PURE CYCLE CORP

Previous wording

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), “we,” “us,” “our” and "Pure Cycle" refer to Pure Cycle Corporation and all entities owned or controlled by Pure Cycle Corporation. You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes, related MD&A and discussion of our business included in our Annual Report on Form 10-K for the year ended August 31, 2024 (2024 Annual Report) filed with the United States (U.S.) Securities and Exchange Commission (SEC) and the unaudited consolidated financial statements and accompanying notes included in this Form 10-Q. The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to “Disclosure Regarding Forward-Looking Statements” in this Form 10-Q; and Part I, Item 1A. “Risk Factors” in our 2024 Annual Report for further discussion).

Current wording

In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), “we,” “us,” “our” and "Pure Cycle" refer to Pure Cycle Corporation and all entities owned or controlled by Pure Cycle Corporation. You should read the following discussion in conjunction with our consolidated financial statements and accompanying notes, related MD&A and discussion of our business included in our Annual Report on Form 10-K for the year ended August 31, 2025 (the “2025 Annual Report”) filed with the United States (U.S.) Securities and Exchange Commission (the “SEC”) and the unaudited consolidated financial statements and accompanying notes included in this Form 10-Q. The results of operations reported and summarized below are not necessarily indicative of future operating results, and future results could differ materially from those anticipated in forward-looking statements (refer to “Disclosure Regarding Forward-Looking Statements” in this Form 10-Q and Part I, Item 1A. “Risk Factors” in our 2025 Annual Report for further discussion).

Previous wording

Although higher mortgage interest rates and volatile macroeconomic and geopolitical conditions may persist for some time, homebuilders' strategic use of interest rate buydowns as incentives has played a crucial role in driving sales during higher levels of interest rates. Despite higher interest rate and recent market uncertainty stemming from anticipated U.S. governmental policy changes, we maintain a positive long-term outlook on land development and the housing market based on fundamental factors remaining positive. These include favorable demographics, the lot and housing supply-demand imbalance resulting from a decade-plus of underproduction of new homes in relation to population growth, and low resale home inventory. While we remain confident in the long-term growth prospects for the industry given these factors, the current demand for new homes is subject to continued uncertainty due to many factors. The combination of higher mortgage interest rates since early 2022, several years of rising housing prices, elevated inflation, and various other macroeconomic and geopolitical concerns has been moderating housing demand. Although interest rates have been stabilizing, we expect moderate to lower demand to continue throughout 2025 and into early 2026. Given current conditions, we continue to monitor market dynamics and surrounding community performance and adjust the timing of additional construction expenditures at Sky Ranch as warranted. We believe our segment pricing (entry level) lots and the low inventory of entry level housing in the Denver market will help Sky Ranch navigate a changing market better than other surrounding and significantly higher priced communities.

Current wording

Although higher mortgage interest rates and volatile macroeconomic and geopolitical conditions may persist for some time, homebuilders' strategic use of interest rate buydowns as incentives has played a crucial role in driving sales. Despite current interest rates and recent market uncertainty stemming from actual and anticipated U.S. governmental policy changes, we maintain a positive long-term outlook on land development and the housing market based on fundamental factors remaining positive. These include favorable demographics, the lot and housing supply-demand imbalance resulting from a decade-plus of underproduction of new homes in relation to population growth, and low resale home inventory. While we remain confident in the long-term growth prospects for the industry given these factors, the current demand for new homes is subject to continued uncertainty due to many factors. The combination of higher mortgage interest rates since early 2022, several years of rising housing prices, elevated inflation, and various other macroeconomic and geopolitical concerns have been moderating housing demand. Although interest rates may decline, we expect moderate to lower demand to continue throughout 2026. Given current conditions, we continue to monitor market dynamics and surrounding community performance and will adjust the timing of additional construction expenditures at Sky Ranch as warranted. We believe our segment pricing (entry level) lots and the low inventory of entry level housing in the Denver market will help Sky Ranch navigate a cyclical market better than other surrounding and significantly higher priced communities.

Previous wording

Our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economics, the homebuilding industry, capital, credit and financial market conditions and a stable and constructive political and regulatory environment (particularly regarding housing and mortgage loan financing policies and trade policies impacting the cost of construction and building materials). The continuing impact of the Federal Reserve’s policies for the federal funds interest rate and other measures to moderate persistent U.S. inflation and the uncertainty in future Federal Reserve monetary policy are expected to be ongoing headwinds for the housing market in 2025 and beyond. Prolonged supply chain disruptions, labor shortages and other production-related challenges could extend or delay our construction cycle times and intensify construction-related cost pressures beyond our experience in 2025. In addition, consumer demand for our homes and our ability to grow and scale, revenue and returns in fiscal 2025 and 2026 could be materially and negatively affected by the above-described monetary policy impacts or other factors that curtail mortgage loan availability, employment or income growth or consumer confidence in the U.S. or in the Colorado markets. The potential extent and effect of these factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in fiscal 2024, should not be considered indicative of future results.

Current wording

Our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on the prevailing economic environment, the homebuilding industry, capital, credit and financial market conditions and political and regulatory factors (particularly regarding housing and mortgage loan financing policies and trade policies impacting the cost of construction and building materials). The continuing impact of Federal Reserve actions to moderate persistent U.S. inflation and the uncertainty regarding future Federal Reserve monetary policy are expected to be ongoing headwinds for the housing market in 2026. Prolonged supply chain disruptions, labor shortages, increased costs as a result of tariffs or other factors and other production-related challenges could extend or delay our construction cycle times and intensify construction-related cost pressures beyond those we experienced in 2025. In addition, consumer demand for our homes and our ability to grow and scale revenue and returns in fiscal 2026 could be materially and negatively affected by the above-described monetary policy impacts or other factors that curtail mortgage loan availability, employment or income growth or consumer confidence in the U.S. and in the Colorado markets.

Previous wording

For more than 30 years, we have accumulated and continue to accumulate a portfolio of valuable water rights, land interests and single-family rental homes along the Front Range of Colorado. We have added an extensive network of wholesale water production, storage, treatment and distribution systems, and wastewater collection and treatment systems that we operate and maintain to serve domestic, commercial, and industrial customers in the eastern Denver metropolitan region. Our primary land asset, known as Sky Ranch, is in one of the most active development areas in the Denver metropolitan region along the rapidly developing I-70 corridor, where we are developing lots for residential, commercial, retail, and light industrial uses. Sky Ranch is zoned to include up to 3,200 single family and multifamily homes, parks, open spaces, trails, recreational centers, schools, and over two million square feet of retail, commercial and light industrial space, all of which will be serviced by our water and wastewater services segment. Additionally, we have retained lots in our Sky Ranch development for our single-family rental business where we build single-family homes for rent, typically under annual lease agreements. With 14 homes currently owned and rented, we continue to expand this new line of business which may include more than 200 rental homes at Sky Ranch over the next several years.

Current wording

For more than 30 years, we have accumulated and continue to accumulate a portfolio of valuable water rights, land interests and single-family rental homes along the Front Range of Colorado. We have added an extensive network of wholesale water production, storage, treatment and distribution systems and wastewater collection and treatment systems that we operate and maintain to serve domestic, commercial, and industrial customers in the eastern Denver metropolitan region. Our primary land asset, known as Sky Ranch, is in one of the most active Master Planned Communities in the Denver metropolitan region along the rapidly developing I-70 corridor, where we are developing lots for residential, commercial, retail, and light industrial uses. Sky Ranch is zoned to include up to 3,200 single-family and multifamily homes, parks, open spaces, trails, recreational centers, schools, and over two million square feet of retail, commercial and light industrial space, all of which will be serviced by our water and wastewater services segment. Additionally, we have retained lots in our Sky Ranch development for our single-family rental business where we contract with national home builders to build single-family homes we rent, typically under annual lease agreements. With 19 homes currently owned, we continue to expand this new line of business, which may include more than 200 rental homes at Sky Ranch over the next several years.

Previous wording

Although we report our results of operations through our water and wastewater resource development segment and our land development segment, we operate these segments as a cohesive business designed to provide a cost effective, sustainable, and value-added business enterprise.

Current wording

Although we report our results of operations through our water and wastewater resource development segment, our land development segment, and our single-family rental segment, we operate these segments as a cohesive business designed to provide a cost effective, sustainable, and value-added business enterprise.

Previous wording

Revenues for our water operations are dependent on us growing the number of customers we serve. If we are unable to add customers to our systems and sell taps to builders, our revenues could be negatively impacted. We currently are the developer of the Sky Ranch Master Planned Community, which is the main driver of our tap sales. Prolonged periods of hot and dry weather generally cause increased water usage for watering lawns, washing cars, and keeping parks irrigated. Additionally, prolonged periods of dry weather could lead to drought restrictions and limited water availability. Despite our substantial water supply, customers may be required to conserve water usage under such drought restrictions which would negatively impact metered usage revenues. We have addressed some of this vulnerability by instituting minimum customer charges which are intended to cover fixed costs of operations under all likely weather conditions.

Current wording

Revenues for our water operations are dependent on us growing the number of customers we serve. If we are unable to add customers to our systems and sell taps to builders, our revenues could be negatively impacted. We currently are the developer of the Sky Ranch Master Planned Community, which is the main driver of our tap sales. Prolonged periods of hot and dry weather generally cause increased water usage for watering lawns, washing cars, and keeping parks irrigated. Conversely, prolonged periods of dry weather could lead to drought restrictions and limited water availability. Despite our substantial water supply, customers may be required to conserve water usage under such drought restrictions, which would negatively impact metered usage revenues. We have addressed some of this vulnerability by instituting minimum customer charges, which are intended to cover fixed costs of operations under all likely weather conditions.

Previous wording

Our Land Development segment is primarily focused on developing the Sky Ranch Master Planned Community located along the booming I-70 corridor. We develop and sell residential, commercial, retail, and light industrial lots. Sky Ranch is zoned to include up to 3,200 single-family and multifamily homes, parks, open spaces, trails, recreational centers, and schools. Additionally, Sky Ranch is zoned to include over two million square feet of retail, commercial, and light industrial space, which is the equivalent of approximately 1,800 residential units, meaning the Sky Ranch community at build-out will include a total of roughly 5,000 residential and equivalent units. Our land development activities include the design, permitting, and construction of all the horizontal infrastructure, including, storm water, drainage, roads, curbs, sidewalks, parks, open space, trails, and other infrastructure to deliver “ready to build” finished lots to home builders and commercial customers. Our land development activities generate revenue from the sale of finished lots as well as construction revenues from activities where we construct infrastructure on behalf of others. Land development revenues come from our home builder customers under specific agreements for the delivery of finished lots. Additionally, pursuant to certain agreements with the Sky Ranch CAB and its related metropolitan districts, on their behalf we construct public infrastructure such as roads, curbs, storm water, drainage, sidewalks, parks, open space, trails etc., the costs of which are reimbursed to us by the Sky Ranch CAB through funds generated from property taxes, fees or the issuance of municipal bonds.

Current wording

Our Land Development segment is primarily focused on developing the Sky Ranch Master Planned Community located along the booming I-70 corridor. We develop and sell residential, commercial, retail, and light industrial lots. Sky Ranch is zoned to include up to 3,200 single-family and multifamily homes, parks, open spaces, trails, recreational centers, and schools. Additionally, Sky Ranch is zoned to include over two million square feet of retail, commercial, and light industrial space, which is the equivalent of approximately 1,800 residential units, meaning the Sky Ranch community at build-out will include a total of roughly 5,000 residential and equivalent units. Our land development activities include the design, permitting, and construction of all the horizontal infrastructure, including storm water, drainage, roads, curbs, sidewalks, parks, open space, trails, and other infrastructure to deliver “ready to build” finished lots to home builders and commercial customers. Our land development activities generate revenue from the sale of finished lots as well as construction revenues from activities where we construct infrastructure on behalf of others. Land development revenues come from our home builder customers under specific agreements for the delivery of finished lots. Additionally, pursuant to certain agreements with the Sky Ranch CAB and its related metropolitan districts, on their behalf we construct public infrastructure such as roads, curbs, storm water, drainage, sidewalks, parks, open space, trails, and other amenities, the costs of which are reimbursed to us by the Sky Ranch CAB through funds generated from property taxes, fees or the issuance of municipal bonds.

Previous wording

We have been developing the Sky Ranch community since 2017 in phases. We believe it will take approximately eight to ten more years to fully develop Sky Ranch. In 2017, we began the initial development phase of Sky Ranch when we entered separate contracts with several national homebuilders, pursuant to which we sold a total of 505 single-family, detached residential lots at Sky Ranch. Pursuant to these agreements, we were obligated to construct infrastructure and other public improvements as well as wholesale infrastructure improvements (i.e., a wastewater reclamation facility and wholesale water facilities). Since starting, multiple phases of the Sky Ranch development are complete, and revenue and costs have been recognized.

Current wording

We have been developing the Sky Ranch community in phases since 2017. We believe it will take approximately eight to ten more years to fully develop Sky Ranch. In 2017, we began the initial development phase of Sky Ranch when we entered separate contracts with several national home builders, pursuant to which we sold a total of 505 single-family, detached residential lots at Sky Ranch. Pursuant to these agreements, we were obligated to construct infrastructure and other public improvements as well as wholesale infrastructure improvements (i.e., a wastewater reclamation facility and wholesale water facilities). Since starting, multiple phases of the Sky Ranch development are complete and revenue and costs have been recognized.

Previous wording

During our fiscal 2021, we began construction on the second development phase at Sky Ranch. For this phase, we entered separate contracts with several national homebuilders to sell 938 single-family attached and detached residential lots at Sky Ranch, and we retained approximately 94 lots (through such contracts and subsequent amendments) for use in our single-family home rental business. The second development phase is approximately 250 acres and is being completed in five sub-phases (referred to as Phase 2A, 2B, 2C, 2D and 2E). Due to our strong performance in the first phase of the Sky Ranch project, we were able to realize an approximate 76% increase in our average lot prices in Phase 2. For example, we increased our sales price for a 45’ foot lot from an average of $75,000 to $132,000 and added an escalation clause that increases the prices depending on timing of payments. The timing of cash flows includes certain milestone deliveries such as the completion of governmental approvals for final plats, installation of wet utilities, and final completion of lot deliveries.

Current wording

During our fiscal 2021, we began construction on the second development phase at Sky Ranch. For this phase, we entered separate contracts with several national home builders to sell the first 872 single-family attached and detached residential lots in Phase 2 of Sky Ranch, and we retained approximately 91 lots (through such contracts and subsequent amendments) for use in our single-family home rental business. The second development phase is approximately 250 acres and is being completed in five sub-phases (referred to as Phase 2A, 2B, 2C, 2D and 2E). Due to our strong performance in the first phase of the Sky Ranch project, we were able to realize an approximate 53% increase in our average lot prices in Phase 2. For example, we increased our sales price for a 45’ foot lot from an average of $75,000 to $115,000. The timing of cash flows includes certain milestone deliveries such as the completion of governmental approvals for final plats, installation of wet utilities, and final completion of lot deliveries.

Previous wording

In February 2021, we began construction activities in Phase 2A at Sky Ranch, which has 229 residential lots, 10 of which we have retained for use in our single-family rental business. Contracts with three of the four homebuilders included milestone payments as construction progressed, with the fourth homebuilder contract making one payment due upon the transfer of title to the finished lots. As of May 31, 2025, Phase 2A of the Sky Ranch development is 100% complete, and we have received all $18.4 million of payments related to the sale of the 219 lots in Phase 2A.

Current wording

In February 2021, we began construction activities in Phase 2A at Sky Ranch, which has 229 residential lots, 10 of which we have retained for use in our single-family rental business. Contracts with three of the four home builders included milestone payments as construction progressed, with the fourth home builder contract making one payment due upon the transfer of title to the finished lots. As of November 30, 2025, Phase 2A of the Sky Ranch development is 100% complete, and we have received all $18.4 million of payments related to the sale of the 219 lots in Phase 2A.

Previous wording

In March 2023, we began construction activities in Phase 2B at Sky Ranch, which is platted for 211 residential lots, 17 of which we retained for use in our single-family rental business. Contracts with three of the four homebuilders in Phase 2B included milestone payments as construction progressed, with the fourth homebuilder making one payment due upon the transfer of title to the finished lots. As of May 31, 2025, Phase 2B of the Sky Ranch development is approximately 96% complete, and we have received all $17.3 million of payments related to the sale of the 211 lots in Phase 2B.

Current wording

In March 2023, we began construction activities in Phase 2B at Sky Ranch, which is platted for 211 residential lots, 17 of which we retained for use in our single-family rental business. Contracts with three of the four home builders in Phase 2B included milestone payments as construction progressed, with the fourth home builder making one payment due upon the transfer of title to the finished lots. As of November 30, 2025, Phase 2B of the Sky Ranch development is approximately 98% complete, and we have received all $17.3 million of payments related to the sale of the 211 lots in Phase 2B.

Previous wording

In February 2024, we began construction activities in Phase 2C at Sky Ranch, which is platted for 228 residential lots, 40 of which we have retained for use in our single-family rental business. Contracts with three of the four homebuilders in Phase 2C include milestone payments as construction progresses, with the fourth homebuilder having one payment due upon the transfer of title to the finished lots. As of May 31, 2025, Phase 2C of the Sky Ranch development is approximately 68% complete. As of May 31, 2025, we received $6.7 million, which consists of the first and second milestone payments from the three builders with milestone payment contracts. We expect all of the finished lot payments from the four homebuilders for Phase 2C, which totals $10.5 million, to be received over the next 3 months.

Current wording

In February 2024, we began construction activities in Phase 2C at Sky Ranch, which is platted for 228 residential lots, 40 of which we have retained for use in our single-family rental business. Contracts with three of the four home builders in Phase 2C include milestone payments as construction progresses, with the fourth home builder having one payment due upon the transfer of title to the finished lots. As of November 30, 2025, Phase 2C of the Sky Ranch development is approximately 89% complete, and we have received all $17.3 million of payments related to the sale of the 228 lots in Phase 2C.

Previous wording

In December 2024, we began construction activities in Phase 2D at Sky Ranch, which is platted for 218 residential lots, 27 of which we have retained for use in our single-family rental business. We are contracted with one homebuilder and are in negotiations with other homebuilders in Phase 2D to include milestone payments as construction progresses. We are contracted with a third homebuilder having one payment due upon the transfer of title to the finished lots. As of May 31, 2025, Phase 2D of the Sky Ranch development is approximately 29% complete. As of May 31, 2025, we received $1.4 million, which consists of the first milestone payment from the first builder with a milestone payment contract. We expect all milestone payments and finished lot payments for Phase 2D, which total $17.5 million, to be received over the next 12 months.

Current wording

In December 2024, we began construction activities in Phase 2D at Sky Ranch, which is platted for 204 residential lots, 24 of which we have retained for use in our single-family rental business. We are contracted with two home builders in Phase 2D to include milestone payments as construction progresses. We are contracted with a third home builder having one payment due upon the transfer of title to the finished lots. As of November 30, 2025, Phase 2D of the Sky Ranch development is approximately 65% complete. As of November 30, 2025, we received $4.5 million, which represents the first and second milestone payments from the first builder and a partial first milestone payment for the second builder with a milestone payment contract. We expect all remaining milestone payments and finished lot payments for Phase 2D, which total $14.5 million, to be received over the next 12 months.

Previous wording

We recognize revenue earned under contracts with milestone payments over time using the percentage of completion method which aligns the recognition of revenue with the requisite progress made on construction activities. During the three months ended May 31, 2025 and 2024, due to the construction progress in Phase 2A through 2D, we recognized $2.5 million and $4.8 million of lot sales revenue related to construction at Sky Ranch. During the nine months ended May 31, 2025 and 2024, due to the construction progress in Phase 2A through 2D, we recognized $6.0 million and $7.9 million of lot sales revenue related to construction at Sky Ranch. Due to construction progress, we have recognized a total of $18.4 million of lot sales revenue since construction began on Phase 2A, $16.5 million of lot sales revenue since construction began on Phase 2B, $6.8 million of lot sales revenue since construction began on Phase 2C and $1.2 million of lot sales revenue since construction began on Phase 2D as of May 31, 2025. We expect to recognize the remaining $0.8 million of revenue for Phase 2B over the next 3 months, the remaining $10.6 million of revenue from all four homebuilders for Phase 2C over the next 12 months, and the remaining $17.6 million of revenue from our homebuilders for Phase 2D before the end of our fiscal 2026.

Current wording

We recognize revenue earned under contracts with milestone payments over time using the percentage of completion method which aligns the recognition of revenue with the requisite progress made on construction activities. During the three months ended November 30, 2025 and 2024, due to the construction progress in Phase 2B through 2D, we recognized $6.0 million and $2.3 million, respectively, of lot sales revenue related to construction at Sky Ranch. We have recognized a total of $18.4 million of lot sales revenue since construction began on Phase 2A, $16.9 million of lot sales revenue since construction began on Phase 2B, $15.3 million of lot sales revenue since construction began on Phase 2C and $6.0 million of lot sales revenue since construction began on Phase 2D as of November 30, 2025. We expect to recognize the remaining $2.0 million of revenue from all four home builders for Phase 2C over the next 6 months, and the remaining $13.0 million of revenue from our home builders for Phase 2D before the end of our fiscal 2026.

Previous wording

We expect to begin construction activities in Phase 2E in fiscal 2026, with the completion of approximately 146 lots in calendar 2026 but will plan to pace construction to match builder absorption.

Current wording

We expect to begin construction activities in Phase 2E in fiscal 2026, with the completion of approximately 159 lots in calendar 2026 but will plan to pace construction to match builder absorption.

Previous wording

In addition to the lot sales described above, from the start of development at Sky Ranch through May 31, 2025, we have received $30.0 million of water and wastewater tap fees from the homebuilders, which is for all 509 taps sold in Phase 1 (with four being allocated to our single-family rentals), all 229 taps sold in Phase 2A (with 10 being allocated to our single-family rentals), 187 of 211 taps sold in Phase 2B (with 17 allocated to our single-family rentals) and 10 of 228 taps sold in Phase 2C. The timing of tap sales is dependent on when homebuilders request building permits. Fees charged per water tap are dependent on lot sizes and average water usage across a broad range of housing product types including duplexes and townhomes. For Phase 2 in total, we estimate water and wastewater tap fees will exceed $20.0 million.

Current wording

In addition to the lot sales described above, from the start of development at Sky Ranch through November 30, 2025, we have received $33.8 million of water and wastewater tap fees from the home builders, which is for all 509 taps sold in Phase 1 (with four being allocated to our single-family rentals), all 229 taps sold in Phase 2A (with 10 being allocated to our single-family rentals), 195 of 211 taps sold in Phase 2B (with 17 allocated to our single-family rentals), 119 of 228 taps sold in Phase 2C (with 40 allocated to our single-family rentals) and 6 of 204 taps sold in Phase 2D. The timing of tap sales is dependent on when home builders request building permits. Fees charged per water tap are dependent on lot sizes and average water usage across a broad range of housing product types, including duplexes and townhomes. For Phase 2 in total, we estimate water and wastewater tap fees will exceed $19.0 million.

Previous wording

During our fiscal 2021, we launched a new line of business we are referring to as our single-family rental business. During Phase 1 of Sky Ranch, we retained ownership of four residential lots for use in this business. As of May 31, 2025, we have completed 14 single-family homes on these lots which we own, maintain, and have leased to qualified renters under one-year lease terms. We expect to expand our single-family rentals in our second development phase of Sky Ranch by building homes on lots we did not sell to our home builder partners, which we will rent out once completed. As of May 31, 2025, we reserved approximately 94 lots in Phase 2, 10 of which are in Phase 2A and are completed and rented as of May 31, 2025. Additionally, we have reserved 17 lots in Phase 2B, which we anticipate completing in fiscal 2026.

Current wording

During our fiscal 2021, we launched a new line of business we are referring to as our single-family rental business. During Phase 1 of Sky Ranch, we retained ownership of four residential lots for use in this business. As of November 30, 2025, we have completed 19 single-family homes on these lots which we own, maintain, and have available to lease under one-year lease terms. We expect to expand our single-family rentals in our second development phase of Sky Ranch by building homes on lots we did not sell to our home builder partners, which we will rent out once completed. As of November 30, 2025, we reserved approximately 91 lots in Phase 2, 10 of which are in Phase 2A and are completed and rented as of November 30, 2025. Additionally, we have reserved 17 lots in Phase 2B, which we anticipate completing in fiscal 2026.

Previous wording

For the three months ended May 31, 2025 and 2024, we generated net income of $2.3 million and $2.8 million, respectively. The decrease was primarily due to a decrease in land development. The decrease in water sales to oil and gas operators for drilling purposes in 2025 was offset by an increase in water and wastewater tap fee revenue and an increase in oil and gas royalty income. Lot sales revenue is recognized using the percentage of completion method, which is based on progress of construction. Despite increased challenges in the housing market, our land development activities continue to perform well, as we continue construction on Phase 2B, 2C and 2D at Sky Ranch.

Current wording

For the three months ended November 30, 2025 and 2024, we generated net income of $4.5 million and $3.9 million, respectively. The increase was primarily due to an increase in land development revenue. There was a decrease in water sales to oil and gas operators for drilling purposes in 2025, which was offset by an increase in water and wastewater tap fee revenue. Lot sales revenue is recognized using the percentage of completion method, which is based on progress of construction. Despite increased challenges in the housing market, our land development activities continue to perform well, as we continue construction on 2C and 2D at Sky Ranch.

Previous wording

The tables below present our consolidated results of operations for the three and nine months ended May 31, 2025 and 2024.

Current wording

The tables below present our consolidated results of operations for the three months ended November 30, 2025 and 2024.

Previous wording

Three and Nine Months Ended May 31, 2025 Results Compared to 2024

Current wording

Three Months Ended November 30, 2025 Results Compared to 2024

Previous wording

For the three and nine months ended May 31, 2025, total revenue decreased as compared to 2024, primarily due to a decline in land development activity. When we transfer title to lots to homebuilders under contracts where we remain obligated to deliver finished lots, the sales of such lots are recognized using the percentage of completion method. The decrease in water sales was driven by a decline in oil and gas drilling activities within our service area in 2025. This was offset by an increase in water and wastewater tap fee revenue and oil and gas royalties. Tap fee revenue timing depends on the timing of builders filing for building permits, which has increased with the development of Phase 2B and 2C in 2025.

Current wording

For the three months ended November 30, 2025, total revenue increased as compared to the same period in 2024, primarily due to an increase in land development activity. When we transfer title to lots to home builders under contracts where we remain obligated to deliver finished lots, the sales of such lots are recognized using the percentage of completion method. The decrease in water sales was driven by a decline in oil and gas drilling activities within our service area in the 2025 period. This was offset by an increase in water and wastewater tap fee revenue. Tap fee revenue timing depends on the timing of builders filing for building permits, which has increased with the development of Phase 2C and 2D in 2026.

Previous wording

For the three and nine months ended May 31, 2025, other income increased as compared to 2024 primarily due to royalty revenues from our oil and gas mineral interest at Sky Ranch, from the completion of an additional six wells in 2024, which began producing during this fiscal year.

Current wording

For the three months ended November 30, 2025, other income decreased as compared to the 2024 period primarily due to a decline in royalty revenues from our oil and gas mineral interest at Sky Ranch.

Previous wording

For the three and nine months ended May 31, 2025, water deliveries decreased as compared to 2024 primarily due to a decrease of water sales to oil and gas operators.

Current wording

For the three months ended November 30, 2025, water deliveries decreased as compared to the 2024 period primarily due to a decrease in water sales to oil and gas operators.

Previous wording

For the three and nine months ended May 31, 2025, municipal water usage was consistent with 2024. Commercial water usage revenue decreased for the three and nine months ended May 31, 2025 compared to 2024 due to decreased water sales to oil and gas operators.

Current wording

For the three months ended November 30, 2025, municipal water usage was consistent with the 2024 period. Commercial water usage revenue decreased for the three months ended November 30, 2025 compared to the 2024 period due to decreased water sales to oil and gas operators.

Previous wording

For the three and nine months ended May 31, 2025, wastewater treatment fees increased slightly as compared to 2024 primarily due to new Sky Ranch customers.

Current wording

For the three months ended November 30, 2025, wastewater treatment fees increased slightly as compared to the 2024 period primarily due to new Sky Ranch customers.

Previous wording

For the three and nine months ended May 31, 2025, water and wastewater tap sales increased compared to 2024 due to the timing of finished lots at Sky Ranch in 2025. Tap sales are driven by builders obtaining building permits in anticipation of home closings.

Current wording

For the three months ended November 30, 2025, water and wastewater tap sales increased compared to the 2024 period due to the timing of finished lots at Sky Ranch in 2025. Tap sales are driven by builders obtaining building permits in anticipation of home closings.

Previous wording

For the three and nine months ended May 31, 2025, lot sales revenue decreased as compared to 2024 due primarily to the timing of finished lot deliveries. When we transfer title to lots to homebuilders under contracts where we remain obligated to deliver finished lots, the sales of such lots are recognized using the percentage of completion method. Therefore, revenue will fluctuate due to timing of construction activities as well as the number of lots under the percentage of completion accounting method throughout Phase 2.

Current wording

For the three months ended November 30, 2025, lot sales revenue increased as compared to the 2024 period due primarily to the timing of platted lot deliveries. When we transfer title to lots to home builders under contracts where we remain obligated to deliver finished lots, the sales of such lots are recognized using the percentage of completion method. Therefore, revenue will fluctuate due to the number of lots under the percentage of completion accounting method throughout Phase 2 which increased in the 2025 period.

Previous wording

For the three months ended May 31, 2025, total costs of revenue decreased as compared to 2024, due to decreased revenue recognition from our percentage of completion revenue recognition and the timing of finished lot deliveries. For the nine months ended May 31, 2025, total costs of revenue increased as compared to 2024, primarily due to an increase in estimated cost for Phase 2B as well as increased property tax due to our accelerated development schedule.

Current wording

For the three months ended November 30, 2025, total costs of revenue increased as compared to the 2024 period, due to increased revenue recognition from our percentage of completion revenue recognition.

Previous wording

In fiscal 2021, we began construction on homes for our single-family rental business. Each home is rented under a one-year non-cancelable lease agreement. The costs reflected as cost of sales for the rental units include a pro-rata share of the annual property taxes and insurance related specifically to the rental units as well as immaterial fees related to the operations and maintenance assessments from the Sky Ranch CAB that are assessed to every home in Sky Ranch. Our tenants are responsible for all other utilities including water and wastewater services that are paid to us through the Rangeview District. As of May 31, 2025, the Company had a total of 14 units rented.

Current wording

In fiscal 2021, we began construction on homes for our single-family rental business. Each home is rented under a one-year non-cancellable lease agreement. The costs reflected as cost of sales for the rental units include a pro-rata share of the annual property taxes and insurance related specifically to the rental units as well as immaterial fees related to the operations and maintenance assessments from the Sky Ranch CAB that are assessed to every home in Sky Ranch. Our tenants are responsible for all other utilities, including water and wastewater services that are paid to us through the Rangeview District. For the three months ended November 30, 2025, rental revenue and cost increased as compared to the 2024 period due to an increase in the number of rental units. As of November 30, 2025, the Company had a total of 19 units rented or available for rent.

Previous wording

As of May 31, 2025, our working capital, defined as current assets less current liabilities, was $18.1 million, which included $14.4 million in cash and cash equivalents. All our cash is maintained at high-credit quality institutions, and we follow a diversified investment approach for our cash and cash equivalents by maintaining such funds with a portfolio of banks in high quality, highly liquid, short-term deposits and investments to mitigate banking concentration risk. We believe that as of May 31, 2025, and as of the date of the filing of this Quarterly Report on Form 10-Q, we have sufficient working capital to fund our operations for the next 12 months. Our expected obligations for the next 12 months are described below.

Current wording

As of November 30, 2025, our working capital, defined as current assets less current liabilities, was $14.7 million, which included $17.1 million in cash and cash equivalents. All our cash is maintained at high-credit quality institutions, and we follow a diversified investment approach for our cash and cash equivalents by maintaining such funds with a portfolio of banks in high quality, highly liquid, short-term deposits and investments to mitigate banking concentration risk. We believe that as of November 30, 2025, and as of the date of the filing of this Quarterly Report on Form 10-Q, we have sufficient working capital to fund our operations for the next 12 months. Our expected obligations for the next 12 months are described below.

Previous wording

Phase 1 of the Sky Ranch development is complete, Phase 2 began in February 2021, which is being done in five subphases, of which Phase 2A is completed and Phase 2B, Phase 2C and Phase 2D are being actively developed as of May 31, 2025. We estimate total costs to complete the infrastructure (including public improvements) for all 886 lots in the first four subphases of Phase 2 to total $81.1 million. Of this, we anticipate spending up to $18.4 million in the next 12 months, and we anticipate receiving approximately $28.0 million in milestone and finished lot payments from our builder customers. Additionally, we expect to receive tap fee payments from our builder customers over the same period. The amounts we expect to spend and receive in the next 12 months are dependent on the pace of construction in Phase 2B, Phase 2C and Phase 2D. We believe water and wastewater tap fees as well as progress payments from our homebuilder customers and our existing cash balances will fund our obligations for the next 12 months.

Current wording

anticipate spending up to $10.8 million in the next 12 months, and we anticipate receiving approximately $17.5 million in milestone and finished lot payments from our builder customers. Additionally, we expect to receive tap fee payments from our builder customers over the same period. The amounts we expect to spend and receive in the next 12 months are dependent on the pace of construction in Phase 2C, Phase 2D and Phase 2E. We believe water and wastewater tap fees as well as progress payments from our home builder customers and our existing cash balances will fund our obligations for the next 12 months.

Previous wording

As of May 31, 2025, we have entered into contracts with national home builders to construct 17 rental units at Sky Ranch in Phase 2B and 6 of the 40 rental units at Sky Ranch in Phase 2C. The contracted construction costs for all 17 units in Phase 2B and 2 C will be approximately $6 million. As of May 31, 2025, we had incurred $0.3 million of these construction costs. We anticipate financing the majority of the remaining cost for Phase 2B and 2C rental units in fiscal 2026.

Current wording

As of November 30, 2025, we have entered into contracts with national home builders to construct the remaining 12 rental units at Sky Ranch in Phase 2B and 28 of the 40 rental units at Sky Ranch in Phase 2C. The contracted construction costs for all 40 units in Phase 2B and 2C will be approximately $12.4 million. As of November 30, 2025, we had incurred $1.5 million of these construction costs. We anticipate financing the majority of the remaining cost for Phase 2B and 2C rental units in fiscal 2026.

Previous wording

We have entered into a financing agreement that obligates us to fund the Rangeview District’s cost of participating in WISE. We anticipate investing up to $0.5 million in total over the next 12 months to fund the Rangeview District’s obligation to purchase water and fund development of infrastructure for WISE, and its obligations related to SMWSA. In exchange for funding the Rangeview District’s obligations in WISE, we have the sole right to use and reuse the Rangeview District’s 9% share of the WISE water and infrastructure to provide water service to the Rangeview District’s customers and to receive the revenue from such service. Our current WISE subscription entitles us to approximately 3.0 million gallons per day of transmission pipeline capacity and up to 900 acre-feet per year of water.

Current wording

We have entered into a financing agreement that obligates us to fund the Rangeview District’s cost of participating in WISE. We anticipate investing up to $2.0 million in total over the next 12 months to fund the Rangeview District’s obligation to purchase water and fund development of infrastructure for WISE, and its obligations related to SMWSA. In exchange for funding the Rangeview District’s obligations in WISE, we have the sole right to use and reuse the Rangeview District’s 9% share of the WISE water and infrastructure to provide water service to the Rangeview District’s customers and to receive the revenue from such service. Our current WISE subscription entitles us to approximately 3.0 million gallons per day of transmission pipeline capacity and up to 900 acre-feet per year of water.

Previous wording

For the nine months ended May 31, 2025, we used cash as follows:

Current wording

For the three months ended November 30, 2025, we used cash as follows:

Previous wording

Our critical accounting policies and estimates are described in “Critical Accounting Policies and Estimates” within Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 of our 2024 Annual Report. The accounting policies and estimates used in preparing our interim consolidated financial statements for the three and nine months ended May 31, 2025, are the same as those described in our 2024 Annual Report. There have been no changes to our critical accounting policies during the three and nine months ended May 31, 2025. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the interim financial statements included in this Quarterly Report on Form 10-Q pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. The unaudited consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto in our 2024 Annual Report.

Current wording

Our critical accounting policies and estimates are described in “Critical Accounting Policies and Estimates” within Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 3 of the financial statements included in our 2025 Annual Report. The accounting policies and estimates used in preparing our interim consolidated financial statements for the three months ended November 30, 2025, are the same as those described in our 2025 Annual Report. There have been no changes to our critical accounting policies during the three months ended November 30, 2025. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from the interim financial statements included in this Quarterly Report on Form 10-Q pursuant to the rules and regulations of the SEC, although we believe that the disclosures made are adequate to make the information not misleading. The unaudited consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto in our 2025 Annual Report.