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, 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).

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 Quarterly Report on 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 report and Part I, Item 1A. “Risk Factors” in our 2025 Annual Report for further discussion).

Previous wording

The housing market stabilized in 2024 as the Federal Reserve shifted from aggressively increasing interest rates in 2023 to a balanced approach that maintained relatively consistent interest rates through the first half of 2025. In the second half of 2025, the Federal Reserve pivoted from primarily combating inflation to supporting labor market stability and economic activity, implementing a series of interest rate reductions that continued through December 2025. While these actions have begun to moderate mortgage interest rates, the housing market continues to face headwinds. Consumer demand remains constrained by cumulative affordability challenges and heightened economic uncertainty. Furthermore, volatility in the broader macroeconomic environment—driven in part by federal trade policies affecting the cost of imported construction materials and fluctuating consumer confidence—continues to impact builder sentiment and the pace of new home sales.

Current wording

The housing market stabilized in 2024 as the Federal Reserve shifted from aggressively increasing interest rates in 2023 to a balanced approach that maintained relatively consistent interest rates through the first half of 2025. In the second half of 2025, the Federal Reserve pivoted from primarily combating inflation to supporting labor market stability and economic activity, implementing a series of interest rate reductions that continued through December 2025. Since December, the Federal Reserve has paused its easing cycle and held rates steady at both its January and March 2026 meetings, as policymakers navigate persistent inflation above the Federal Reserve’s target, a softening labor market, heightened geopolitical uncertainty following conflicts in the Middle East, and weak consumer confidence. Although mortgage interest rates declined from their 2024 peaks and the 30-year fixed rate averaged approximately 6.11% as of mid-March 2026, the housing market continues to face significant headwinds. Consumer demand remains constrained by cumulative affordability challenges and heightened economic uncertainty. Furthermore, volatility in the broader macroeconomic environment, driven in part by federal trade policies affecting the cost of imported construction materials and fluctuating consumer confidence, continues to impact builder sentiment and the pace of new home sales. Builder sentiment, as measured by the NAHB/Wells Fargo Housing Market Index, stood at 38 in March 2026, remaining below the breakeven level of 50 for the 23rd consecutive month, with nearly two-thirds of builders continuing to offer sales incentives to attract buyers.

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. 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.

Current wording

As higher mortgage interest rates, volatile macroeconomic conditions and geopolitical instability have adversely affected the residential real estate market, homebuilders' strategic use of interest rate buydowns and other sales incentives have played a crucial role in driving sales. Despite current interest rates, rising energy costs, increases in the cost of construction materials and economic 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. The Denver metro housing market has reflected these national trends, with median home prices beginning to decline in 2026 and home sales at their lowest levels since the 2008 financial crisis. Although the Federal Reserve has signaled the possibility of additional rate reduction in 2026, we expect moderate to lower demand to continue throughout 2026 given the compounding headwinds of increased energy prices, persistent inflation, and ongoing trade policy and geopolitical uncertainty. 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 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.

Current wording

construction and building materials). The Federal Reserve’s decision to pause its rate cutting cycle in early 2026, combined with the upwardly revised inflation projections for 2026 and elevated uncertainty regarding the duration and economic impact of the conflict in the Middle East, are expected to be ongoing headwinds for the housing market. 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. Consumer confidence has weakened up to and including March 2026 as households react to military conflict and higher gasoline prices. Higher energy cost disproportionately impacts lower income households, which represents a significant portion of the entry-level buyer demographic we serve. 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, the economic consequences of the Middle East conflicts, rising energy costs, 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 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.

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 the single-family homes we rent, typically under annual lease agreements. With 19 homes currently owned, we continue to evaluate this new line of business, which will include up to 62 rental homes at Sky Ranch by the end of 2026.

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. 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.

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 are currently 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 irrigating parks. 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. We do not anticipate the need to implement any mandatory watering restrictions in fiscal 2026.

Previous 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.

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 have been completed and revenue and costs have been recognized.

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 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.

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 upon the transfer of title to the finished lots. As of February 28, 2026, 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 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.

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 upon the transfer of title to the finished lots. As of February 28, 2026, 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 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.

Current wording

In February 2024, we began construction activities in Phase 2C at Sky Ranch, which is platted for 228 residential lots, 29 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 February 28, 2026, Phase 2C of the Sky Ranch development is approximately 91% complete. We have received all $17.3 million in payments related to the sale of the original 228 lots in Phase 2C, and we expect an additional $1 million from selling an additional 11 lots that were previously held for our single-family rental segment.

Previous 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.

Current wording

In December 2024, we began construction activities in Phase 2D at Sky Ranch, which is platted for 204 residential lots, two of which we have retained for use in our single-family rental business. We are contracted with two new 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 February 28, 2026, Phase 2D of the Sky Ranch development is approximately 78% complete. As of February 28, 2026, we have received $7.6 million, which represents all three milestone payments from one builder and a partial first and partial second milestone payment from a second builder with a milestone payment contract. We expect all remaining milestone payments and finished lot payments for Phase 2D, which total $13.4 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 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.

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 February 28, 2026 and 2025, due to the construction progress in Phase 2B through 2D, we recognized $1.6 million and $1.1 million, respectively, of lot sales revenue related to construction at Sky Ranch. During the six months ended February 28, 2026 and 2025, due to the construction progress in Phase 2B through 2D, we recognized $7.7 million and $3.5 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, $15.8 million of lot sales revenue since construction began on Phase 2C and $7.2 million of lot sales revenue since construction began on Phase 2D as of February 28, 2026. We expect to recognize the remaining $2.5 million of revenue from our home builders for Phase 2C over the next six months, and the remaining $13.8 million of revenue from our home builders for Phase 2D before the end of our fiscal 2026, which includes additional lots that were previously held for our single-family rental segment.

Previous 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.

Current wording

We expect to begin construction activities in Phase 2E in fiscal 2026, with the completion of approximately 159 lots in fiscal 2027 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 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.

Current wording

In addition to the lot sales described above, from the start of development at Sky Ranch through February 28, 2026, we have received $35.4 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), 199 of 211 taps sold in Phase 2B (with 17 allocated to our single-family rentals), 132 of 228 taps sold in Phase 2C (with 29 allocated to our single-family rentals) and 10 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 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.

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 February 28, 2026, 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 February 28, 2026, we reserved approximately 62 lots in Phase 1 and 2, 19 of which are completed and rented as of February 28, 2026. Additionally, we have reserved 43 lots in Phase 2B, 2C and 2D, which we anticipate completing in fiscal 2026.

Previous 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.

Current wording

For the six months ended February 28, 2026 and 2025, we generated net income of $5.7 million and $4.7 million, respectively. The increase was primarily due to an increase in land development 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 Phases 2C and 2D at Sky Ranch.

Previous wording

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

Current wording

The tables below present our consolidated results of operations for the three and six months ended February 28, 2026 and 2025.

Previous wording

Three Months Ended November 30, 2025 Results Compared to 2024

Current wording

Three and Six Months Ended February 28, 2026 Results Compared to 2025

Previous 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.

Current wording

For the three and six months ended February 28, 2026, total revenue increased as compared to the same periods in 2025 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, revenue from the sales of such lots is recognized using the percentage of completion method. There was a decrease in water and wastewater tap fee revenue during these periods. Tap fee revenue timing depends on the timing of builders filing for building permits.

Previous wording

For the three months ended November 30, 2025, general and administrative expense increased slightly as compared to the same period in 2024 due to normal inflationary increases in operating expenses. The increase was offset by a reversal of a legal expense in 2025 in the amount of $0.5 million.

Current wording

For the three and six months ended February 28, 2026, general and administrative expenses decreased compared to the same periods in 2025, primarily due to a $0.5 million legal expense accrual recorded in 2025 that was subsequently reversed.

Previous 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.

Current wording

For the three and six months ended February 28, 2026, other income decreased as compared to the 2025 periods primarily due to a decline in royalty revenues from our oil and gas mineral interest at Sky Ranch.

Previous 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.

Current wording

For the three and six months ended February 28, 2026, water deliveries increased as compared to the 2025 periods primarily due to an increase in water sales to oil and gas operators.

Previous 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.

Current wording

For the three and six months ended February 28, 2026, municipal water usage increased compared to the 2025 periods primarily due to new Sky Ranch customers. Commercial water usage revenue increased for the three and six months ended February 28, 2026 compared to the 2025 periods due to increased water sales to oil and gas operators.

Previous 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.

Current wording

For the three and six months ended February 28, 2026, wastewater treatment fees increased as compared to the 2025 periods primarily due to new Sky Ranch customers.

Previous 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.

Current wording

For the three and six months ended February 28, 2026, water and wastewater tap sales decreased compared to the 2025 periods due to the timing of finished lots at Sky Ranch. Tap sales are driven by builders obtaining building permits in anticipation of home closings.

Previous 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.

Current wording

For the three and six months ended February 28, 2026, lot sales revenue increased compared to the same periods in 2025, primarily due to the timing of platted lot deliveries. When we transfer title of lots to homebuilders under contracts where we remain obligated to deliver finished lots, revenue from the sales of such lots is 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, as well as from the pace of development. In 2026, we experienced an unseasonably mild winter, which allowed for increased development activity compared to the 2025 periods.

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-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.

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 and six months ended February 28, 2026, rental revenue and cost increased as compared to the 2025 periods due to an increase in the number of rental units. As of February 28, 2026, the Company had a total of 19 units rented or available for rent.

Previous 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.

Current wording

As of February 28, 2026, our working capital, defined as current assets less current liabilities, was $3.8 million, which included $4.8 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 February 28, 2026, 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

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.

Current wording

Phase 1 of the Sky Ranch development is complete. Development of Phase 2, which began in February 2021, is being done in five subphases, of which Phase 2A and Phase 2B are substantially completed and Phase 2C and Phase 2D are being actively developed as of February 28, 2026. We expect to begin development work on Phase 2E in fiscal 2026. We estimate total costs to complete the infrastructure (including public improvements) for all 591 lots in the last three subphases of Phase 2 to total $18.7 million. Of this, we anticipate spending up to $7.1 million in the next 12 months, and we anticipate receiving approximately $18.9 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 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.

Current wording

As of February 28, 2026, we had entered into contracts with national homebuilders to construct the remaining 12 rental units in Phase 2B and 27 of the 29 rental units in Phase 2C at Sky Ranch. The contracted construction costs for all 39 units across Phases 2B and 2C will be approximately $12.1 million. Through February 28, 2026, we had incurred $5.0 million of these construction costs, which were self-financed. We anticipate self-financing the majority of the remaining costs for the Phase 2B and 2C rental units in fiscal 2026. Once a unit is completed, we anticipate financing the unit under our SFR Facility Agreement and using the loan proceeds to replenish the cash spent on construction.

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 $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.

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

Previous wording

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

Current wording

For the six months ended February 28, 2026, 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 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.

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 and six months ended February 28, 2026 are the same as those described in our 2025 Annual Report. There have been no changes to our critical accounting policies during the three and six months ended February 28, 2026. 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.