PURE CYCLE CORP

Previous wording

The housing market stabilized in 2024 and into 2025 as the Federal Reserve shifted from an aggressive monetary policy in 2023 to a balanced policy in 2024 and early 2025 with relatively consistent interest rates. However, with the rising interest rates in 2022 and 2023, the 30-year fixed mortgage rates are still at their highest level in over 15 years. Homebuilders' strategic use of interest rate buydowns as incentives has played a crucial role in driving sales during higher levels of interest rates.

Current wording

The housing market stabilized in 2024 as the Federal Reserve shifted from an aggressive monetary policy in 2023 to a more balanced approach that has continued into 2025 with relatively consistent interest rates. In the first half of 2025, the housing market faced additional challenges as consumer demand was influenced by ongoing affordability challenges and uncertainty occurring from federal trade policies. Elevated mortgage interest rates have kept the 30-year fixed mortgage rates at their highest level in over 15 years. Additionally, the housing market has faced volatility due to other macroeconomic and geopolitical conditions, including weakened consumer confidence.

Previous wording

Despite recent market uncertainty stemming from anticipated US 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 and inflation rates have been stabilizing, we expect this moderate demand to continue throughout 2025. 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 reasonably priced (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 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.

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 aggressive raising of the federal funds interest rate and other measures during 2022 and 2023 to moderate persistent U.S. inflation and the uncertainty in future Federal Reserve monetary policy are expected to be an ongoing headwind for the housing market in 2025 and beyond, as they have elevated mortgage loan interest rates and created macroeconomic uncertainty and volatility across financial markets. Prolonged supply chain disruptions and other production-related challenges could extend or delay our construction cycle times and intensify construction-related cost pressures beyond our experience in 2024. In addition, consumer demand for our homes, and our ability to grow and scale, revenue 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. 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 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.

Previous wording

We provide wholesale water and wastewater service to local governments for both residential and commercial customers. The local governments we serve include the Rangeview Metropolitan District (“Rangeview District”), Arapahoe County, the Sky Ranch Community Authority Board and related metropolitan districts (“Sky Ranch CAB”), and the Elbert and Highway 86 Commercial Metropolitan District (“Elbert 86 District”). Our mission is to provide sustainable, reliable, high-quality water to our customers and collect, treat, and reuse wastewater using advance water treatment systems, which produce high quality reclaimed water we can reuse for outdoor irrigation and industrial demands. By using and reusing our water supplies, we proactively manage our valuable water rights in the water-scarce Denver, Colorado region which dramatically reduces the environmental impact of our water resource operations. We design, permit, construct, operate and maintain wholesale water and wastewater systems that we own or operate on behalf of governmental entities. We also design, permit, construct, operate, and maintain retail distribution and collection systems that we own or exclusively operate on behalf of our governmental customers. Additionally, we handle administrative functions, including meter reading, billing and collection of monthly water and wastewater revenues, regulatory water quality monitoring, sampling, testing, and reporting requirements to the Colorado Department of Public Health and Environment.

Current wording

We provide wholesale water and wastewater service to local governments for both residential and commercial customers. The local governments we serve include the Rangeview Metropolitan District (“Rangeview District”), Arapahoe County, the Sky Ranch Community Authority Board and related metropolitan districts (“Sky Ranch CAB”), and the Elbert and Highway 86 Commercial Metropolitan District (“Elbert 86 District”). Our mission is to provide sustainable, reliable, high-quality water to our customers and collect, treat, and reuse wastewater using advanced water treatment systems, which produce high quality reclaimed water we can reuse for outdoor irrigation and industrial demands. By using and reusing our water supplies, we proactively manage our valuable water rights in the water-scarce Denver, Colorado region which dramatically reduces the environmental impact of our water resource operations. We design, permit, construct, operate and maintain wholesale water and wastewater systems that we own or operate on behalf of governmental entities. We also design, permit, construct, operate, and maintain retail distribution and collection systems that we own or exclusively operate on behalf of our governmental customers. Additionally, we handle administrative functions, including meter reading, billing and collection of monthly water and wastewater revenues, regulatory water quality monitoring, sampling, testing, and reporting requirements to the Colorado Department of Public Health and Environment.

Previous wording

Our land development activities provide a strategic complement to our water and wastewater activities because a significant component of any master planned community is providing high quality domestic water, irrigation water, and wastewater to the community. Having control over the land and the water and wastewater services enables us to build infrastructure for potable water and irrigation distribution, wastewater and storm water collection, roads, parks, open spaces, and other investments efficiently and to manage delivery of these investments to match take-down commitments from our home builder customers without significant excess capacity in any of these investments.

Current wording

Our land development activities provide a strategic complement to our water and wastewater activities because a significant component of any master planned community is providing high quality domestic water, irrigation water, and wastewater services to the community. Having control over the land and the water and wastewater services enables us to build infrastructure for potable water and irrigation distribution, wastewater and storm water collection, roads, parks, open spaces, and other investments efficiently and to manage delivery of these investments to match take-down commitments from our home builder customers without significant excess capacity in any of these investments.

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). 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 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.

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 include milestone payments as construction progresses, with the fourth homebuilder contract having one payment due at the transfer of title of the finished lots. As of February 28, 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 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.

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 28, 2025, Phase 2B of the Sky Ranch development is approximately 95% 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 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.

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 at the transfer of title of the finished lots. As of February 28, 2025, Phase 2C of the Sky Ranch development is approximately 48% complete. As of February 28, 2025, we received $4.2 million, which consists of the first milestone payments from the three builders with milestone payment contracts and the second milestone payment from one builder. We expect the remaining second milestone and finished lot payments for Phase 2C, which totals $13.5 million, to be received over the next 6 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 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.

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 contract review with another homebuilder in Phase 2D to include milestone payments as construction progresses. We are contracted with a third homebuilder having one payment due at the transfer of title of the finished lots. As of February 28, 2025, Phase 2D of the Sky Ranch development is approximately 18% complete. As of February 28, 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 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.

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 February 28, 2025 and February 29, 2024, due to the construction progress in Phase 2A through 2D, we recognized $1.1 million and $1.2 million of lot sales revenue related to construction at Sky Ranch. During the six months ended February 28, 2025 and February 29, 2024, due to the construction progress in Phase 2A through 2D, we recognized $3.5 million and $3.1 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, $16.4 million of lot sales revenue since construction began on Phase 2B, $4.8 million of lot sales revenue since construction began on Phase 2C and $0.8 million of lot sales revenue since construction began on Phase 2D as of February 28, 2025. We expect to recognize the remaining $0.9 million of revenue for Phase 2B over the next 6 months, the remaining $13.0 million of revenue from all four homebuilders for Phase 2C before the end of our fiscal 2025 and the remaining $18.2 million of revenue from our homebuilders for Phase 2D before the end of our fiscal 2025.

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 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.

Previous wording

We expect to begin construction activities in Phase 2E in the first quarter of fiscal 2026, with the completion of approximately 146 lots by the end of fiscal 2026.

Current 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.

Previous wording

In addition to the lot sales described above, from the start of development at Sky Ranch through February 28, 2025, we have received $28.1 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) and 157 of 211 taps sold in Phase 2B (with 17 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, 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.

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 28, 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 February 28, 2025, we reserved approximately 94 lots in Phase 2, 10 of which are in Phase 2A and are completed and rented as of February 28, 2025. Additionally, we have reserved 17 lots in Phase 2B, which we anticipate completing in calendar 2025.

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, 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.

Previous wording

For the six months ended February 28, 2025 and February 29, 2024, we generated net income of $4.7 million and $2.2 million, respectively. The increase was primarily due to an increase in oil and gas royalty income. Total revenue increased over the two periods as well. 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 and increased compared to the prior year period, as we continue construction on Phase 2B, 2C and now 2D at Sky Ranch. 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.

Current 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.

Previous wording

For the three months ended February 28, 2025 and February 29, 2024, we generated net income of $0.8 million and $0.1 million, respectively. The increase was primarily due to an increase in oil and gas royalty income. 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 now 2D at Sky Ranch. The increase in cost of revenue was 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 nine months ended May 31, 2025 and 2024, we generated net income of $7.0 million and $5.0 million, respectively. The increase was primarily due to an increase in oil and gas royalty income. Total revenue decreased over the two periods due to a decrease in land development. 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; however, land development activities have decreased resulting in a decreased lot sales revenue compared to our historically high level of Lot sales revenue in the prior year period. We are continuing construction on Phase 2B, 2C and 2D at Sky Ranch and expect to align the timing to begin development activities on Phase 2E with market demand for additional lots at Sky Ranch. The increase in cost of revenue was due to an increase in estimated cost for Phase 2B as well as increased property tax due to our accelerated development schedule. 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.

Previous wording

The tables below present our consolidated results of operations for the three and six months ended February 28, 2025 and February 29, 2024.

Current wording

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

Previous wording

Three and Six Months Ended February 28, 2025 Results Compared to 2024

Current wording

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

Previous wording

For the three and six months ended February 28, 2025, total revenue increased as compared to 2024, primarily due to water and wastewater tap fee revenue in 2025. Lot sales are recognized using the percentage of completion method. Construction activity increased in 2025. During the three months ended February 28, 2025, we were developing in Phase 2A, Phase 2B, Phase 2C and Phase 2D, compared to Phase 2A and Phase 2B in the three months ended February 29, 2024, resulting in more revenue being recognized. 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. Tap fee revenue timing is dependent on the timing of builders filing for building permits, which has increased with the development of Phase 2B in 2025.

Current 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.

Previous wording

For the three and six months ended February 28, 2025, general and administrative expense increased as compared to 2024, due to an accrual for legal fees booked in 2025 and increased expenses associated with additional employees hired in 2025 due to our continuing growth and accelerated development schedule.

Current wording

For the three months ended May 31, 2025, general and administrative expense increased as compared to 2024, due to increased expenses associated with additional employees hired in 2025. For the nine months ended May 31, 2025, general and administrative expense increased as compared to 2024, due to an accrual for legal fees booked in 2025 and increased expenses associated with additional employees hired in 2025.

Previous wording

For the three and six months ended February 28, 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 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.

Previous wording

For the three and six months ended February 28, 2025, water deliveries decreased as compared to 2024 primarily due to decrease of water sales to oil and gas operators.

Current 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.

Previous wording

For the three and six months ended February 28, 2025, municipal water usage was consistent with 2024. Commercial water usage revenue decreased for the three and six months ended February 28, 2025 compared to 2024 due to decreased water sales to oil and gas operators.

Current 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.

Previous wording

For the three and six months ended February 28, 2025, wastewater treatment fees increased slightly as compared to 2024 primarily due to new Sky Ranch customers.

Current 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.

Previous wording

For the three and six months ended February 28, 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 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.

Previous wording

For the three and six months ended February 28, 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 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.

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. As of February 28, 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-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.

Previous wording

As of February 28, 2025, our working capital, defined as current assets less current liabilities, was $19.8 million, which included $16.8 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, 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 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.

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, Phase 2B, Phase 2C and Phase 2D are being actively developed as of February 28, 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 $24.2 million in the next 12 months, and we anticipate receiving approximately $32.1 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

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.

Previous wording

As of February 28, 2025, we have entered into contracts with national home builders to construct 17 rental units at Sky Ranch in Phase 2B. The contracted construction costs for all 17 units in Phase 2B will be approximately $6 million. As of February 28, 2025, we had incurred $0.3 million of these construction costs. We anticipate financing the majority of the remaining cost for Phase 2B rental units in fiscal 2025.

Current 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.

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 $1.0 million in total through fiscal year 2025 to fund the Rangeview District’s obligation to purchase water and fund development of infrastructure for WISE, its obligations related to SMWSA, and the construction of a connection to the WISE system. 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 $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.

Previous wording

For the six months ended February 28, 2025, we used cash as follows:

Current wording

For the nine months ended May 31, 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 six months ended February 28, 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 six months ended February 28, 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 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.