PURE CYCLE CORPORATION_November 30, 2024

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 November 30, 2024

☐	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

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. 1, Suite D, 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: 24,076,909 shares of 1/3 of $.01 par value common stock as of January 7, 2025.

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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,” “potential” 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 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 homes;

●	anticipated revenue and cash flows from our single-family rental homes;

●	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;

●	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 Ranch, or in the surrounding areas;

●	estimated costs of earthwork, erosion control, streets, drainage and landscaping at Sky Ranch;

●	the anticipated revenue 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 wells into aquifers located beneath the Lowry Ranch and the timing and estimated costs of such a build out;

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●	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;

●	anticipated mortgage interest rates;

●	our belief that Sky Ranch is better positioned to navigate the changing market then competitors;

●	the impact of the homebuilding market and interest rates 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;

●	the anticipated development of the Sky Ranch Academy and the timing of enrollment of upper grades;

●	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:

●	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, inflation and 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;

●	changes in tenant relief laws, including laws regulating evictions, rent control laws, and other regulations that limit our ability to increase rental rates;

●	changes in private and federal mortgage financing programs and lending practices;

●	uncertainties in the estimation of water available under decrees;

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

PURE CYCLE CORPORATION

CONSOLIDATED BALANCE SHEETS


(In thousands, except shares)	November 30, 2024		August 31, 2024
ASSETS:		(unaudited)
Current assets:
Cash and cash equivalents	$	19,031	$	22,113
Trade accounts receivable, net		4,993		1,472
Prepaid expenses and other assets		460		530
Land under development		3,718		3,647
Reimbursable public improvements and project management fees		—		10,100
Total current assets		28,202		37,862
Restricted cash		5,336		3,245
Investments in water and water systems, net		63,773		60,486
Construction in progress		2,584		3,161
Single-family rental units		5,003		5,059
Land and mineral rights:
Held for development		5,993		3,683
Held for investment purposes		451		451
Other assets		1,365		1,164
Notes receivable – related parties, including accrued interest
Reimbursable public improvements and project management fees		35,580		30,864
Other		1,247		1,221
Operating leases - right of use assets		154		158
Total assets	$	149,688	$	147,354

LIABILITIES:
Current liabilities:
Accounts payable	$	2,230	$	1,948
Accrued liabilities		1,181		1,514
Accrued liabilities – related parties		1,091		2,208
Income taxes payable		2,712		1,442
Deferred lot sales revenue		537		2,173
Debt, current portion		161		64
Total current liabilities		7,912		9,349
Debt, less current portion		6,719		6,821
Deferred tax liability, net		1,395		1,395
Lease obligations - operating leases, less current portion		75		87
Total liabilities		16,101		17,652
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; 24,076,909 and 24,063,894 outstanding, respectively		80		80
Additional paid-in capital		175,181		175,125
Accumulated deficit		(41,674)		(45,503)
Total shareholders’ equity		133,587		129,702
Total liabilities and shareholders’ equity	$	149,688	$	147,354

See accompanying Notes to the Consolidated Financial Statements

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PURE CYCLE CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(unaudited)


	Three Months Ended
(In thousands, except share information)	November 30, 2024		November 30, 2023
Revenues:
Metered water usage from:
Municipal customers	$	230	$	202
Commercial customers		1,014		2,132
Wastewater treatment fees		89		86
Water and wastewater tap fees		1,466		581
Lot sales		2,319		1,896
Project management fees		253		100
Single-family rentals		124		109
Special facility projects and other		257		280
Total revenues		5,752		5,386

Cost of revenues:
Water service operations		483		553
Wastewater service operations		179		159
Land development construction costs		575		688
Project management costs		85		79
Single-family rental costs		68		57
Depletion and depreciation		371		362
Other		325		146
Total cost of revenues		2,086		2,044

General and administrative expenses		1,792		1,438
Depreciation		155		148
Operating income		1,719		1,756

Other income (expense):
Interest income - related party		484		724
Interest income - Investments		248		308
Oil and gas royalty income, net		2,807		34
Oil and gas lease income, net		—		18
Other, net		59		70
Interest expense, net		(109)		(108)
Income from operations before income taxes		5,208		2,802
Income tax expense		(1,271)		(737)
Net income	$	3,937	$	2,065

Earnings per common share - basic and diluted
Basic	$	0.16	$	0.09
Diluted	$	0.16	$	0.09
Weighted average common shares outstanding:
Basic		24,071,907		24,078,544
Diluted		24,157,347		24,153,662

See accompanying Notes to the Consolidated Financial Statements

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PURE CYCLE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(unaudited)


	Three Months Ended November 30, 2024
	Preferred Shares			Common Shares			Additional		Accumulated
(in thousands, except shares)	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
Balance at August 31, 2024	432,513	$	—	24,063,894	$	80	$	175,125	$	(45,503)	$	129,702
Restricted shares grants	—		—	9,200		—		21		—		21
Stock options exercised	—		—	13,815		—		—		—		—
Share-based compensation	—		—	—		—		35		—		35
Repurchases of common shares	—		—	(10,000)		—		—		(108)		(108)
Net income	—		—	—		—		—		3,937		3,937
Balance at November 30, 2024	432,513	$	—	24,076,909	$	80	$	175,181	$	(41,674)	$	133,587


	Three Months Ended November 30, 2023
	Preferred Shares			Common Shares			Additional		Accumulated
(in thousands, except shares)	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
Balance at August 31, 2023	432,513	$	—	24,078,720	$	80	$	174,689	$	(56,535)	$	118,234
Restricted shares grants	—		—	8,000		—		23		—		23
Share-based compensation	—		—	—		—		58		—		58
Repurchases of common shares	—		—	(20,000)		—		—		(198)		(198)
Net income	—		—	—		—		—		2,065		2,065
Balance at November 30, 2023	432,513	$	—	24,066,720	$	80	$	174,770	$	(54,668)	$	120,182

See accompanying Notes to the Consolidated Financial Statements

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PURE CYCLE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended
(In thousands)	November 30, 2024		November 30, 2023
Cash flows from operating activities:
Net income	$	3,937	$	2,065
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and depletion		526		486
Trade accounts receivable		(3,521)		(3,686)
Accounts payable and accrued liabilities		(1,177)		12
Other assets and liabilities		(18)		26
Share-based compensation expense		56		81
Prepaid expenses		70		97
Net activity on notes receivable - related party, other		(26)		(30)
Deferred water sales revenue		—		(19)
Land under development		(3,296)		(1,562)
Deferred lot sale revenue		(1,636)		2,130
Taxes payable / receivable		1,270		751
Net activity on note receivable - related party, reimbursable public improvements		9,489		(1,579)
Net cash provided by (used in) operating activities		5,674		(1,228)
Cash flows from investing activities:
Purchase of property and equipment		(281)		—
Investments in future development phases at Sky Ranch		(425)		(1,225)
Construction costs of single-family rentals		(19)		(176)
Investments in water, water systems and land		(5,827)		(821)
Purchase of held-to-maturity investments in U.S. Treasury Bills		-		(167)
Net cash used in investing activities		(6,552)		(2,389)
Cash flows from financing activities:
Payments on notes payable		(5)		(8)
Repurchases of common shares		(108)		(198)
Net cash used in financing activities		(113)		(206)
Net change in cash, cash equivalents and restricted cash		(991)		(3,823)
Cash, cash equivalents and restricted cash – beginning of period		25,358		28,487
Cash, cash equivalents and restricted cash – end of period	$	24,367	$	24,664
Cash and cash equivalents	$	19,031	$	21,784
Restricted cash		5,336		2,880
Total cash, cash equivalents and restricted cash	$	24,367	$	24,664

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes	$	—	$	—
Cash paid for interest	$	104	$	105
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Change in reimbursable public improvements included in accounts payable and accrued liabilities	$	428	$	275
Change in investments in water and water systems included in accounts payable and accrued liabilities	$	237	$	71
Issuance of shares for compensation	$	21	$	16

See accompanying Notes to the Consolidated Financial Statements

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PURE CYCLE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

November 30, 2024

NOTE 1 – PRESENTATION OF INTERIM INFORMATION

The accompanying unaudited consolidated financial statements have been prepared by Pure Cycle Corporation (the “Company” or “Pure Cycle”) and include all adjustments that are of a normal recurring nature and 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, 2024 and 2023. The August 31, 2024 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, 2024 (“2024 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on November 13, 2024. 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.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which requires expanded disclosure of significant segment expenses and other segment items on an annual and interim basis. ASU 2023-07 is effective for the Company for annual periods beginning September 1, 2024, and interim periods beginning September 1, 2025. The Company is currently evaluating the impact ASU 2023-07 will have on its consolidated financial statement disclosures.

In December 2023, FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which requires expanded disclosure of our income rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company for annual periods beginning September 1, 2025. The Company is currently evaluating the impact ASU 2023-09 will have on its consolidated financial statement disclosures.

Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.

NOTE 2 – REIMBURSABLE PUBLIC IMPROVEMENTS AND NOTE RECEIVABLE FROM THE SKY RANCH COMMUNITY AUTHORITY BOARD

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 2024 Annual Report.

The notes receivable – related party, reimbursable public improvements and project management fees are due to the Company from the Sky Ranch CAB and reports the balances owed by the Sky Ranch CAB to the Company for public improvements paid for by Pure Cycle which are reimbursable from the Sky Ranch CAB and include project management fees related to the Company’s management of the

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construction of the public improvements, and interest accrued on the unpaid balances related to the ongoing development of the Sky Ranch master planned community (Sky Ranch). Pure Cycle has advanced funds to the Sky Ranch CAB for the cost of constructing certain public improvements at Sky Ranch which are the ultimate responsibility of the Sky Ranch CAB. During the three months ended November 30, 2024, Pure Cycle spent $4.2 million on public improvements which are payable by the Sky Ranch CAB to Pure Cycle. Since Pure Cycle believes the amounts are probable of collection, they have been added to the note receivable from the Sky Ranch CAB. Additionally, for the three months ended November 30, 2024, project management fees of $0.2 million and interest income on the outstanding note receivable of $0.5 million were also added to the note receivable. During the three months ended November 30, 2024, the Sky Ranch CAB paid Pure Cycle $10.3 million pursuant to the note. Pursuant to the agreements with the Sky Ranch CAB, any payments received are initially applied to interest.

During the three months ended November 30, 2023, Pure Cycle spent $2.5 million on public improvements which are payable by the Sky Ranch CAB to Pure Cycle. Since Pure Cycle believes the amounts are probable of collection, they have been added to the note receivable from the Sky Ranch CAB. Additionally, for the three months ended November 30, 2023, project management fees of less than $0.1 million and interest income on the outstanding note receivable of $0.7 million were also added to the note receivable. No payments were made on the note receivable during the three months ended November 30, 2023. Pursuant to the agreements with the Sky Ranch CAB, any payments received are initially applied to interest.

The following table summarizes the activity and balances associated with the note receivable from the Sky Ranch CAB:


	Three Months Ended
	November 30, 2024		November 30, 2023
Beginning balance	$	40,964	$	24,999
Additions		4,888		3,271
Payments received		(10,272)		—
Ending balance	$	35,580	$	28,270

The note receivable from the Sky Ranch CAB accrues interest at 6% per annum. Public improvements which do not qualify for 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 qualified for reimbursement, 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, at each reporting period. 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.

NOTE 3 – REVENUES, FEES AND OTHER INCOME ITEMS

The Company’s revenue is primarily generated from sales of water and wastewater taps, metered water and wastewater usage, the sale of lots to homebuilders, and rent collected from its single-family homes. Detailed descriptions of the policies related to revenue recognition are included in Note 2 to the 2024 Annual Report.

The following describes significant components of revenue for the three months ended November 30, 2024 and 2023.

Water and wastewater tap fees – During the three months ended November 30, 2024 and 2023, the Company sold a total of 38 and 15 water taps generating $1.2 million and $0.5 million in tap fee revenues. During the three months ended November 30, 2024 and 2023, the Company sold a total of 35 and 15 wastewater taps generating $0.3 million and $0.1 million in tap fee revenues. The water taps were all sold at Sky Ranch and Wild Pointe, and the wastewater taps were all sold at Sky Ranch.

Metered water usage and wastewater treatment fees – During the three months ended November 30, 2024 and 2023, the Company sold a total of 301 and 623 acre-feet of water generating $1.2 million and $2.4 million in metered water and wastewater treatment fees revenue. The Company provides water and wastewater services to customers, for which the customers are charged monthly usage fees. Water usage fees are assessed to customers based on actual metered usage each month plus a base monthly service fee assessed per single family equivalent (“SFE”) unit served. One SFE is a customer, whether residential, commercial or industrial, that imparts a demand on the Company’s water or wastewater systems similar to the demand of a family of four persons living in a single-family house on a standard-sized lot. Water usage pricing is based on a tiered pricing structure, and certain usage revenues are subject to royalties as

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Deferred revenue

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


	Three Months Ended November 30, 2024
(In thousands)	Water and Wastewater Resource Development		Land Development		Total
Balance at August 31, 2024	$	-	$	2,173	$	2,173
Revenue recognized		-		(1,659)		(1,659)
Revenue deferred		-		23		23
Balance at November 30, 2024	$	-	$	537	$	537


	Three Months Ended November 30, 2023
(In thousands)	Water and Wastewater Resource Development		Land Development		Total
Balance at August 31, 2023	$	69	$	1,661	$	1,730
Revenue recognized		(127)		(1,963)		(2,090)
Revenue deferred		108		4,093		4,201
Balance at November 30, 2023	$	50	$	3,791	$	3,841

The Company receives deposits or pre-payments from oil and gas operators to reserve water for use in future well drilling and fracking 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 income.

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 recognized as revenue in future periods.

NOTE 4 – 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, restricted cash, short term investments, accounts receivable, accounts payable, accrued liabilities, the SFR Notes and the Lost Creek Note, each as defined in Note 6 below) materially approximate their fair value because of their short-term nature and generally negligible credit losses.

As of November 30, 2024 and August 31, 2024, the Company had no assets or liabilities measured at fair value on a recurring basis. As of November 30, 2024 and August 31, 2024, the Company had one Level 3 asset (notes receivable – related party), for which the Company did not record any impairment charges.

There were no transfers between Level 1, 2 or 3 categories during the three months ended November 30, 2024 and 2023.

NOTE 5 – 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 2024 Annual Report.

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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, 2024				August 31, 2024
			Accumulated				Accumulated
			Depreciation				Depreciation
(In thousands)	Costs		and Depletion		Costs		and Depletion
Rangeview water system	$	23,433	$	(3,783)	$	23,381	$	(3,579)
Rangeview water supply		16,040		(20)		15,889		(20)
Water supply – Other		7,588		(2,370)		7,588		(2,307)
Sky Ranch water rights and other costs		7,764		(1,675)		7,764		(1,641)
Sky Ranch pipeline		5,740		(1,414)		5,740		(1,366)
Lost Creek water supply		10,812		—		7,357		—
Fairgrounds water and water system		2,900		(1,613)		2,900		(1,591)
Wild Pointe service rights		1,632		(1,261)		1,632		(1,261)
Totals		75,909		(12,136)		72,251		(11,765)
Net investments in water and water systems	$	63,773			$	60,486

During the three months ended November 30, 2024, the Company’s Lost Creek water supply increased $3.5 million, primarily from the acquisition of 378 acre-feet of ditch water in the Henrylyn Irrigation District and 300 acre-feet of groundwater rights in the Lost Creek Designated Basin.

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 relating to water facilities and Sky Ranch infrastructure being constructed, which Pure Cycle anticipates will be placed in service during the next 12 months. During the three months ended November 30, 2024, the Company incurred $0.4 million of costs related to construction in Sky Ranch and water and wastewater construction projects. The Company capitalized $1.0 million of costs as projects were completed and placed into service during the three months ended November 30, 2024.

Single-Family Rental Homes

As of November 30, 2024, Pure Cycle has 14 single-family detached homes rented under separate lease agreements. Pure Cycle will begin construction on 17 additional rental homes in Phase 2B, all of which the Company believes will be available for rent in fiscal 2025. As of November 30, 2024, the Company had reserved 84 lots in Phases 2B, 2C and 2D of Sky Ranch for future rental units. When combined with the 14 units already built and rented, these additions will bring the total single-family rentals to 98. The Company expects to take approximately three more years to build and rent all these units. Based on these projections, the Company believes this could become a reportable operating segment in the future once its operations become material.

NOTE 6 – DEBT AND OTHER LONG-TERM OBLIGATIONS

As of November 30, 2024, the outstanding principal and deferred financing costs of the Company’s loans are as follows:


(In thousands)	November 30, 2024
Single-Family Rental Home Note Payable	$	3,935
Lost Creek Note Payable		3,000
Total outstanding principal		6,935
Deferred financing costs		(55)
Less current maturities, net of current deferred financing costs		(161)
Debt, less current portion	$	6,719

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As of November 30, 2024, the scheduled maturities (i.e., principal payments) of the Company’s loans are as follows:


(In thousands)	Scheduled principal payments
Within 1 year	$	198
Year 2		424
Year 3		1,312
Year 4		3,146
Year 5		294
Thereafter		1,561
Total principal payments		6,935
Deferred financing costs		(55)
Total principal payments, net	$	6,880

SFR Note 1

On November 29, 2021, PCY Holdings, LLC, a wholly owned subsidiary of the Company, entered a Promissory Note (“SFR Note 1”) with its primary bank to reimburse amounts expended for the construction of the first three single-family rental units. The SFR Note 1 has the following terms:

●

Floating per annum interest rate equal to the Western Edition of the “Wall Street Journal” Prime Rate plus 0.5%, which has a floor of 3.75% and a ceiling of 4.25% (4.25% as of November 30, 2024). In the event of default, the interest rate on the SFR Note would be increased by adding an additional 2.0%

●

Maturity date of December 1, 2026

●

Six interest only payments from January 1, 2022, through June 1, 2022

●

Fifty-three principal and interest payments each month which began July 1, 2022, in the amount of $4,600 each

●

Estimated final principal and interest balloon payment of $0.9 million payable on December 1, 2026

●

Secured by three single-family rental homes

●

Required minimum debt service coverage ratio of 1.10, measured annually based on audited financial statements (which the Company satisfied as of August 31, 2024), calculated as net operating income less distributions divided by required principal and interest payments, with net operating income defined as net income plus interest, depreciation, and amortization.

SFR Note 2

On August 30, 2023, PCY Holdings, LLC, a wholly owned subsidiary of the Company, entered a Promissory Note (“SFR Note 2”) with its primary bank to reimburse amounts expended for the construction of the next 11 single-family rental homes. The SFR Note 2 has the following terms:

●

Initial principal amount of $3.0 million

●

An interest rate of 7.51%. In the event of default, the interest rate on the SFR Note 2 would be increased by adding an additional 5.0%

●

Maturity date of August 30, 2028

●

Fifty-nine principal and interest payments each month beginning September 30, 2023, in the amount of $21,200 each

●

Estimated final principal and interest balloon payment of $2.9 million payable on August 30, 2028

●

Secured by 11 single-family rental homes

●

Required minimum EBITDA of $3.0 million, measured annually at each fiscal year end (which the Company satisfied as of August 31, 2024).

Lost Creek Note

On June 28, 2022, the Company entered a loan with its primary bank to fund the acquisition of 370 acre-feet of water rights the Company acquired on June 27, 2022, in the Lost Creek Designated Groundwater Basin area of Colorado (the “Lost Creek Note”). The Lost Creek Note has an original principal balance of $3.0 million, a ten-year maturity, monthly interest only payments averaging $12,000 per month for thirty-six months which began on July 28, 2022, twenty-four monthly principal and interest payments of $42,000 beginning on July

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28, 2025, fifty-nine monthly principal and interest payments of $32,000 beginning on July 28, 2027, and a balloon payment of less than $0.8 million plus unpaid and accrued interest due on June 28, 2032. The Lost Creek Note has a thirty-year amortization period and a fixed per annum interest rate equal to 4.90%. The Lost Creek Note is secured by the Lost Creek Water rights acquired with the note and any fees derived from the use of the Lost Creek Water rights. The Lost Creek Note does not contain any financial covenants.

Working Capital Line of Credit

On January 31, 2024, the Company entered a Business Loan Agreement (“Working Capital LOC”) with its primary bank to provide a $5.0 million operating line of credit. The Working Capital LOC has a two-year maturity, monthly interest only payments if the line is drawn upon with unpaid principal and interest due at maturity, and a floating per annum interest rate equal to the Wall Street Journal Prime Rate (7.75% as of November 30, 2024), which has a floor of 5.00%. In the event of default, the interest rate on the Working Capital LOC would be increased by an additional 2.0%. As of November 30, 2024, the Company has not drawn on the Working Capital LOC.

Letters of Credit

At November 30, 2024, the Company had 11 Irrevocable Letters of Credit (“LOCs”) outstanding. The LOCs are to guarantee the Company’s performance related to certain construction projects at Sky Ranch and as collateral for payment obligations outlined in the construction contract for certain single-family rental homes in Phase 2B. The Company has the intent and ability to perform on the contracts, after which, the LOC’s will expire at various dates from March 2025 through December 2025. As of November 30, 2024, the LOCs totaled $5.6 million, which are secured by cash balances maintained in restricted cash accounts at the Company’s bank, renew annually at various dates and have a 1% annual fee.

NOTE 7 – EMPLOYEE STOCK PLANS

The Company reserved 2.0 million shares of common stock for issuance to employees and directors pursuant to the Company’s 2024 Equity Incentive Plan (the “2024 Equity Plan”). As of November 30, 2024, there were 1,989,192 shares available for grant under the 2024 Equity Plan. Prior to the effective date of the 2024 Equity Plan, the Company granted options and stock awards to eligible participants under its 2014 Equity Plan (the “2014 Equity Plan”), which expired on April 12, 2024.

The following table summarizes the combined stock option activity for the 2014 Equity Plan and 2024 Equity Plan for the periods noted:


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Approximate Aggregate Intrinsic Value (in thousands)
Outstanding at August 31, 2024	524,500	$	9.42	4.7	$	877
Granted	—		—
Net settlement exercised	(35,000)		7.89
Forfeited / Expired	—		—
Outstanding at November 30, 2024	489,500	$	9.52	4.5	$	2,455
Options exercisable at November 30, 2024	472,500	$	9.54	4.5	$	2,361


Outstanding at August 31, 2023	563,000	$	9.15	5.5	$	1,221
Granted	—		—
Net settlement exercised	—		—
Forfeited / Expired	—		—
Outstanding at November 30, 2023	563,000	$	9.15	5.2	$	1,221

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During the three months ended November 30, 2024, the Company had net settlement exercises of stock options, whereby the optionee did not pay cash for the options exercised but instead received the number of shares equal to the difference between the exercise price and the market price on the date of exercise. During the three months ended November 30, 2024, net settlement exercises resulted in 13,815 shares being issued and 21,185 options being cancelled in settlement of the shares issued. There were no options exercised during the three months ended November 30, 2023.

The following table summarizes the activity and value of non-vested options under the 2014 Equity Plan and 2024 Equity Plan for the periods presented:


	Number of Options	Weighted Average Grant Date Fair Value
Non-vested options outstanding at August 31, 2024	59,000	$	4.45
Granted	—		—
Vested	(42,000)		4.66
Forfeited / Expired	—		—
Non-vested options outstanding at November 30, 2024	17,000	$	3.93

Non-vested options outstanding at August 31, 2023	111,000	$	4.47
Granted	—		—
Vested	(52,000)		4.41
Forfeited	—		—
Non-vested options outstanding at November 30, 2023	59,000	$	4.45

All non-vested options are expected to vest.

On September 18, 2024, the Company issued certain employees 8,000 shares of restricted stock. These shares vested 20% at the September 18, 2024 grant date, and 20% will vest on each anniversary of the grant date for four years subject to continued employment. On September 18, 2024, the Company also issued an employee 1,200 shares of restricted stock. These shares vest 1/3 at the September 18, 2024 grant date, and 1/3 will vest on each anniversary of the grant date for two years subject to continued employment. The shares are eligible to vote and participate in any dividend or stock splits approved by the Company.

On May 22, 2024, the Company issued a non-employee Board member 1,608 shares of unrestricted stock. The fair market value of the unrestricted shares for share-based compensation expense is equal to the closing price of the Company's common stock on the date of grant of $9.33. There is no vesting requirement for the unrestricted stock grants.

On January 17, 2024, the Company’s six non-employee Board members were each granted 3,006 shares of unrestricted stock. The fair market value of the unrestricted shares for share-based compensation expense is equal to the closing price of the Company's common stock on the date of grant of $9.98. There is no vesting requirement for the unrestricted stock grants.

On September 19, 2023, the Company issued certain employees 8,000 shares of restricted stock. These shares vested 20% at the September 19, 2023 grant date, and 20% vest each anniversary of the grant date for four years. The shares are eligible to vote and participate in any dividend or stock splits approved by the Company.

On January 11, 2023, the Company’s six non-employee Board members were each granted 3,033 shares of unrestricted stock. The fair market value of the unrestricted shares for share-based compensation expense is equal to the closing price of the Company's common stock on the date of grant of $9.89. There is no vesting requirement for the unrestricted stock grants. Additionally, on January 11, 2023, the Company’s board awarded an executive officer 50,000 shares of restricted stock. Of which 10,000 shares fully vested in fiscal 2023 and the remaining 40,000 restricted stock unit awards were forfeited upon the executive officer’s departure. The shares are eligible to vote and participate in any dividend or stock splits approved by the Company.

On September 14, 2022, the Company issued certain employees 6,000 shares of restricted stock. These shares vested 20% at the September 14, 2022 grant date, and 20% vest each anniversary of the grant date for four years. The shares are eligible to vote and participate in any dividend or stock splits approved by the Company.

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For the three months ended November 30, 2024, the Company recognized less than $0.1 million of stock-based compensation expense. For the three months ended November 30, 2023, the Company recognized less than $0.1 million of stock-based compensation expense.

At November 30, 2024, the Company had unrecognized compensation expenses totaling $0.2 million relating to non-vested options and restricted stock that are expected to vest. The weighted-average period over which these options and shares of restricted stock are expected to vest is approximately two years.

NOTE 8 – 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 2024 Annual Report.

The Rangeview District and the Company have entered into two loan agreements. In 1995, the Company extended a loan to the Rangeview District for borrowings of up to $0.3 million, which is unsecured, and bears interest based on the prevailing prime rate plus 2% (9.75% at November 30, 2024). The maturity date of the loan is December 31, 2024, at which time it automatically renews through December 31, 2025. Beginning in January 2014, the Rangeview District and the Company entered into a funding agreement that allows the Company to continue to provide funding to the Rangeview District for day-to-day operations and accrue the funding into a note that bears interest at a rate of 8% per annum and remains in full force and effect for so long as the 2014 Amended and Restated Lease Agreement among the Rangeview District, the Company, and the State Board of Land Commissioners remains in effect. At November 30, 2024, balance in notes receivable - related parties, other totaled $1.2 million, which included borrowings of $1.2 million and accrued interest of less than $0.1 million. As of August 31, 2024, the principal and interest on both loan agreements totaled $1.2 million, which included $1.2 million of borrowings and less than $0.1 million of accrued interest. During the three months ended November 30, 2024 and 2023, the Company did not receive any interest or principal payments from the Rangeview District.

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 Note 8 to the 2024 Annual Report. During the three months ended November 30, 2024 and 2023, the Company, through the Rangeview District, received metered water deliveries of 30 acre-feet and 65 acre-feet of WISE water, paying $0.1 million and $0.1 million for this water. The cost of WISE water to the members is based on the water rates charged by Aurora Water and can be adjusted each January 1. As of January 1, 2024, WISE water was approximately $6.55 per thousand gallons and such rate will remain in effect through calendar 2024.

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 2024 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 funds to the Sky Ranch CAB for specified public improvements constructed starting in 2018. All amounts owed under the agreements bear interest at a rate of 6% per annum. Any advances not paid or reimbursed by the Sky Ranch CAB by December 31, 2058 for the first phase and December 31, 2060 for the second phase shall be deemed forever discharged and satisfied in full. The Company has received cumulative, project-to-date payments of $46.6 million from the Sky Ranch CAB for payments on the note receivable including both principal and interest payments.

As of November 30, 2024, 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 $35.6 million. The advances have been used by the Sky Ranch CAB to pay for construction of public improvements. The Company submits specific costs for reimbursement to the Sky Ranch CAB that have been certified by an independent third-party. The Company anticipates providing additional funding of approximately $16.3 million for


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PART I. FINANCIAL INFORMATION		4

	Item 1. Consolidated Financial Statements	4

	Consolidated Balance Sheets: November 30, 2024 (unaudited) and August 31, 2024	4

	Consolidated Statements of Income (unaudited): For the three months ended November 30, 2024 and 2023	5

	Consolidated Statements of Shareholders’ Equity (unaudited): For the three months ended November 30, 2024 and 2023	6

	Consolidated Statements of Cash Flows (unaudited): For the three months ended November 30, 2024 and 2023	7
	Notes to Consolidated Financial Statements	8

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4. Controls and Procedures	27

PART II. OTHER INFORMATION		28

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28

	Item 6. Exhibits	28

SIGNATURES		29