PCYO 10-K & 10-Q changes, risk factors and insider trading

In addition, the residential homebuilding industry is cyclical and is highly sensitive to changes in general economic conditions such as levels of employment, consumer confidence and income, availability of mortgage financing for acquisitions, interest rate levels and inflation, cost and availability of raw materials, among other factors. The residential housing market is impacted by federal and state personal income tax rates and provisions, and government actions, policies, programs and regulations directed at or affecting the housing market, including the Tax Cuts and Jobs Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies. In addition, changes in immigration policy and enforcement and tariffs imposed on products used in the construction industry can increase construction cost and thereby reduce demand for new housing. Macroeconomic factors also affect demand. For example, from 2020 to 2022 housing starts as well as home prices in Colorado increased.increased, Inbut 2022more and 2023 due torecently, rising interest rates,rates thehave reduced demand for new home startsstarts. weakened in the Colorado housing market. Notwithstanding stabilizing house conditions in 2024, theThe current demand for new homes is subject to continued uncertainty due to many factors, and we could experience declines in the market value and demand for our lots and rental homes, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Significant competition from other development projects could adversely affect our results. Land development is a highly competitive business. There are numerous land developers, as well as properties and development projects, in the same geographic area in which Sky Ranch is located. Many of our land development competitors may have advantages over us, such as more favorable locations, which may provide more desirable schools and easier access to roads and shopping, or amenities that we may not offer, as well as greater financial resources. If other development projects are found to be more attractive to home buyers, home builders or other developers or operators of real estate based on location, price, or other factors, then we may be pressured to reduce our prices or delay further development, either of which could materially adversely affect our business, results of operations, cash flows and financial condition. The single-family home rental market is also highly competitive. There are numerous companies and individuals that own rental homes in the Sky Ranch area which may have more experience than we do renting single-family homes, better locations, and better pricing. If we are unable to rent the homes at rates that cover our costs or are unable to manage the properties and expenses incurred to manage the properties, the impact to our business, results of operations, cash flows and financial condition could be materially negative.

Our operations could be adversely impacted by increases in material, labor, supplier, logistics and other operating costs, or supply chain delays and shortages, which could cause lower margins or lost sales and adversely impact our business, financial position, results of operations and cash flows, and component price volatility and availability, as well as supplier concentration. The market prices for certain materials and components we purchase, primarily steel and PVC piping, have been volatile. In addition, some supplies are subject to long lead times. Disruptions to the commercial transportation network, including limited container and trucking capacity and port congestion, have increased supplier delivery times for materials to our facilities. Our margins and overall financial performance may be adversely affected by increases in our operating costs, such as material, labor, supplier costs, logistics and energy costs, all of which may be subject to inflationary pressures.pressures resulting from increased tariffs, changes in supply and demand and other factors. Since the onset of COVID-19, we have seen operating costs trending upward, labor shortages, logistics disruptions, commodity cost increases and shortages, and overall increased demand in the land development and water business industries. In addition, some of our customers have experienced raw material shortages. Any such shortages can in turn impact and delay our ability to service our customers. While we seek to mitigate any cost increases, labor impacts and supply chain delays and shortages, these efforts may not be successful, and we may experience adverse impacts due to such factors. We cannot predict the extent of these current trends or other future increases in operating costs. To the extent such costs continue to increase, we may be prevented, in whole or in part, from passing such cost increases through to our existing and prospective customers, or our customers may seek other competitive sources due to supply chain delays, which could have a material adverse impact on our margins, business, financial position, results of operations and cash flows.

Our water business is subject to seasonal fluctuations and weather conditions that could affect demand for our water service and our revenue and that could become more extreme with climate change. We depend on an adequate water supply to meet the present and future demands of our customers and their end-use customers and to continue our expansion efforts. Conditions beyond our control may interfere with our water supply sources. Drought and overuse may limit the availability of water, and such droughts may become more frequent and prolonged with climate change. These factors might adversely affect our ability to supply water in sufficient quantities to our customers, and our revenue and earnings may be adversely affected.affected by any supply issues. Additionally, cool, and wet weather, as well as drought restrictions and our customers’ conservation efforts, may reduce consumption demands, adversely affecting our revenue and earnings. Furthermore, freezing weather may contribute to water transmission interruptions caused by pipe breakage. If we experience an interruption in our water supply, it could have a material adverse effect on our financial condition and results of operations. Demand for our water during the warmer months is generally greater than during cooler months due primarily to additional requirements for water in connection with cooling systems, irrigation systems and other outside water use. Throughout the year, and particularly during typically warmer months, demand will vary with temperature and rainfall levels. If temperatures during the typically warmer months are cooler than expected or there is more rainfall than expected, the demand for our water may decrease and adversely affect our revenue.

We may not generate sufficient cash flows from operations or other capital resources to pursue our business objectives. While we have generated net income in the past several years, prior to that we had a history of losses. Our cash flows from operations generally have not been sufficient to fund our operations, and we have been required to raise debt and equity capital and sell assets to remain in operation. Since 2004, we have raised over $76.0 million through (i) the issuance of more than $25.0 million of common stock (including the issuance of stock pursuant to the exercise of options, net of expenses), (ii) the issuance of $5.2 million of convertible debt, which was converted to common stock on January 11, 2011, and (iii) the sale of our Arkansas River water and land for $45.8 million in cash. Our continuing development of Sky Ranch requires significant cash expenditures. We have advanced the Sky Ranch CAB $67.5$85.6 million for construction of public improvements in Phases 1 and 2 at Sky Ranch and expect to advance approximately another $30.0$23.5 million for the completion of the Phase 2 public improvements. The Sky Ranch CAB is not required to repay us for advances made or expenses incurred for improvements at Sky Ranch unless and until the Sky Ranch CAB and/or Sky Ranch Districts generate sufficient funds from either tax revenue, fees or by issuing bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred. We have funded and expect to continue to fund such expenditures with cash on hand and cash flows from operations. As of August 31, 2024,2025, we had $22 million of cash on hand. If our cash on hand and future cash flows from operations are not sufficient to fund our operations and the significant capital expenditure requirements to continue to develop Sky Ranch, we may be forced to seek to obtain additional debt or equity capital. Economic conditions and disruptions have previously caused substantial volatility in capital markets, including credit markets and the banking industry, increasing the cost, and significantly reducing the availability of financing, which may reoccur in the future. There can be no assurance that financing will be available on acceptable terms or at all.

The rates that the Rangeview District is allowed to charge customers on the Lowry Ranch for water services are limited by the Lease with the Land Board and our contract with the Rangeview District and may not be sufficient to cover our costs of construction and operation. The prices charged by the Rangeview District for water service on the Lowry Ranch are subject to pricing regulations set forth in the Lease with the Land Board. Both the tap fees and usage rates and charges are capped at the average of the rates of three nearby water providers. Annually, the Rangeview District surveys the tap fees and rates of the three nearby providers, and the Rangeview District may adjust tap fees and rates and charges for water service on the Lowry Ranch based on the average of those charged by this group. We receive 100% of tap fees and 98% of water usage fees charged by the Rangeview District to its customers after the deduction of royalties owed to the Land Board. Our costs associated with the construction of water systems and the production, treatment and delivery of water are subject to market conditions and other factors, which may increase at a significantly higher rate than that of the fees we receive from the Rangeview District. Factors beyond our control and which cannot be predicted, such as government regulations, tariffs and other charges, changs in insurance and labor markets, drought, water contamination and severe weather conditions may result in additional labor and material costs that may not be recoverable under the current rate structure. Both increased customer demand and increased water conservation may also impact the overall cost of our operations. If the costs for construction and operation of our wholesale water services, including the cost of extracting our groundwater, exceed our revenue, we would be providing water service to the Rangeview District for use at the Lowry Ranch at a loss. The Rangeview District may petition the Land Board for rate increases; however, there can be no assurance that the Land Board would approve a rate increase request. Further, even if a rate increase were approved, it might not be granted in a timely manner or in an amount sufficient to cover the expenses for which the rate increase was sought.

A significant portion of our water supplies come from non-renewable aquifers and inadequate water and wastewater supplies could have a material adverse effect on us. A significant portion of our water supplies comes from non-renewable Denver Basin aquifers. The State of Colorado regulates development and withdrawal of water from the Denver Basin aquifers to a rate of 1 percent of the aggregate amount of water determined to be in storage each year, which means our supply should last approximately 100 years even if no efforts were made to conserve or recharge the supply. Nonetheless, we may need to seek additional water supplies to prove our supply can last for 300 years as our non-renewable supplies are depleted. While the acquisition of WISE and Lost Creek water, a renewable “surface” water right that is diverted from an alluvial aquifer that is hydrologically connected to the surface water system, mitigates some of the risk of owning non-renewable supplies, if we are unable to obtain sufficient replacement supplies, it would have a material adverse impact on our business and financial condition. Additionally, the cost of developing and withdrawing water from the aquifers is expected to increase over time, and we may not be able to recover the increased costs through our rates and charges.

In many areas of Colorado, water supplies are limited, and in some cases, current usage rates exceed sustainable levels for certain water resources. We do not currently anticipate any short-term concerns with physical, legal, or continuous availability issues in our service areas. Insufficient availability of water or wastewater treatment capacity could materially and adversely affect our ability to provide for expected customer growth necessary to increase revenue. We continuously look for new sources of water to augment our reserves in our service areas, but our ability to obtain such rights may depend on factors beyond our control. We may not be able to obtain sufficient water or water supplies to increase customer growth necessaryas needed to increase or even maintain our revenues. Also, increased costs to develop water from aquifers could have a significant negative impact on our business, results of operations, cash flows and financial condition.

To utilize our water resources as intended, we may need to apply for a change of use with the water court from time to time. This may take several years to complete, and there is no assurance that we will be able to obtain a favorable ruling, which may adversely impact our business and financial condition. Water resources that have been historically used for purposes other than municipal and industrial uses or that have been used in other locations, such as orour Lost Creek Water, require a favorable change of use ruling by the water court in order for us to use the water as planned. A change of use ruling by the water court could take several years and be a costly and contentious effort since it is anticipated that many parties will oppose the change of use and the transfer of the water. There are several conditions which must be satisfied prior to our receiving a change of use decree. One condition that we must satisfy is a showing of anti-speculation in which we, as the applicant, must demonstrate that we have contractual obligations to provide water service to customers prior to the water court ruling on the transfer of a water right. The water court is also expected to limit the transfer to the “consumptive use” portion of the water right and to address changing the historic use of the water from agricultural uses to other uses such as municipal and industrial use. We expect to face opposition to any consumptive use calculations of the historic agricultural uses of this water. The water court may impose conditions on our transfer of the water rights such as requiring us to mitigate the loss of the farming tax base, imposing re-vegetation requirements to convert soils from irrigated to non-irrigated, imposing water quality measures, and imposing limitations on the timing and location of transfers to mitigate the effect of the transfer on other users who may be affected by such transfers.users. Any such conditions, including a change of use ruling that precludes us from using the water resource as intended, would likely increase the cost of transferring the water rights or require us to develop alternative plans or water resources, which could result in substantial delays or expense which mymay adversely impact our business and financial condition.

A failure of the water wells or distribution networks we own,own or control could result in losses and damages that may affect our business and financial condition. We distribute water through a network of pipelines and store water in storage tanks and ponds. A failure of these pipelines, tanks or ponds could result in injuries and damage to property for which we may be responsible, in whole or in part. The failure of these pipelines, tanks, or ponds may also result in the need to shut down some facilities or parts of our water distribution network to conduct repairs. Such failures or shutdowns may limit our ability to supply water to our customers and to meet the water delivery requirements prescribed by our contracts, which could adversely affect our business, results of operations, cash flows, and financial condition. Any business interruption or other losses might not be covered by insurance policies or be recoverable through rates and charges, and such losses may make it difficult for us to secure insurance in the future at acceptable rates.

We have limited experience with the development of real property. While we have extensive experience designing and constructing water and wastewater facilities and maintaining and operating these facilities, despite having completed Phase 1 and 2A, as well as a substantial amount of Phase 2A andPhases 2B through 2E at Sky Ranch, we have less experience developing real property. We may underestimate the capital expenditures required to complete the development of Sky Ranch, including the costs of certain infrastructure improvements and construction costs related to our single-family home rental business. We have limited experience managing property development and construction activities, including the permitting and other approvals required, which may result in delays in completing Sky Ranch. Furthermore, construction and funding of a new interchange on I-70 may delay the issuance of permits beyond Phase 2.

The funds we are advancing to the Sky Ranch CAB for construction of public improvements might not be repaid, which would negatively impact our income, gross margin on selling lots, and cash flows. Since the start of development at Sky Ranch, we have advanced the Sky Ranch CAB $67.5$85.6 million for construction of public improvements and expect to fund an additional estimated $30$23.5 million to complete the buildout of public improvements in Phase 2. At August 31, 2024,2025, of the amounts advanced to the Sky Ranch CAB, $41.0$43.8 million has not been repaid, including interest and project management fees. We expect that these amounts will be repaid by the Sky Ranch CAB.CAB but cannot guarantee that repayment will occur. No payment is required by the Sky Ranch CAB with respect to construction of public improvements unless and until the Sky Ranch CAB and/or the Sky Ranch Districts have generated sufficient funds from property taxes, fee, or the issuance of municipal bonds in an amount sufficient to reimburse the Company for all or a portion of advances provided or expenses incurred for reimbursables. The ability and obligation of the Sky Ranch CAB to reimburse us is dependent on sufficient home sales and commercial development occurring at Sky Ranch to create a tax base that would enable the Sky Ranch CAB to issue bonds to pay for the improvements. If development at Sky Ranch is delayed or curtailed for any reason, including regulatory restrictions, a downturn in the economy or default by one or more of the builders at Sky Ranch, the Sky Ranch CAB may not have sufficient revenues to issue bonds.

Supply shortages and risks related to the demand for skilled labor and building materials could increase costs and delay closings. The property development and home construction industries are highly competitive for skilled labor and materials. Labor shortages throughout the Unites States including the Colorado Front Range have become more acute in recent years as the supply chain adjusts to uneven industry growth. Increased costs or shortages of skilled labor and/or concrete, steel, pipe, lumber, and other materials could cause increases in property development and home construction costs and delays, including in our single-family home rental business. We are unable to pass on increases in property development costs to home builders with whom we have already entered purchase and sale contracts for residential lots, at fixed prices, which were signed well in advance of development. Sustained increases in development and construction costs may, over time, erode our margins. Our ability to build new rental homes, even though we outsource the construction, may be adversely affected by circumstances beyond our control, including: work stoppages, labor disputes, and shortages of qualified trades people, such as carpenters, roofers, masons, electricians, and plumbers; changes in laws and regulations relating to union organizing activityactivity, immigration, tariffs or other matters; lack of availability of adequate utility or infrastructure and services; our need to rely on local subcontractors who may not be adequately capitalized or insured or may not, despite our quality control efforts, engage in proper construction practices or comply with applicable regulations; inadequacies in components purchased from building supply companies; and shortages or delays in availability, or fluctuations in prices of building materials. Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, constructing new rental homes.

We may purchase additional land parcels for development or other purposes, thereby exposing us to certain financial risks. We may purchase additional land parcels for development, construction, or other purposes. As noted above, land development and construction require significant cash expenditures before positive cash flows can be generated from the sale of lots, rental of homes, and water and wastewater tap fees. If there is considerable lag time between when we acquire the land and when we begin selling finished lots or renting homes, we may generate significant operating losses. In addition, if sales of homes on the finished lots are delayed,delayed or renters cannot be found in a timely manner, our revenue from water and wastewater resource development services will be delayed. If our cash on hand and future cash flows from operations are not sufficient to fund our operations and the significant capital expenditureexpenditures requirementsrequired to develop any acquired land, construct housing and build water and wastewater systems, we may be forced to seek to obtain additional debt or equity capital. There can be no assurance that financing will be available on acceptable terms or at all.

Delays in property development may extend the time it takes us to recover our property development costs and delay our revenue from water and wastewater resource development services. We incur many costs, such as the costs of preparing land, finishing and entitling lots, installing roads, sewers, water systems and other utilities, taxes and other costs related to ownership of the land and/or developing lots on behalf of builders who purchase the land, before we close on the sale of finished lots to home builders. If the rate at which we develop residential lots slows, we may incur additional costs, and it may take longer for us to recover our costs. In addition, if sales of homes on the finished lots are delayed, or we are unable to find renters in a timely manner, our revenue from water and wastewater resource development services will be delayed. A significant downturn in the housing market could cause our builders to delay building homes on their lots until market conditions improve, and could result in us not renting our single-family rentals for rates that provide a sufficient return. Builders with contracts that do not require purchasingthem theto purchase a lot until we deliver a finished, ready-to-build lot,lot could walk away from the contract prior to closing without consequence other than the forfeiture of their upfront deposits for the lot, utilities and other improvements. If a builder elected to walk away without cause, we would be entitled to keep these deposits as liquidated damages, but the deposits would not be sufficient to cover the expenses we expect to incur to finish the lots for delivery. We would not be able to recover our costs until we were able to sell the finished lots to another builder. If the original builder did not go through with the closing due to a poor housing market, we would likely have difficulty finding another buyer for the same reason. For our single-family rental homes, we incur the costs to construct the home, for which we currently have funding in place, but there are no assurances that funding will remain in place for future growth. The costs of construction of the single-family rentals are anticipated to be paid for over time by the rental income, but we may not be able to rent the homes for amounts sufficient to cover these costs.

Fluctuations in real property values may require us to write-down the book value of our land interests. The land development industry is subject to significant variability and fluctuations in real property values. As a result, we may be required to write-downwrite down the value of our Sky Ranch, single-family home rentals, or other land interests in accordance with accounting principles generally accepted in the United States of America, and some of those write-downs could be material. Any material write-downs could have a material adverse effect on our business, financial condition, or results of operations. We assess our land interests when indicators of impairment exist. Indicators of impairment include a decrease in demand for housing due to soft market conditions; competitive pricing pressures that reduce the average sales price of finished lots; sales absorption rates below management expectations; a decrease in the value of homes or the underlying land due to general market conditions, actual or perceived risks due to proximity to oil and gas drilling operations, or other reasons; and a decrease in projected cash flows for a project.

Our land development segment may be subject to risks related to oil and gas operations in the vicinity of our Sky Ranch development, which could have an adverse impact on the marketability and/or value of our Sky Ranch property. We have leased the minerals underlying Sky Ranch to a major exploration and production company, which may limit the location of development on the land. Oil and gas extraction is an inherently dangerous activity that can potentially lead to air and water contamination, fire, explosion, subsidence, and other hazards. While the State of Colorado, local governments, and private operators have regulations and procedures in place intended to mitigate these risks, there can be no assurances that these safeguards will be effective in all cases with respect to any oil and gas activity around Sky Ranch. The existence of oil and gas wells and drilling activity in or near our property and public concern regarding the negative health impacts from emissions near drilling and hydraulic fracturing sites,sites may adversely impact the marketability and/or value of the lots at Sky Ranch and decrease demand for homes in proximity to oil and gas operations, negatively impacting our land development segment, which could also negatively impact our business and financial condition.

We will depend on our tenants for all of our rental home revenue. Poor tenant selection and defaults and nonrenewal by our tenants may adversely affect our reputation,reputation and financial performance. We are dependent on rental income from tenants for all of our rental home revenue. As a result, the success of this division depends in large part upon our ability to attract and retain qualified tenants for our properties. Our reputation and financial performance would be adversely affected if a significant number of our tenants fail to meet their lease obligations or fail to renew their leases. For example, tenants may default on rent payments, make unreasonable and repeated demands for service or improvements, make unsupported or unjustified complaints to regulatory or political authorities, use our properties for illegal purposes, damage or make unauthorized structural changes to our properties that are not covered by security deposits, refuse to leave the property upon termination of the lease, engage in domestic violence or similar disturbances, disturb nearby residents with noise, trash, odors or eyesores, fail to comply with local regulations, sublet to less desirable individuals in violation of our lease or permit unauthorized persons to live with them. Damage to our properties may delay re-leasing after eviction, necessitate expensive repairs or impair the rental income or value of the property resulting in a lower than expected rate of return. Increases in unemployment levels and other adverse changes in the economic conditions in our market could result in substantial tenant defaults.

Tenant relief laws, including laws restricting evictions and other regulations could limit our ability to evict bad tenantstenants, whichand this may negatively impact our rental income and profitability. Landlords of numerous properties tend tomay be involved in evicting tenants who are not paying their rent or are otherwise in material violation of the terms of their lease.lease from time to time. Eviction activities impose legal and managerial expenses that would raise our costs. The eviction process is typically subject to legal barriers, mandatory “cure” policies and other sources of expense and delay, each of which may delay our ability to gain possession and stabilize the property.

Government regulations and legal challenges may delay the closing of the sale of our residential lots, increase our expenses or limit other activities, which could have a negative impact on our results of operations. The approval of numerous governmental authorities must be obtained in connection with both our water and wastewater projects and our land development activities, and these governmental authorities often have broad discretion in exercising their approval authority. We incur substantial costs related to compliance with legal and regulatory requirements. Any increase in legal and regulatory requirements may cause us to incur substantial additional costs. Various local, state and federal statutes, ordinances, rules and regulations concerning health and safety, site and building design, environmental, zoning, and similar matters apply to and/or affect the construction and operation of our water and wastewater systems and our land development activities. For example, as detailed further below, the CECMC adopted regulations that took effect in 2021 which implement SB 19-181 by imposing minimum distances between new oil and gas drilling operations and residences, schools, and childcare centers. SB 19-181 also empowers local governments to enact regulations that are stricter than state requirements pertaining to the surface impacts of oil and gas operations. Thus, local zoning or other regulations may seek to create stricter setbacks from oil and gas drilling operations or impose other restrictions on the use of land. Several local governments in Colorado have adopted their own oil and gas regulatory requirements and setbacks. For example, Arapahoe County adopted oil and gas regulations in November 2021 and amended those regulations in 2023 to include, among other things, a one-mile setback from existing and planned reservoirs, subject to certain exceptions that may allow a 2,000-foot setback. That 2,000-foot minimum setback was once again amended in November 2023, requiring the setback from an occupied structure to be at 3,000 feet, allowing for a setback of not less than 1,000 feet through variance procedures, and increasing the setback to 3,000 feet for well pad sites that are hydrologically separated from existing and planned reservoirs, permitting a setback of 2,000 feet if approved through a Use by Special Review processprocess. In December 2024, Arapahoe County adopted additional oil and gas regulations that require, among other things, increased setbacks, financial assurance for wells, certain air quality monitoring at facilities, and a requirement that drilling and permanent production equipment be operated with electric equipment and power where available. Similarly, in 2021, Adams County adopted a rule requiring oil and gas facilities to be set back 2,000 feet from residences, schools, and certain waterbodies. As these state and local setback regulations are implemented, and to the extent that additional regulations are enacted, the value of the land that we already own or the availability of land that we are looking to acquire may decline, either of which may adversely impact the financial position, results of operations and cash flows of our business. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained depends on factors beyond our control, such as changes in federal, state, and local policies, rules and regulations and their interpretations and application. Furthermore, we are subject to various fees and charges of government authorities designed to defray the cost of providing certain governmental services and improvements. For example, local and state governments have broad discretion regarding the imposition of development fees for projects under their jurisdictions, as well as requiring concessions or that the property developer and/or home builder construct certain improvements to public places such as parks and streets or fund schools. New building code energy laws and regulations may also adversely impact our costs of construction. For example, HB 22-1362 requires the Colorado Energy Office topublished identifyin September 2025 its Model Low Energy and Carbon Code, required by 2025,HB 22-1362. The Model Low Energy and localCarbon governmentsCode tobecomes Colorado’s new minimum energy code on July 1, 2026. Any new municipality or county that updates any of its building codes after that date must adopt bythe 2026,model morecode, or a code that will achieve greater energy efficientefficiency and lowpollution carbon building codes.reductions. Further, HB 23-1161 establishes water and energy efficiency standards for a range of appliances, which could impact appliance costs and, relatedly, costs for finishing new buildings. HB 23-1233 requires the adoption of regulations to wire multifamily buildings to be solar-ready and electric vehicle-ready, which could negatively impact our costs.

We must provide water that meets all federal and state regulatory water quality standards and operate our water and wastewater facilities in accordance with these standards. Changes in regulations governing the supply of drinking water and treatment of wastewater may have a material adverse impact on our business. For example, on October 18, 2021, the Biden Administration announced a multi-agency, three-year strategy to begin addressing per-and polyfluoroalkyl substances (PFAS), known as “forever chemicals.” As a part of ongoing efforts to implement that initiative, the EPA: (i) finalized a rule in December 2021 pertaining to monitoring of PFAS in drinking water; (ii) issued a final rule in April 2024 to establish regulatory levels for PFOA, PFOS, PFNA, PFHxS, PFBS, and GenX chemicals in drinking water; (iii) issued a final rule in May 2024 to designate two of the most widely used PFAS – PFOA and PFOS – as hazardous substances under CERCLA, or Superfund; (iv) announced a proposed rule in February 2024 to add nine specific PFAS substances, their salts, and their structural isomers to its list of hazardous constituents under RCRA; (v) issued numerous notices concerning the addition of certain PFAS substances to the Toxics Release Inventory; and (vi) expects to develop additional rules restricting PFAS discharges from industrial sources. TheseOn May 14, 2025, however, EPA announced the agency will keep the current National Primary Drinking Water Regulations (NPDWR) for PFOA and PFOS. As part of this action, EPA also announced its intent to extend the PFOA and PFOS Maximum Contaminant Level compliance deadlines and establish a federal exemption framework. Additionally, EPA announced its intent to rescind the regulations and reconsider the regulatory determinations for PFHxS, PFNA, HFPO-DA (commonly known as GenX), and the Hazard Index mixture of these three PFAS plus PFBS to ensure the determinations and any resulting drinking water regulation follow the Safe Drinking Water Act process. Any new regulatory initiatives addressing PFAS in drinking water could impact the water side of our business.

Changes in other environmental laws may also affect, for example, how we manage storm water runoff, wastewater discharges and dust; how we develop or operate on properties on or affecting resources such as wetlands, endangered species, cultural resources, or areas subject to preservation laws; and how we address contamination. With respect to wetlands, the U.S. Supreme Court’s 2023 decision in Sackett v. Environmental Protection Agency narrowed federal jurisdiction over wetlands under the Clean Water Act and related permitting requirements, which could simplify our permitting requirements for building near some wetlands. Since the Sackett decision, various challenges have continued in federal courts in an effort to further clarify the scope of federal jurisdiction. Indeed, Colorado passed HB 24-1379, requiring the Water Quality Control Commission (WQCC) to establish requirements, prohibitions, and standards for the regulation of discharged dredge and fill materials into state waters, including wetlands, and administering a state dredge and fill discharge authorization program, expected to be established by 2026. The WQCC is currently scheduled for a hearing in December 2025 to adopt these new regulations per HB 24-1379. It is expected that further clarifications and changes may arise through implementing federal regulations, additional litigation over application of the Court’s decision, and/or state laws and regulations.

Laws and regulations related to climate change, greenhouse gases, and energy may adversely affect us by directly and indirectly increasing the cost of or restricting our planned future growth activities. A variety of state legislation, regulations, and policies have been enacted in recent years relating to energy, climate change, greenhouse gas emissions reporting and controls, land use, and energy efficient building codes, in addition to the numerous above-discussed state and federal laws and regulations adopted in the past year regulating the siting of, emissions from, and chemicals used in oil and gas production. For example and as mentioned above, HB 22-1362 requires energy efficient and low carbon building codes to be adopted by the state and local governments by 2025 and 2026, respectively. Additionally, HB 23-1233 will requirerequires multifamily buildings to be solar-ready and electric vehicle-ready. Our future housing development costs and the cost of operating and maintaining our multifamily housing developments could be negatively impacted by HB 22-1362, and HB 23-1233, in conjunction with HB 23-1161 (appliance efficiency standards) and earlier enacted efficiency standards for appliances, plumbing fixtures, and buildings (e.g., HB 19-1231, HB 19-1260).

Colorado has also enacted ambitionsambitious GHG reduction targets, initially with HB 19-1261 and recently made yet more stringent with SB 23-016, which aims to reduce the state’s overall greenhouse gas emissions 100% below 2005 levels by 2050 and includes a series of interim targets. These legislated targets could lead to additional regulation impacting the housing development, water, and oil and gas industries in the future, which could increase our costs. There are also ongoing efforts to implement these greenhouse gas targets, other bills (e.g., HB 19-096, requiring GHG emissions reporting by certain entities pursuant to AQCC regulations; SB 23-1210, requiring the Colorado Energy Office to create a “carbon management roadmap”), and the Colorado Governor’s Colorado Greenhouse Gas Pollution Reduction Roadmap (first released in 2021, and updated in 2024) identifying strategies to reduce greenhouse gas emissions from a variety of sources, including buildings, transportation, and oil and gas mining and production. For example, pursuant to 19-09619-096, the AQCC adopted and updated its Air Regulation Number 22 and Regulation Number 7 requiring monitoring, reporting, and reduction of GHGs and ozone precursors from certain categories of emitters, such as industrial wastewater treatment facilities and oil and gas operators.

In addition, at the federal level, the SEC’s climate-related financial risks disclosures and greenhouse gas reporting rule, finalized in 2024, could impose additional compliance costs on our business, as well as for the oil and gas producers with whom we do business. As climate change concerns continue to grow, enactment of additional climate and energy legislation and regulations at the state, local, and federal levels may continue, and compliance with legislation and regulations of this nature is expected to become more costly.

Conflicts of interest may arise relating to the operation of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB. Our Chief Executive Officer and three of our employees, one of whowhom is our Chief Financial Officer, constitute the majority of the directors of each of the Rangeview District, the Sky Ranch Districts and the Sky Ranch CAB. These officers and employees, along with Pure Cycle and one unrelated individual, own certain property interests in the 40 acres that constitute the Rangeview District and the acreage that constitutes the Sky Ranch Districts. We have made loans to the Rangeview District to fund its operations. As of August 31, 2024, total principal and interest owed to us by the Rangeview District was $1.2 million. Pursuant to our water and wastewater service agreements with the Rangeview District, of the net amounts retained by the Rangeview District, the Rangeview District retains two percent of the revenue from the sale of water to its end-use customers and 10% of the revenue from the provision of wastewater services to its end-use customers. Proceeds from the fee collections will initially be used to repay the Rangeview District’s obligations to us, but after these loans are repaid, the Rangeview District is not required to use the funds to benefit Pure Cycle.

Growth limitations or moratoriums imposed by governmental authorities could adversely affect our land development activities or the land development activities of our customers, which could adversely impact both the land development and water and wastewater segments of our business. In 2023, the State of Colorado enacted HB 23-1255, which generally prohibits local governments from enacting or enforcing local housing growth-restrictions laws that would limit housing supply, development applications, or building permits. However, under certain circumstances, local governments may implement a temporary moratorium of up to 2two years. While this law alleviates concerns that a local government in our planned development areas might permanently restrict new growth, a temporary moratorium could still have the effect of delaying, limiting or halting development within Sky Ranch or other areas where we may provide water and wastewater services or develop land. Because all of the property in Sky Ranch has been platted, we do not expect future growth moratoriums to restrict Sky Ranch as currently planned; however, if temporary growth moratoriums or restrictions are imposed in the areas in which we provide services or develop land, it could negatively impact our ability to develop our land as planned or our customers’ ability to grow their communities as anticipated, which would also reduce the number of water and wastewater service customers we expect, which would have a negative impact on our business and financial condition.

We could be hurt by efforts to impose liabilities or obligations on us regarding labor law violations by other persons whose employees perform contracted services. The infrastructure and improvements on our water and wastewater systems and on the finished lots we sell or that we must provide pursuant to service agreements and lot development agreements are doneconstructed by employees of subcontractors and other contract parties. We do not have the ability to control what these contract parties pay their employees or the work rules they impose on their employees. However, there have been efforts by government agenciesagencies, including the National Labor Relations Board and the Colorado Department of Labor and Employment to hold contract parties like us responsible for violations of wage and hour laws and other work-related laws by firms whose employees are performing contracted-for services. Governmental rulings that make us responsible for labor practices by our subcontractors could create substantial exposures for us in situations that are not within our control.

Contamination to our water supply may result in disruption in our services and litigation, which could adversely affect our business, operating results and financial condition. Our water supplies are subject to the risk of potential contamination, including contamination from naturally occurring compounds, pollution from man-made sources and intentional sabotage. Our land at Sky Ranch and a portion of the Lowry Ranch have been leased for oil and gas exploration and development. Such exploration and development could expose us to additional contamination risks from related leaks or spills. In addition, we handle certain hazardous materials at our water treatment facilities, primarily sodium hypochlorite. Any failure of our operation of the facilities or any contamination of our supplies, including sewage spills, noncompliance with water quality standards, hazardous materials leaks and spills, and similar events, could expose us to environmental liabilities, claims and litigation costs. If any of these events occur, we may have to interrupt the use of that water supply until we are able to substitute the supply from another source or treat the contaminated supply. We cannot assureguarantee that we will successfully manage these issues, and failure to do so could have a material adverse effect on our future results of operations.

The Rangeview District’s and our rights under the Lease have been challenged by third parties. In the past the Rangeview District’s and our rights under the Lease have been challenged by third parties, including the Land Board. In 2014, in connection with settling a lawsuit filed by us and the Rangeview District against the Land Board, the Land Board, the Rangeview District and wePure Cycle amended and restated the Lease to clarify and update a number of provisions. However, there are issues still subject to disagreement and negotiation, including our rights with respect to revenue from our Export Water after 2081, and it is likely that during the remaining term (through 2081) of the Lease, the parties will disagree over interpretations of provisions in the Lease again. The Rangeview District’s or our rights under the Lease could be challenged in the future, which could require potentially expensive litigation to enforce our rights.

Our Lowry Ranch surface water rights are “conditional decrees” and require findings of reasonable diligence. Our surface water interests and reservoir sites at the Lowry Ranch are conditionally decreed and are subject to a finding of reasonable diligence from the Colorado water court every six years. To arrive at a finding of reasonable diligence, the water court must determine that we continue to diligently pursue the development of said water rights. If the water court is unable to make such a finding, we could lose the water right under review. During each of fiscal 2012 and 2018, the Lowry Ranch conditional decrees were granted review by the water court, which determined that we and the Rangeview District met the diligence criteria. The water court entered a finding of reasonable diligence on the Lowry Ranch surface water decrees in January 2019.2025. OurPursuant to our settlement discussions on amending these water rights, together with our application for a new water right we have also reached agreement with opposing parties regarding our 2025 diligence review. If concluded our next review for reasonable diligence on the Lowry Ranch surface water decreesreview will be in January 2025.2032. We believe we will be successful in maintaining our decrees as we continue to develop these rights. If the water court does not make a determination of reasonable diligence, the value of our interests in the Rangeview Water Supply would be materially adversely impacted.

Our operations are affected by local politics and governmental procedures that are beyond our control. We operate in a highly political environment. We market our water rights to municipalities and other governmental entities run by elected or politically appointed officials. Our principal competitors are municipalities and other water districts. Various constituencies, including our competitors, developers, environmental groups, conservation groups, and agricultural interests, have competing agendas with respect to the development of water rights in Colorado, which means that decisions affecting our business are based on many factors other than economic and business considerations. Additional risks associated with dealing with governmental entities include turnover of elected and appointed officials, changes in policies from election to election, and a lack of institutional history in these entities concerning their prior courses of dealing with the Company. We spend significant time and resources educating elected officials, local authorities and others regarding our water rights and the benefits of contracting with us. Political concerns and governmental procedures and policies may hinder or delay our ability to enter into service agreements or develop our water rights or infrastructure to deliver our water. While we have worked to reduce the political risks in our business through our participation as the service provider for the Rangeview District in regional cooperative resource programs, such as the SMWSA and the WISE partnership with Denver Water and Aurora Water, as well asand education and communication efforts and community involvement, our efforts may be unsuccessful.

The number of connections we can serve are affected by local governmental policies that are beyond our control. We market our water rights through service agreements towith developers, municipalities and other governmental entities. We believe that our water rights can serve approximately 60,000 single familysingle-family connections based on standards applied to water providers in Arapahoe, Douglas, and Adams Counties. These standards are policy driven, based on assumed life and reliability of water supplies and may become more restrictive at the discretion of the governmental entity. If these standards become more restrictive, our water supplies may not serve the number of connections that we currently estimate we can serve.

Unauthorized access to confidential information and data on our information technology systems and security and data breaches could materially adversely affect our business, financial condition, and operating results. We rely on computer and information technology systems to conduct our business and communicate with our suppliers and other third parties. Our systems require continued and unimpeded access to secure network connections. We have physical, technical and procedural safeguards in place that are designed to protect information and protect against security and data breaches as well as fraudulent transactions and other activities. Despite these safeguards and our other security processes and protections, we cannot beprovide assuredassurance that all of our systems and processes are free from vulnerability to security breaches. Cyberattacks are evolving and becoming increasingly sophisticated. Cyberattacks may take various forms, including through hacking, ransomware attacks, malware, viruses and phishing scams.

Conflicts, terrorist attacks, public health crises, including the occurrence of a contagious disease or illness, such as the COVID-19 coronaviruscoronavirus, andor general instability could adversely affect our business. We are vulnerable to the effects of conflicts, terrorist attacks and public health crises. As was the case with COVID-19, such effects have precipitated economic instability and turmoil in financial markets. The uncertainty and economic disruption resulting from hostilities, acts of terrorism or public health crises may impact our operations or those of our suppliers or customers. Accordingly, any conflict, terrorist attack or public health crisis that impacts us or any of our suppliers or customers, could have a material adverse effect on our business, results of operations and financial condition.

We saw ana increasedecrease in the demand for new homes which increased our land development segment revenue during fiscal 2024.2025 due to the timing of lot deliveries with our national homebuilders. We also saw ana increasedecrease in our water/wastewater sales, primarily from ana increasedecrease in selling water to oil and gas operators. Our water and wastewater tap fees revenue increased in fiscal 2025 due to the timing of our national homebuilder’s production schedules in Phase 2B and 2C. Our single-family rental business experienced ana modest increase in revenue as well, due to increasing monthly rent for the numbermajority of our rental homes in fiscal 2024.2025. DueAlthough the housing market is slowing, we continue to thesee demand offor affordable housing in our market,local wemarket acceleratedand have focused our land development activity in fiscal 20242025 on ensuring that we are delivering the type of products that our national homebuilder partners desire in our Sky Ranch Master Planned Community. PhasePhases 1 is complete, Phaseand 2A is approximately 99%are complete, Phase 2B is approximately 92%97% complete andcomplete, Phase 2C is approximately 27%82% complete and Phase 2D is approximately 43% complete. We continue to work on projects to expand our water assets byto completingbe twocompetitive to sell water to oil and gas operators and have the infrastructure in place for future land development opportunities. In fiscal 2025 we began construction of four new alluvial wells on the Lowry Ranch during fiscal 2024.Ranch. Our notable financial highlights from fiscal 20242025 include the following:

WeAlthough believehigher severalmortgage 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 interest rates. Despite higher interest rate 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 remainremaining positive,positive. includingThese include favorable demographics, athe 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,concerns has been moderating housing demand. Although interest and inflation rates havemay been stabilizing,decline, we expect thismoderate moderateto lower demand to continue intothroughout 2025.2026. Given current conditions, we plan to continue to monitor market dynamics and surrounding community performance and adjust the timing of additional construction expenditures at Sky Ranch as necessary.warranted. We believe our reasonablysegment pricedpricing (entry level) lots and the low inventory of entry level housing in the Denver market will help Sky Ranch navigate thea changing market better than other surrounding and significantly higher priced communities.

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 on a fairly 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 aggressivepolicies raising offor the federal funds interest rate and other measures during 2022 and 2023 to moderate persistent U.S. inflation,inflation and the uncertainty inregarding future Federal Reserve monetary policy,policy are expected to be an ongoing headwindheadwinds for the housing market in 20252026 and beyond, as they have elevated mortgage loan interest rates and created macroeconomic uncertainty and volatility across financial markets.beyond. Prolonged supply chain disruptionsdisruptions, 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 our experience in fiscal 2024.2025. In addition, consumer demand for our homes,homes and our ability to grow ourand scale,scale revenue and returns in fiscal 20252026 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 2024,2024 and 2025, should not be considered indicative of our future results.

Revenue – Total revenue increaseddecreased in 20242025 as compared to 2023,2024, primarily due to ana increasedecline in lotland development activity. When we transfer title to lots to homebuilders under contracts where we remain obligated to deliver finished lots, the sales atof Skysuch Ranch.lots Withare increasedrecognized demandusing forthe affordablepercentage housing,of wecompletion acceleratedmethod. ourThe development activities with three ongoing phasesdecrease in our Sky Ranch Master Planned Community. Additionally, commercial water sales,sales mainlywas todriven by a decline in oil and gas operatorsdrilling foractivities usewithin our service area in their2025. drillingThis operations,was increasedoffset to $6.1 million in 2024 from $3.1 million in 2023. Water revenue also increased due toby an increase in water and wastewater tap fee revenue. Tap fee revenue totiming $3.4depends millionon the timing of builders filing for building permits, which has increased with the development of Phase 2B and 2C in 2024 from $3.0 million in 2023.2025. Project management revenue at Sky Ranch increased to $0.8 million in 2025 from $0.7 million in 2024 from $0.3 million in 2023.2024. As Sky Ranch continues to grow, we expect lot sales to generate significant revenue in the future, and increasing water and wastewater usage and taps purchased as we continue to add customers to our water resource development segment.

WastewaterCost treatmentof feesrevenue – WastewaterTotal treatmentcosts feesof revenue increased in 20242025 as compared to 2023,2024, primarily due to newan Sky Ranch customersincrease in our water and wastewater resourcesystem developmentoverhead segment.as We anticipate these revenues towe continue to expand our system capacity, an increase in the futureestimated ascost morefor customersPhase are2B addedand increased property tax due to our systemaccelerated asdevelopment Sky Ranch continues to develop.schedule.

OtherGeneral costsand ofadministrative revenueexpense – OtherGeneral costsand ofadministrative revenueexpense increased in 20242025 as compared to 2023,2024, primarily due to costsincreases associatedin payroll and related expenses as our service area continues to grow with the GESCactivity and fence contracts inat Sky Ranch.

Water delivered – Water deliveries increaseddecreased in 20242025 as compared to 2023,2024, primarily due to increaseddecreased sales to oil and gas operationsoperators. Oil and bygas newoperations are highly variable and dependent on oil prices, demand for gas, and timing of other leases in our service areas. As Sky Ranch customers.continues to develop, we anticipate continued growth in our residential water and wastewater service revenue.

Lot sales – Lot sales increaseddecreased in 20242025 as compared to 2023,2024, primarily due to ana increasedecrease in lot deliveries at Sky Ranch and delays in our accelerated development activities within threePhase ongoing2D phases inat our Sky Ranch Master Planned Community. Phase 2A is complete while Phase 2B is substantially completedcomplete at approximately 99%.97%. We delivered finished lots in Phase 2B,2C, and Phase 2B is approximately 92% complete. Phase 2C is approximately 27%82% complete, and we are beginning our development activity incomplete. Phase 2D.2D is approximately 43% complete.

Project management revenue – Project management revenue increased in 20242025 as compared to 2023,2024, which was primarily due to increased development activities in Phase 2B2C and Phase 2C.2D. We earn a 5% project management fee on construction costs for managing the completion of public improvements at Sky Ranch.

Land development construction and project management costscost – Land development construction costs increased in 20242025 as compared to 2023,2024, primarily due to accelerated development activities in Phases 2B2C and 2C.2D. As Phase 2B2C winds down, more of our costs are anticipated to be public improvements costs, whereas the beginning of Phase 2C2D is anticipated to result in us incurring more lot costs. This is due to the timing of the development of the costs incurred in the beginning of the development phase compared to those costs incurred towards the end.

Lots delivered – The number of lots delivered (which refers to when title is passed to the homebuilder) increaseddecreased in 20242025 compared to 20232024 due todelays in the delivery of the remaining lotsdevelopment of Phase 2B and the commencement of lots deliveries in Phase 2C been delivered by the end of fiscal 2024. No finished lots were delivered to homebuilders during fiscal 2023.2D. Despite the lots being transferred to the homebuilders, we still have minor construction activities to complete Phase 2A and 2B to turn over the completed infrastructure to the applicable governmental agency that will maintain the infrastructure,infrastructure. and weWe did receive certain milestone payments for Phase 2B2C and 2C2D lots. Because we record lot sales as construction progresses, the timing of revenue and lot deliveries are not necessarily correlated.

Salary and Salary-Related Expenses – Salary and salary-related expenses net increased in fiscal 20242025 compared to fiscal 20232024 due to the receiptaddition of threesix quartersemployees worth of Employee Retention Credits fromto the Internaloverall Revenueheadcount Serviceand the related salaries, benefits, and taxes associated with the increased workforce employed by the Company. Although the increase in 2023.base Duringsalaries fiscalwas 2024, we increased our staffoffset by onethe employee.reduction in bonuses, other related costs like benefits and payroll taxes accounted for the increase. Share-based compensation expensedecreased decreasedin fiscal 2025 compared to fiscal 2024 primarily due to the vesting of outstanding options and restrictedno stockoptions grantbeing forfeituresissued duringin fiscalthe 2024.current year.

Professional Fees – Professional fees consist mainly of IT, telecom, legal, consulting and accounting fees. IT, telecom, accounting and legalLegal fees increased year over year due to the priorwater yearcourt ascase informationdiscussed technologyfurther andin cyberNote security have continued4 to takethe onfinancial an increased focused, and we amended builder contracts to better time lot delivers to a slowing residential housing market.statements.

Public Entity-Related Expenses, including director fees – Costs associated with being a corporation and costs associated with being a publicly traded entity consist primarily of XBRL and EDGAR conversion fees, stock exchange fees, and press releases. These costs fluctuate from year to year butand remainedwere relativelyhigher consistentin from2024 2023compared to 2025, primarily due to the cost of filing the Company’s S-8 in 2024. Compensation including stock grants paid to our board was consistent in fiscal 20242025 compared to fiscal 2023.2024.

Corporate insurance – Corporate insurance costs increased as our operations continue to expand, which is due to adding additional construction and rental home policies, covering added infrastructure in the Sky Ranch master planned community, and overall insurance rate increases.

All other – All other expenses include typical operating expenses related to the maintenance of our office and equipment, business development, travel, and property taxes, and funding provided to the Rangeview District and the Sky Ranch Districts.taxes. Other expenses increased during fiscal 20242025 compared to fiscal 2023.2024. The changes were primarily the result of increased equipment maintenancemaintenance, various software subscription expenses and a donation to the timingSky ofRanch various expenses, which will fluctuate year over year.Academy.

We believe we are well-positioned to navigate the ever-evolving market conditions given our strong financial position. At August 31, 2024,2025, our working capital, defined as current assets less current liabilities, was $28.5$20.0 million, which includes $22.1$22.0 million in cash and cash equivalents. We believe that as of August 31, 2024,2025, and as of the date of the filing of this Annual Report on Form 10-K, we have sufficient working capital to fund our operations for the next 12 months. We have completed Phase 1 and have completed approximately 99% of the work required to deliver Phase 2A at Sky Ranch. Phase 2B is approximately 92%97% complete, and Phase 2C is approximately 27%82% complete, and Phase 2D is approximately 43% complete. We anticipate starting work on Phase 2D2E during fiscal 2025. We sold 219 lots in Phase 2A at Sky Ranch (retaining 10 lots for ourselves) and have only 1% of the construction-related activities remaining for Phase 2A to be finished. We expect to spend $0.2 million in the next twelve months completing the construction of Phase 2A (of which we estimate $0.2 million will be reimbursable by the Sky Ranch CAB).2026. We have sold 194 lots in Phase 2B at Sky Ranch (retaining an additional 17 lots for ourselves) and have approximately 8%3% of construction-related activities remaining for Phase 2B to be finished. We expect to spend $1.5$0.5 million in the next twelve months on remaining Phase 2B construction activities (of which we estimate $1.5$0.3 million will be reimbursable by the Sky Ranch CAB). We have sold 180 of the 188 for sale lots in Phase 2C at Sky Ranch (retaining an additional 40 lots for ourselves) and have approximately 18% of construction-related activities remaining for Phase 2C to be finished. We expect to sell the remaining eight lots in the first quarter of fiscal 2026. We expect to be complete with Phase 2C during fiscal 2026 and expect to spend $3.0 million in the next twelve months on remaining Phase 2C construction activities (of which we estimate $2.4 million will be reimbursable by the Sky Ranch CAB). We expect to be substantially complete with Phase 2C2D during our fiscal 20252026 and expect to spend $13.2$7.8 million in the next twelve months on remaining Phase 2C2D constructionconstruction-related activities (of which we estimate $12.0$7.0 million will be reimbursable by the Sky Ranch CAB). We anticipate starting work on Phase 2D2E during fiscal 20252026 and expect to spend $6.4$3.2 million in the next twelve months on remaining Phase 2D2E constructionconstruction-related activities (of which we estimate $5.4$2.4 million will be reimbursable by the Sky Ranch CAB). We anticipate receiving nearlyapproximately $18.0$19.8 million in milestone and finished lot payments and approximately $5.8$7 million of water and wastewater tapstap fees from the homebuilders over the same period. We also anticipate receiving reimbursement from Sky Ranch CAB of approximately $10.1$4 million pursuantfrom toexcess afunds refinancingfrom ofhigher fees and property taxes collected by the 2019Sky Bonds.Ranch CAB. We believe we can fund such capital expenditures from cash and cash equivalents on hand, phased payments from our lot sales agreements, and payments from the Sky Ranch CAB for reimbursement of public improvements. We expect to complete approximately 45 additional single-family rental homes in the next twelve months. The Company expects to fund the construction of our new rental homes with a debt facility agreement.

Changes in Operating Activities – Operating activities include amounts we receive from the sale of wholesale water and wastewater services, costs incurred in the delivery of those services, the sale of lots, the costs incurred in completing and delivering finished lots, rental income from single-family homes and the cost incurred in constructing and maintaining our single-family rental homes, oil and gas royalty income and G&A Expenses. Cash provided by operations in fiscal 2025 increased due to the timing of cash receipts of trade receivables, payments of payables and accrued liabilities, and collection of oil and gas royalty income, which was offset by net increases to the note receivable from the Sky Ranch CAB for continued construction costs related to public improvements. The Sky Ranch CAB made payments to us totaling $15.2 million in fiscal 2025 from the refinancing of the bonds issued in 2019 and excess funds from higher fees and property taxes collected by the Sky Ranch CAB. The Sky Ranch CAB made payments to us totaling $0.7 million in fiscal 2024 from excess funds from higher fees and property taxes collected by the Sky Ranch CAB.

Changes in Investing Activities – Investing activities in fiscal 2025 consisted primarily of the investment in our water system of $8.6 million and investments in future development phases of Sky Ranch for $0.9 million. Investing activities in fiscal 2024 consisted primarily of the investment in our land and water system of $1.9 million and investments in future development phases of Sky Ranch forof $2.2 million. Investing activities in fiscal 2023 consisted primarily of the investment in our land and water system of $3.9 million and investments in future development phases of Sky Ranch for $1.7 million. We capitalize costs associated with obtaining, defending, enhancing, and developing our water rights. We capitalize costs incurred to construct infrastructure required to deliver water and wastewater services to our customers, and we capitalize costs to develop our land assets that are not sold to home builders.

Changes in Financing Activities – Financing activities in 2025 and 2024 consisted of payments on existing debt facilities as well as cash used to repurchase the Company’s common stock. Financing activities in 2023 consisted of proceeds from debt of $3.0 million to finance 11 single-family rental homes.

Collectability of the Notes Receivable from the Sky Ranch CAB – The notes receivable from the Sky Ranch CAB are comprised of amounts we incurred and provided to the Sky Ranch CAB for costs related to the construction of public improvements which are reimbursable to us, along with related project management fees and accrued interest associated with those costs. Collectability of the notes is based on the Sky Ranch CAB generating sufficient cash flows to repay us prior to certain contractual dates, which is deemed probable based on a mill levy increase resulting from the remainder of Sky Ranch being in a different taxing district than Phase 1, higher than projected assessed values of completed homes, and additional houses from the start of the next development phase at Sky Ranch. The notes are evaluated for a credit loss at each reporting period based on the factors indicated, and an impairment would be recognized whenever it was determined that a credit loss had occurred. Management applies judgment to assess whether a credit loss has occurred, and factors that are considered include, but are not limited to: significant decreases in the market price of houses which generate tax payments to the Sky Ranch CAB; significant adverse changes in the business climate or legal factors including significant decreases in housing sales or assessments; significant increase in costs and accumulation of costs significantly in excess of the amount originally expected for the construction of the associated public improvements; and current period cash flow or operating losses combined with a history of losses or a forecast of losses. Recoverability of these notes is measured by comparing the carrying value to the future cash flows expected to be generated by the Sky Ranch CAB which can be used to repay us. If the carrying value of the notes exceeds the fair value of the estimated cash flows, an impairment loss would be recorded by writing down the carrying value of the related asset to its estimated fair value, which is determined using discounted future cash flows or other measures of fair value.flows.

Revenue recognition on lot sales under the percentage-of-completion method – We recognize lot revenue over time as construction progresses for most of our lot development contracts. This involves an estimation of the total project costs which are incurred over several months or even years. This requires management to estimate labor and material costs which could change materially over the life of that construction project and have a material impact on the timing of revenue recognition. Under the percentage of completion method, revenue and related costs from lots sold pursuant to lot development contracts requiring milestone payments as construction occurs are recognized over the course of the construction period based on the completion progress of that project phase (i.e. Phase 2A2C). In relation to each phase or subphase, revenue is determined by calculating the ratio of incurred construction costs, including construction costs related to public improvements subject to reimbursement, to total estimated costs and applying that ratio to the contracted sales amounts. Current period amounts are calculated based on the difference between the life-to-date project totals and the previously recognized amounts. Cost of sales is the cost incurred related to construction of lots. Any changes in significant judgments and/or estimates used in determining construction and development revenue could significantly change the timing or amount of construction and development revenue recognized. Changes in estimated costs or losses, if any, are recognized in the period in which they are determined.

ThereExcept as set forth below, there have been no material changes to the risk factors disclosed in the 2025 Annual Report.

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).

We are a diversified water and wastewater service provider, land developer, and home rental company. We provide wholesale water and wastewater services in the Denver, Colorado area, develop land we own into master planned communities, and develop single-family homes for rent. Each of our businesses, providing water and wastewater services, land development and single-family home rentalsrentals, generategenerates attractive recurring monthly income.

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,December 2025, the Federal Reserve has paused its easing cycle and held rates steady at both its JanuaryJanuary, March, April and MarchJune 2026 meetings, leaving the target range for the federal funds rate at 3.50% to 3.75%, as policymakers navigate persistentinflation inflationthat has reaccelerated to its highest level since 2023 and remains above the Federal Reserve’sReserve's target, a softening labor market,market that has shown signs of softening, heightened geopolitical uncertainty followingarising conflicts infrom the Middlemilitary East,conflict between the United States and Iran, and weak consumer confidence. Although mortgage interest rates declinedremain below their 2024 peaks, they have risen from their 2024early peaks2026 lows as the energy price shock has pushed inflation higher, and the 30-year fixed rate averaged approximately 6.11%6.52% as of mid-Marchmid-June 2026,2026. theThe housing market continues to face significant headwinds. Consumer demand remains constrained by cumulative affordability challengeschallenges, elevated energy costs and heightened economic uncertainty. Furthermore, volatility in the broader macroeconomic environment, driven in part by the military conflict between the United States and Iran, federal trade policies affecting the cost of imported construction materialsmaterials, 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 3835 in MarchJune 2026, remaining below the breakeven level of 50 for the 23rd26th consecutive month, with nearlyapproximately two-thirds62% of builders continuing to offer sales incentives to attract buyers.

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 playedcontinued to play a crucial role in driving sales. Despite current interest rates, risingelevated 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-demandsupply vs demand imbalance resulting from a decade-plusdecade 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, elevatedrenewed inflation, and various other macroeconomic and geopolitical concerns have been moderating housing demand. The Denver metro housing market has reflected these national trends,trends. with median home prices beginning to decline in 2026 andAfter home sales atfell to their lowest levels since the 2008 financial crisis.crisis in early 2026, the spring selling season showed signs of stabilization, with median home prices remaining approximately flat to modestly higher on a sequential basis and sales activity improving from earlier in the year, even as new listings declined and the supply of homes available for sale tightened. Although the Federal ReserveReserve's hasparticipants signaledhad theprojected possibility of additionalone rate reduction in 2026, we expect moderate to lower demand to continue throughoutfor 2026 givenas recently as March, the compounding headwindsSummary of increasedEconomic energyProjections prices,released persistentfollowing inflation,the June 2026 meeting removed that projected reduction, and ongoingnine trade policy and geopolitical uncertainty. Given current conditions, we continue to monitor market dynamics and surrounding community performance and will adjustof the timingeighteen ofparticipants additionalwho constructionsubmitted expendituresprojections instead projected at Skyleast Ranchone as warranted. We believe our segment pricing (entry level) lots and the low inventory of entry level housingincrease in the Denverfederal marketfunds willrate helpbefore Skythe Ranchend navigateof a2026, cyclicalwith marketsix betterprojecting thantwo other25 surroundingbasis andpoint significantlyincreases. higherThose pricedparticipants communities.also raised their median projection for year end 2026 inflation, as measured by the personal consumption expenditures price index, to 3.6% from 2.7% in March, while lowering their projection for real GDP growth.

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 state of 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 Federal Reserve’sReserve's decision to pause its rate cutting cycle in early 2026, combined withcycle, the upwardlyreacceleration revisedof inflation projectionsto forits 2026highest level since 2023, the leadership transition at the Federal Reserve, and elevated uncertainty regarding the duration and economic impact of the military conflict inbetween the MiddleUnited East,States and Iran are expected to be ongoing headwinds for the housing market. Although energy prices have retreated from their heights surrounding the United States and Iran conflict, they remain elevated relative to pre-conflict levels, and the durability of the agreement to end the conflict and the timing and extent of any normalization in global energy markets remain uncertain. Prolonged supply chain disruptions, labor shortages, increased costs as a result of tariffs (including tariffs of up to 50% on steel, aluminum and copper and additional duties on softwood lumber, gypsum and other building products) or other factors and other production-relatedproduction related challenges could extend or delay our construction cycle times and intensify construction-related cost pressures beyond those we experienced in 2025.2025 and 2026. Consumer confidence has weakened upmaterially during the period, with the University of Michigan Index of Consumer Sentiment falling to anda includingrecord Marchlow in May 2026 before recovering modestly in June, as households reactreacted to the military conflict and higher gasoline prices. Higher energy costcosts disproportionately impactsimpact lower income households, which represents a significant portion of the entry-levelentry 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-describedabove described monetary policy impacts, the economic consequences of the Middlemilitary Eastconflict conflicts,between the United States and Iran, 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.

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 buildershomebuilders to build the single-family homes we rent, typically under annual lease agreements. With 1939 homes currently owned, we continue to evaluate this new line of business, which will include up to 6271 rental homes at Sky Ranch by the end of 2026.

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. WeThe Rangeview District and Elbert 86 District 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. WeNeither dodistrict not anticipateanticipates the need to implement any mandatory watering restrictions in fiscal 2026.

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

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 builderhomebuilder customers without significant excess capacity in any of these investments.

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 whenby weentering entered separateinto contracts with several national home builders, pursuanthomebuilders, to whichdeliver wefinished soldbuilding apermit totalready of 505 single-family, detached residential lots at Sky Ranch.lots. 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,then, multiple phases of the Sky Ranch development have been completed and revenue and costs have been recognized.

During our fiscal 2021, we began construction on the second development phase at Sky Ranch.Ranch, Forwhich thishas phase, we entered separate contracts with several national home buildersgrown to sellinclude theapproximately first 872 single-family attached and detached residential1,000 lots in Phase 2 of Sky Ranch, and we retained approximately 91 lots (through such contracts and subsequent amendments) for use in our single-family home rental business. The second development phase is approximately 250 acres and is being completeddeveloped in five sub-phases (referred to as PhasePhases 2A, 2B, 2C, 2D and 2E). Due to our strong performance in the first phase of the Sky Ranch project, we were able to realize an approximate 53% increase in our average lot prices in Phase 2. For example, we increased our sales price for a 45’45 foot lot from an average of $75,000 to $115,000. The timing of cash flows includes certain milestone deliveries such as the completion of governmental approvals for final plats, installation of wet utilities, and final completion of lot deliveries.

InAs Februaryof 2024,May 31, 2026, Phase 2A of the Sky Ranch development is 100% complete, and we beganhave constructionreceived activitiesall $18.4 million of payments related to the sale of the 219 lots in Phase 2C2A. atPhase 2B of the Sky Ranch,Ranch whichdevelopment is plattedapproximately for99% 228complete, residential lots, 29 of whichand we have retainedreceived forall use$17.3 inmillion ourof single-familypayments rentalrelated business.to Contractsthe with threesale of the four211 home builderslots 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, 2026,2B. Phase 2C of the Sky Ranch development is approximately 91%95% 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$0.5 million from selling an additional 11five lots that were previously held for our single-family rental segment.

We recognize revenue earned under contracts with milestone payments over time using the percentage of completionpercentage-of-completion method, which aligns therevenue recognition of revenue with the requisite progress made on construction activities. During the three months ended FebruaryMay 28,31, 2026 and 2025, due to the construction progress in PhasePhases 2B through 2D, we recognized $1.6$3.0 million and $1.1$2.5 million, respectively, of lot sales revenue related to construction at Sky Ranch. During the sixnine months ended FebruaryMay 28,31, 2026 and 2025, due to the construction progress in PhasePhases 2B through 2D, we recognized $7.7$10.7 million and $3.5$6.0 million, respectively, of lot sales revenue related to construction at Sky Ranch. WeAs of May 31, 2026, we have recognized acumulative totallot sales revenue of $18.4 million of lot sales revenue since construction began onfor Phase 2A, $16.9$17.0 million of lot sales revenue since construction began onfor Phase 2B, $15.8$16.5 million of lot sales revenue since construction began onfor Phase 2C2C, and $7.2$9.3 million of lot sales revenue since construction began onfor Phase 2D as of February 28, 2026.2D. We expect to recognize the remaining $2.5$0.8 million of revenue from our home builders for Phase 2C over the next sixthree months,months and the remaining $13.8$11.7 million of revenue from our home builders for Phase 2D before the end of our fiscal 2026, whichexcept includesfor revenue from the sale of additional lots that were previously held for our single-family rental segment.segment, which may take additional time to recognize as our builders work through their current inventories.

We expect to beginbegan construction activities in Phase 2E in fiscal 2026,2026 withand theexpect completionto ofcomplete approximately 159 lots in fiscal 20272027, butalthough willwe plan to pace construction to match builder absorption. As of May 31, 2026, we have not recognized any revenue related to Phase 2E and will begin recognizing revenue under the percentage-of-completion method once our first customer contract is executed.

In addition to the lot sales described above, from the start of development at Sky Ranch through FebruaryMay 28,31, 2026, we have received $35.4$37.6 million of water and wastewater tap fees from the home builders,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), 199 of 211 taps sold in Phase 2B (with 17 allocated to our single-family rentals), 132170 of 228 taps sold in Phase 2C (with 29 allocated to our single-family rentals) and 1024 of 204 taps sold in Phase 2D.2D ( with two allocated to our single-family rentals). The timing of tap sales is dependent on when home buildershomebuilders 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,2, we estimate that the additional water and wastewater tap fees will exceed $19.0 million.

During our fiscal 2021, we launched a new line of business we are referringrefer 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 FebruaryMay 28,31, 2026, we have completed 1939 single-family homes on theselots, lots38 of which we own, maintain, and have available to leaserented 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 builderhomebuilder partners, which we willintend to rent out once completed. As of FebruaryMay 28,31, 2026, we reserved approximately 6271 lots in Phase 1 and 2,2. 19This ofincludes which38 homes that are completed and rented asand of February 28, 2026. Additionally, we have reserved 4333 lots in Phase 2B, 2C and 2D,2D that are reserved for rental home, the majority of which weare anticipateanticipated completingto be available for rent in fiscalcalendar 2026. In addition, we own one house listed for sale as of May 31, 2026.

We capitalize the costs of the homes and, when applicable, depreciate the costs over periods not exceeding thirty-years.30 years. Lease income is recorded monthly as earned, and renters are typically under a one-year lease. We began recognizing monthly lease income for the first three rental units on November 1, 2021.

For the sixthree months ended FebruaryMay 28,31, 2026 and 2025, we generated net income of $5.7$2.9 million and $4.7$2.3 million, respectively. The increase in net income was primarily due to an increase in land development revenue. Lotwater sales revenueto isoil recognizedand usinggas theoperators percentagefor ofdrilling completionpurposes method,in which is based on progress of construction.2026. Despite increased challenges in the housing market, our land development activities continue to perform well, asand we continuecontinued construction on Phases 2C and 2D at Sky Ranch.Ranch during the quarter.

The tables below present our consolidated results of operations for the three and sixnine months ended FebruaryMay 28,31, 2026 and 2025.

Three and SixNine Months Ended FebruaryMay 28,31, 2026 Results Compared to 2025

For the three and sixnine months ended FebruaryMay 28,31, 2026, total revenue increased as compared to the same periods in 2025 primarily due to an increase in land development activity.activity and an increase in water sales to oil and gas operators for drilling purposes in 2026. When we transfer title to lots to home buildershomebuilders under contracts where we remain obligated to deliver finished lots, revenue from the sales of such lots is recognized using the percentage of completionpercentage-of-completion method. There was aan decreaseincrease in water and wastewater tap fee revenue during these periods. Tap fee revenue timing depends on the timing of builders filing for building permits.

For the three months ended May 31, 2026, general and sixadministrative expenses increased slightly compared to the same period in 2025 due to normal inflationary increases in operating expenses. For the nine months ended FebruaryMay 28,31, 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.

For the three months ended May 31, 2026, other income increased as compared to the 2025 period primarily due to higher interest income, which more than offset a decline in royalty revenues from our oil and sixgas mineral interest at Sky Ranch. For the nine months ended FebruaryMay 28,31, 2026, other income decreased as compared to the 2025 periodsperiod primarily due to a decline in royalty revenues from our oil and gas mineral interest at Sky Ranch.

For the three and sixnine months ended FebruaryMay 28,31, 2026, water deliveries increased as compared to the 2025 periods primarily due to an increase in water sales to oil and gas operators.

For the three and sixnine months ended FebruaryMay 28,31, 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 sixnine months ended FebruaryMay 28,31, 2026 compared to the 2025 periods due to increased water sales to oil and gas operators.

For the three and sixnine months ended FebruaryMay 28,31, 2026, wastewater treatment fees increased as compared to the 2025 periods primarily due to new Sky Ranch customers.

For the three and sixnine months ended FebruaryMay 28,31, 2026, water and wastewater tap sales decreasedincreased 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.

For the three and sixnine months ended FebruaryMay 28,31, 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 completionpercentage-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 corresponding 2025 periods.period.

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 sixnine months ended FebruaryMay 28,31, 2026, rental revenue and cost increased as compared to the 2025 periods due to an increase in the number of rental units. As of FebruaryMay 28,31, 2026, the Companywe had a total of 1938 units rented orand one available for rent.sale.

As of FebruaryMay 28,31, 2026, our working capital, defined as current assets less current liabilities, was $3.8$5.4 million, which included $4.8$8.4 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 FebruaryMay 28,31, 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.

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 2C2C, Phase 2D and Phase 2D2E are being actively developed as of FebruaryMay 28, 2026. We expect to begin development work on Phase 2E in fiscal31, 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$15.4 million. Of this, we anticipate spending up to $7.1$8.4 million in the next 12 months, and we anticipate receiving approximately $18.9$14.8 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 builderhomebuilder customers and our existing cash balances will fund our obligations for the next 12 months.

As of FebruaryMay 28,31, 2026, we had entered into contracts with national homebuilders to construct the remaining 12 rental units in Phase 2B and 2721 of the 29remaining 27 rental units in Phase 2C at Sky Ranch and two of the remaining six rental units in Phase 2D at Sky Ranch. The contracted construction costs for all 3923 units across Phases 2B2C and 2C2D will be approximately $12.1$6.8 million. Through FebruaryMay 28,31, 2026, we had incurred $5.0$1.7 million of these construction costs, which were self-financed. We anticipate self-financing the majority of the remaining costs for the Phase 2B2C and 2C2D 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.

For the sixnine months ended FebruaryMay 28,31, 2026, we usedour cash flows were as follows:

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 sixnine months ended FebruaryMay 28,31, 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 sixnine months ended FebruaryMay 28,31, 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.