10-Q 1 pcyo-20220531x10q.htm 10-Q
http://fasb.org/us-gaap/2022#AccruedLiabilitiesCurrent0000276720--08-312022Q3false4325134325130.0030.003P2Y6MP12Mhttp://fasb.org/us-gaap/2022#AccruedLiabilitiesCurrent0000276720us-gaap:CommonStockMember2022-03-012022-05-310000276720pcyo:EquityIncentivePlan2004Member2022-03-012022-05-310000276720pcyo:EquityIncentivePlan2004Member2021-09-012022-05-310000276720us-gaap:CommonStockMember2021-03-012021-05-310000276720us-gaap:CommonStockMember2021-09-012022-05-310000276720us-gaap:CommonStockMember2020-09-012021-05-310000276720us-gaap:RetainedEarningsMember2022-05-310000276720us-gaap:AdditionalPaidInCapitalMember2022-05-310000276720us-gaap:RetainedEarningsMember2022-02-280000276720us-gaap:AdditionalPaidInCapitalMember2022-02-280000276720us-gaap:RetainedEarningsMember2021-08-310000276720us-gaap:AdditionalPaidInCapitalMember2021-08-310000276720srt:RestatementAdjustmentMemberus-gaap:RetainedEarningsMember2021-05-310000276720us-gaap:RetainedEarningsMember2021-05-310000276720us-gaap:AdditionalPaidInCapitalMember2021-05-310000276720srt:RestatementAdjustmentMember2021-05-310000276720us-gaap:RetainedEarningsMember2021-02-280000276720us-gaap:AdditionalPaidInCapitalMember2021-02-280000276720us-gaap:RetainedEarningsMember2020-08-310000276720us-gaap:AdditionalPaidInCapitalMember2020-08-310000276720us-gaap:PreferredStockMember2022-05-310000276720us-gaap:CommonStockMember2022-05-310000276720us-gaap:PreferredStockMember2022-02-280000276720us-gaap:CommonStockMember2022-02-280000276720us-gaap:PreferredStockMember2021-08-310000276720us-gaap:CommonStockMember2021-08-310000276720us-gaap:PreferredStockMember2021-05-310000276720us-gaap:CommonStockMember2021-05-310000276720us-gaap:PreferredStockMember2021-02-280000276720us-gaap:CommonStockMember2021-02-280000276720us-gaap:PreferredStockMember2020-08-310000276720us-gaap:CommonStockMember2020-08-310000276720pcyo:ShareBasedPaymentArrangementNonemployeeBoardMembersMemberpcyo:EquityIncentivePlan2014Member2022-01-120000276720pcyo:ShareBasedPaymentArrangementNonemployeeBoardMembersMemberpcyo:EquityIncentivePlan2014Member2021-01-130000276720pcyo:EquityIncentivePlan2014Member2022-03-012022-05-310000276720pcyo:EquityIncentivePlan2014Member2021-09-012022-05-310000276720pcyo:IncentivePlan2004AndEquityPlan2014Member2020-09-012021-08-310000276720pcyo:IncentivePlan2004AndEquityPlan2014Member2021-08-310000276720pcyo:EquityIncentivePlan2014Member2021-08-310000276720pcyo:IncentivePlan2004AndEquityPlan2014Member2022-03-012022-05-310000276720pcyo:ShareBasedPaymentArrangementNonemployeeBoardMembersMemberpcyo:EquityIncentivePlan2014Member2021-12-012022-02-280000276720pcyo:IncentivePlan2004AndEquityPlan2014Member2021-03-012021-05-310000276720pcyo:ShareBasedPaymentArrangementNonemployeeBoardMembersMemberpcyo:EquityIncentivePlan2014Member2020-12-012021-02-280000276720pcyo:IncentivePlan2004AndEquityPlan2014Member2020-09-012021-05-310000276720pcyo:ProjectManagementFeesMembersrt:MaximumMember2022-03-012022-05-310000276720pcyo:WastewaterTreatmentFeesMember2022-03-012022-05-310000276720pcyo:SpecialFacilityProjectsAndOtherMember2022-03-012022-05-310000276720pcyo:ReadyToBuildFinishedLotMember2022-03-012022-05-310000276720pcyo:ProjectManagementFeesMember2022-03-012022-05-310000276720pcyo:MeteredWaterUsageMunicipalCustomersMember2022-03-012022-05-310000276720pcyo:MeteredWaterUsageCommercialCustomersMember2022-03-012022-05-310000276720pcyo:LotSalesMember2022-03-012022-05-310000276720pcyo:FinishedLotMember2022-03-012022-05-310000276720pcyo:WastewaterTreatmentFeesMember2021-09-012022-05-310000276720pcyo:SpecialFacilityProjectsAndOtherMember2021-09-012022-05-310000276720pcyo:ReadyToBuildFinishedLotMember2021-09-012022-05-310000276720pcyo:ProjectManagementFeesMember2021-09-012022-05-310000276720pcyo:MeteredWaterUsageMunicipalCustomersMember2021-09-012022-05-310000276720pcyo:MeteredWaterUsageCommercialCustomersMember2021-09-012022-05-310000276720pcyo:LotSalesMember2021-09-012022-05-310000276720pcyo:FinishedLotMember2021-09-012022-05-310000276720pcyo:ProjectManagementFeesMembersrt:MaximumMember2021-03-012021-05-310000276720pcyo:WastewaterTreatmentFeesMember2021-03-012021-05-310000276720pcyo:SpecialFacilityProjectsAndOtherMember2021-03-012021-05-310000276720pcyo:ReadyToBuildFinishedLotMember2021-03-012021-05-310000276720pcyo:ProjectManagementFeesMember2021-03-012021-05-310000276720pcyo:MeteredWaterUsageMunicipalCustomersMember2021-03-012021-05-310000276720pcyo:MeteredWaterUsageCommercialCustomersMember2021-03-012021-05-310000276720pcyo:LotSalesMember2021-03-012021-05-310000276720pcyo:FinishedLotMember2021-03-012021-05-310000276720pcyo:WastewaterTreatmentFeesMember2020-09-012021-05-310000276720pcyo:SpecialFacilityProjectsAndOtherMember2020-09-012021-05-310000276720pcyo:ReadyToBuildFinishedLotMember2020-09-012021-05-310000276720pcyo:ProjectManagementFeesMember2020-09-012021-05-310000276720pcyo:MeteredWaterUsageMunicipalCustomersMember2020-09-012021-05-310000276720pcyo:MeteredWaterUsageCommercialCustomersMember2020-09-012021-05-310000276720pcyo:LotSalesMember2020-09-012021-05-310000276720pcyo:FinishedLotMember2020-09-012021-05-310000276720pcyo:FacilitiesFundingAndAcquisitionAgreementMember2021-09-012022-05-310000276720srt:MaximumMemberpcyo:SingleFamilyRentalHomesMember2021-09-012022-05-310000276720pcyo:NoteReceivableMemberpcyo:RangeviewDistrictMember2021-09-012022-05-310000276720us-gaap:SeriesBPreferredStockMember2022-05-310000276720us-gaap:SeriesBPreferredStockMember2021-08-310000276720pcyo:Phase1ReimbursableCostsMember2022-05-310000276720pcyo:OtherMember2022-05-310000276720pcyo:Phase1ReimbursableCostsMember2021-08-310000276720pcyo:OtherMember2021-08-310000276720pcyo:Phase2ReimbursablePublicImprovementsMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-05-310000276720pcyo:Phase2ReimbursableCostsMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-05-310000276720pcyo:Phase2ProjectManagementServicesMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-05-310000276720pcyo:Phase2AccruedInterestMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-05-310000276720pcyo:Phase1ReimbursablePublicImprovementsAndConstructionSupportActivitiesAndAccruedInterestMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-05-310000276720pcyo:Phase1ReimbursableCostsMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-05-310000276720pcyo:Phase1ProjectManagementServicesMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-05-310000276720pcyo:Phase1AccruedInterestMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-05-310000276720pcyo:Phase2ReimbursablePublicImprovementsMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-08-310000276720pcyo:Phase2ReimbursableCostsMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-08-310000276720pcyo:Phase2ProjectManagementServicesMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-08-310000276720pcyo:Phase2AccruedInterestMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-08-310000276720pcyo:Phase1ReimbursablePublicImprovementsAndConstructionSupportActivitiesAndAccruedInterestMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-08-310000276720pcyo:Phase1ReimbursableCostsMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-08-310000276720pcyo:Phase1ProjectManagementServicesMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-08-310000276720pcyo:Phase1AccruedInterestMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-08-310000276720us-gaap:RetainedEarningsMember2022-03-012022-05-310000276720us-gaap:RetainedEarningsMember2021-09-012022-05-310000276720us-gaap:RetainedEarningsMember2021-03-012021-05-310000276720us-gaap:RetainedEarningsMember2020-09-012021-05-310000276720srt:MaximumMemberpcyo:NoteReceivableMemberpcyo:RangeviewDistrictMember2022-05-310000276720pcyo:Phase2ReimbursablePublicImprovementsMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720pcyo:Phase2ReimbursableCostsMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720pcyo:Phase2ProjectManagementServicesMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720pcyo:Phase2AccruedInterestMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720pcyo:Phase1ReimbursablePublicImprovementsAndConstructionSupportActivitiesAndAccruedInterestMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720pcyo:Phase1ReimbursableCostsMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720pcyo:Phase1ProjectManagementServicesMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720pcyo:Phase1AccruedInterestMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720us-gaap:StateAndLocalJurisdictionMember2021-09-012022-05-310000276720us-gaap:DomesticCountryMember2021-09-012022-05-310000276720pcyo:IncentivePlan2004AndEquityPlan2014Member2022-05-310000276720srt:ScenarioForecastMember2021-09-012022-08-310000276720us-gaap:LineOfCreditMember2022-05-310000276720pcyo:SingleFamilyRentalHomeNotesMember2022-05-310000276720pcyo:LostCreekLoanMemberus-gaap:SubsequentEventMember2022-06-280000276720pcyo:SingleFamilyRentalHomeNotesMember2021-11-290000276720us-gaap:LineOfCreditMemberus-gaap:PrimeRateMember2022-01-312022-01-310000276720pcyo:SingleFamilyRentalHomeNotesMemberus-gaap:PrimeRateMember2021-11-292021-11-290000276720us-gaap:ConstructionMember2022-03-012022-05-310000276720pcyo:WaterServiceOperationsMember2022-03-012022-05-310000276720pcyo:WastewaterServiceOperationsMember2022-03-012022-05-310000276720pcyo:SingleFamilyRentalsMember2022-03-012022-05-310000276720pcyo:ProjectManagementCostsMember2022-03-012022-05-310000276720us-gaap:ConstructionMember2021-09-012022-05-310000276720pcyo:WaterServiceOperationsMember2021-09-012022-05-310000276720pcyo:WastewaterServiceOperationsMember2021-09-012022-05-310000276720pcyo:ProjectManagementCostsMember2021-09-012022-05-310000276720us-gaap:ConstructionMember2021-03-012021-05-310000276720pcyo:WaterServiceOperationsMember2021-03-012021-05-310000276720pcyo:WastewaterServiceOperationsMember2021-03-012021-05-310000276720us-gaap:ConstructionMember2020-09-012021-05-310000276720pcyo:WaterServiceOperationsMember2020-09-012021-05-310000276720pcyo:WastewaterServiceOperationsMember2020-09-012021-05-310000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2022-02-280000276720pcyo:LandDevelopmentSegmentMember2022-02-2800002767202022-02-280000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2021-05-310000276720pcyo:LandDevelopmentSegmentMember2021-05-310000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2021-02-280000276720pcyo:LandDevelopmentSegmentMember2021-02-2800002767202021-02-280000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2020-08-310000276720pcyo:LandDevelopmentSegmentMember2020-08-310000276720pcyo:ChallengerMemberus-gaap:AccountsReceivableMemberus-gaap:CustomerConcentrationRiskMember2022-05-312022-05-310000276720pcyo:SkyRanchHomesMemberus-gaap:SalesRevenueSegmentMemberus-gaap:CustomerConcentrationRiskMemberpcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2021-09-012022-05-310000276720pcyo:RichmondMemberus-gaap:SalesRevenueSegmentMemberus-gaap:CustomerConcentrationRiskMemberpcyo:LandDevelopmentSegmentMember2021-09-012022-05-310000276720pcyo:LennarMemberus-gaap:SalesRevenueSegmentMemberus-gaap:CustomerConcentrationRiskMemberpcyo:LandDevelopmentSegmentMember2021-09-012022-05-310000276720pcyo:KbHomeColoradoIncMemberus-gaap:SalesRevenueSegmentMemberus-gaap:CustomerConcentrationRiskMemberpcyo:LandDevelopmentSegmentMember2021-09-012022-05-310000276720pcyo:ChallengerMemberus-gaap:SalesRevenueSegmentMemberus-gaap:CustomerConcentrationRiskMemberpcyo:LandDevelopmentSegmentMember2021-09-012022-05-310000276720pcyo:EquityIncentivePlan2014Member2022-05-3100002767202020-08-3100002767202021-05-310000276720us-gaap:CorporateNonSegmentMember2022-05-310000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2022-05-310000276720pcyo:SingleFamilyRentalsMember2022-05-310000276720pcyo:LandDevelopmentSegmentMember2022-05-310000276720us-gaap:CorporateNonSegmentMember2021-08-310000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2021-08-310000276720pcyo:LandDevelopmentSegmentMember2021-08-310000276720us-gaap:AdditionalPaidInCapitalMember2022-03-012022-05-310000276720us-gaap:AdditionalPaidInCapitalMember2021-09-012022-05-310000276720us-gaap:AdditionalPaidInCapitalMember2021-03-012021-05-310000276720us-gaap:AdditionalPaidInCapitalMember2020-09-012021-05-310000276720pcyo:RangeviewDistrictMember2021-08-310000276720pcyo:WisePartnershipMemberpcyo:RangeviewDistrictMember2022-01-310000276720pcyo:WisePartnershipMemberpcyo:RangeviewDistrictMember2022-05-310000276720pcyo:WisePartnershipMemberpcyo:RangeviewDistrictMember2022-03-012022-05-310000276720pcyo:WisePartnershipMemberpcyo:RangeviewDistrictMember2021-09-012022-05-310000276720pcyo:WisePartnershipMemberpcyo:RangeviewDistrictMember2021-03-012021-05-310000276720pcyo:WisePartnershipMemberpcyo:RangeviewDistrictMember2020-09-012021-05-310000276720pcyo:SingleFamilyRentalHomesMember2022-05-310000276720pcyo:IncentivePlan2004AndEquityPlan2014Member2021-09-012022-05-310000276720us-gaap:ScenarioPlanMemberpcyo:SkyRanchCommunityAuthorityBoardMember2023-11-300000276720us-gaap:ScenarioPlanMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-08-310000276720pcyo:SkyRanchCommunityAuthorityBoardMember2022-03-012022-05-310000276720pcyo:SkyRanchCommunityAuthorityBoardMember2021-11-012021-11-300000276720pcyo:SingleFamilyRentalsMembersrt:MaximumMember2021-09-012022-05-310000276720pcyo:SkyRanchCommunityAuthorityBoardMember2022-05-310000276720pcyo:NelsonPipelineConstructorsLlcMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720pcyo:LostCreekWaterSupplyMemberus-gaap:SubsequentEventMember2022-06-272022-06-270000276720pcyo:WaterAndWastewaterTapFeesMember2022-03-012022-05-310000276720pcyo:WaterAndWastewaterTapFeesMember2021-09-012022-05-310000276720pcyo:WaterAndWastewaterTapFeesMember2021-03-012021-05-310000276720pcyo:WaterAndWastewaterTapFeesMember2020-09-012021-05-310000276720pcyo:SingleFamilyRentalHomesMember2021-09-012022-05-310000276720us-gaap:FairValueInputsLevel2Member2022-05-310000276720pcyo:SkyRanchCommunityAuthorityBoardMember2021-02-012021-02-280000276720pcyo:OilAndGasOperatorMemberus-gaap:SalesRevenueSegmentMemberus-gaap:CustomerConcentrationRiskMemberpcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2021-09-012022-05-310000276720pcyo:HomebuildersMemberpcyo:SkyRanchCommunityAuthorityBoardMember2021-02-012021-02-280000276720pcyo:ShareBasedPaymentArrangementNonemployeeBoardMembersMemberpcyo:EquityIncentivePlan2014Member2022-01-122022-01-120000276720pcyo:ShareBasedPaymentArrangementNonemployeeBoardMembersMemberpcyo:EquityIncentivePlan2014Member2021-01-132021-01-130000276720pcyo:CharterSchoolOperatorMember2021-09-012022-05-310000276720pcyo:LoanReceivableMemberpcyo:RangeviewDistrictMember2021-09-012022-05-310000276720pcyo:NoteReceivableMemberpcyo:RangeviewDistrictMember2022-05-310000276720pcyo:NoteReceivableMemberpcyo:RangeviewDistrictMember2021-08-310000276720pcyo:LoanReceivableMemberpcyo:RangeviewDistrictMember2022-05-310000276720pcyo:SkyRanchCommunityAuthorityBoardMember2021-08-310000276720pcyo:LoanReceivableMemberpcyo:RangeviewDistrictMemberus-gaap:PrimeRateMember2021-09-012022-05-310000276720pcyo:SingleFamilyRentalsMember2021-09-012022-05-310000276720pcyo:SkyRanchCommunityAuthorityBoardMember2021-09-012022-05-310000276720us-gaap:LineOfCreditMember2022-01-310000276720pcyo:PaymentBeginningOnJuly282027Memberpcyo:LostCreekLoanMemberus-gaap:SubsequentEventMember2022-06-282022-06-280000276720pcyo:PaymentBeginningOnJuly282025Memberpcyo:LostCreekLoanMemberus-gaap:SubsequentEventMember2022-06-282022-06-280000276720us-gaap:LineOfCreditMember2022-01-312022-01-310000276720pcyo:SingleFamilyRentalHomeNotesMember2021-11-292021-11-290000276720pcyo:LostCreekLoanMemberus-gaap:SubsequentEventMember2022-06-282022-06-280000276720pcyo:LostCreekWaterSupplyMemberus-gaap:SubsequentEventMember2022-06-270000276720pcyo:SingleFamilyRentalsMember2022-03-012022-05-310000276720pcyo:SingleFamilyRentalsMember2021-09-012022-05-310000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2022-03-012022-05-310000276720pcyo:LandDevelopmentSegmentMember2022-03-012022-05-3100002767202022-03-012022-05-310000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2021-09-012022-05-310000276720pcyo:LandDevelopmentSegmentMember2021-09-012022-05-310000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2021-03-012021-05-310000276720pcyo:LandDevelopmentSegmentMember2021-03-012021-05-3100002767202021-03-012021-05-310000276720pcyo:WaterAndWastewaterResourceDevelopmentSegmentMember2020-09-012021-05-310000276720pcyo:LandDevelopmentSegmentMember2020-09-012021-05-3100002767202020-09-012021-05-310000276720us-gaap:ScenarioPlanMemberpcyo:SkyRanchCommunityAuthorityBoardMember2022-06-012023-11-300000276720pcyo:WildPointeServiceRightsMember2022-05-310000276720pcyo:WaterSupplyOtherMember2022-05-310000276720pcyo:SkyRanchWaterRightsAndOtherCostsMember2022-05-310000276720pcyo:SkyRanchPipelineMember2022-05-310000276720pcyo:RangeviewWaterSystemMember2022-05-310000276720pcyo:RangeviewWaterSupplyMember2022-05-310000276720pcyo:LostCreekWaterSupplyMember2022-05-310000276720pcyo:FairgroundsWaterAndWaterSystemMember2022-05-310000276720pcyo:WildPointeServiceRightsMember2021-08-310000276720pcyo:WaterSupplyOtherMember2021-08-310000276720pcyo:SkyRanchWaterRightsAndOtherCostsMember2021-08-310000276720pcyo:SkyRanchPipelineMember2021-08-310000276720pcyo:RangeviewWaterSystemMember2021-08-310000276720pcyo:RangeviewWaterSupplyMember2021-08-310000276720pcyo:LostCreekWaterSupplyMember2021-08-310000276720pcyo:FairgroundsWaterAndWaterSystemMember2021-08-3100002767202022-05-3100002767202021-08-3100002767202022-07-0700002767202021-09-012022-05-31pcyo:homeiso4217:USDxbrli:sharesutr:aftiso4217:USDutr:galpcyo:segmentxbrli:sharesiso4217:USDxbrli:purepcyo:installmentpcyo:Mutr:acrepcyo:itempcyo:customerpcyo:agreement

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 000-08814

Graphic

PURE CYCLE CORPORATION

(Exact name of registrant as specified in its charter)

Colorado

84-0705083

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

34501 E. Quincy Avenue, Bldg. 65, Suite A, Watkins, CO

80137

(Address of principal executive offices)

(Zip Code)

(303) 292 – 3456

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock 1/3 of $.01 par value

PCYO

The NASDAQ Stock Market

(Title of each class)

(Trading Symbol(s))

(Name of each exchange on which registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 23,980,645 shares of 1/3 of $.01 par value common stock as of July 7, 2022.

PURE CYCLE CORPORATION

INDEX TO MAY 31, 2022 FORM 10-Q

Page

PART I. FINANCIAL INFORMATION

4

Item 1. Consolidated Financial Statements

4

Consolidated Balance Sheets: May 31, 2022 (unaudited) and August 31, 2021

4

Consolidated Statements of Operations (unaudited): For the three and nine months ended May 31, 2022 and 2021

5

Consolidated Statements of Shareholders’ Equity (unaudited): For the three and nine months ended May 31, 2022 and 2021

6

Consolidated Statements of Cash Flows (unaudited): For the nine months ended May 31, 2022 and 2021

8

Notes to Condensed Consolidated Financial Statements

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

33

Item 4. Controls and Procedures

33

PART II. OTHER INFORMATION

34

Item 1A. Risk Factors

34

Item 6. Exhibits

34

SIGNATURES

35

FORWARD-LOOKING STATEMENTS

Statements that are not historical facts contained in this Quarterly Report on Form 10-Q, or incorporated by reference into the most recent Annual Report on Form 10-K, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “anticipate,” “seek,” “project,” “future,” “likely,” “believe,” “may,” “should,” “could,” “will,” “estimate,” “expect,” “plan,” “intend” and similar expressions, as they relate to us, are intended to identify forward-looking statements. Forward-looking statements include statements relating to, among other things:

future water supply needs in Colorado and how such needs will be met;
anticipated increases in residential and commercial demand for water services and competition for these services;
estimated population increases in the Denver metropolitan area and the South Platte River basin;
plans for, and the efficiency of, development of our Sky Ranch property;
our competitive advantage;
the impact of individual housing and economic cycles on the number of connections we can serve with our water;
the number of new water connections needed to recover the costs of our water supplies;
the number of units planned for development at Sky Ranch;
the timing of the completion of construction and sale of finished lots at Sky Ranch;
the number of lots expected to be delivered in a fiscal period;
anticipated financial results from development of our Sky Ranch property;
estimated tap fees to be generated from the development of the various phases of Sky Ranch;
anticipated expansion and rental dates for our single-family rental units;
anticipated revenues and cash flows from our single-family rental units;
timing of and interpretation of royalties to the State Board of Land Commissioners;
participation in regional water projects, including “WISE” and the timing and availability of water from, and projected costs related to, WISE;
increases in future water or wastewater tap fees;
our ability to collect fees and charges from customers and other users;
the estimated amount of reimbursable costs for Sky Ranch and the collectability of reimbursables;
anticipated timing and amount of, and sources of funding for, (i) capital expenditures to construct infrastructure and increase production capacities, (ii) compliance with water, environmental and other regulations, and (iii) operations, including delivery and treatment of water and wastewater;
capital required and costs to develop Sky Ranch;
anticipated development of other filings concurrently with the second filing of Sky Ranch;
plans to provide water for drilling and hydraulic fracturing of oil and gas wells;
changes in oil and gas drilling activity on our property, on the Lowry Range, or in the surrounding areas;
estimated costs of earthwork, erosion control, streets, drainage and landscaping at Sky Ranch;
the anticipated revenues from customers in the Rangeview District, Sky Ranch Districts, and Elbert & Highway 86 District;
plans for the use and development of our water assets and potential delays;
estimated number of connections we can serve with our existing water rights;
factors affecting demand for water;
our ability to meet customer demands in a sustainable and environmentally friendly way;
our ability to reduce the amount of up-front construction costs for water and wastewater systems;
costs and plans for treatment of water and wastewater;
anticipated number of deep-water wells required to continue expanding and developing our Rangeview Water Supply;
expenditures for expenses and capital needs of the Rangeview District;
regional cooperation among area water providers in the development of new water supplies and water storage, transmission and distribution systems as the most cost-effective way to expand and enhance service capacities;
plans to drill water walls into aquifers located beneath the Lowry Range and the timing and estimated costs of such a build out;
sufficiency of tap fees to fund infrastructure costs of the Rangeview District;
our ability to assist Colorado “Front Range” water providers in meeting current and future water needs;
plans to use raw water, effluent water or reclaimed water for agricultural and irrigation uses;

1

factors that may impact labor and material costs;
use of third parties to construct water and wastewater facilities and Sky Ranch lot improvements;
plans to utilize fixed-price contracts;
estimated supply capacity of our water assets;
our belief that we will continue to exceed, market expectations with the delivery of our lots at Sky Ranch;
our ability to comply with permit requirements and environmental regulations and the cost of such compliance;
the impact of water quality, solid waste disposal and environmental regulations on our financial condition and results of operations;
negotiation of payment terms for fees;
the future impacts of COVID-19 on our business;
the impact of any downturn in the homebuilding and credit markets on our business and financial condition;
the recoverability of water and wastewater service costs from rates;
forfeitures of option grants, vesting of non-vested options and the fair value of option awards;
the sufficiency of our working capital and financing sources to fund our operations;
estimated costs of public improvements to be funded by Pure Cycle and constructed on behalf of the Sky Ranch Community Authority Board;
service life of constructed facilities;
accounting estimates and the impact of new accounting pronouncements;
the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting; and
our belief that we will remediate our material weakness.

Forward-looking statements reflect our current views with respect to future events and are subject to certain risks, uncertainties, and assumptions. There are no assurances that any of our expectations will be realized and actual results could differ materially from those in such statements. Factors that could cause actual results to differ from those contemplated by such forward-looking statements include, without limitation:

outbreaks of disease, including the COVID-19 pandemic, and related stay-at-home orders, quarantine policies and restrictions on travel, trade and business operations, and the related impacts to the general economy;
political and economic instability, whether resulting from natural disasters, wars, terrorism, pandemics or other sources;
our ability to successfully expand our single-family home rental business and rent our single-family homes at rates sufficient to cover our costs;
the timing of new home construction and other development in the areas where we may sell our water, which in turn may be impacted by credit availability;
population growth;
changes in employment levels, job and personal income growth and household debt-to-income levels;
changes in consumer confidence generally and confidence of potential home buyers in particular;
declines in property values which impacts tax revenue to the Sky Ranch Community Authority Board which would impact their ability to repay us;
changes in the supply of available new or existing homes and other housing alternatives, such as apartments and other residential rental property;
timing of oil and gas development in the areas where we sell our water;
the market price of homes, rental rates, and water, oil and gas prices;
changes in customer consumption patterns;
changes in applicable statutory and regulatory requirements;
changes in governmental policies and procedures, including with respect to land use and environmental and tax matters;
changes in interest rates;
changes in private and federal mortgage financing programs and lending practices;
uncertainties in the estimation of water available under decrees;
uncertainties in the estimation of number of connections we can service with our existing water supplies;
uncertainties in the estimation of costs of delivery of water and treatment of wastewater;
uncertainties in the estimation of the service life of our systems;
uncertainties in the estimation of costs of construction projects;

2

uncertainties in the amount of reimbursable costs we may ultimately collect;
the strength and financial resources of our competitors;
our ability to find and retain skilled personnel;
climatic and weather conditions, including floods, droughts and freezing conditions;
turnover of elected and appointed officials and delays caused by political concerns and government procedures;
availability and cost of labor, material and equipment;
engineering and geological problems;
environmental risks and regulations;
our ability to raise capital;
changes in corporate tax rates;
our ability to negotiate contracts with customers;
uncertainties in water court rulings;
security and cyberattacks, including unauthorized access to confidential information on our information technology systems; and
the factors described under “Risk Factors” in Part II Item 1A of the Company’s most recent Annual Report on Form 10-K.

We undertake no obligation, and disclaim any obligation, to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. All forward-looking statements are expressly qualified by this cautionary statement.

3

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

PURE CYCLE CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except shares)

May 31, 2022

    

August 31, 2021

ASSETS:

(unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

5,422

$

20,117

Trade accounts receivable, net

 

1,199

 

1,532

Prepaid expenses and other assets

 

690

 

458

Land under development

 

652

 

608

Notes receivable - related party, reimbursable public improvements

 

16,000

 

16,000

Total current assets

 

23,963

 

38,715

Restricted cash

2,328

2,327

Investments in water and water systems, net

 

53,114

 

53,786

Construction in progress

3,292

3,304

Single-family rental units

986

Land and mineral rights:

 

Held for development

8,341

 

5,924

Held for investment purposes

451

 

451

Other assets

 

2,467

 

2,591

Notes receivable – related parties, including accrued interest:

 

 

Reimbursable public improvements

19,320

8,794

Other

1,062

1,163

Operating leases - right of use assets, less current portion

 

62

 

122

Total assets

$

115,386

$

117,177

LIABILITIES:

Current liabilities:

Accounts payable

$

2,360

$

1,787

Accrued liabilities

925

1,224

Accrued liabilities – related parties

 

445

 

2,881

Income taxes payable

314

4,163

Deferred lot sale revenues

 

889

 

1,995

Deferred water sales revenues

 

392

 

410

Debt, current portion

12

Total current liabilities

 

5,337

 

12,460

Participating interests in export water supply

 

324

 

325

Debt, less current portion

988

 

Deferred tax liability, net

 

1,428

 

1,615

Lease obligations - operating leases, less current portion

 

 

37

Total liabilities

 

8,077

 

14,437

Commitments and contingencies

SHAREHOLDERS’ EQUITY:

Series B preferred shares par value $0.001 per share,
25 million authorized; 432,513 issued and outstanding (liquidation preference of $432,513)

 

 

Common shares par value 1/3 of $.01 per share,
40.0 million authorized; 23,980,645 and 23,916,633 outstanding, respectively

 

80

 

80

Additional paid-in capital

 

174,038

 

173,513

Accumulated deficit

 

(66,809)

 

(70,853)

Total shareholders’ equity

 

107,309

 

102,740

Total liabilities and shareholders’ equity

$

115,386

$

117,177

See accompanying Notes to the Consolidated Financial Statements

4

PURE CYCLE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

Three Months Ended

Nine Months Ended

(In thousands, except share information)

    

May 31, 2022

    

May 31, 2021

May 31, 2022

    

May 31, 2021

Revenues:

 

  

 

  

  

 

  

Metered water usage from:

Municipal customers

$

94

$

63

$

498

$

171

Commercial customers

 

549

 

147

 

2,462

 

2,062

Wastewater treatment fees

 

66

 

51

 

185

 

144

Water and wastewater tap fees

 

1,273

 

1,856

 

2,447

 

4,522

Lot sales

 

1,070

 

445

 

5,644

 

3,316

Project management fees

81

23

529

1,571

Single-family rentals

25

59

Special facility projects and other

 

29

 

81

 

299

 

487

Total revenues

 

3,187

 

2,666

 

12,123

 

12,273

Expenses:

Water service operations

 

560

 

316

 

1,419

 

1,074

Wastewater service operations

 

109

 

102

 

337

 

258

Land development construction costs

 

222

 

99

 

1,048

 

2,087

Project management costs

66

 

 

112

 

Single-family rental costs

9

 

 

16

 

Depletion and depreciation

 

349

 

358

 

1,055

 

1,077

Other

 

79

 

65

 

298

 

453

Total cost of revenues

 

1,394

 

940

 

4,285

 

4,949

General and administrative expenses

 

1,074

 

1,325

 

3,950

 

3,753

Depreciation

 

95

 

73

 

277

 

233

Operating income

 

624

 

328

 

3,611

 

3,338

Other income:

Interest income - related party

308

284

1,196

2,660

Recognition of public improvement reimbursables - related party

17,262

Reimbursement of construction costs - related party

485

Oil and gas royalty income, net

 

123

97

330

248

Oil and gas lease income, net

 

47

48

143

148

Other, net

 

15

25

40

41

Interest expense, net

(34)

(52)

Income from operations before income taxes

 

1,083

 

782

 

5,268

 

24,182

Income tax expense

 

246

 

158

 

1,224

 

5,906

Net income

$

837

$

624

$

4,044

$

18,276

Earnings per common share - basic and diluted

Basic

$

0.03

$

0.03

$

0.17

$

0.77

Diluted

$

0.03

$

0.03

$

0.17

$

0.76

Weighted average common shares outstanding:

Basic

 

23,970,290

23,907,140

 

23,944,394

23,885,179

Diluted

 

24,124,586

24,184,395

 

24,183,500

24,104,408

See accompanying Notes to the Consolidated Financial Statements

5

PURE CYCLE CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)

Three Months Ended May 31, 2022

Preferred Stock

Common Stock

Additional

Accumulated

(in thousands, except shares)

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-in Capital

    

Deficit

Total

Balance at February 28, 2022

 

432,513

 

$

 

23,958,522

 

$

80

 

$

173,918

 

$

(67,646)

 

$

106,352

Stock option exercises

22,123

Share-based compensation

 

 

 

 

 

120

 

 

120

Net income

 

 

 

 

 

 

837

 

837

Balance at May 31, 2022

 

432,513

$

 

23,980,645

$

80

$

174,038

$

(66,809)

$

107,309

Three Months Ended May 31, 2021

Preferred Stock

Common Stock

Additional

Accumulated

(in thousands, except shares)

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-in Capital

    

Deficit

Total

Balance at February 28, 2021

 

432,513

 

$

 

23,888,375

 

$

80

 

$

173,254

 

$

(72,766)

 

$

100,568

Prior period adjustment

(545)

(545)

Stock option exercises

21,758

48

48

Share-based compensation

 

 

 

 

 

91

 

 

91

Net income

 

 

 

 

 

 

624

 

624

Balance at May 31, 2021

 

432,513

$

 

23,910,133

$

80

$

173,393

$

(72,687)

$

100,786

See accompanying Notes to the Consolidated Financial Statements

6

PURE CYCLE CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)

Nine Months Ended May 31, 2022

Preferred Stock

Common Stock

Additional

Accumulated

(in thousands, except shares)

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-in Capital

    

Deficit

Total

Balance at August 31, 2021

 

432,513

 

$

 

23,916,633

 

$

80

 

$

173,513

 

$

(70,853)

 

$

102,740

Stock option exercises

52,012

34

34

Stock granted for services

12,000

159

159

Share-based compensation

 

 

 

 

 

332

 

 

332

Net income

 

 

 

 

 

 

4,044

 

4,044

Balance at May 31, 2022

 

432,513

$

 

23,980,645

$

80

$

174,038

$

(66,809)

$

107,309

Nine Months Ended May 31, 2021

Preferred Stock

Common Stock

Additional

Accumulated

(in thousands, except shares)

    

Shares

    

Amount

    

Shares

    

Amount

    

Paid-in Capital

    

Deficit

Total

Balance at August 31, 2020

 

432,513

 

$

 

23,856,098

 

$

80

 

$

172,927

 

$

(90,963)

 

$

82,044

Stock option exercises

42,035

62

62

Stock granted for services

12,000

136

136

Share-based compensation

 

 

 

 

 

268

 

 

268

Net income

18,276

18,276

Balance at May 31, 2021

 

432,513

$

 

23,910,133

$

80

$

173,393

$

(72,687)

$

100,786

See accompanying Notes to the Consolidated Financial Statements

7

PURE CYCLE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Nine Months Ended

(In thousands)

    

May 31, 2022

    

May 31, 2021

Cash flows from operating activities:

 

  

 

  

Net income

$

4,044

$

18,276

Adjustments to reconcile net income to net cash used by operating activities:

Depreciation and depletion

1,332

1,310

Share-based compensation expense

 

491

 

404

Trade accounts receivable

 

333

 

(810)

Deferred water sales revenue

 

(18)

(1,690)

Land under development

 

(44)

 

(131)

Other assets and liabilities

 

(57)

(59)

Deferred income taxes

 

(187)

 

623

Prepaid expenses

 

(311)

 

(13)

Deferred lot sale revenues

 

(1,106)

 

(1,088)

Accounts payable and accrued liabilities

 

(2,136)

 

(562)

Taxes payable net of taxes receivable

(3,849)

5,283

Net change in note receivable - related party:

Reimbursable public improvements

 

(10,526)

Other

101

 

(34)

Recognition of public improvement reimbursables, interest income and project management fees

(21,316)

Net cash (used) provided by operating activities

 

(11,933)

 

193

Cash flows from investing activities:

Construction costs of single-family rentals

(142)

Investments in water and water systems

 

(1,235)

 

(2,152)

Investments in land held for development

(2,417)

Purchase of property and equipment

 

 

(101)

Net cash used by investing activities

 

(3,794)

 

(2,253)

Cash flows from financing activities:

Proceeds from notes payable

 

1,000

 

Proceeds from option exercises

34

62

Payments to contingent liability holders

 

(1)

 

(3)

Net cash provided by financing activities

 

1,033

 

59

Net change in cash, cash equivalents and restricted cash

 

(14,694)

 

(2,001)

Cash, cash equivalents and restricted cash – beginning of period

 

22,444

 

21,797

Cash, cash equivalents and restricted cash – end of period

$

7,750

$

19,796

Cash and cash equivalents

$

5,422

$

19,514

Restricted cash

2,328

282

Total cash, cash equivalents and restricted cash

$

7,750

$

19,796

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH ACTIVITIES

Income taxes paid

$

5,260

$

Change in reimbursable public improvements included in accounts payable and accrued liabilities

$

445

$

Transfer of land development costs to other assets

$

$

484

Transfer of land development costs to land under development

$

$

467

Change in land under development included in accounts payable and accrued liabilities

$

$

613

Change in investments in water and water systems included in accounts payable and accrued liabilities

$

$

298

See accompanying Notes to the Consolidated Financial Statements

8

PURE CYCLE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2022

NOTE 1 – PRESENTATION OF INTERIM INFORMATION

The accompanying unaudited consolidated financial statements have been prepared by Pure Cycle Corporation (Company) and include all adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows of the Company as of and for the three and nine months ended May 31, 2022 and 2021. The August 31, 2021 balance sheet was derived from the Company’s audited consolidated financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. It is suggested the accompanying consolidated financial statements and notes be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2021 (2021 Annual Report) filed with the Securities and Exchange Commission (SEC) on November 10, 2021. The results of operations for interim periods presented are not necessarily indicative of the operating results expected for the full fiscal year.

Coronavirus (COVID-19)

Since January 2020, the COVID-19 pandemic has caused substantial disruption in international and U.S. economies and markets. The impacts of the pandemic are continuing but have lessened as vaccines have become widely available in the U.S, although there have been periodic increases in the number of cases in the U.S. due to the spread of COVID-19 variants. The pandemic has resulted in government restrictions of various degrees and effective at various times, including stay-at-home orders, bans on travel, limitations on the size of gatherings, limitations on the operations of businesses deemed non-essential, closures of work facilities, schools, public buildings and businesses, cancellation of events (including entertainment events, conferences, and meetings), quarantines, mask mandates and social distancing measures. Due to the outbreak of COVID-19 and related restrictions, the second development phase of Sky Ranch was delayed due to the extended time taken to approve the platted lots through the county government.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used to account for certain items such as revenue recognition, reimbursable costs, costs of revenue for lot sales, share-based compensation, deferred tax asset valuation, and the useful lives and recoverability of long-lived assets. Actual results could differ from those estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment.

During fiscal 2021, the Company determined the reimbursable public improvements, project management fees and interest income related to the Sky Ranch community being developed by the Company were probable of collectability. Historically, due to a lack of tax base and no operating history for the Sky Ranch Community Authority Board (Sky Ranch CAB), the Company was unable to estimate when or if it would receive payment for these items and deferred recognition of them until cash was received. As a result of an established and growing tax base resulting from the success of the initial development, increases in housing values in Colorado, added mill levies, and additional unencumbered fees received by the Sky Ranch CAB, the Company believes repayment of the public improvements, payment of the project management fees, and interest income are deemed probable. Based on this the Company has recognized these items in the consolidated financial statements. The timing and amount of potential payments have been estimated based on growth trends utilizing current assessed values and historic growth rates which have been projected to current and contracted lot sales through the contractual obligation period.

Prior Period Adjustment in the three months ended May 31, 2021 consolidated financial statements

During the three and nine months ended May 31, 2021, the Company discovered certain errors in the amounts reported for the three and six months ended February 28, 2021. Management concluded that although the errors were immaterial in the given periods, if corrected in the three months ended May 31, 2021, management believed these corrections would have a material impact on the results reported

9

for the three months ended May 31, 2021, consolidated statement of operations, specifically the recognition of Public improvement reimbursables including interest income - related party. The Company’s President and the Chief Financial Officer evaluated the effects of the errors on the consolidated financial statements for the three and six months ended February 28, 2021, and each concluded that the errors were not material to those presented results. Based on this evaluation, the errors did not rise to the level of requiring a restatement of the financial information for the three and six months ended February 28, 2021, contained in the Form 10-Q as previously filed. Accordingly, management corrected these errors by adjusting opening accumulated deficit for the three-month period ended May 31, 2021, and retrospectively adjusted the cumulative periods for the impact of such errors in the financial statements presented for the three and nine months ended May 31, 2021. Additional information on the prior period adjustment reflected in the consolidated statement of shareholders’ equity for the three months ended May 31, 2021, can be found in Note 2 – Prior Period Adjustment in the Form 10-Q for the quarterly period ended May 31, 2021, filed with the SEC on July 9, 2021.

Reclassifications

The Company has reclassified certain prior year information to conform to the current year presentation.

NOTE 2 – REIMBURSABLE PUBLIC IMPROVEMENTS AND NOTE RECEIVABLE FROM THE SKY RANCH CAB

The note receivable from the Sky Ranch CAB reports the balances owed by the Sky Ranch CAB to the Company, to reimburse the Company for public improvements paid for by the Company, project management fees, and interest accrued on the unpaid balances related to the ongoing development of the Sky Ranch master planned community. This is described in greater detail in Note 1 and Note 14 to the 2021 Annual Report. The Company has advanced funds to the Sky Ranch CAB for the cost of public improvements at Sky Ranch that are the ultimate responsibility of the Sky Ranch CAB.  During the second quarter of fiscal 2021, the Company determined that the Sky Ranch CAB would be able to repay the Company for those improvements, along with the project management fees and interest on these expenses. Upon that determination, the Company began recording the reimbursable public improvements as a receivable from the Sky Ranch CAB (as opposed to the costs being expensed as land development construction costs) and began recognizing project management fee revenue and interest income on the entire note receivable from the Sky Ranch CAB. Prior to that date, payment was not deemed to be probable; therefore, the Company capitalized those costs as land under development and subsequently expensed the reimbursable public improvements and did not recognize any project management fees or interest income due to the uncertainty of collectability. During the three and nine months ended May 31, 2022, the Company spent $1.9 million and $8.8 million on public improvements which are payable by the Sky Ranch CAB to the Company and added to the note receivable from the Sky Ranch CAB. Additionally, for the three and nine months ended May 31, 2022, project management fees owed to the Company of $0.1 million and $0.5 million, and interest income on the outstanding note receivable of $0.3 million and $1.2 million were added to the note receivable. During the three months ended May 31, 2022, the Sky Ranch CAB made a $0.1 million interest payment on the note receivable.

Public improvements which are not probable of reimbursement at the time of being incurred are considered contract fulfillment costs and are recorded as land development construction costs as incurred. If public improvement costs are deemed probable of collection, the costs are recognized as notes receivable - related party. The Company assesses the collectability of the note receivable from the Sky Ranch CAB, which includes reimbursable public improvements, project management fees and the related interest income, when events or circumstances indicate the amounts may not be recoverable. The Sky Ranch CAB has an obligation to repay the Company, but the ability of the Sky Ranch CAB to do so before the contractual termination dates is dependent upon the establishment of a tax base or other fee generating activities sufficient to fund reimbursable costs incurred.

10

The following table summarizes the activity and balances associated with the reimbursable public improvements, project management fees, and accrued interest, all of which are included in the note receivable from the Sky Ranch CAB:

(In thousands)

    

Balances at
August 31, 2021

    

Activity during the Nine Months Ended May 31, 2022

    

Amounts payable by the Sky Ranch CAB at
May 31, 2022

Phase 1

Reimbursable public improvements and other

$

17,645

$

342

$

17,987

Accrued interest

 

2,526

 

804

 

3,330

Project management services

 

1,570

 

19

 

1,589

Phase 1 reimbursable costs

$

21,741

$

1,165

$

22,906

Phase 2

Reimbursable public improvements and other

$

2,935

$

8,503

$

11,438

Accrued interest

33

348

381

Project management services

85

510

595

Phase 2 reimbursable costs

$

3,053

$

9,361

$

12,414

Total reimbursable costs

$

24,794

$

10,526

$

35,320

Total reimbursable costs

$

24,794

$

10,526

$

35,320

Less current portion

16,000

16,000

Non-current reimbursable costs

$

8,794

$

10,526

$

19,320

The note receivable from the Sky Ranch CAB accrues interest at 6% per annum. During fiscal 2021, the Company, through information obtained from the Sky Ranch CAB board, determined it was probable the Sky Ranch CAB would issue bonds within twelve months, from which an estimated $16.0 million would be available to repay the Company. During the three months ended May 31, 2022, the Sky Ranch CAB board began the process of issuing its second round of bonds, which, based on the estimates provided by the underwriters of the bond, the Company believes will be issued by August 31, 2022.

NOTE 3 – REVENUES, FEES AND OTHER INCOME ITEMS

Water, wastewater and land development revenue

The Company’s revenue is primarily generated from the sale of lots to homebuilders, sales of water and wastewater taps, and metered water and wastewater usage. Detailed descriptions of the policies related to revenue recognition are included in Note 2 to the 2021 Annual Report.

The following describes significant components of revenue for the three and nine months ended May 31, 2022 and 2021.

Sale of finished lots – For the three months ended May 31, 2022 and 2021, the Company recognized $1.0 million and $0.5 million of lot sale revenue, which was recognized using the percent-of-completion method for development costs incurred on contracts that are satisfied over time and are ongoing at Sky Ranch. For the nine months ended May 31, 2022 and 2021, the Company recognized $5.6 million and $1.7 million of lot sale revenue, which was recognized using the percent-of-completion method for development costs incurred on contracts that are satisfied over time and are ongoing at Sky Ranch. As of May 31, 2022, the first development phase is complete and the second development phase is being developed in four subphases, referred to as Phase 2A, Phase 2B, Phase 2C and Phase 2D. As of the date of this filing, only Phase 2A is being actively developed, and it is approximately 67% complete.

The Company also recognizes revenue from the sale of finished lots, whereby the home builder pays for a ready-to-build finished lot and the sales price is paid in a lump-sum upon completion of the finished lot that is permit ready. The Company recognizes revenues at the point in time of the closing of the sale of a finished lot in which control transfers to the builder as the transaction cycle is complete and the Company has no further obligations for the lot. For the three months ended May 31, 2022 and 2021, the Company recognized no revenue from ready-to-build finished lots. For the nine months ended May 31, 2022 and 2021, the Company recognized $0 and $1.6 million from ready-to-build finished lots.  

11

Water and wastewater tap fees – During the three months ended May 31, 2022 and 2021, the Company sold a total of 45 and 59 water and wastewater taps generating $1.3 million and $1.9 million in tap fee revenues. During the nine months ended May 31, 2022 and 2021, the Company sold a total of 81 and 146 water and wastewater taps generating $2.4 million and $4.5 million in tap fee revenues. These taps were all sold at Sky Ranch and Wild Pointe.

Project management services – During each of the three-month periods ended May 31, 2022 and 2021, the Company recognized less than $0.1 million of project management revenue for managing the Sky Ranch development process. During the nine months ended May 31, 2022 and 2021, the Company recognized $0.5 million and $1.6 million of project management revenue for managing the Sky Ranch development process. During the second quarter of fiscal 2021, the Company determined the Sky Ranch CAB would be able to pay the Company for project management services and began recognizing this revenue. Prior to that date, payment was not deemed to be probable; therefore, the Company had deferred recognition of the project management fees income until collectability of those fees was deemed probable of collection.

Single-family rental income

In November 2021, the Company began renting single-family homes and began recognizing lease income related to these rental units. The Company generally rents its single-family properties under non-cancelable lease agreements with a term of one year Rental and other property revenues represented less than 1.0% of our total revenue for the three and nine months ended May 31, 2022. The Company has begun construction on a fourth house and reserved an additional 46 lots in the second development phase of Sky Ranch for rental units; therefore, the Company believes this could become a reportable operating segment in the future once its operations become material.

Undeveloped land sale and cash-in-lieu to school district

During the nine months ended May 31, 2022, the Company entered various agreements to sell approximately 32 acres of undeveloped land in Sky Ranch for $1.6 million to a charter school operator for the purpose of constructing and operating a charter school. Pursuant to Arapahoe County land development regulations (the county where Sky Ranch is located), all land developments must dedicate land or make a cash-in-lieu payment to the school district in which the development is located. The amount to be paid is calculated pursuant to the County’s standards. Simultaneously with the sale of land to the charter school operator, the Company paid the Bennett School District $1.6 million as a cash-in-lieu payment, which is the calculated amount of the Sky Ranch cash-in-lieu requirement to the school district. The land sale agreements include requirements for the Company to construct, or have constructed, certain improvements leading to the school site such as roads, sidewalks, and landscaping, all of which were already planned to be constructed as part of the overall master development of Sky Ranch. The Company determined the transaction was consummated in February 2022, when all pre-closing conditions were satisfied, and proceeds were received by all parties. The cash-in-lieu payment and land sale were accounted for in other income, net.

12

Deferred revenue

Changes and balances of the Company’s deferred revenue accounts by segment are as follows:

Water and Wastewater Resource Development

Land Development

Total

(In thousands)

Three Months Ended May 31, 2022

Balance at February 28, 2022

$

439

$

1,203

$

1,642

Revenue recognized

(49)

(314)

(363)

Revenue deferred

2

-