and limitations on availability are expected to constrict the overall supply in certain areas of California. The Company believes that uncertainty over the reliability of groundwater rights—particularly in over-drafted basins—enhances the attractiveness of voluntary water transfers as an alternative source of reliable supply.

      In an effort to update the estimate of water supply and demand, DWR is in the process of updating the State Water Plan. Bulletin 160-03 is due out later this year. However, the reliability of supply predictions has been compromised by the failure of multi-year negotiations related to California’s supply of Colorado River water. Unless the negotiations are revived, California will lose access to surplus Colorado River water over the next fourteen years. Reductions in the Colorado River supplies, although not directly affecting the Company or its water rights, are likely to tighten the overall balance between supply and demand, particularly in Southern California.

      Reacting, in part, to the risk of losing surplus Colorado River water, the Metropolitan Water District of Southern California (“MWD”), the region’s primary importer of supplemental water supplies, arranged to buy additional water from farming interests in Northern California. These arrangements, however, consisted of direct transactions between MWD and selected Northern California irrigation districts. Thus, the Company has been unable to arrange high-value, long-distance, farm-to-urban water transfers, such as it had formerly pursued. A secondary effect of MWD’s arrangements has been to absorb available conveyance capacity between Northern and Southern California, making it more difficult for third-party transfers to be accommodated. As a result, much of the water to which the Company has access has been “stranded” in areas of the State where water tends to be more plentiful and where value, reflected in market prices, tends to be lower.

      The Sacramento Valley Water Management Agreement (“SVWMA”) is a current attempt to negotiate a settlement of contested water rights as between water rights holders located upstream of the Sacramento/ San Joaquin/Bay/ Delta (the “Delta”) and entities that hold water rights in or downstream of the Delta. These long-standing disputes were deferred by the Bay/Delta Accords negotiated in 1994. However, the issues were brought to a head because of pending State Water Resources Control Board (“SWRCB”) proceedings to allocate responsibilities for environmental mitigation plans that require additional water. Based on the initial SVWMA Statement of Policy Principles, a document published on December 14, 2001, the Company was concerned with potential effects of prospective implementation of the SVWMA. Therefore, the Company participated actively in review of the Principles and the process for drafting specific implementation agreements thereunder. Many of the Company’s concerns with the SVWMA have been addressed in the course of further negotiations. The Company now believes that successful implementation of the SVWMA could enhance the value of senior water rights and clarify ownership issues necessary to permit efficient

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      Douglas County, Colorado, south of Denver, is experiencing very rapid population growth. The County also has very limited local surface water supplies, and is reliant upon groundwater and some surface water from local streams and the South Platte River. Additional surface water for the area is not readily available, because existing supplies are already controlled by others and development of new water supply projects has been blocked. Local agencies are pursuing new surface water imports as well as further developing the sustainable use of local groundwater to meet new demands on their systems. Demand for water to supply new growth is expected to exceed 50,000 acre-feet over the next 20 years. Currently, there are at least three regional water retail agencies that are undertaking long-term supply development projects including substantial infrastructure projects involving new pipelines, diversion structures and off-stream reservoirs aimed at meeting increasing water demands anticipated in the area. The Company is attempting to induce these and other agencies to evaluate use of the Company’s local water resources to meet a portion of such future demand.

Regulatory Overview

      Water rights in California are subject to complex laws, regulations and jurisdictions that complicate the development of water for transfer and sale. Under the doctrine of appropriation, a water user can publicly claim water from a river for beneficial use, so long as the water is physically available from the flow of the river after accounting for the rights of prior appropriators. Thus, older appropriations are senior in right to later appropriations. However, senior appropriative rights may be lost through non-use for long periods. Beginning in 1914, surface water (generally, water in rivers) has been subject to regulation by the State Water Resources Control Board (“SWRCB”). The SWRCB oversees a registry of surface right appropriations and a dispute resolution process designed to mediate competing claims to the use of the State’s surface water. The Company claims various appropriative rights on the Yuba River that were perfected by its predecessor in interest, some of which predate SWRCB jurisdiction (pre-1914 rights) and should therefore be “grandfathered” from regulatory jurisdiction. However, recent developments, including the SWRCB’s decision in the Lower Yuba River water rights case (currently on appeal), indicate that development of these rights associated with the Yuba Property for transfer and use outside the immediate area of Yuba County will take longer and cost more than the Company had formerly anticipated.

      California law also recognizes the rights of landowners adjacent to a river to divert an un-quantified amount of water from the river for beneficial use on such lands (riparian rights) or for in-stream beneficial use. Riparian rights cannot be forfeited through non-use. Through its interest in the water rights associated with the Yuba Property, the Company claims riparian rights on the Yuba River; these riparian claims are supported, as well, by a court decree dating from 1929.

      Groundwater (generally, water in underground aquifers) is not subject to statewide regulation. Overlying landowners have the right to place wells on their property and pump water from the underlying aquifer for use on their land. In some cases, such water rights may be severed from the land and traded separately. The Company has retained the groundwater rights associated with the Yuba Property and has unrelated groundwater rights associated with the Farm Properties. However, the extension and possible perfection of SWRCB jurisdiction could further complicate development of the Company’s groundwater rights, so

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      When there are disputes about groundwater rights, generally as the result of overdrawing a water basin by multiple wells, such disputes are either negotiated to resolution among the surrounding pumpers or submitted to litigation. In Southern California, there are several basins in which such litigation has resulted in a legal apportionment of the annual safe yield of the basin among the historic pumpers. Such so-called adjudicated basins are regulated by a court-appointed “watermaster” who manages an accounting system to assure that extractions from the basins are limited in accordance with the court’s order. During the fiscal year ended March 31, 2001, important aspects of groundwater law were clarified by the California Supreme Court in its Mojave decision. As previously reported, the Company sold its remaining 1,966 acre-feet per year of such rights to two cities in San Bernardino County in October, 2002 for a gain of $964,000.

      The proposed transfer of water from a place of origin to a proposed area of use in another region of the State generally requires a series of regulatory approvals designed to assure that other water users and the environment are not harmed by the transfer. For example, the Company had sought clarification of the rules for such transfers in the context of a series of petitions before the SWRCB. Under these petitions, several of the Company’s clients sought permission to transfer to the Company water to which they have independent rights to appropriate from the Sacramento River. Such water has been made available for transfer through various conservation activities undertaken by the petitioners. Following approval of such petitions, the Company successfully managed to convey and resell such water to unaffiliated water retailers in the Bay Area and Southern California during the fiscal year ended March 31, 2001, although conveyance and regulatory costs prevented the Company from making a profit on such sales. However, during the fiscal year ended March 31, 2002, regulatory obstacles and the high cost of energy during the electricity crisis precluded the Company from successfully transferring similarly conserved water from the same clients. In order to preserve the water for later use, the Company negotiated water storage agreements with the United States Bureau of Reclamation (“USBR”). Thus, a portion of the water conserved during the 2001 agricultural season was reserved in storage and was sold during the fiscal year ending March 31, 2003, at a profit which was immaterial to the Company. In addition, the difficult and time-consuming process required to complete such transfers between willing sellers and willing buyers underscores the need for reform of the regulatory regime. Nonetheless, the Company believes that the successful completion of small-scale transfers will ultimately open the way for more significant and more profitable sales in the future.

      In order to transport water from area of origin (where the water may be temporarily surplus to local needs) to distant areas of use, federal, state and local governments have developed a complex interconnected infrastructure system to augment conveyance through natural flow in rivers. Important portions of the infrastructure include: (i) the Central Valley Project, operated by USBR, (ii) the State Water Project (sometimes referred to as the California Aqueduct), operated by the California Department of Water Resources (“DWR”), (iii) the Colorado River Aqueduct, operated by the Metropolitan Water District of Southern California (“MWD”), and (iv) the Los Angeles Aqueduct, operated by the Los Angeles Department of Water and Power. In addition, there are a variety of regional and local conveyance facilities throughout the State.

      Under legislation enacted in 1986 (“the Wheeling Statute”), available capacity in such public water systems is required to be made available to facilitate voluntary water transfers, subject to “fair compensation” to the owner of the infrastructure. In light of uncertainty regarding application of the Wheeling Statute and the reluctance of system operators to accommodate such independent, third-party water transfers, the Company has sought clarification through request, negotiation and further legislation. The outcome of the Company’s efforts to gain such clarification continues to be uncertain. Therefore, even as to water rights owned by the Company and eligible for transfer according to applicable water rights law, there can be no assurance that the Company will gain access to available conveyance capacity on a timely basis or at an economic cost. Without such access, the Company’s ability to sell water has been and will continue to be severely constrained, and the Company may be unable to monetize the value of many of its California water

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      The most difficult aspect of arranging for the transfer and sale of water from Northern California to Southern California involves negotiation of conveyance through publicly-owned facilities controlled by MWD, DWR and/or by USBR. The Company believes that conveyance agreements are particularly difficult to negotiate because these agencies face internal conflicts between their roles as regulators and their roles as facility operators and water rights holders. For example, conserved water that is refused conveyance capacity often flows to DWR and/or USBR for their own appropriation and sale to south-of-Delta contractors, including MWD. Like monopoly service providers in other utilities, these agencies have resisted providing access to otherwise idle capacity in their systems, except at unit costs that are too high to allow economic water transfers. Thus, there can be no assurance that these issues will be resolved in a manner that will enable the Company to either profitably develop a water transfer business in California, or to profitably develop and manage its California water assets.

      The regulatory environment in Colorado is substantially more transparent, less costly and more predictable in terms of outcome than in California. The Company believes the Colorado system is more conducive to water asset development and protection and more hospitable to water sales than California’s system. First, water rights matters are adjudicated by a state-wide system of Water Courts presided over by judges with specialized subject matter knowledge from which appeal may be taken directly to the Colorado Supreme Court. The Water Courts retain jurisdiction over cases, so that changes of facts or circumstances can be submitted to further adjudication without re-trying complicated issues determined in prior phases of the case. Second, the Colorado Office of the State Engineer and regional Water Commissioners are independent and disinterested regulators who oversee compliance with well-developed and integrated precepts of water use administration without conflict based on direct competition for water. Water rights are described as being “tributary” (generally similar to “surface” water in California) or “nontributary” (generally similar to groundwater in confined aquifers in California). The Company owns Water Court-recognized rights to a minimum of 6,475 acre-feet of annual production of nontributary water, plus additional rights to tributary appropriations from Cherry Creek, as well as a Water Court approved Plan for Augmentation to operate the separate sources on a conjunctive basis that increases overall flexibility, reliability and value.

      As a result of the more hospitable regulatory environment in Colorado, the Company concentrated its efforts there to develop its water assets in conformance with Colorado law and in cooperation with regional water purveyors. Upon successful demonstration of its ability to develop, permit, construct and operate an integrated conjunctive use project in Colorado, the Company planned to adapt the project model to California’s more complex regulatory environment.

Description of Business

      The Company’s business goal has been to create recurring income through identifying undervalued and/or underused water assets, and enhancing the value of those assets via development, transmission and delivery to customers in the arid regions of California and Colorado. However, significant delays in the Company’s attempts to overcome regulatory obstacles to economic water transfers in California have forced it to reconsider its business plans. As a result, the Company has sold most of its non-strategic assets during the three most recent fiscal years, in accordance with a plan to manage the Company’s liquidity position and to reduce its operating expenses. The Company also re-evaluated its plans to develop its existing water assets in light of current regulatory obstacles and financial constraints. As a result, the Company sold or disposed of certain of its assets that it no longer believed it would be able to profitably develop, manage and/or monetize

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      Fiscal Year ended March 31, 2003:

      Fiscal Year ended March 31, 2002:

      Fiscal Year ended March 31, 2001:

      In addition, as a part of the aforementioned plan to sell non-strategic assets in order to manage liquidity and reduce operating expenses, the Company sold its Bear Valley Mutual Water Company stock in June 2003 for a gain of approximately $79,000, and plans to sell its remaining “Mojave” land holdings in San Bernardino County, California (current book value $553,000) during the current fiscal year ending March 31, 2004.

      The disposal of the Olancha Project during the year ended March 31, 2001 also resulted in an extraordinary gain on forgiveness of debt totaling $769,000.

      In addition to the planned sale of the Mojave land, the Company is considering the sale or other re-deployment of the West Basin groundwater pumping rights that are currently dedicated to the lease and sale agreement with the City of Inglewood, California which agreement is scheduled to expire during the current fiscal year.

      Recently, the prospects for conveying available water from Northern California to customers in Southern California have dimmed as a result of cross-Delta pumping limitations and regulatory allocations of conveyance capacity. In light of these constraints, water to which the Company has access in Northern California may continue to be blocked from transfer and sale to willing buyers in Southern California, and the Company may not be able to generate any revenues from its Northern California assets for an undeterminable period of time unless it sells such assets. Because the time and financial resources that may be required to overcome transfer obstacles appear to be beyond the Company’s means, the Company has been considering the sale of its Northern California assets in a single transaction or through sales of the individual assets. To date, however, the Company has not finally decided that it will, in fact, sell its Northern California assets, and it has not entered into any agreements for such sale. Should the Company decide to sell its water rights and other assets in Northern California prior to favorable resolution of the obstacles to cross-Delta transfers, it does not expect to receive sales proceeds that reflect the value of the associated water rights had it been able to transport and sell water, in accordance with its business plan, to Southern California consumers.

     California Water Transfer Program

      Prior to the fiscal year ended March 31, 2001, the Company’s business plan had assumed that California water transfer transactions would require the Company to complete the following three steps: (i) Acquire water supplies that could be delivered to urban areas in California; (ii) Arrange for sale water supplies to be delivered to its customers through existing water conveyance systems; and (iii) Enter into agreements with utilities, cities, or water districts for the sale or lease of the Company’s developed water supplies to such water retailers. The Company had anticipated that each water transfer transaction that it entered into would be unique and that the terms under which such transactions were financed and completed would vary. All such

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      The Company believes that it has successfully completed the first and third steps of the foregoing business plan. For example, the Company completed the first step by acquiring the water rights associated with the Yuba Property in Northern California, water rights associated with the Farm Properties, creating agreements for transferring conserved water developed by its clients and entering into long-term water supply agreements with Elsinore Valley Municipal Water District the San Bernardino Valley Municipal Water District, and the City of San Bernardino. Accordingly, the Company had acquired significant management control over available water resources at favorable prices relative to consumers’ costs for water in much of Southern California.

      The Company also completed much of the third step of its water transfer business plan by entering into various agreements to sell water to municipalities and other water users, including water sale agreements with Santa Margarita Water District, the Contra Costa Water District, the City of San Diego and other water retailers in Southern California. Unfortunately, the Company has not been able to economically complete the middle step of arranging for water to be delivered to its customers through excess capacity in public conveyance facilities. Due to various regulatory impediments and actions taken by governmental agencies (including lawsuits against the Company and imposition of excessive costs and other burdens) the Company has not been able to complete profitable water sales on a commercial basis. The Company believes that many of access restrictions violate the Wheeling Statute (Section 1810 of the California Water Code). Therefore, in order to complete profitable water sales, the Company undertook a variety of administrative, legal, regulatory and legislative initiatives to identify and remove such artificial barriers to voluntary water transfers. However, because of its limited financial resources, the Company has had to reduce its efforts to clarify or eliminate barriers to profitable water transfers. Given its current financial position, the Company cannot continue to pursue profitable water transfers indefinitely, and it may have to sell more of its assets to sustain its operations and protect its remaining assets.

     California — Yuba Property Water Rights

      The Company owns certain riparian and appropriative rights, together with certain groundwater rights, associated with approximately 9,055 acres of real property that constitutes the Yuba Property. The Yuba County Superior Court, in a 1929 judgment, recognized the Company’s predecessor-in-interest’s riparian rights to the Yuba River and pre-1914 appropriative rights. (Appropriations that began before December 19, 1914 do not require a permit for transfer or change in place or purpose of use from the SWRCB.) Additionally, the Company holds overlying rights to the groundwater aquifer beneath the Yuba property.

      The Company has been attempting to develop its Yuba Property water for sale or lease through a long-term conjunctive use program in cooperation with the Yuba County Water Agency. The Company has not, however, developed a plan for marketing and selling its Yuba Property water. In addition, there are various regulatory hurdles that could delay or limit the Company’s ability to deliver or sell its Yuba Property water. Based on the limitations imposed by the SWRCB’s Decision 1644 entered in the Lower Yuba River water rights case as well as on delays in negotiating a satisfactory conjunctive use program, the Company believes that development and delivery of water from the Yuba Property will take longer and cost more than it had formerly anticipated. Since the Company’s carrying value of these assets is zero on its financial statements, the delays and uncertainties surrounding the Company’s abilities to monetize these assets will not entail an impairment charge against the value of the assets.

Other Water Assets

      At March 31, 2003 the Company owned shares of the Bear Valley Mutual Water Company, an entity that owns certain senior water rights and distribution facilities on the Santa Ana River. Under the aforementioned plan to sell non-strategic assets, the Company sold its BVMWC interests on June 18, 2003,

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     Colorado — Cherry Creek Water Rights Project

      In July 1992, the Company initiated a project (the “Cherry Creek Project”) to assemble, develop, and eventually sell water or packaged water rights to municipalities and other water users located in Colorado’s Cherry Creek basin. Cherry Creek is a tributary of the South Platte River, and the Cherry Creek basin is the drainage area of Cherry Creek, encompassing approximately 60 square miles. Much of the Cherry Creek basin is part of the greater metropolitan area of Denver, an area that historically has had water shortages. Although the water supplies currently available in the Cherry Creek basin are sufficient, in most cases, to meet the current demand for water in the area, increased need for water as a result of projected residential, commercial, and industrial development and growth in the Cherry Creek basin is expected to exceed the currently available supply of water in the region within the next several years. The goal of the Cherry Creek Project is to develop the Company’s water rights to provide reliable additional water resources in the Cherry Creek basin that can be sold or leased to municipalities and other water users to meet expected future demand for water.

      The State of Colorado has enacted various laws and regulations that identify and establish rights to tributary water which grant the holders thereof the right to use specified amounts of tributary water on a fixed priority basis. Because junior water rights do not constitute a reliable source of water and because of the scarcity of tributary resources in the area, municipalities and water districts in the Cherry Creek basin have relied on supplemental groundwater resources and other nontributary supplies. However, under Colorado law, by combining various water rights under a court-approved plan for augmentation, junior water rights can effectively be used “out of priority” without injury to the senior appropriators. Because court-approved plans for augmentation allow water to be diverted from junior tributary water sources without regard to the priority system, such plans are currently the most common method by which new reliable water supplies are developed for municipal uses in Colorado. As a result, the Company believes that water derived from the Cherry Creek Project constitutes a reliable future supply to meet the growing demand within the area.

      At the beginning of its Cherry Creek Project in 1992, the Company acquired a total of approximately 4,559 acres of undeveloped land (primarily for the water rights associated with the land) and the right to drill and service water wells on land that was not acquired by the Company. To date, the Company has sold or exchanged a total of 4,279 acres of the Cherry Creek Project properties. In the year ended March 31, 2000, however, the Company repurchased 128 acres, which it had previously sold because the Company determined that the repurchased property is important to the full development of the Cherry Creek Project. During the fiscal year ended March 31, 2002, the Parker Water & Sanitation District (“PW&SD”), a special purpose water agency in Douglas County, initiated a condemnation action for 36 acres of that 128-acre parcel for use in connection with its own proposed new water supply program. The Company defended the property against this proposed taking. During the fiscal year ended March 31, 2003, the Company settled issues related to possession of the disputed property by PW&SD for a combination of a cash deposit (as against an ultimate determination of the value of the 36 acres) and preservation of rights and easements necessary to complete development of the Cherry Creek Project. As previously reported, the cash deposit in the amount of $294,000 was disbursed by the Court to the Company in the first quarter of Fiscal 2003. The Company expects further judicial proceedings to require PW&SD to make certain additional payments to the Company to reflect the actual value of the condemned property and to reimburse the Company for certain costs of defending its property rights; however, the outcome of such judicial proceedings is inherently uncertain. A valuation hearing in the condemnation action has been scheduled for later in Fiscal 2004. In connection with the condemnation action, the Company has commissioned various analyses and appraisals of portions of the Cherry Creek Project implicated in that dispute. As a result of the current status of the condemnation litigation and in light of the third-party estimates of value, the Company has determined that the Cherry Creek Project assets are properly valued on the Company’s books.

      The Company has retained substantially all of the water rights associated with the land it has resold (including the right to drill and service a number of wells on such resold land). The real estate parcels that have been sold are not needed to further the principal purposes of the Cherry Creek Project. The Company

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      In addition to the outright sales of Cherry Creek Project land, the Company, in April 1995, transferred approximately 257 acres of the Company’s Cherry Creek Project real estate to the State of Colorado for annexation into the Castlewood Canyon State Park in exchange for the rights to withdraw and use 1,290 acre-feet of nontributary water per year associated with the adjacent park land owned by the State.

      The Company currently has the right to sell or lease each of the various water rights it owns. However, in order to package its water rights so that it can sell long-term, reliable water resources to municipalities and other larger water users located in the Cherry Creek basin, the Company combined its various water resources in a plan for augmentation approved by the Colorado District Court, Water Division (the “Colorado Water Court”) in February 1998. During the fourth quarter of the year ended March 31, 1999, the Company drilled its first nontributary well to begin implementation of the plan for augmentation. This well provides the Company with additional information on the water resources in the aquifer. In addition, water from this well is available for future water sales. During the fiscal year ended March 31, 2003, the Company produced and sold its first water from this nontributary source. Although the amount and value of these water sales are not material, the Company believes that completion of construction, permitting, sale and successful delivery of Cherry Creek Project water are important milestones in development of the Cherry Creek Project.

      During the year ended March 31, 2003, the Company (i) acquired a permanent easement for the development of a series of additional nontributary wells, (ii) sought and received federal regulatory approval to complete the first such well, and (iii) successfully constructed our Arapaho Aquifier well and related our fall facilities to connect the new wells to Cherry Creek. Based on completion of the additional water production and delivery facilities, the Cherry Creek Project now has the legal and physical capability of delivering in excess of 600 acre-feet of water per year to users with alluvial production facilities along Cherry Creek.

      With the Plan for Augmentation approved and implementation begun, the Company is currently seeking to expand the market for Cherry Creek Project water in the Cherry Creek basin. The Company is considering a number of alternatives, from sale of water (or the entire Project) to a single buyer or user, to the short-term and/or long-term sale of water to municipalities or other water users. The sale of its water will, however, require the Company or the purchaser to develop and build the infrastructure necessary to utilize the water collected within the Cherry Creek Project. Capital expenditures necessary to produce and deliver all of the water available to the Cherry Creek Project are expected to be significant; however, the Company expects that such expenditures can be phased to coincide with increased demand for water in the area and sales of water from the Cherry Creek Project. The Company believes, however, that its recent success in acquiring permits for the Project and in developing the initial elements of the infrastructure have reduced uncertainties and enhanced the commercial viability of the Project.

      During the fiscal year ended March 31, 2001, the Company initiated or continued discussions with several local water agencies aimed at determining a basis on which the Cherry Creek Project could be integrated into the long-term water resource planning in the area. In the fiscal year ended March 31, 2002, the Company began marketing “Water Delivery Contract Units” (“WDCUs”) as contract rights to an undivided portion of the water production capacity of the Cherry Creek Project. During the fiscal year ended March 31, 2003, three local water agencies executed non-binding letters of intent to purchase WDCUs to meet a portion of their future water requirements.

      In order to satisfy conditions to purchase recited in the non-binding letters of intent to purchase WDCUs, the Company secured the additional production capacity necessary to meet the demand represented by the initial WDCUs. Based on the new well capacity and completion of the delivery facilities, the Cherry Creek Project will have the capacity, upon receipt of final regulatory approvals, to deliver in excess of 600 acre-feet of nontributary water annually beginning in July, 2003. The Company and the prospective purchasers of the

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Environmental Regulation

      The Company’s operations are or may become subject to federal, state and local laws and rules regulating the discharge of materials into the environment, air quality standards, pollution of stream and freshwater sources, odor, noise, dust and other environmental protection controls. The Company believes that it currently is in substantial compliance with all material environmental laws governing its operations. Furthermore, the Company does not believe that federal or state environmental laws will hinder or adversely affect its proposed operations. Compliance with existing environmental laws may have the effect of delaying the completion of projects in those cases where environmental impact statements or other similar documents have to be prepared and filed (such as in the project to extend surface water deliveries to the Company’s Farm Properties located in the Wheatland Water District in Yuba County). Furthermore, future legislation designed to protect the environment, as well as future interpretations of existing laws, could require further expenditures by the Company, or have adverse effects on its operations, the extent and nature of which cannot now be predicted. Water leased or sold by the Company may be subject to regulation as to quality by the United States Environmental Protection Agency (the “EPA”) acting pursuant to the Federal Safe Drinking Water Act (the “US Act”). In California, the responsibility for enforcing the US Act is delegated to the California Department of Health Services (the “Health Department”) and to the SWRCB acting pursuant to the California Safe Drinking Water Act (the “Cal Act”). The US Act provides for the establishment of uniform minimum national water quality standards, as well as governmental authority to specify the type of treatment processes to be used for public drinking water. Moreover, the EPA has an ongoing directive to issue regulations under the US Act and to require disinfection of drinking water, specification of maximum contaminant levels (“MCLS”) and filtration of surface water supplies. The Cal Act and the mandate of the Health Department are similar to the US Act and the mandate of the EPA, and in many instances MCLS and other requirements of the Health Department are more restrictive than those promulgated by the EPA.

      Both the EPA and the Health Department have promulgated regulations and other pronouncements, which require various testing and sampling of water and inspections by distributors and retailers and which set MCLS for numerous contaminants. Since the Company does not intend to sell water directly to consumers, it believes that these standards only affect the water agencies that may buy or lease the Company’s water. While drinking water regulations do not directly affect the Company, the regulations regarding the quality of water distributed affects the Company’s intended customers and may, therefore, depending on the quality of the Company’s water, impact the price and terms upon which the Company may in the future sell its water or water rights.

      Under various federal, state and local laws, regulations and ordinances (collectively, “Environmental Laws”), an owner or operator of real estate interests may be liable for the costs of cleaning up, as well as certain damages resulting from, past or present spills, disposals or other releases of hazardous or toxic substances or wastes on, in or from a property. Certain Environmental Laws including the federal Comprehensive Environmental Response Compensation and Liability Act and Resource Conservation and Recovery Act, impose such liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances or wastes at or from the property. The presence of such substances or wastes, or the failure to properly remediate any resulting contamination, also may adversely affect the owner’s or operator’s ability to sell, lease, or operate its property or to borrow using its property as collateral. Although the Company is not aware of any such environmental contamination on any of its real estate holdings or on any locations adjacent to its holdings, there can be no assurance that such environmental contamination does not exist.

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      As of the date of this report, the Company has 11 (eleven) employees, none of whom is covered by any collective bargaining agreement.

      The principal properties currently owned by the Company are the following:

	•	Undeveloped land in the Cherry Creek basin, Colorado, consisting of a total of approximately 408 acres (less the 36 acres to which PW&SD recently gained immediate possession in a settlement of the partial condemnation of one of the Company’s real estate parcels), and associated water rights. See “Item 1. Business — Description of Business — Colorado Cherry Creek Water Rights Project.” The Company’s Cherry Creek land is zoned for agricultural and residential uses or for use by special permit for a water project.
	•	Various rice farms and ranches, located in Yuba County, California, that collectively comprise 1,424 acres, together with the water rights associated with such land. The rice farms are graded for cultivation and watered by wells on the properties. The Company leases the rice farms and ranches to unaffiliated operators.
	•	The Company owns 30 acres of real estate located on the Yuba Property, in Yuba County, California, approximately ten miles northeast of Marysville, California. The 30 acres are zoned industrial-extractive and may be used for commercial but not residential purposes. However, the Company has deeded title to the water rights associated with approximately 9,025 acres of adjacent land that is owned by unaffiliated third parties. The Company maintains a project office on the parcel.
	•	Certain mineral interests and other property rights, including hydrocarbon, oil, gas and entry rights, related to 440 acres of real estate in Chico, California, and to 2,578 acres near Sacramento, California.
	•	Various cattle and crop farms with four associated residences, located in San Bernardino County, that collectively comprise 247 acres.

      One of the Company’s foregoing real estate properties in Yuba County, California is encumbered by a mortgage. For a description of the Company’s mortgage indebtedness, see “Note 11: Long-Term Debt” to the Company’s consolidated financial statements included as part of this Annual Report on Form 10-K.

      The Company leases its principal executive office at 102 Washington Avenue in Point Richmond, California, containing 2,400 net square feet, pursuant to a lease that expires in February 2005. The Company’s current monthly rental obligation for the facility is $4,800.

      During the fiscal year ended March 31, 2002, the Parker Water & Sanitation District (“PW&SD”) commenced a condemnation action in order to take ownership of a 36-acre portion of a land parcel (“the Vessel Parcel”) owned by the Company and held as part of the Cherry Creek Project in Colorado. (Case Number 01-CV-821, Douglas County District Court.) In the fiscal year ended March 31, 2003, the Company and PW&SD entered into a Stipulation for Immediate Possession under which the Company agreed to allow PW&SD to take possession of the 36-acre portion of the Vessel Parcel (“the Condemned Property”). Under the Stipulation for Immediate Possession, the Company preserved the water rights associated with the Condemned Property and was granted easements necessary for the Company to access and use such water rights. PW&SD made a deposit to the Court of $294,134 against the to-be-determined value of the Condemned Property. The court subsequently paid the deposit to the Company. The Company believes that the ultimate value of the Condemned Property is in excess of the deposit paid by PW&SD in connection with the Stipulation for Immediate Possession. Such value will be decided in accordance with Colorado law, subject to judicial review. A valuation hearing is scheduled for August, 2003. Based on the inherent uncertainty of the condemnation valuation process, it is impossible to predict the value that will ultimately accrue to the Company in exchange for the Condemned Property.

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      None.

PART II

Item 5.     Market For Registrant’s Common Equity and Related Stockholder Matters

      The Company’s common stock is currently traded electronically on the OTC Bulletin Board under the symbol “WWTR.” The following table sets forth for the prior two fiscal years the high and low closing sales prices of the common stock.

      On March 31, 2003, the Company had 1,552 record holders of its common stock. The Company believes there are numerous additional beneficial owners of the common stock whose shares are held in “street name.”

      To date, the Company has not declared or paid any cash dividends with respect to its common stock, and the current policy of the Board of Directors is to retain earnings, if any, to provide for the expenses of the Company. Consequently, no cash dividends are expected to be paid on the common stock in the foreseeable future. Further, there can be no assurance that the proposed operations of the Company will generate the revenues and cash flow needed to declare a cash dividend or that the Company will have legally available funds to pay dividends. Any dividends on the Common Stock would be subject to prior payment of dividends on the Company’s currently outstanding Series C Preferred Stock and Series F Preferred Stock.

      As of March 31, 2003 and 2002, there were outstanding 2,251.018 and 2,121.8 shares of the Company’s Series F Convertible Redeemable Preferred Stock. The Series F Preferred Stock provides for annual dividends, when and if declared, in the amount of $60.00 per year (6%), payable semi-annually in arrears in January and July. Such dividends may be payable in cash or in additional shares of Series F Preferred Stock, at the sole discretion of the Company’s Board of Directors. To date, such dividends have been declared and paid through the issuance of 251.018 additional shares of Series F Preferred Stock.

      As of March 31, 2003 and 2002, there were outstanding 7,708 shares of the Company’s Series C Convertible Redeemable Preferred Stock. The Series C Preferred Stock provides for annual dividends, when and if declared, in the amount of $72.50 per year (7.25%), payable semi-annually in arrears in January and July. During the fiscal year ended March 31, 2003, the Company declared and paid the Series C dividend due on July 15, 2002 but deferred declaring the Series C dividends due on January 15, 2003. Provisions related to the Series C Preferred Stock allow the holders of such securities to elect a majority of the Company’s Board in the event two consecutive dividends are unpaid. On June 25, 2003 the Company’s Board of Directors declared the Series C dividend which had been deferred from its due date of January 15, 2003. The dividend was paid on June 26, 2003.

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Equity Compensation Plan Information

      The following table sets forth certain information as of March 31, 2003 regarding securities authorized for issuance under the Company’s equity compensation plans.

      The compensation plans approved by the security holders represent the Company’s 1993 and 1997 Stock Option Plans, which are described in this Form 10-K at Item 12, below.

Item 6.     Selected Financial Data

      The table below summarizes certain financial data for the periods shown and is qualified in its entirety by, and should be read in conjunction with, the Company’s Consolidated Financial Statements and the Notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this Annual Report.

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Item 7.     Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

General

      Until the fiscal year ended March 31, 2000, the Company’s principal activity had been to acquire and develop water assets in California and in the Cherry Creek basin in Colorado. The Company did so because it believed that there was a growing demand for water resources in both of these areas, which demand is expected to exceed the water resources currently available to these areas. During the fiscal years ended March 31, 2001 and 2000, the Company executed a variety of wholesale water supply contracts with a number of retail municipal water agencies. However, the Company encountered significant regulatory obstacles to its attempts to develop and transfer water for delivery to such customers. Accordingly, the Company reduced its overhead expenditures, has deferred development activities, and has concentrated its efforts in California on overcoming the regulatory obstacles to water transfers and on arranging water transfers that do not face such obstacles. However, based on continuing regulatory difficulties and administrative delays in completing water transfers and generating revenue from water sales, the Company suspended additional water acquisitions. The Company also faced significant financial problems brought on by the expenditure of funds for overhead and asset acquisitions in the face of constrained operating revenue. Therefore, the Company has been exploring various alternatives, including the sale of the Company, the sale of some or all of its assets, the liquidation of the Company, and various restructuring alternatives. While the Company has no formal plan to liquidate all or substantially all of its assets, it is continuing to pursue a strategy of selling non-strategic assets to bolster its cash position while concentrating its efforts on the development and monetization of its existing strategic

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      In connection with its plans to sell assets to generate liquidity and working capital, and voluntarily restructure the Company’s debt and preferred stock capitalization in order to reduce the Company’s interest and preferred dividend burdens, the Company has, since the beginning of the March 31, 2001 fiscal year effected the following:

	•	During Fiscal 2001, the Company sold (a) its fee interest in the Cucamonga Water Fee Agreement; (b) its Central Basin (California) water rights; and (c) 1000 acre-feet of its Mojave Basin (California) water rights.
	•	During Fiscal 2002, the Company completed the sale of its Glenn County, California farm property and 123 acres of its land holdings in San Bernardino County California.
	•	During Fiscal 2003, the Company sold the remaining 1,966 acre-feet of its Mojave water rights (leaving only 30 acre-feet of such rights, which the Company has dedicated to its San Bernardino County real estate).

      With regard to the restructuring strategy, in Fiscal 2001 the Company (a) repurchased $2,456,000 of its Series C redeemable preferred stock at an 82% discount from face value; (b) retired its entire $10,000,000 issue of Series D redeemable preferred stock for $3,854,000 in cash plus $2,000,000 in face value of Series F redeemable preferred stock and 175,000 shares of the Company’s common stock; and (c) retired $909,000 of its 9% Convertible Debentures at a 45% discount from their face value. In Fiscal 2003, the Company retired an additional $500,000 of its 9% Convertible Debentures at a 45% discount from their face value.

Critical Accounting Policy

      In response to the Securities and Exchange Commission’s release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” the Company has identified its most critical accounting policy as that related to the carrying value of its water rights, which are carried at cost. Any event or circumstance that indicates to the Company that there is an impairment of the fair value of its water rights is recorded in the period in which such event or circumstance becomes known to the Company. During the fiscal years ended March 31, 2003, 2002, and 2001 no such event or circumstance occurred that would, in the opinion of management, signify the need for a material reduction in the carrying value of any of the Company’s water rights, except as described in Note 16 in the consolidated financial statements of the Company included in this Annual Report on Form 10-K.

      The critical estimates made by the Company in assessing the existence of an impairment is associated with the fair value of its water rights. When considered necessary, management obtains third-party valuations to assist and support their estimate of fair value. In the case of the Cherry Creek Project, the Company’s estimate of fair value is based upon comparison with water rights sales in the area, upon various third-party valuations performed for the Company within the preceding eighteen months, upon actual sales to an unaffiliated third party of water derived from the Project, and upon current negotiations for the sale of Water Delivery Contract Units.

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Results of Operations

      The following is a description of the Company’s results of operations for its three most recent fiscal years.

California Operations

      Water revenue for Fiscal 2003 increased $55,000 over Fiscal 2002, primarily due to the completion of a sale to USBR. The Inglewood transaction will expire during the fiscal year ending March 31, 2004. Water revenue for Fiscal 2002 decreased $663,000 (31%) from Fiscal 2001 primarily because the Company disposed of a water payment contract in Fiscal 2001 and because the Company did not complete any new water transfer transactions in Fiscal 2002. During Fiscal 2001, revenues consisted of (i) $1,287,000 that the Company received under the Inglewood, transaction, and (ii) $840,000 from other sources, including a water transfer agreement between the Company and the Santa Margarita Water District. Although the Company continued to receive payments under the Inglewood agreement (amounting to $1,306,000) in Fiscal 2002, the Company did not receive any payments under the Cucamonga Water Fee Agreement in Fiscal 2002 (because the Agreement had been disposed of in Fiscal 2001), and the Company did not complete any new water transfers during Fiscal 2002. The Company was unable to complete additional water transfer transaction in Fiscal 2003 primarily due to the laws and regulations that have hindered the Company’s ability to complete such water transfers on profitable terms. The complex structure of laws and regulations that govern water transfers in California, along with the way such constraints are administered so as to hinder independent transactions, will continue to limit the Company’s ability to effect profitable water transfer transactions in California in the foreseeable future.

      Gain on Sale of Water Rights. During Fiscal 2003 the Company sold its remaining 1,966 acre-feet of groundwater pumping rights in the Mojave Basin of California to two municipalities in San Bernardino County and realized an aggregate gain on those sales of $964,000. During Fiscal 2001, the Company sold 1,219 acre-feet of annual groundwater rights in the Central Basin in Los Angeles, California to a municipality in the Los Angeles area. The Company realized a gain on that sale in the amount of $428,000. During Fiscal 2001, the Company also sold 1,000 acre-feet of its Mojave Basin water rights to an unaffiliated water utility company, and realized a gain on that sale in the amount of $465,000. There were no comparable sales in Fiscal 2002.

      Cumulative Effect of Change in Accounting Principle. In the fourth quarter of Fiscal 2001, after giving consideration to guidance provided by the SEC Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, the Company performed a review of its revenue recognition policy affecting water sales contracts. As a result of this review, the Company revised its revenue recognition policy for water sales contracts effective April 1, 2000, and restated its Fiscal 2001 quarterly operating results to reflect this new policy. The issuance of SAB 101 changed the Company’s revenue recognition practices for non-refundable water contract payments. The Company previously recognized water revenue upon execution of a water sales contract, where delivery of water was not a condition for realization of payment. Prior to April 1, 2000, this water sales contract provided water revenue of $974,000 and cost of water revenue of $737,000. In accordance with SAB 101, the Company recorded the cumulative effect of the change in accounting principle with a charge of $237,000 to the Fiscal 2001 consolidated statement of operations in the fourth quarter of Fiscal 2001.

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Colorado Operations

      All of the Company’s Colorado operations involve the Company’s Cherry Creek Project. During Fiscal 2003, the Company began to make minor water sales in Colorado to an unaffiliated private entity. In addition, the Company has continued implementing a plan to market and sell Water Delivery Contract Units (“WDCUs”), contractual rights to receive a specified portion of the undivided water production capacity of the Cherry Creek Project, to Colorado water agencies. The Company is currently engaged in negotiations for the sale of initial WDCUs which, in aggregate, would account for 600 acre-feet of annual production. The Company anticipates that such sales, if completed, will be made as isolated, individually negotiated transactions, the timing and terms of which are inherently unpredictable. Thus, there can be no assurance that WDCUs will, in fact, be sold on terms satisfactory to the Company.

General and Administrative Expenses

      General and administrative expenses for Fiscal 2003 increased by $5,000 (less than 1%) from Fiscal 2002. A 5% increase in employment-related expenses was partially offset by a reduction in professional fees in Fiscal 2003, and a reversal of the Fiscal 2002 non-cash expense for deferred compensation arising from variable plan accounting for certain incentive stock options granted to an officer and director of the Company.

      In addition to employee compensation expenses, professional fees, travel/ marketing expenses, office occupancy charges, and other related expenses, the Company also includes charges related to the impairment of its assets as part of its general and administrative expenses. General and administrative expenses for Fiscal 2002 decreased by $858,000 (22%) from Fiscal 2001. The decrease was primarily due to a $763,000 asset impairment charge that the Company recognized in Fiscal 2001. The Company did not have any asset impairment charges in Fiscal 2003 or Fiscal 2002. Therefore, excluding the Fiscal 2001 asset impairment charge, general and administrative expenses in Fiscal 2002 decreased by $95,000 (2.4%) from Fiscal 2001. During Fiscal 2002, consulting and engineering fees decreased by $335,000 from the prior year as a result of reduced transaction activity. Payroll and fringe benefit costs increased by $161,000 due to a $154,000 non-cash expense for deferred compensation arising from variable plan accounting for certain incentive stock options granted to an officer and director of the Company.

      During Fiscal 2001, based upon a review of the value of such assets, the Company recorded a non-cash impairment of land of $318,000 and an impairment of water rights of $445,000, all associated with a water development project that the Company had initiated in Olancha, California. During Fiscal 2001, the Company determined that it could not successfully complete the Olancha project as anticipated. Accordingly, the Company returned all of the Olancha assets that it had previously purchased to the seller and former owner of such assets in exchange for the forgiveness of the outstanding balance of the Company’s obligation (“purchase financing”) to the seller and former owner. These impairment charges, therefore, were made to reduce the recorded asset values of the returned assets following the return of the assets to the seller in exchange for full satisfaction and retirement of the Company’s note in favor of the seller and former owner in the amount of $758,000. (Note that, for accounting purposes, the Company recognized an extraordinary gain of $769,000 on the extinguishment of the foregoing debt. See, “Other Non-Segment Information,” below.)

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Other Non-Segment Information

      Interest Income. Interest income is composed of interest earned on the Company’s cash and cash equivalents and investments and interest earned on the secured promissory notes the Company received in connection with the real estate that it has sold. The secured notes bear interest at rates between 8% and 9.5% per annum. Interest income decreased for Fiscal 2003 from Fiscal 2002, and for Fiscal 2002 from Fiscal 2001 due primarily to progressively lower interest rates and investment balances.

      Interest Expense. Interest expense for Fiscal 2003, Fiscal 2002 and Fiscal 2001 included interest of $794,000, $794,000 and $849,000, respectively, paid to the holders of the Company’s outstanding 9% Convertible Subordinated Debentures Due 2005 (the “Debentures”). Fiscal 2003, 2002 and 2001 also included $25,000, $64,000 and $182,000 respectively of interest related to the five-year amortizing term loan for the Inglewood water sale agreement. The loan was repaid and extinguished in Fiscal 2003. In Fiscal 2003, $38,000 of interest was paid in connection with the purchase of 12,000 acre-feet of water.

      Extraordinary Income, Net. In Fiscal 2003, the Company repurchased $500,000 of its outstanding Debentures, plus accrued interest of $21,000 for $296,000 in cash. After reducing related net deferred debt costs of $6,000, the Company recognized a $219,000 extraordinary gain on the early extinguishment of debt. In Fiscal 2001, the Company repurchased $909,000 of its outstanding Debentures, plus accrued interest of $14,000 for $514,000 in cash. After reducing related net deferred debt costs of $24,000, the Company recognized a $385,000 extraordinary gain on the early extinguishment of debt. During Fiscal 2001, the Company abandoned its Olancha project in Inyo County, California, due to insurmountable local regulatory impediments. In connection with that abandonment, the Company returned the associated real property to the seller and former owner of the property in exchange for full satisfaction and retirement of the Company’s note in favor of the seller and former owner in the amount of $758,000 and accrued interest of $11,000, and recognized an extraordinary gain on extinguishment of debt, net of income taxes, of $769,000.

Liquidity and Capital Resources

      The independent auditors’ report dated June 27, 2003 included with this Annual Report on Form 10-K contains the following explanatory paragraph:

      The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is dependent on uncommitted sales of Cherry Creek Project Water Delivery Contract Units or assets in order to generate cash for operations, which dependence raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

      For the year ended March 31, 2003, the Company recognized revenues of $1,529,000 and a gross profit of $488,000, from water sales and the lease of water rights. However, the gross profit was offset by general and administrative expenses of $3,081,000 consisting of payroll and fringe benefits, legal, accounting, consulting and engineering fees, and miscellaneous administrative expenses. Although the Company recognized $91,000 from interest income earned primarily from its cash and cash equivalents investments, the interest income was offset by $794,000 of interest expense incurred on its Debentures and $63,000 of interest expense incurred on its term loan and other obligations. As a result of the foregoing factors, the Company had negative cash flow from operating activities of $2,159,000 for the year ended March 31, 2003.

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      The Company funded its working capital needs during the year ended March 31, 2003 through its existing operating revenue, its existing capital resources, and cash generated by the sales of assets. The Company sold 1,966 acre-feet of annual groundwater pumping rights in the Mojave Basin for $2,637,000 in cash. The Company intends to continue to sell other non-strategic assets to generate cash and reduce its operating expenses while it continues to develop its principal water assets to generate operating revenues in the future. For example, the Company sold its shares in the Bear Valley Mutual Water Company on June 18, 2003, recognizing a gain of 79,000, and during the current fiscal year (ending March 31, 2004), the Company plans to sell its remaining land in San Bernardino County. These two assets had a combined book value of $1,195,000 as of March 31, 2003.

      The Company will also consider selling or otherwise redeploying its West Basin groundwater pumping rights during the current fiscal year, because the Inglewood agreement to which those rights have been dedicated since 1998 is scheduled to expire on October 1, 2003. The Company is also considering the possible sale of some or all of its water rights and real estate assets in Northern California.

      The Company’s recurring revenues will be insufficient to cover general and administrative expenses, interest on outstanding indebtedness and dividends when and if declared on outstanding preferred stock. Therefore, the Company currently plans to fund itself during the twelve months ending March 31, 2004 from any new water revenues that it may generate from its Water Delivery Contract Units, from its existing capital resources, and from sales of assets. As of March 31, 2003, the Company had working capital (consisting mostly of cash and cash equivalents) of approximately $1,134,000. In the event that the Company is unable to generate new water revenues from the sale of Water Delivery Contract Units or assets, or if any or all of the revenue on sales proceeds are significantly less than anticipated, the Company may not have sufficient cash available to fund its estimated expenses for the next twelve months. Such shortfall(s) from anticipated proceeds, if material, could impair the Company’s ability to continue as a going concern.

      As of March 31, 2003 the Company had working capital and a current ratio of $1,134,000 and 1.88 to 1, compared with $3,900,000 and 2.59 to 1 as of March 31, 2002.

      Because the Company anticipated that it would not generate sufficient revenues from its principal water projects in the near term, the Company has, during recent years also attempted to reduce the Company’s on-going cash payment obligations by restructuring some of the Company’s fixed obligations. During Fiscal 2003, the Company repurchased $500,000 of the Debentures plus accrued interest of $21,000 for $296,000. This reduction in outstanding indebtedness will save the Company approximately $45,000 in interest expense in Fiscal 2004. During Fiscal 2001, the Company repurchased $909,000 of the Debentures plus accrued interest of $14,000 for $514,000.

      During Fiscal, 2001, the Company also voluntarily redeemed 2,456.5124 shares of its $1,000 stated value Series C Preferred Stock at a purchase price of $180 per share for a total purchase consideration of $442,000. The net carrying value of such shares was $2,377,000 net of related private placement costs of $80,000. Also, during Fiscal 2001, the Company entered into an Investment Restructure Agreement (the “Agreement”) with Agbar and Interagua for the early redemption and retirement of the entire $10,000,000 of issued and outstanding Series D Preferred Stock. In consideration of that redemption and retirement, the Company (1) declared and paid to Interagua the December 15, 2000 scheduled dividend of $188,000; (2) returned to Interagua the remaining restricted cash balance (after giving effect to the reduction of such balance resulting from the aforementioned dividend) of $3,854,000; (3) issued 175,000 unregistered shares of the Company’s Common Stock to Interagua; and (4) issued to Interagua 2,000 shares of its newly authorized Series F Convertible Redeemable Preferred Stock, which shares of preferred stock have an aggregate stated value of $2,000,000. Since the Series D Preferred Stock accrued dividends on the $10,000,000 stated amount at a rate of 7.5% per annum, and the new shares of Series F Convertible Redeemable Preferred Stock accrue dividends on the stated value of $2,000,000 at a rate of 6.0% per annum, the Company has reduced its dividend payment obligations to Interagua by $630,000 annually. Furthermore, the Company has the option to pay dividends on the Series F Convertible Redeemable Preferred Stock in additional shares of such preferred stock rather than cash, thereby further reducing its need to make cash payments from its limited resources.

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      During Fiscal 2003, the Company retired its bank debt, making scheduled and voluntary, accelerated principal payments of the remaining $1,269,000 on such bank debt associated with the Company’s five-year water lease/sale transaction with the City of Inglewood. During Fiscal 2003, the Company also retired a purchase mortgage note when due in the amount of $47,000. The Company’s only remaining secured indebtedness is a purchase money mortgage secured by one of the Farm Properties with a remaining principal amount of $155,000 with interest at 9% per annum.

      During Fiscal 2003, the Company made capital expenditures totaling $370,000 in connection with the Cherry Creek Project, in anticipation of the completion of the sale of WDCUs in Fiscal 2004. The Company believes that its current resources plus the funds it expects to generate from the sale of non-strategic assets and the sale of Cherry Creek Project WDCUs will be sufficient to fund its planned capital outlays and operating expenses for the fiscal year ending March 31, 2004.

      Although the Company has attempted to reduce its future commitments, the Company is still committed to certain material expenditures over the next several years, including the following:

	•	The Company is obligated to make scheduled payments of principal on its remaining secured indebtedness for fiscal years ending March 31, 2004, 2005, 2006, 2007 and 2008 of $26,000, $28,000, $31,000, $33,000 and $37,000, respectively.
	•	The Company is required to make semi-annual interest payments on March 31 and September 30 of $374,000 on the $8,318,000 principal amount of Debentures through their maturity on September 30, 2005, and to make the payment of the $8,318,000 of principal upon that maturity date.
	•	The holders of the 7,708 outstanding shares of Series C Preferred Stock are entitled to receive, when and if declared, annual dividends in the amount of $72.50 per share, payable semi-annually on January 15 and July 15 of each year (aggregating $558,830 per year). During Fiscal 2003, the Company declared and paid cash dividends of $279,000.
	•	The holders of the 2,251.018 outstanding shares of Series F Preferred Stock are entitled to receive annual dividends in the amount of $60.00 per share, payable semi-annually on January 15, and July 15 of each year (aggregating $129,000 per year). These dividends may be paid in cash or in additional shares of Series F Preferred Stock, at the Company’s sole discretion. During Fiscal 2003, the Company declared and issued scheduled dividends, paid in 129.218 additional shares of Series F Preferred Stock.

      Based on its existing assets and on its projected operating income and expenses, the Company believes that it will be able to fund its foreseeable working capital needs for at least one year from the date of this report from existing cash, proceeds derived from on-going operations and proceeds from the anticipated sale of certain existing assets and the sale of Cherry Creek Project WDCUs. No assurance can be given that the Company will be able to sell its assets as planned or, if the Company elects to do so, that it will be able to raise additional funds.

      Although the Company has attempted to reduce its future commitments, the Company is still committed to certain material expenditures over the next several years, including the following;

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      In June 2003, the Company declared and paid the cash dividend on its Series C Preferred Stock due January 15, 2003 in the amount of $279,000.

      The holders of the 2,251.018 outstanding shares of Series F Preferred Stock are entitled to receive annual dividends in the amount of $60.00 per share, payable semi-annually on January 15, and July 15 of each year (aggregating $127,000 per year). These dividends may be paid in cash or in additional shares of Series F.

      The Company does not believe that inflation will have a material impact on its results of operations.

New Accounting Pronouncements

      In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. The Company also records a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The adoption of SFAS No. 143 on April 1, 2003 did not have a material effect on the Company’s consolidated financial statements.

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 amends existing guidance on reporting gains and losses on the extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as the use of such extinguishments have become part of the risk management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. The provisions of the Statement related to the rescission of Statement No. 4 is applied in fiscal years beginning after May 15, 2002. Earlier application of these provisions is encouraged. The provisions of the Statement related to Statement No. 13 were effective for transactions occurring after May 15, 2002, with early application encouraged. The adoption of SFAS No. 145 on April 1, 2003 did not have a material effect on the Company’s consolidated financial statements. The adoption of SFAS No. 145 will result in the reclassification of the gain on extinguishment of debt from an extraordinary item to continuing operations of $219,000 and $1,154,094 in Fiscal 2003 and Fiscal 2001, respectively.

      In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The adoption of SFAS No. 146 on January 1, 2003 did not have a material effect on the Company’s consolidated financial statements.

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements. The Company has elected to continue to account for its stock based compensation using the intrinsic value method pursuant to APB Opinion No. 25 and related interpretations. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements. The adoption of SFAS No. 148 did not have a material effect on the Company’s consolidated financial statements.

      In January 2003, the FASB approved for issuance FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51,

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      On May 15, 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No, 150 requires issuers to classify as liabilities (or assets in some circumstance) three classes of freestanding financial instruments that embody obligations for the issuer. Generally, SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company expects to adopt the provisions of the Statement on July 1, 2003. The Company did not enter into any financial instruments within the scope of the Statement during June 2003. However, it is reasonably possible that adopting SFAS No. 150 on July 1, 2003 for existing financial instruments entered into before May 31, 2003, could result in reclassification of the Company’s preferred stock as liabilities. The Company is currently evaluating the impact of SFAS No. 150. If adoption of SFAS No. 150 ultimately requires re-classification of the Company’s Series C and Series F Preferred Stock as liabilities, then the Company’s liabilities would increase $8,127,179, and the mezzanine section of the consolidated balance sheet would decrease by $8,127,179.

Risk Factors

      The ownership of the Company’s common stock involves numerous risks. The following discussion highlights some of the risks the Company faces and some of the risks related to the ownership of the Company’s Common Stock.

      To date, the Company’s activities have primarily consisted of managing and developing its various water rights and related assets, attempting to market and sell water and water assets, and water of its clients. The Company has generated revenues of $1,529,000, $1,464,000, and $2,127,000 during the fiscal years ended March 31, 2003, 2002 and 2001, respectively, while incurring net losses of $2,146,000, $3,280,000 and $1,315,000 during such years, respectively. Until Fiscal 2001, the Company had believed that the regulatory obstacles that have prevented the development of a water market in California would be lowered and that the Company would be able to monetize its principal California water assets and to substantially increase its revenues and generate profits therefrom. During Fiscal 2002, those obstacles, along with the spike in electric prices, prevented the Company from completing any new water transfer transactions. Although electric prices receded in Fiscal 2003, conveyance capacity constraints, the trend toward direct transactions between water districts (which eliminate the opportunity for the Company to earn compensation for arranging such transactions) and the Company’s limited financial resources prevented the Company from completing significant new water sales. In light of the Company’s current financial condition, if the Company continues its operations, losses from operations may not be sustainable for the period of time required to develop a viable water market, and it is possible that governmental entities will continue to monopolize access to conveyance and storage facilities thus precluding profitable third-party water transfers, particularly across the Delta.

      The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the

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      The Company’s ability to generate material revenues in the future is dependent on (i) the Company’s ability to sell significant quantities of water from its Yuba Property water assets, (ii) the Company’s ability to develop and sell water as part of the Colorado Cherry Creek Project, (iii) the Company’s activities as an independent water wholesaler in California, and (iv) the Company’s ability to resolve regulatory issues restricting its ability to sell and transport water to potential customers in its California operations. The Company has encountered significant regulatory obstacles in its attempts to develop and transfer water for delivery to California customers, which regulatory obstacles the Company does not expect to overcome in the near future. Unless the regulatory impediments are removed or modified, the Company believes that its ability to generate significant revenues from its water assets will be severely limited. No assurance can be given that the regulatory obstacles currently limiting the Company’s ability to protect, develop and monetize its California water assets will be changed, or if changed, that the changes will occur in the near future. Moreover, the Company faces significant competition in arranging independent water transfers from governmental agencies, including USBR, DWR and MWD, which have offered direct water purchase transactions to certain irrigation districts. This competition is significant because these agencies also control or influence access to conveyance and storage facilities necessary to completion of water transfers. Finally, in addition to its ability to overcome numerous regulatory impediments, the Company’s ability to become an independent water wholesaler in California is dependent upon the Company’s ability to arrange for the transportation and storage of water and on its ability to finance the foregoing activities. As a result, no assurance can be given that the Company will ever be able to generate significant revenues from its water transfer activities in California.

      In addition, before the Company can consummate significant water deliveries in its Cherry Creek Project in Colorado, the Company or the purchaser of such water will have to build the infrastructure necessary to utilize the water. The requirement to build the infrastructure will affect the ability of the Company to sell its water, the price at which the water can be sold, and the revenues that the Company can derive from its Colorado water assets.

      As a result of the operating losses sustained by the Company during the last several years, which have been partially offset in Fiscal 2003, Fiscal 2002 and Fiscal 2001 by sales of certain assets, the Company may not have sufficient available cash to carry out its business plans over the longer term. Regulatory difficulties that the Company has encountered in California will continue to impact the Company’s ability to protect, develop and monetize its California water assets. The time period in which a return could be realized on the investment represented by these assets is unknown. These uncertainties will make it difficult for the Company to obtain new financing, if necessary, to pursue its business plans. As a result of the continuous delays that have affected the Company’s ability to develop/sell water from both its Northern California assets (primarily the Yuba Property and Farm Properties) and from its Cherry Creek Project, and the uncertainty as to when the regulatory difficulties will be overcome (particularly with regard to the Yuba Properties), the Company may not have the financial resources to continue to operate until it can realize the true value of these assets. As a result, the Company may be forced to sell or encumber one or more of these assets in order to obtain sufficient working capital to fund the development of its remaining assets. Because of the nature of the Company’s assets, the limited market and number of buyers for such assets, the Company’s financial condition, and other related factors, any sale of either of these assets could be a price that is below the value that the Company could derive from these assets if it had the financial resources to properly develop and eventually market the water associated with its assets. In addition, because of the Company’s financial

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      In May 1999, the Company entered into an agreement for the purchase of 14,000 acre-feet of water from an unaffiliated company. In accordance with the agreement, the Company paid the seller a deposit of 50% of the total purchase price and agreed to pay the remainder upon periodic delivery of the water. During the year ended March 31, 2001 the Company took delivery of 2,000 acre-feet of this water and redelivered the water to an unaffiliated customer. In accordance with the terms of the purchase agreement, the Company paid the seller the remaining 50% of the purchase price for the 2,000 acre-feet delivered. During Fiscal 2003, the Company paid the seller for the remaining 12,000 acre-feet of water available under the purchase contract.

      In December 1999, the Company entered into an agreement to sell the aforementioned 14,000 acre-feet of water to a third-party buyer at a price that includes a profit to the Company. As noted above, during the year ended March 31, 2001 the Company delivered 2,000 acre-feet of water to this third-party buyer. The remaining 12,000 acre-feet of water cannot currently be delivered to the buyer due to a dispute between the buyer and certain other water agencies who control the means of conveying such water to the buyer. The buyer and the Company have mutually acknowledged that the dispute (which is not material to the Company) represents a force majeure event preventing current delivery. Although the buyer has not been able to accept delivery of the water, the buyer has paid the Company the entire re-sale purchase price for the full 14,000 acre-feet, as required in the re-sale contract. The balance of this prepayment against the Company’s delivery obligation is accounted for as current deferred revenue of $824,120 ($900,000, less deferred interest income of $75,880).

      The Company continues to be willing to deliver the remaining 12,000 acre-feet of water to the contracted buyer if and when the force majeure issues are resolved. Because near-term resolution of these issues is doubtful, the Company and the buyer are exploring alternatives. Currently, there can be no assurance that viable and mutually attractive alternatives will be identified and/or implemented.

      The Company has no variable rate debt outstanding. Its fixed rate debt consists exclusively of $8,318,000 of principal amount of its Debentures which carry an interest rate of 9% per annum and which mature on September 30, 2005 and $155,000 remaining principal amount (before giving effect to a principal reduction of $29,000 payable on July 21, 2003) on a purchase money mortgage secured by one of the Company’s Farm Properties. The following table presents principal cash flows and related weighted average interest rates of the Company’s long-term fixed rate debt for the fiscal periods indicated:

      The carrying amount of long-term debt is a reasonable estimate of fair value as management believes the terms of the debt approximates the interest rate and other terms currently available to the Company.

      The carrying amount of the debentures is based on the principal amount owed, and does not represent management’s opinion with respect to the interest rates and terms of the debt as compared to those commercially available to the Company in the marketplace for similar instruments. Over the past three fiscal years the Company has repurchased debentures in an unrelated series of voluntary transactions between the Company and individual debenture holders at 55 cents per dollar of face amount. At the times consummated, each of these repurchase transactions represented the fair value of the debentures. During the fiscal year ended March 31, 2003, the Company repurchased debentures at the price of 55 cents per dollar, which is management’s best estimate of fair value. Because there is no quoted market for the debentures, estimating

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      The consolidated financial statements and the report thereon and notes thereto, which are attached hereto as pages F-1 through F-27, and indexed at page 2, are incorporated herein by reference.

      Not applicable

PART III

      The authorized number of Directors of the Company is currently fixed at six and is divided into three classes, each having two members. The Directors in each class are elected for three-year terms, so that the term of office of one class of Directors expires at each annual meeting. As of June 28, 2003, there were two vacancies on the Board of Directors.

      The following chart sets forth biographical information concerning the directors and executive officers of the Company.

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Committees and Meetings of the Board of Directors

      The Company’s Audit Committee consists of Messrs. Baker (chairman), Abel, and Harrington. The Audit Committee reviews the independence, professional services, fees, plans and results of the independent auditors’ engagement, and recommends the engagement, retention or discharge of the independent auditors to the Board of Directors. All members of the Audit Committee are independent, as independence is defined in Rule 4200(a)(15) of the NASD listing standards.

      The Company’s Compensation Committee consists of Messrs. Abel (chairman), Baker and Harrington. The Compensation Committee establishes the compensation of executive officers and administers the Company’s stock option plans. All members are independent.

      The Company’s Nomination Committee consists of Messrs. Harrington (chairman), Abel and Baker. The Nomination committee identifies, screens and recruits nominees for election to the Board of Directors, as necessary. All members are independent.

      The Audit Committee, Compensation Committee and Nomination Committee are the only standing committees of the Company’s Board of Directors.

      Messrs. George, Abel, Baker and Harrington also serve as the members of the Board of Directors of the Cherry Creek Water Company, the Company’s wholly-owned subsidiary incorporated in Colorado.

      Section 16(A) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

      To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended March 31, 2003, the Company’s officers, directors, and greater than 10% beneficial owners complied with all Section 16(a) filing requirements.

      Summary Compensation Table. The following tables set forth certain information concerning the annual and long-term compensation for services rendered to the Company in all capacities for the fiscal years ended March 31, 2003, 2002, and 2001 of (i) all persons who served as the Chief Executive Officer of the

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(1)	Mr. Gochnauer joined the Company in June 2000.

      Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values. The following table sets forth information regarding stock options that were exercised by the Named Executives during the last fiscal year and the number and value of unexercised options owned at March 31, 2003 by the Named Executives.

(1)	The value of unexercised options represents the excess, if any, of the market value of the Common Stock on March 31, 2003, based on the closing price on that day of $.25 per share, over the exercise price of the options.

      Director Compensation. Directors who are not employees of the Company receive a fee of $10,000 per year for service on the Board of Directors and an additional fee of $10,000 per year for service as the chairman of any committee of the Board of Directors. In addition, all directors receive $1,000 for each Board meeting they attend, and all directors are reimbursed for out-of-pocket expenses incurred by them in connection with attending Board meetings. Each non-employee director is automatically granted an option on the first business day of each fiscal year to purchase 20,000 shares of Common Stock at an exercise price equal to the closing price for the Common Stock as reported on the date of grant of such option. Such options are exercisable as to one-third on the first, second and third anniversary of grant. On April 1, 2003, the Company’s three independent directors each received 20,000 options exercisable at a price of $.8625 per share.

      Employment Agreements. None of the Named Executives currently is a party to any written or oral employment agreement with the Company. The Company has adopted an Employee Retention Policy under which the Company agrees to provide any employee (with the exception of the Chief Executive Officer) whose position is eliminated as a result of a corporate reduction in force one month notice of such termination and three months of salary continuation upon satisfactory conclusion of employment.

Compensation Committee Interlocks and Insider Participation in Compensation Decisions

      No members of the Compensation Committee are, or since April 1, 2002 have been, officers of the Company, nor have such members had any material business relationship with the Company.

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Stock Option Plans

      1993 Stock Option Plan. The 1993 Stock Option Plan (the “1993 Plan”) authorized the granting of both incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), and nonqualified stock options to officers, non-employee directors, employees, consultants and others performing services for the Company to purchase in the aggregate 800,000 shares of the Company’s Common Stock. The 1993 Plan expired in April 2003. As a result, the Company cannot issue any additional options under the 1993 Plan. However, the termination of the 1993 Plan does not affect the validity of currently outstanding options.

      Options granted under the 1993 Plan expire on such date as the Compensation Committee has determined (typically ten years after the date of grant). Options are not transferable except by will or by the laws of descent and distribution; during the life of the person to whom the option is granted, that person alone may exercise them. All rights to exercise options terminate three months from the date a grantee ceases to be an employee of the Company or any subsidiary for any reason other than death or disability.

      If a grantee dies while in the employ of the Company, his or her option may be exercised at any time within 12 months following the grantee’s death by his or her estate or by the person or persons to whom the grantee’s rights under the option passed by will or operation of law, but only to the extent such option was exercisable by the grantee at the time of his or her death. Except for certain stated provisions covering termination, disability or death, no option may be exercised after the expiration of its original term.

      1997 Stock Option Plan. The 1997 Stock Option Plan currently provides for the grant of 1,400,000 options to officers, directors, other key employees and consultants of the Company. The 1997 Stock Option Plan is administered by the Board of Directors or a committee of the Board, and is currently administered by the Compensation Committee of the Board of Directors, which has complete discretion to select the optionees and to establish the terms and conditions of each option, subject to the provisions of the 1997 Stock Option Plan. If necessary in order to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 162(m) of the Code, the committee shall, in the Board’s discretion, be comprised solely of “non-employee directors” within the meaning of said Rule 16b-3 and “outside directors” within the meaning of Section 162(m) of the Code. Options granted under the 1997 Stock Option Plan may be “incentive stock options” as defined in Section 422 of the Code, or nonqualified options, and will be designated as such.

      The exercise price of incentive stock options may not be less than the fair market value of the Company’s Common Stock as of the date of grant (110% of the fair market value if the grant is to an employee who owns more than 10% of the total combined voting power of all classes of capital stock of the Company). The Code currently limits to $100,000 the aggregate value of Common Stock that may be acquired in any one calendar year pursuant to incentive stock options under the 1997 Stock Option Plan or any other option plan adopted by the Company. Nonqualified options may be granted under the 1997 Stock Option Plan at an exercise price less than the fair market value of the Common Stock on the date of grant. Nonqualified options also may be granted without regard to any restriction on the amount of Common Stock that may be acquired pursuant to such options in any one year.

      In general, upon termination of employment of an optionee, all options granted to such person which were not exercisable on the date of such termination would immediately terminate, and any options that are exercisable would terminate up to one year following termination of employment.

      Options may not be exercised more than ten years after the grant date (five years after the grant date if the grant is an incentive stock option to an employee who owns more than 10% of the total combined voting power of all classes of capital stock of the Company). Except with the express approval of the administrator with respect to nonqualified options, options granted under the 1997 Stock Option Plan are not transferable and may be exercised only by the respective grantees during their lifetime or by their heirs, executors or administrators in the event of death. Under the 1997 Stock Option Plan, shares subject to cancelled or terminated options are reserved for subsequently granted options. The number of options outstanding and the exercise price thereof are subject to adjustment in the case of certain transactions such as stock splits, stock

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      The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock, Series C Preferred Stock and Series F Preferred Stock as of June 27, 2003 by (i) each person who is known by the Company to own more than 5% of the outstanding Common Stock, Series C Preferred Stock or Series F Preferred Stock; (ii) each of the Company’s directors; and (iii) all current officers and directors (including the director nominees) of the Company as a group.