PURE CYCLE CORP

Previous wording

The housing market experienced tremendous growth for several years through 2022. In the third quarter of calendar 2022, the housing market experienced increased challenges, which have continued through the date of this filing and show signs of continuing in 2024. These challenges were caused by multiple factors including rising mortgage interest rates; the war in Ukraine, which has impacted supplies of energy, food, fertilizer, and fuel; increasing inflation; disruptions in supply chains, distribution networks and consumer behavior; and the collapse of three large banks, which may impact the availability of lending and deposit rates. The U.S. Federal Reserve Board (Federal Reserve) remains aggressive in its actions to combat inflation, which has resulted in mortgage rates rising, which hit their highest levels in over 15 years during 2023, further challenging the housing market.

Current wording

The housing market experienced tremendous growth for several years through 2022. In the third quarter of calendar 2022, the housing market experienced increased challenges, which have continued through the date of this filing and show signs of continuing in fiscal 2025. These challenges were caused by multiple factors including rising mortgage interest rates; the war in Ukraine, which has impacted energy supplies, food, fertilizer, and fuel; increasing inflation; disruptions in supply chains and consumer behavior; and the collapse of three large banks, which may impact the availability of lending and deposit rates. The U.S. Federal Reserve Board (“Federal Reserve”) remains aggressive in its actions to combat inflation, which has resulted in mortgage rates rising, which hit their highest levels in over 15 years during 2023, further challenging the housing market.

Previous wording

The Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during calendar 2022 and 2023 sought to moderate persistent U.S. inflation, and the further actions it has stated it intends to take, are expected to be an ongoing headwind for the housing market in 2024 as they have elevated mortgage loan interest rates and created macroeconomic uncertainty and volatility across financial markets. In addition, consumer demand for our homes and our ability to grow our scale, revenues, and returns in fiscal 2024 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 Colorado markets. We continue to work proactively to mitigate these impacts working with our home builder partners on timing of investment and delivery of lots; however, the potential extent and effect of these factors on our business is uncertain, unpredictable, and outside our control, and our past performance should not be considered indicative of our future results.

Current wording

The Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during calendar 2022 and 2023 sought to moderate persistent U.S. inflation, and the further actions it has stated it intends to take, continue to be an ongoing headwind for the housing market in 2024 as they have elevated mortgage loan interest rates and created macroeconomic uncertainty and volatility across financial markets. In addition, consumer demand for our homes and our ability to grow our scale, revenues, and returns in fiscal 2025 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 Colorado markets. We continue to work proactively to mitigate these impacts working with our home builder partners on timing of investment and delivery of lots; however, the potential extent and effect of these factors on our business is uncertain, unpredictable, and outside our control, and our past performance should not be considered indicative of our future results.

Previous wording

We have been developing the Sky Ranch community since 2017, which we are developing 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 Richmond American Homes, Taylor Morrison, and KB Home, 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). Phase 1 of the Sky Ranch development is complete, and all revenue and costs have been recognized.

Current wording

We have been developing the Sky Ranch community since 2017, which we are developing 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). Phase 1 of the Sky Ranch development is complete, and all 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 KB Home, Lennar Colorado, Melody (a DR Horton Company), and Challenger Homes to sell 781 single-family attached and detached residential lots at Sky Ranch, and we retained 93 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 four sub-phases (referred to as Phase 2A, 2B, 2C and 2D). Due to our strong performance in the first phase of the Sky Ranch project, we were able to realize an approximate 38% increase in our average lot prices. For example, we increased our sales price for a 45’ foot lot from an average of $75,000 to $103,200 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 KB Home, Lennar Colorado, Melody (a DR Horton Company), and Challenger Homes to sell 781 single-family attached and detached residential lots at Sky Ranch, and we retained approximately 93 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 four sub-phases (referred to as Phase 2A, 2B, 2C and 2D). Due to our strong performance in the first phase of the Sky Ranch project, we were able to realize an approximate 38% increase in our average lot prices. For example, we increased our sales price for a 45’ foot lot from an average of $75,000 to $103,200 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.

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. As of February 29, 2024, we have received plats and completed wet and dry utilities, roads, and sidewalks for Phase 2A and are actively working on landscaping and fencing for the neighborhood. Contracts with three of the four homebuilders include milestone payments as construction progresses, with the fourth homebuilder contract having one payment due at delivery of the finished lot (i.e. the transfer of the title). As of February 29, 2024, Phase 2A of the Sky Ranch development is approximately 96% 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 homebuilders include milestone payments as construction progresses, with the fourth homebuilder contract having one payment due at delivery of the finished lot (i.e., the transfer of the title). As of May 31, 2024, Phase 2A of the Sky Ranch development is approximately 98% 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 have retained for use in our single-family rental business. Contracts with three of the four homebuilders in Phase 2B include milestone payments as construction progresses, with the fourth homebuilder having one payment due at the transfer of title of the finished lots. As of February 29, 2024, Phase 2B of the Sky Ranch development is approximately 52% complete. During the three and six months ended February 29, 2024, we received $1.2 million and $4.1 million which consists of the second milestone payments from the three builders with milestone payment contracts. We expect the finished lot payment for Phase 2B, which totals $8.9 million, to be received over the next 9 months.

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 have retained for use in our single-family rental business. Contracts with three of the four homebuilders in Phase 2B include milestone payments as construction progresses, with the fourth homebuilder having one payment due at the transfer of title of the finished lots. As of May 31, 2024, Phase 2B of the Sky Ranch development is approximately 70% complete. During the three and nine months ended May 31, 2024, we received $0 and $4.1 million which consists of the second milestone payments from the three builders with milestone payment contracts. We expect the finished lot payment for Phase 2B, which totals $9.0 million, to be received over the next 3 months.

Previous wording

We recognize revenue earned under these contracts 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 29, 2024 and February 28, 2023, due to the construction progress in Phase 2A and 2B, we recognized $1.2 million and $1.4 million of lot sale revenue related to construction at Sky Ranch. During the six months ended February 29, 2024 and February 28, 2023, due to the construction progress in Phase 2A and 2B, we recognized $3.1 million and $1.9 million of lot sale revenue related to construction at Sky Ranch. Due to construction progress, we have recognized a total of $17.6 million of lot sales revenue since construction began on Phase 2A and $6.4 million of lot sale revenue since construction began on Phase 2B, as of February 29, 2024. We expect to recognize the majority of the remaining $0.8 million of revenue for Phase 2A before the end of our fiscal 2024, and the remaining $10.8 million of revenue for Phase 2B over the next 12 months.

Current wording

We recognize revenue earned under these contracts 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, 2024 and 2023, due to the construction progress in Phase 2A, 2B and 2C, we recognized $4.8 million and $3.2 million of lot sales revenue related to construction at Sky Ranch. During the nine months ended May 31, 2024 and 2023, due to the construction progress in Phase 2A, 2B and 2C, we recognized $7.9 million and $5.1 million of lot sales revenue related to construction at Sky Ranch. Due to construction progress, we have recognized a total of $18.1 million of lot sales revenue since construction began on Phase 2A, $8.6 million of lot sales revenue since construction began on Phase 2B, and $2.1 million of lot sales revenue since construction began on Phase 2C as of May 31, 2024. We expect to recognize the majority of the remaining $0.3 million of revenue for Phase 2A before the end of our fiscal 2024, the remaining $8.6 million of revenue for Phase 2B over the next 9 months and the remaining $15.6 million of revenue for Phase 2C over the next 14 months.

Previous wording

Phase 2C construction has begun but has not met revenue recognition criteria as of February 29, 2024. The first milestone payments for Phase 2C were received in March 2024. Remaining payments for lot sales and the related revenue for Phases 2C and 2D will occur as construction of those phases occurs. We believe it will take approximately three more years to complete construction and sell the finished lots in all four subphases depending on market conditions and the permitting process.

Current wording

Remaining payments for lot sales and the related revenue for Phase 2D will occur as construction of that phase occurs. We believe it will take approximately three more years to complete construction and sell the finished lots in all four subphases depending on market conditions and the permitting process.

Previous wording

In addition to the lot sales described above, from the start of development at Sky Ranch through February 29, 2024, we have received $21.6 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) and 228 of 229 taps sold in Phase 2A (with 10 being allocated to our single-family rentals). 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 May 31, 2024, we have received $22.4 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), 228 of 229 taps sold in Phase 2A (with 10 being allocated to our single-family rentals) and 18 of 211 taps sold in Phase 2B (with 17 planned to be allocated to our single-family rentals). 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.

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 February 29, 2024, 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 have expanded 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 29, 2024, we reserved a total of 93 lots in Phase 2, 10 of which are in Phase 2A and are completed and rented as of February 29, 2024. Additionally, we have reserved 17 lots in Phase 2B, which we anticipate completing in calendar 2024.

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 May 31, 2024, 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 have expanded 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, 2024, we reserved approximately 93 lots in Phase 2, 10 of which are in Phase 2A and are completed and rented as of May 31, 2024. Additionally, we have reserved 17 lots in Phase 2B, which we anticipate completing in fiscal 2025.

Previous wording

For the three months ended February 29, 2024, we generated net income of $0.1 million compared to $0.2 million for the comparable period in fiscal 2023. The increase in water sales to oil and gas operators for drilling purposes was offset by a decrease in lot sale revenue being recognized using the percentage of completion method, which is based on progress of construction. Although we began construction on Phase 2C in February 2024 we were unable to begin recognizing any of the revenue for the three months ended. Despite increased challenges on the housing market, our land development activities showed an increase in growth over last year as we began construction on Phase 2B and 2C at Sky Ranch, which we believe is due to our entry level pricing and affordable lot costs.

Current wording

For the three months ended May 31, 2024 and 2023, we generated net income of $2.8 million and $3.3 million. The increase in lot sales revenue being recognized during the 2024 quarter was offset by a decrease in water sales to oil and gas operators for drilling purposes as well as tap fee sales due to timing of completion of lots in Phase 2B. Lot sales revenue is recognized using the percentage of completion method, which is based on progress of construction. Despite increased challenges on the housing market, our land development activities showed an increase in growth over last year as we began construction on Phase 2B and 2C at Sky Ranch, which we believe is due to our entry level pricing and affordable lot costs.

Previous wording

For the six months ended February 29, 2024, we generated net income of $2.2 million compared to $0.4 million for the comparable period in fiscal 2023. The increase was primarily driven by significant water sales to oil and gas operators for drilling purposes and increased lot sale revenue being recognized using the percentage of completion method, which is based on progress of construction. Despite increased challenges on the housing market, our land development activities showed an increase in growth over last year as we began construction on Phase 2B and Phase 2C at Sky Ranch, which we believe is due to our entry level pricing and affordable lot costs.

Current wording

For the nine months ended May 31, 2024, we generated net income of $5.0 million compared to $3.6 million for the comparable period in fiscal 2023. The increase was primarily driven by significant water sales to oil and gas operators for drilling purposes and increased lot sales revenue being recognized using the percentage of completion method, which is based on progress of construction. Despite increased challenges on the housing market, our land development activities showed an increase in growth over last year as we began construction on Phase 2B and Phase 2C at Sky Ranch, which we believe is due to our entry level pricing and affordable lot costs.

Previous wording

The tables below present our consolidated results of operations for the three and six months ended February 29, 2024 and February 28, 2023.

Current wording

The tables below present our consolidated results of operations for the three and nine months ended May 31, 2024 and 2023.

Previous wording

Three and Six Months Ended February 29, 2024 Results Compared to 2023

Current wording

Three and Nine Months Ended May 31, 2024 Results Compared to 2023

Previous wording

For the three and six months ended February 29, 2024, total revenue increased as compared to 2023, primarily due to a significant increase in oil and gas operations in our service area resulting in a substantial increase in commercial water sales. We also experienced increased lot sale revenue for the six months ended February 29, 2024 compared to 2023 from multiple on-going Phases in 2024. Phase 2A had more activity in late 2023 and we began construction on Phase 2B during the end of 2023, resulting in more revenue being recognized. The increase was offset by a decrease in our water and wastewater tap sales period over period due to the timing of new home construction. Lot sales are recognized using the percentage of completion method and due to increased construction activity in late 2023 despite the increased challenges on the housing market and severe weather in our market, construction activities increased to provide additional lots to builders.

Current wording

For the three months ended May 31, 2024, total revenue increased as compared to 2023, primarily due from multiple on-going Phases in 2024. During the three months ended May 31, 2024 we were developing in Phase 2A, Phase 2B and Phase 2C, resulting in more revenue being recognized. The increase was offset by a decrease in our water and wastewater tap sales period over period due to the timing of new home construction and a decrease in commercial water sales for oil and gas operations. Lot sales are recognized using the percentage of completion method and due to increased construction activity in 2024, despite the increased challenges on the housing market, construction activities increased to provide additional lots to builders. For the nine months ended May 31, 2024, total revenue increased as compared to 2023, primarily due to a significant increase in oil and gas operations in our service area resulting in a substantial increase in commercial water sales as well as an increase in our lot sales revenue.

Previous wording

For the three and six months ended February 29, 2024, total costs of revenue increased as compared to 2023, primarily due to higher costs in the land development segment as we continued developing Phases 2A and 2B of Sky Ranch, and higher costs related to the delivery of water to oil and gas operators. Costs of revenue for the water and wastewater segment did not increase in line with revenue because the water sold to oil and gas operators was lower cost water resulting in higher profits versus traditional domestic usage.

Current wording

For the three and nine months ended May 31, 2024, total costs of revenue increased as compared to 2023, primarily due to higher costs in the land development segment as we continued developing Phases 2A, 2B and 2C of Sky Ranch, and higher costs related to the delivery of water to oil and gas operators. Costs of revenue for the water and wastewater segment did not increase in line with revenue because the water sold to oil and gas operators was lower cost water resulting in higher profits versus traditional domestic usage.

Previous wording

For the three and six months ended February 29, 2024, general administrative expense and depreciation increased as compared to 2023, primarily due to the receipt of qualified Employee Retention Credits from the Internal Revenue Service in 2023 and additional fixed assets in 2024.

Current wording

For the three and nine months ended May 31, 2024, general administrative expense and depreciation increased as compared to 2023, primarily due to the receipt of qualified Employee Retention Credits from the Internal Revenue Service in 2023 and additional fixed assets in 2024.

Previous wording

For the three and six months ended February 29, 2024, water deliveries increased as compared to 2023 primarily due to increased water sales to oil and gas operators.

Current wording

For the nine months ended May 31, 2024, water deliveries increased as compared to 2023 primarily due to increased water sales to oil and gas operators. For the three months ended May 31, 2024, water deliveries decreased as compared to 2023 primarily due to decrease of water sales to oil and gas operators.

Previous wording

For the three and six months ended February 29, 2024, municipal water usage revenue increased over 2023 mainly due to increased residential customers at Sky Ranch. Commercial water usage revenue increased for the three and six months ended February 29, 2024 compared to 2023 due to increased water sales to oil and gas operators.

Current wording

For the three months ended May 31, 2024, municipal water usage was consistent with 2023. Commercial water usage revenue decreased for the three months ended May 31, 2024 compared to 2023 due to decreased water sales to oil and gas operators. For the nine months ended May 31, 2024, municipal water usage revenue increased over 2023 mainly due to increased residential customers at Sky Ranch. Commercial water usage revenue increased for the nine months ended May 31, 2024 compared to 2023 due to increased water sales to oil and gas operators.

Previous wording

For the three and six months ended February 29, 2024, wastewater treatment fees increased slightly as compared to 2023 primarily due to new Sky Ranch customers.

Current wording

For the three and nine months ended May 31, 2024, wastewater treatment fees increased slightly as compared to 2023 primarily due to new Sky Ranch customers.

Previous wording

For the three and six months ended February 29, 2024, water and wastewater tap sales decreased compared to 2023 due to timing of closings at Sky Ranch. Tap sales are driven by builders obtaining building permits in anticipation of home closings.

Current wording

For the three and nine months ended May 31, 2024, water and wastewater tap sales decreased compared to 2023 due to less available finished lots at Sky Ranch in 2024. Tap sales are driven by builders obtaining building permits in anticipation of home closings.

Previous wording

For the three months ended February 29, 2024, lot sales revenue decreased as compared to 2023 due to timing of development activities, and despite beginning field construction on Phase 2C in February 2024, we did not reach our first milestone to begin recognizing revenue. For the six months ended February 29, 2024, lot sales revenue increased as compared to 2023 due to having two phases under construction (Phase 2A and 2B) in 2024. Per lot revenue is expected to increase as we completed each of the four subphases of Phase 2. Revenue for builder contracts is recognized over time with progress measured under the percent of completion method; therefore, revenue will fluctuate due to timing of construction activities throughout Phase 2.

Current wording

For the three months ended May 31, 2024, lot sales revenue increased as compared to 2023 due to timing of development activities and beginning of field construction on Phase 2C in 2024. For the nine months ended May 31, 2024, lot sales revenue increased as compared to 2023 due to having three phases under construction (Phase 2A, 2B and 2C) in 2024. Per lot revenue is expected to increase as we complete each of the four subphases of Phase 2. Revenue for builder contracts is recognized over time with progress measured under the percent of completion method; therefore, revenue will fluctuate due to timing of construction activities throughout Phase 2.

Previous wording

For the three and six months ended February 29, 2024, land development construction costs decreased for the three months ended and increased for the six months ended compared to 2023 due to fluctuations in construction activity and revenue recognized during the periods compared.

Current wording

For the three and nine months ended May 31, 2024, land development construction costs increased compared to 2023 due to fluctuations in construction activity and revenue recognized during the periods compared.

Previous wording

In fiscal 2021, we began construction on three homes that were completed and rented effective November 1, 2021. Each home was 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. As of February 29, 2024, 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. As of May 31, 2024, the Company had a total of 14 units rented.

Previous wording

As of February 29, 2024, our working capital, defined as current assets less current liabilities, was $19.9 million, which included $20.4 million in cash and cash equivalents. All our cash is maintained at high-credit quality institutions and overnight investments are made into an insured cash sweep program which provides FDIC insurance for our entire cash balance through the banks in which our cash is being held. We believe that as of February 29, 2024 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 May 31, 2024, our working capital, defined as current assets less current liabilities, was $19.6 million, which included $20.4 million in cash and cash equivalents. All our cash is maintained at high-credit quality institutions and overnight investments are made into an insured cash sweep program which provides FDIC insurance for our entire cash balance through the banks in which our cash is being held. We believe that as of May 31, 2024 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 four subphases, of which Phase 2A, Phase 2B and Phase 2C are being actively developed as of February 29, 2024. We estimate total costs to complete the infrastructure (including public improvements) for all 874 lots in Phase 2 to total $74.6 million. Of this, we anticipate spending up to $15.8 million in the next 12 months, and we anticipate receiving approximately $20.9 million in milestone payments from our builder customers and completed lot payments. Additionally, we will received 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 2A, Phase 2B and Phase 2C. 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

Phase 1 of the Sky Ranch development is complete, Phase 2 began in February 2021, which is being done in four subphases, of which Phase 2A, Phase 2B and Phase 2C are being actively developed as of May 31, 2024. We estimate total costs to complete the infrastructure (including public improvements) for all 874 lots in Phase 2 to total $74.6 million. Of this, we anticipate spending up to $19.6 million in the next 12 months, and we anticipate receiving approximately $26.3 million in milestone payments from our builder customers and completed lot payments. Additionally, we will received 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 2A, Phase 2B and Phase 2C. 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.

Previous wording

For the six months ended February 29, 2024, we used cash as follows:

Current wording

For the nine months ended May 31, 2024, 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 2023 Annual Report. The accounting policies and estimates used in preparing our interim consolidated financial statements for the three and six months ended February 29, 2024 are the same as those described in our 2023 Annual Report. There have been no changes to our critical accounting policies during the three and six months ended February 29, 2024. 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.

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 our 2023 Annual Report. The accounting policies and estimates used in preparing our interim consolidated financial statements for the three and nine months ended May 31, 2024 are the same as those described in our 2023 Annual Report. There have been no changes to our critical accounting policies during the three and nine months ended May 31, 2024. 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 2023 Annual Report.