UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
(Address of principal executive offices) | (Zip Code) |
( |
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
(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.
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).
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 ☐ |
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
PURE CYCLE CORPORATION
INDEX TO NOVEMBER 30, 2022 FORM 10-Q
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts contained in this Quarterly Report on Form 10-Q 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 (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (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 revenue from our commercial water sales; |
● | 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; |
● | demand for single-family rental homes; |
● | 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, including anticipated increases in customers and revenue, 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” (as defined herein) 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 phases concurrently with the second phase 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; |
1
● | 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; |
● | 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 have exceeded market expectations with the delivery of our lots at Sky Ranch; |
● | the impact of future cyberattacks on our business, financial condition, operating results and reputation; |
● | 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; |
● | our belief that several long-term land development and housing factors remain positive; |
● | the future impacts of COVID-19 on our business; |
● | our belief that Sky Ranch is better positioned to navigate the changing market then competitors; |
● | the impact of the downturn in the homebuilding market and increased interest rates on our business and financial condition; |
● | the impact of supply chain disruptions and volatile raw material prices; |
● | 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; |
● | the anticipated development of the Sky Ranch Academy; |
● | service life of constructed facilities; |
● | accounting estimates and the impact of new accounting pronouncements; and |
● | the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting. |
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:
● | further deterioration in the homebuilding industry or downward changes in general economic or other business conditions; |
● | political and economic instability, whether resulting from natural disasters, wars, terrorism, pandemics or other sources; |
● | 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; |
● | 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 and rising interest rates; |
● | 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 impact 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; |
2
● | 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; |
● | 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 I Item IA of our 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) | November 30, 2022 |
| August 31, 2022 | ||||
ASSETS: | (unaudited) | ||||||
Current assets: |
|
|
|
| |||
Cash and cash equivalents | $ | | $ | | |||
Investments in U.S. Treasury Bills | | — | |||||
Trade accounts receivable, net |
| |
| | |||
Prepaid expenses and other assets |
| |
| | |||
Total current assets |
| |
| | |||
Restricted cash | | | |||||
Investments in water and water systems, net |
| |
| | |||
Construction in progress | | | |||||
Single-family rental units | | | |||||
Land and mineral rights: |
| ||||||
Held for development | |
| | ||||
Held for investment purposes | |
| | ||||
Other assets |
| |
| | |||
Notes receivable – related parties, including accrued interest |
|
| |||||
Reimbursable public improvements | | | |||||
Other | | | |||||
Operating leases - right of use assets |
| |
| | |||
Total assets | $ | | $ | | |||
LIABILITIES: | |||||||
Current liabilities: | |||||||
Accounts payable | $ | | $ | | |||
Accrued liabilities | | | |||||
Accrued liabilities – related parties |
| |
| | |||
Income taxes payable | | | |||||
Deferred lot sale revenues |
| |
| | |||
Deferred water sales revenues |
| |
| | |||
Debt, current portion | | | |||||
Total current liabilities |
| |
| | |||
Participating interests in export water supply |
| — |
| | |||
Debt, less current portion | |
| | ||||
Deferred tax liability, net |
| |
| | |||
Lease obligations - operating leases, less current portion |
| |
| | |||
Total liabilities |
| |
| | |||
Commitments and contingencies | |||||||
SHAREHOLDERS’ EQUITY: | |||||||
Series B preferred shares: par value $ |
|
| |||||
Common shares: par value 1/3 of $.01 per share, |
| |
| | |||
Additional paid-in capital |
| |
| | |||
Accumulated deficit |
| ( |
| ( | |||
Total shareholders’ equity |
| |
| | |||
Total liabilities and shareholders’ equity | $ | | $ | | |||
See accompanying Notes to the Consolidated Financial Statements
4
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended | ||||||
(In thousands, except share information) |
| November 30, 2022 |
| November 30, 2021 | ||
Revenues: |
|
|
|
| ||
Metered water usage from: | ||||||
Municipal customers | $ | | $ | | ||
Commercial customers |
| |
| | ||
Wastewater treatment fees |
| |
| | ||
Water and wastewater tap fees |
| |
| | ||
Lot sales |
| |
| | ||
Project management fees | | | ||||
Single-family rentals | | | ||||
Special facility projects and other |
| |
| | ||
Total revenues |
| |
| | ||
Expenses: | ||||||
Water service operations |
| |
| | ||
Wastewater service operations |
| |
| | ||
Land development construction costs |
| |
| | ||
Project management costs |
| |
| — | ||
Single-family rental costs |
| |
| | ||
Depletion and depreciation |
| |
| | ||
Other |
| |
| | ||
Total cost of revenues |
| |
| | ||
General and administrative expenses |
| |
| | ||
Depreciation |
| |
| | ||
Operating (loss) income |
| ( |
| | ||
Other income (expense): | ||||||
Interest income - related party | | | ||||
Interest income - Investments | | | ||||
Oil and gas royalty income, net | | | ||||
Oil and gas lease income, net | | | ||||
Other, net | | | ||||
Interest expense, net | ( | ( | ||||
Income from operations before income taxes |
| |
| | ||
Income tax expense |
| |
| | ||
Net income | $ | | $ | | ||
Earnings per common share - basic and diluted | ||||||
Basic | $ | | $ | | ||
Diluted | $ | | $ | | ||
Weighted average common shares outstanding: | ||||||
Basic |
| | | |||
Diluted |
| | | |||
See accompanying Notes to the Consolidated Financial Statements
5
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)
Three Months Ended November 30, 2022 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
(in thousands, except shares) |
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit | Total | ||||||
Balance at August 31, 2022 |
| |
| $ | — |
| |
| $ | |
| $ | |
| $ | ( |
| $ | |
Restricted stock grants | — | — | | — | | — | | ||||||||||||
Share-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||
Net income |
| — |
| — |
| — |
| — |
| — |
| |
| | |||||
Balance at November 30, 2022 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | |||||
Three Months Ended November 30, 2021 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
(in thousands, except shares) |
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit | Total | ||||||
Balance at August 31, 2021 |
| |
| $ | — |
| |
| $ | |
| $ | |
| $ | ( |
| $ | |
Stock option exercises | — | — | | — | — | — | — | ||||||||||||
Share-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| | |||||
Net income | — | — | — | — | — | | | ||||||||||||
Balance at November 30, 2021 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | | |||||
See accompanying Notes to the Consolidated Financial Statements
6
PURE CYCLE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended | ||||||
(In thousands) |
| November 30, 2022 |
| November 30, 2021 | ||
Cash flows from operating activities: |
|
|
|
| ||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash used by operating activities: | ||||||
Trade accounts receivable |
| |
| | ||
Depreciation and depletion | | | ||||
Prepaid expenses |
| |
| | ||
Taxes payable | ( | ( | ||||
Share-based compensation expense |
| |
| | ||
Deferred income taxes |
| |
| | ||
Deferred water sales revenue |
| ( | ( | |||
Amortized discount on U.S. Treasury Bills | ( | — | ||||
Net activity for notes receivable - related party, other | ( | | ||||
Other assets and liabilities |
| ( | ( | |||
Deferred lot sale revenues |
| ( |
| | ||
Accounts payable and accrued liabilities |
| ( |
| ( | ||
Net activity for note receivable - related party, reimbursable public improvements | ( |
| ( | |||
Land under development |
| — |
| ( | ||
Net cash used by operating activities |
| ( |
| ( | ||
Cash flows from investing activities: | ||||||
Purchase of U.S. Treasury Bills | ( | — | ||||
Construction costs of single-family rentals | ( | ( | ||||
Investments in water and water systems |
| ( |
| ( | ||
Investments in future development phases at Sky Ranch | ( | ( | ||||
Purchase of property and equipment |
| ( |
| ( | ||
Net cash used by investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Payments to contingent liability holders |
| ( |
| — | ||
Payments on notes payable | ( | — | ||||
Proceeds from notes payable |
| — |
| | ||
Net cash (used) provided by financing activities |
| ( |
| | ||
Net change in cash, cash equivalents and restricted cash |
| ( |
| ( | ||
Cash, cash equivalents and restricted cash – beginning of period |
| |
| | ||
Cash, cash equivalents and restricted cash – end of period | $ | | $ | | ||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Total cash, cash equivalents and restricted cash | $ | | $ | | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||
Cash paid for income taxes | $ | — | $ | | ||
Cash paid for interest | $ | | $ | — | ||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||
Change in reimbursable public improvements included in accounts payable and accrued liabilities | $ | | $ | | ||
Issuance of stock for compensation | $ | | $ | — |
See accompanying Notes to the Consolidated Financial Statements
7
PURE CYCLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOVEMBER 30, 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 months ended November 30, 2022 and 2021. The August 31, 2022 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, 2022 (2022 Annual Report) filed with the Securities and Exchange Commission (SEC) on November 14, 2022. The results of operations for interim periods presented are not necessarily indicative of the operating results expected for the full fiscal year.
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, dollar amount of reimbursable costs and collectability of reimbursable costs, costs of revenue for lot sales, share-based compensation, 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.
Reclassifications
The Company has reclassified certain prior year information to conform to the current year presentation.
NOTE 2 – INVESTMENTS
Management determines the appropriate classification of its investments in U.S. Treasury debt securities at the time of purchase and re-evaluates such determinations each reporting period.
U.S. Treasury debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. On November 30, 2022, the Company had $
NOTE 3 – REIMBURSABLE PUBLIC IMPROVEMENTS AND NOTE RECEIVABLE FROM THE SKY RANCH CAB
The Sky Ranch Community Authority Board (Sky Ranch CAB) and the Company’s agreements with the Sky Ranch CAB are described in greater detail in Notes 5 and 15 to the 2022 Annual Report.
The note receivable from the Sky Ranch CAB reports the balances owed by the Sky Ranch CAB to the Company for public improvements paid for by the Company which are reimbursable from the Sky Ranch CAB, project management fees, and interest accrued on the unpaid balances related to the ongoing development of the Sky Ranch master planned community. The Company has advanced funds to the Sky Ranch CAB for the cost of public improvements at Sky Ranch which are the ultimate responsibility of the Sky Ranch CAB. During the second quarter of fiscal 2021, the Company determined that repayment of those improvements was probable, along with the project management fees and interest on these costs. 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
8
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 months ended November 30, 2022, the Company spent $
The following table summarizes the activity and balances associated with the note receivable from the Sky Ranch CAB:
Three Months Ended | |||||||
November 30, 2022 |
| November 30, 2021 | |||||
Beginning balance | $ | | $ | | |||
Additions | | | |||||
Payments received | — | — | |||||
Ending balance | $ | | $ | $ | |||
The note receivable from the Sky Ranch CAB accrues interest at
NOTE 4 – REVENUES, FEES AND OTHER INCOME ITEMS
Metered water usage, wastewater treatment fees, water and wastewater tap fees, lot sales, and project management 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 2022 Annual Report.
The following describes significant components of revenue for the three months ended November 30, 2022 and 2021.
Water and wastewater tap fees – During the three months ended November 30, 2022 and 2021, the Company sold a total of
Sale of finished lots – For the three months ended November 30, 2022 and 2021, the Company recognized $
Project management services – During the three months ended November 30, 2022 and 2021, the Company recognized less than $
9
Single-family rental revenue
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
Special facility projects and other revenue
Pure Cycle receives fees from customers including municipalities and area water providers for contract operations services. These fees are recognized as earned, typically monthly, plus charges for additional work performed. Additionally, the Company performs certain construction activities at Sky Ranch. The activities performed include construction and maintenance services. The revenue for both types of services are invoiced and recognized as special facility projects revenue. For both of the three-month periods ended November 30, 2022 and 2021, the Company recognized less than $
Deferred revenue
Changes and balances of the Company’s deferred revenue accounts by segment are as follows:
Three Months Ended November 30, 2022 | |||||||||
(In thousands) | Water and Wastewater Resource Development | Land Development | Total | ||||||
Balance at August 31, 2022 | $ | | $ | | $ | | |||
Revenue recognized | ( | ( | ( | ||||||
Revenue deferred | - | | | ||||||
Balance at November 30, 2022 | $ | | $ | | $ | | |||
Three Months Ended November 30, 2021 | |||||||||
(In thousands) | Water and Wastewater Resource Development | Land Development | Total | ||||||
Balance at August 31, 2021 | $ | | $ | | $ | | |||
Revenue recognized | ( | ( | ( | ||||||
Revenue deferred | - | | | ||||||
Balance at November 30, 2021 | $ | | $ | | $ | |
The Company receives deposits or pre-payments from oil and gas operators to reserve water for use in future well drilling operations. When the operators use the water, the Company recognizes the revenue for these payments in the metered water usage from the commercial customers line on the statement of operations.
The Company recognizes lot sales over time as construction activities progress and not necessarily when payment is received. For example, the Company may receive milestone payments before revenue can be recognized (i.e., prior to the Company completing cumulative progress which faithfully represents the transfer of goods and services to the customer) which results in the Company recording deferred revenue. The Company recognizes this revenue into income as construction activities progress, measured based on costs incurred compared to total estimated costs of the project, which management believes is a faithful representation of the transfer of goods and services to the customer.
Revenue allocated to remaining performance obligations such as described above represents contracted revenue that has not yet been recognized, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods.
10
NOTE 5 – FAIR VALUE MEASUREMENTS
Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
The carrying value for certain of the Company’s financial instruments (i.e., cash and cash equivalents, investments in U.S. Treasury Bills, restricted cash, accounts receivable, notes receivable from related parties, accounts payable, accrued liabilities, the SFR Note and the Lost Creek Note) materially approximate their fair value because of their short-term nature and generally negligible credit losses.
As of November 30, 2022 and August 31, 2022, the Company had
There were no transfers between Level 1, 2 or 3 categories during the three months ended November 30, 2022 or 2021.
NOTE 6 – WATER, LAND AND OTHER FIXED ASSETS
The Company’s water rights and current water and wastewater service agreements, including capitalized terms not defined herein, are more fully described in Note 4 to the 2022 Annual Report.
Investment in Water and Water Systems
The Company’s Investments in water and water systems consist of the following costs and accumulated depreciation and depletion:
November 30, 2022 | August 31, 2022 | |||||||||||
Accumulated | Accumulated | |||||||||||
Depreciation | Depreciation | |||||||||||
(In thousands) |
| Costs |
| and Depletion |
| Costs |
| and Depletion | ||||
Rangeview water system | $ | | $ | ( | $ | | $ | ( | ||||
Rangeview water supply | | ( | | ( | ||||||||
Water supply – Other |
| |
| ( |
| |
| ( | ||||
Sky Ranch water rights and other costs |
| |
| ( |
| |
| ( | ||||
Sky Ranch pipeline |
| |
| ( |
| |
| ( | ||||
Lost Creek water supply |
| |
| |
| |
| | ||||
Fairgrounds water and water system |
| |
| ( |
| |
| ( | ||||
Wild Pointe service rights |
| |
| ( |
| |
| ( | ||||
Totals |
| |
| ( |
| |
| ( | ||||
Net investments in water and water systems | $ | | $ | |
During the three months ended November 30, 2022, the Company acquired
Construction in Progress
The construction in progress account represents costs incurred on various construction projects currently underway that as of the balance sheet date have not been completed and placed into service. The construction in progress account consists primarily of costs incurred related to the construction of
11
Single-Family Rental Homes
During the three months ended November 30, 2021, the Company completed construction of the first
During the year ended August 31, 2022, the Company contracted for construction of
The Company has reserved a total of
NOTE 7 – DEBT AND OTHER LONG-TERM OBLIGATIONS
As of November 30, 2022, the debt balances and scheduled maturities of the Company’s loans for each of the twelve months ending November 30 are as follows, with each loan described below the table:
(In thousands) | Scheduled principal payments | |
Within 1 year | $ | |
Year 2 | | |
Year 3 | | |
Year 4 | | |
Year 5 | | |
Thereafter | | |
| ||
Deferred financing costs | ( | |
Net | | |
Less current maturities | ( | |
Debt, less current portion | $ | |
Single-Family Rental Home Note Payable
On November 29, 2021, PCY Holdings, LLC, a wholly owned subsidiary of the Company, entered a Promissory Note (SFR Note) with its primary bank to reimburse amounts expended for the construction of the first
● | Floating per annum interest rate equal to the Western Edition of the “Wall Street Journal” Prime Rate plus |
● | Maturity date of December 1, 2026 |
● |
● |
● | Estimated final principal and interest balloon payment of $ |
● | Secured by |
● | Required minimum debt service coverage ratio of |
The Company is working with its primary bank to provide similar financing for the rental units currently under construction. As of November 30, 2022, these loans have not been finalized.
12
Lost Creek Note
On June 28, 2022, the Company entered a loan with its bank to fund the acquisition of
Working Capital Line of Credit
On January 31, 2022, the Company entered a Business Loan Agreement (Working Capital LOC) with its bank to provide a $
Letters of Credit
At November 30, 2022, the Company has
Participating Interest in Export Water
Refer to Note 6 in the 2022 Annual Report for additional details regarding the “CAA.” The CAA, which was used to acquire the Company’s Rangeview Water Supply, included contractual payments when the Company sells “Export Water.” To reduce the long-term impacts of the CAA, in the past the Company has acquired portions of the obligation from the third-party holders. During the three months ended November 30, 2022, the Company acquired the remaining $
NOTE 8 – EMPLOYEE STOCK PLANS
The Company reserved
13
The following table summarizes the combined stock option activity for the 2004 Incentive Plan and 2014 Equity Plan for the three months ended November 30, 2022:
| Number of Options |
| Weighted Average Exercise Price |
| Weighted Average Remaining Contractual Term |
| Approximate Aggregate Intrinsic Value | |||
Outstanding at August 31, 2022 | | $ | | | ||||||
Granted |
| — | $ | — |
|
|
|
| ||
Exercised |
| — | $ | — |
|
|
|
| ||
Forfeited / Expired | — | $ | — | |||||||
Outstanding at November 30, 2022 |
| | $ | |
| $ | | |||
|
|
|
|
|
|
|
|
| ||
Options exercisable at November 30, 2022 |
| | $ | |
| $ | | |||
During the three months ended November 30, 2021, the Company had net settlement exercises of stock options, whereby the optionee did not pay cash for the options but instead received the number of shares equal to the difference between the exercise price and the market price on the date of exercise. Net settlement exercises during the three months ended November 30, 2021 resulted in
The following table summarizes the combined activity and value of non-vested options under the 2004 Equity Plan and 2014 Incentive Plan as for the three months ended November 30, 2022:
| Number of Options |
| Weighted Average Grant Date Fair Value | ||
Non-vested options outstanding at August 31, 2022 | | $ | | ||
Granted |
| — | $ | — | |
Vested |
| ( | $ | | |
Forfeited |
| — | $ | — | |
Non-vested options outstanding at November 30, 2022 |
| | $ | |
All non-vested options are expected to vest.
During the three months ended November 30, 2022, the Company issued certain employees
For each of the three-month periods ended November 30, 2022 and 2021, the Company recorded less than $
At November 30, 2022, the Company had unrecognized compensation expenses totaling $
NOTE 9 – RELATED PARTY TRANSACTIONS
The Rangeview Metropolitan District
The Rangeview Metropolitan District (Rangeview District) and the Company’s agreements with the Rangeview District are described in greater detail in Note 15 to the 2022 Annual Report.
The Rangeview District and the Company have entered into
14
Agreement among the Rangeview District, the Company, and the State Board of Land Commissioners remains in effect. The November 30, 2022, balance in notes receivable - related parties, other totaled $
Additionally, the Company provides funding to the Rangeview District for the Rangeview District’s participation in the “Wise Partnership.” The WISE Partnership and capitalized terms related to WISE not defined herein are defined in the 2022 Annual Report. During the three months ended November 30, 2022 and 2021, the Company, through the Rangeview District, received metered water deliveries of
Sky Ranch Community Authority Board
The Sky Ranch CAB and the Company’s agreements with the Sky Ranch CAB are described in greater detail in Note 15 to the 2022 Annual Report.
The Sky Ranch Districts and the Sky Ranch CAB are quasi-municipal corporations and political subdivisions of Colorado formed for the purpose of providing service to Sky Ranch. The Sky Ranch CAB was formed to, among other things, design, construct, finance, operate and maintain certain public improvements for the benefit of the property within the boundaries and/or service area of the Sky Ranch Districts. For the public improvements to be constructed and/or acquired, it is necessary for each Sky Ranch District, directly or through the Sky Ranch CAB, to be able to fund the improvements and pay its ongoing operations and maintenance expenses related to the provision of services that benefit the property. To fund these improvements, the Company and the Sky Ranch CAB entered into various funding agreements obligating the Company to advance funding to the Sky Ranch CAB for specified public improvements constructed from 2018 to 2023. All amounts owed under the agreements bear interest at a rate of
As of November 30, 2022, the balance of the Company’s advances to the Sky Ranch CAB for improvements, including interest, net of reimbursements from the Sky Ranch CAB total $
In fiscal 2022, through a competitive bidding process, the Sky Ranch CAB awarded the Company a contract to construct fencing around Phase 2A of the Sky Ranch Master Planned Community. The contracted bid price is $
Nelson Pipeline Constructors LLC
Through a competitive bidding process, the Sky Ranch CAB awarded Nelson Pipeline Constructors, LLC (Nelson), a contract to construct the wet utility pipelines in Phase 2A of Sky Ranch. During the three months ended November 30, 2022 and 2021, the Sky Ranch CAB paid Nelson $
15
NOTE 10 – SIGNIFICANT CUSTOMERS
The Company has significant customers in its operations. The table below presents the percentage of total revenue for the reported customers for the three months ended November 30, 2022 and 2021. For water and wastewater customers, the Company primarily provides services on behalf of the Rangeview District for which the significant end users include all Sky Ranch homes in the aggregate combined with the Sky Ranch CAB and
Three Months Ended | ||||||
% of Total Revenue Generated From: | November 30, 2022 | November 30, 2021 | ||||
Sky Ranch homes and Sky Ranch CAB in the aggregate | | % | | % | ||
| % | | % | |||
KB Home | | % | | % | ||
Lennar | | % | | % | ||
Challenger | | % | | % | ||
Taylor Morrison | — | % | | % |
NOTE 11 – ACCRUED LIABILITIES
(In thousands) |
| November 30, 2022 |
| August 31, 2022 | ||
Accrued compensation | $ | | $ | | ||
Other operating payables |
| |
| | ||
WISE water | | | ||||
| | |||||
Property taxes | | | ||||
Professional fees | | | ||||
Rental deposits | | | ||||
Total accrued liabilities | $ | | $ | | ||
Land development costs due to the Sky Ranch CAB | $ | | $ | | ||
Due to Rangeview Metropolitan District | | | ||||
Total accrued liabilities - related parties | $ | | $ | |
NOTE 12 – SEGMENT INFORMATION
The Company reports
The water and wastewater resource development segment includes providing water and wastewater services to customers, which water is provided by the Company using water rights owned or controlled by the Company, and developing infrastructure to divert, treat and distribute that water and collect, treat and reuse reclaimed wastewater. The land development segment includes all the activities necessary to develop and sell finished lots, which as of and for the three months ended November 30, 2022 and 2021, was done exclusively at the Company’s Sky Ranch Master Planned Community. The single-family rental business includes the monthly rental fees received from the renters under the non-cancellable annual leases.
16
The table below present the measure of profit and assets used to assess the performance of the segment for the periods presented:
Three Months Ended November 30, 2022 | ||||||||||||
(In thousands) |
| Water and wastewater resource development |
| Land development | Single-family rental |
| Total | |||||
Total revenue |
| $ | |
| $ | | $ | |
| $ | | |
Cost of revenue |
| |
| |
| |
| | ||||
Depreciation and depletion |
| |
| — |
| — |
| | ||||
Total cost of revenue |
| |
| |
| |
| | ||||
Segment (loss) profit | $ | ( | $ | | $ | | $ | | ||||