What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-11-12 compared with 2024-11-13 · 132 added, 102 removed, 135 unchanged (63% of the section changed)

4 unchanged sentences

Executive Summary

We saw an increase in the demand for new homes which increased our land development segment revenue during fiscal 2024.

We also saw an increase in our water/wastewater sales, primarily from an increase in selling water to oil and gas operators.

Our single-family rental business experienced an increase in revenue as well, due to increasing the number of rental homes in fiscal 2024.

Due to the demand of affordable housing in our market, we accelerated our land development activity in fiscal 2024 in our Sky Ranch Master Planned Community.

Phase 1 is complete, Phase 2A is approximately 99% complete, Phase 2B is approximately 92% complete and Phase 2C is approximately 27% complete.

We continue to work on projects to expand our water assets by completing two new wells on the Lowry Ranch during fiscal 2024.

We saw a decrease in our land development segment revenue during fiscal 2025 due to the timing of lot deliveries with our national homebuilders.

We also saw a decrease in our water sales, primarily from a decrease in selling water to oil and gas operators.

Our water and wastewater tap fees revenue increased in fiscal 2025 due to the timing of our national homebuilder’s production schedules in Phase 2B and 2C.

Our single-family rental business experienced a modest increase in revenue due to increasing monthly rent for the majority of our rental homes in fiscal 2025.

Although the housing market is slowing, we continue to see demand for affordable housing in our local market and have focused our land development activity in fiscal 2025 on ensuring that we are delivering the type of products that our national homebuilder partners desire in our Sky Ranch Master Planned Community.

Phases 1 and 2A are complete, Phase 2B is approximately 97% complete, Phase 2C is approximately 82% complete and Phase 2D is approximately 43% complete.

We continue to work on projects to expand our water assets to be competitive to sell water to oil and gas operators and have the infrastructure in place for future land development opportunities.

In fiscal 2025 we began construction of four new alluvial wells on the Lowry Ranch.

Our notable financial highlights from fiscal 2025 include the following:

● Total revenue was $28.7 million, up from $14.6 million in 2023 (a 96% increase), primarily driven by an increase in lot sales at Sky Ranch and an increase in water sales to oil and gas operators for use in their drilling operations;

● Total revenue was $26.1 million, down from $28.7 million in 2024 (a 9% decrease), primarily driven by a decrease in lot deliveries at Sky Ranch with a portion of lots in Phase 2D pushing into fiscal 2026, a decrease in water sales to oil and gas operators for use in their drilling operations and an increase in tap sales;

◾ Revenue from commercial water sales, which includes selling water to oil and gas operators, was $1.6 million in 2025 compared to $6.1 million in 2024;

◾ Recorded lot sales for 2024 were $16.0 million, compared to $6.8 million in 2023, which is due to the development work in Phases 2B and 2C;

◾ Revenue from water and wastewater tap sales was $7.3 million in 2025 compared to $3.4 million in 2024 (a 115% increase);

◾ Recorded lot sales for 2025 were $13.7 million compared to $16.0 million in 2024, which is due to the development work in Phases 2B, 2C and 2D;

● Pre-tax income was $17.4 million in 2025, which is up from $15.6 million in 2024 (a 12% increase);

● In 2024 we posted $0.48 of earnings per fully diluted common share, which is up from $0.19 in 2023 (a 153% increase);

● Earnings per share increased 13% to $0.54 per share compared to $0.48 per share in 2024;

● In 2025 we posted $0.54 of earnings per fully diluted common share, which is up from $0.48 in 2024 (a 13% increase), which was driven by our oil and gas royalty income;

● Total assets continue to increase to $162.2 million at August 31, 2025 from $147.4 million at August 31, 2024;

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Recent Developments

The housing market stabilized in fiscal 2024 as the Federal Reserve shifted from an aggressive monetary policy in 2023 to a balance policy in 2024 with interest rates remaining relatively consistent throughout 2024.

However, with the rising interest rates in 2022 and 2023, the 30-year fixed mortgage rates are still at their highest level in over 15 years.

Homebuilders' strategic use of interest rate buydowns as incentives has played a crucial role in driving sales during higher levels of interest rates.

These incentives, coupled with the anticipation of lower interest rates in 2025 due to inflation rates moving toward the Federal Reserve’s targeted rate, have fostered a more optimistic outlook among homebuilders.

We believe several long-term land development and housing market fundamental factors remain positive, including favorable demographics, a lot and housing supply-demand imbalance resulting from a decade-plus underproduction of new homes in relation to population growth, and low resale home inventory.

The housing market stabilized in 2024 as the Federal Reserve shifted from an aggressive monetary policy in 2023 to a more balanced approach that continued into the first half of 2025 with relatively consistent interest rates.

In the second half of 2025, interest rates began to decrease as the Federal Reserve signaled a shift in its monetary policy from primarily fighting inflation to supporting the labor market and economic activity, which it began implementing through interest rate cuts.

However, the housing market continues to face headwinds as consumer demand was influenced by ongoing affordability challenges and uncertainty resulting from federal trade policies and employment and economic uncertainties.

Additionally, the housing market has faced volatility due to other macroeconomic and geopolitical conditions, including weakened consumer confidence.

Although higher mortgage interest rates and volatile macroeconomic and geopolitical conditions may persist for some time, homebuilders' strategic use of interest rate buydowns as incentives has played a crucial role in driving sales during higher interest rates.

Despite higher interest rate and recent market uncertainty stemming from actual and anticipated U.S.

governmental policy changes, we maintain a positive long-term outlook on land development and the housing market based on fundamental factors remaining positive.

These include favorable demographics, the lot and housing supply-demand imbalance resulting from a decade-plus of underproduction of new homes in relation to population growth, and low resale home inventory.

While we remain confident in the long-term growth prospects for the industry given these factors, the current demand for new homes is subject to continued uncertainty due to many factors.

The combination of higher mortgage interest rates since early 2022, several years of rising housing prices, elevated inflation, and various other macroeconomic and geopolitical concerns has been moderating housing demand.

Although interest and inflation rates have been stabilizing, we expect this moderate demand to continue into 2025.

Given current conditions, we plan to continue to monitor market dynamics and surrounding community performance and adjust the timing of additional construction expenditures at Sky Ranch as necessary.

We believe our reasonably priced (entry level) lots and the low inventory of entry level housing in the Denver market will help Sky Ranch navigate the changing market better than other surrounding and significantly higher priced communities.

Our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economics, homebuilding industry, capital, credit and financial market conditions and on a fairly stable and constructive political and regulatory environment (particularly regarding housing and mortgage loan financing policies).

The Federal Reserve’s aggressive raising of the federal funds interest rate and other measures during 2022 and 2023 to moderate persistent U.S.

inflation, and the uncertainty in future Federal Reserve monetary policy, are expected to be an ongoing headwind for the housing market in 2025 and beyond, as they have elevated mortgage loan interest rates and created macroeconomic uncertainty and volatility across financial markets.

Prolonged supply chain disruptions and other production-related challenges could extend or delay our construction cycle times and intensify construction-related cost pressures beyond our experience in fiscal 2024.

In addition, consumer demand for our homes, and our ability to grow our scale, revenue and returns in fiscal 2025 could be materially and negatively affected by the above-described monetary policy impacts or other factors that curtail mortgage loan availability, employment or income growth or consumer confidence in the U.S.

Although interest rates may decline, we expect moderate to lower demand to continue throughout 2026.

Given current conditions, we continue to monitor market dynamics and surrounding community performance and adjust the timing of additional construction expenditures at Sky Ranch as warranted.

We believe our segment pricing (entry level) lots and the low inventory of entry level housing in the Denver market will help Sky Ranch navigate a changing market better than other surrounding and significantly higher priced communities.

Our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economics, the homebuilding industry, capital, credit and financial market conditions and a stable and constructive political and regulatory environment (particularly regarding housing and mortgage loan financing policies and trade policies impacting the cost of construction and building materials).

The continuing impact of the Federal Reserve’s policies for the federal funds interest rate and other measures to moderate persistent U.S.

inflation and the uncertainty regarding future Federal Reserve monetary policy are expected to be ongoing headwinds for the housing market in 2026 and beyond.

Prolonged supply chain disruptions, labor shortages, increased costs as a result of tariffs or other factors and other production-related challenges could extend or delay our construction cycle times and intensify construction-related cost pressures beyond our experience in 2025.

In addition, consumer demand for our homes and our ability to grow and scale revenue and returns in fiscal 2026 could be materially and negatively affected by the above-described monetary policy impacts or other factors that curtail mortgage loan availability, employment or income growth or consumer confidence in the U.S.

or in the Colorado markets.

The potential extent and effect of these factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in fiscal 2024, should not be considered indicative of our future results.

The potential extent and effect of these factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in fiscal 2024 and 2025, should not be considered indicative of future results.

Results of Operations

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August 31, 2024

Water and wastewater resource revenue

Water and Wastewater

Water and wastewater activities

Water and wastewater tap fees

Total water and wastewater

Land development revenue

Project management fees

Special facility projects and other

Single-family rental

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Fiscal 2025 vs.

Revenue – Total revenue increased in 2024 as compared to 2023, primarily due to an increase in lot sales at Sky Ranch.

With increased demand for affordable housing, we accelerated our development activities with three ongoing phases in our Sky Ranch Master Planned Community.

Additionally, commercial water sales, mainly to oil and gas operators for use in their drilling operations, increased to $6.1 million in 2024 from $3.1 million in 2023.

Water revenue also increased due to an increase in tap revenue to $3.4 million in 2024 from $3.0 million in 2023.

Revenue – Total revenue decreased in 2025 as compared to 2024, primarily due to a decline in land development activity.

When we transfer title to lots to homebuilders under contracts where we remain obligated to deliver finished lots, the sales of such lots are recognized using the percentage of completion method.

The decrease in water sales was driven by a decline in oil and gas drilling activities within our service area in 2025.

This was offset by an increase in water and wastewater tap fee revenue.

Tap fee revenue timing depends on the timing of builders filing for building permits, which has increased with the development of Phase 2B and 2C in 2025.

Project management revenue at Sky Ranch increased to $0.8 million in 2025 from $0.7 million in 2024.

As Sky Ranch continues to grow, we expect lot sales to generate significant revenue in the future, and increasing water and wastewater usage and taps purchased as we continue to add customers to our water resource development segment.

Cost of revenue – Total costs of revenue increased in 2024 as compared to 2023, primarily due to increased construction costs in the development of Sky Ranch as construction accelerated in 2024 with three active phases.

General and administrative expense – General and administrative expense increased in 2024 as compared to 2023, primarily due to the receipt of three quarters of qualified Employee Retention Credits from the Internal Revenue Service in 2023 and an overall increase in operations in fiscal 2024.

Other income, net – Other income, net decreased in 2024 as compared to 2023, primarily due to the receipt of several one-time payments from oil and gas operators primarily for surface use and damage payment agreements in fiscal 2023.

Additionally, in fiscal 2024 we recognized $0.4 million of interest expense, compared to $0.2 million in fiscal 2023, related to notes payable we entered into with our primary lender for the financing of the rental homes and the Lost Creek Water purchase, which are described in greater detail in Notes 4 and 8 to the accompanying consolidated financial statements.

Income tax expense – Income tax expense increased in 2024 as compared to 2023, due to higher pre-tax income primarily from the increase of lots sales in Sky Ranch and increase in commercial water sales, mainly to oil and gas operators, in fiscal 2024.

Cost of revenue – Total costs of revenue increased in 2025 as compared to 2024, primarily due to an increase in our water and wastewater system overhead as we continue to expand our system capacity, an increase in the estimated cost for Phase 2B and increased property tax due to our accelerated development schedule.

General and administrative expense – General and administrative expense increased in 2025 as compared to 2024, primarily due to increases in payroll and related expenses as our service area continues to grow with the activity at Sky Ranch.

Other income, net – Other income, net increased in 2025 as compared to 2024, primarily due to royalty revenues from our oil and gas mineral interest at Sky Ranch.

Additionally, in fiscal 2025 we recognized $3.3 million of interest income, compared to $2.8 million in

fiscal 2024, primarily due to the note receivable from the Sky Ranch CAB, which is described in greater detail in Notes 5 and 14 to the accompanying consolidated financial statements.

Income tax expense – Income tax expense increased in 2025 as compared to 2024, due to higher pre-tax income primarily from the increase in our oil and gas royalty income, in fiscal 2025.

Our effective tax rate remained relatively consistent year over year.

Water delivered – Water deliveries increased in 2024 as compared to 2023, primarily due to increased sales to oil and gas operators, as well as new Sky Ranch customers.

Water delivered – Water deliveries decreased in 2025 as compared to 2024, primarily due to decreased sales to oil and gas operators.

Oil and gas operations are highly variable and dependent on oil prices, demand for gas, and timing of other leases in our service areas.

therefore, we cannot provide any assurances that we will continue to realize this level of sales to oil and gas customers in the future.

As Sky Ranch continues to develop, we anticipate continued growth in our residential water and wastewater service revenue.

Water and wastewater tap sales – Water and wastewater tap sales increased in 2024 as compared to 2023 primarily due to the type of taps (commercial vs.

residential) sold during each year and a price increase of water and wastewater taps in 2024.

Tap sales are driven by the issuance of building permits and the timing of these are not contractually established with the home builders.

During fiscal 2024, we sold 16 taps in Phase 2A and 53 taps in Phase 2B, with an additional 17 taps allocated to our single-family rental segment.

We expect to substantially complete the next 141 lots in Phase 2B in fiscal 2025 and expect to realize additional tap sales in fiscal 2025 relating to the delivery of the Phase 2C lots.

Lots delivered – The number of lots delivered (which refers to when title passed on a lot to the homebuilder) increased in 2024 compared to 2023 due to the remaining 43 finished lots in Phase 2B being delivered to a builder by the end of fiscal 2024 resulting in $4.5 million of revenue.

Additionally, we recognized certain milestone from our Lot Delivery Agreements from home builders in 2024 which accounted for $1.2 million in lot sales revenue for Phase 2A, $7.7 million in lot sales revenue for Phase 2B and $2.7 million in lot sales revenue for Phase 2C.

We expect to be substantially complete with the delivery of all 228 lots in Phase 2C lots during fiscal 2025.

Despite lots being transferred to the homebuilders, we still have minor construction activities to complete Phases 2A and 2B and to turn over the completed infrastructure to the applicable governmental agency for maintenance.

Water and Wastewater Resource Development Results of Operations

Water and wastewater tap sales – Water and wastewater tap sales increased in 2025 as compared to 2024 primarily due to the timing of residential taps sold and a price increase for water and wastewater taps in 2025.

Tap sales are driven by the issuance of building permits and the timing of these sales are not contractually established with the home builders.

During fiscal 2025, we sold 125 taps in Phase 2B and 54 taps in Phase 2C, with an additional six taps allocated to our single-family rental segment.

We expect to substantially complete the next 134 lots in Phase 2C in fiscal 2025 and expect to realize additional tap sales in fiscal 2026 relating to the delivery of the Phase 2D lots.

Lots delivered – The number of lots delivered (which occurs when title to a lot passes to the homebuilder) decreased in 2025 compared to 2024 due to delays in closing in Phase 2D.

We recognized certain milestones from our Lot Delivery Agreements from home builders in 2025 which accounted for $0.1 million in lot sales revenue for Phase 2A, $0.9 million in lot sales revenue for Phase 2B, $10.9 million in lot sales revenue for Phase 2C and $1.8 million in lot sales revenue for Phase 2D.

We expect to be substantially complete with the delivery of all 180 lots in Phase 2D during fiscal 2026.

Despite lots being transferred to the homebuilders, we still have minor construction activities to complete Phases 2B and 2C and to turn over the completed infrastructure to the applicable governmental agency for maintenance.

Water and Wastewater Services Results of Operations

(In thousands, except for water deliveries)

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Total segment revenue

Water service costs

Wastewater service costs

Water service cost

Wastewater service cost

Total expenses

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Municipal water usage – Municipal water usage increased in 2025 compared to 2024, primarily due to new Sky Ranch customers in our water and wastewater resource development segment.

We anticipate these revenues to continue to increase in the future as more customers are added to our system as Sky Ranch continues to develop.

We anticipate that these revenues will continue to increase as more customers are added to our system as Sky Ranch continues to develop.

Commercial water usage – The main component of commercial water usage is from sales to oil and gas operators for use in their drilling process.

Commercial water sales increased during fiscal 2024, primarily due to increased demand by our oil and gas customers.

Because oil and gas is cyclical in nature as demand and prices fluctuate, we have no way of knowing if water provided to oil and gas operators will increase or decrease in the future.

Commercial water sales decreased during fiscal 2025, primarily due to decreased demand by our oil and gas customers.

Because oil and gas is cyclical in nature as demand and oil prices fluctuate, it is not possible to predict whether the volume of water supplied to oil and gas operators will increase or decrease in the future.

Wastewater treatment fees – Wastewater treatment fees increased in 2025 compared to 2024, primarily due to new Sky Ranch customers in our water and wastewater resource development segment.

We anticipate these revenues to continue to increase in the future as more customers are added to our system as Sky Ranch continues to develop.

Water and wastewater tap fees – Water and wastewater tap sales increased in 2024 compared to 2023, primarily due to the type of taps (commercial vs.

residential) sold during each year and a price increase of water and wastewater taps in 2024.

Water and wastewater taps are sold to home builders at the time a building permit is issued and are dependent on when the home builder constructs homes and not contractually driven in terms of timing;

therefore, timing of tap sales fluctuate with demand for new construction.

During 2024, the average price of a Sky Ranch water and wastewater tap was $38,000 compared to $30,000 per tap for 2023.

Other revenue – Other revenue increased in 2024 as compared to 2023, primarily due to increased revenue on the grading, erosion, and sediment control (GESC) and fence contracts at Sky Ranch.

Water service costs – Water service costs increased in 2024 as compared to 2023, primarily due to increase costs related to higher oil and gas water deliveries this fiscal year.

Wastewater service costs – Wastewater service costs increased slightly in 2024 as compared to 2023, primarily due to additional costs incurred with the servicing of the Ridgeview facility, which required work to be completed in anticipation of new development in fiscal 2025.

Other costs of revenue – Other costs of revenue increased in 2024 as compared to 2023, primarily due to costs associated with the GESC and fence contracts in Sky Ranch.

Water delivered – Water deliveries increased in 2024 as compared to 2023, primarily due to increased oil and gas operations and by new Sky Ranch customers.

We anticipate that revenues will continue to increase as more customers are added to our system as Sky Ranch continues to develop.

Water and wastewater tap fees – Water and wastewater tap sales increased in 2025 compared to 2024, primarily due to the timing of residential taps sold and a price increase of water and wastewater taps in 2025.

Water and wastewater taps are sold to home builders at the time a building permit is issued.

The timing of tap sales is dependent on when the home builder constructs homes, and sales are not contractually driven;

therefore, timing of tap sales fluctuates with demand for new construction.

During 2025, the average price of a Sky Ranch water and wastewater tap was approximately $40,000 compared to approximately $38,000 per tap in 2024.

Other revenue – Other revenue increased in 2025 as compared to 2024, primarily due to increased revenue from inspections of infrastructure at Sky Ranch.

Water service cost – Water service costs decreased in 2025 as compared to 2024, primarily due to the decrease in oil and gas sales.

Wastewater service cost – Wastewater service costs increased in 2025 as compared to 2024, primarily due to the addition of staff to meet the needs of our growing customer base.

Other costs of revenue – Other costs of revenue increased in 2025 as compared to 2024, primarily due to costs associated with the infrastructure inspections at Sky Ranch.

Water delivered – Water deliveries decreased in 2025 as compared to 2024, primarily due to decreased oil and gas operations, offset by additional demand generated by new Sky Ranch customers.

Land Development Results of Operations

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August 31, 2024

Project management revenue

Project management fees

Special facility projects and other

Total revenue

Land development construction and project management costs

Land development construction and project management cost

Segment operating income

Lot sales – Lot sales increased in 2024 as compared to 2023, primarily due to an increase in lot deliveries at Sky Ranch and our accelerated development activities with three ongoing phases in our Sky Ranch Master Planned Community.

Phase 2A is substantially completed at approximately 99%.

We delivered finished lots in Phase 2B, and Phase 2B is approximately 92% complete.

Phase 2C is approximately 27% complete, and we are beginning our development activity in Phase 2D.

Project management revenue – Project management revenue increased in 2024 as compared to 2023, which was primarily due to increased development activities in Phase 2B and Phase 2C.

Lot sales – Lot sales decreased in 2025 as compared to 2024, primarily due to a decrease in lot deliveries at Sky Ranch and delays in our development activities in Phase 2D at our Sky Ranch Master Planned Community.

Phase 2A is complete while Phase 2B is substantially complete at 97%.

We delivered finished lots in Phase 2C, and Phase 2C is approximately 82% complete.

Phase 2D is approximately 43% complete.

Project management revenue – Project management revenue increased in 2025 as compared to 2024, which was primarily due to increased development activities in Phase 2C and Phase 2D.

We earn a 5% project management fee on construction costs for managing the completion of public improvements at Sky Ranch.

Land development construction and project management costs – Land development construction costs increased in 2024 as compared to 2023, primarily due to accelerated development activities in Phases 2B and 2C.

As Phase 2B winds down, more of our costs are anticipated to be public improvements costs, whereas the beginning of Phase 2C is anticipated to result in us incurring more lot costs.

Special facility projects and other – Special facility projects decreased in 2025 as compared to 2024, which was primarily due to a decrease in self-perform development activities at Sky Ranch.

Land development construction and project management cost – Land development construction costs increased in 2025 as compared to 2024, primarily due to accelerated development activities in Phases 2C and 2D.

As Phase 2C winds down, more of our costs are anticipated to be public improvements costs, whereas the beginning of Phase 2D is anticipated to result in us incurring more lot costs.

This is due to the timing of the development of the costs incurred in the beginning of the development phase compared to those costs incurred towards the end.

Lots delivered – The number of lots delivered (which refers to when title is passed to the homebuilder) increased in 2024 compared to 2023 due to the delivery of the remaining lots of Phase 2B and the commencement of lots deliveries in Phase 2C been delivered by the end of fiscal 2024.

No finished lots were delivered to homebuilders during fiscal 2023.

Despite the lots being transferred to the homebuilders, we still have minor construction activities to complete Phase 2A and 2B to turn over the completed infrastructure to the applicable governmental agency that will maintain the infrastructure, and we did receive certain milestone payments for Phase 2B and 2C lots.

Lots delivered – The number of lots delivered decreased in 2025 compared to 2024 due delays in the development of Phase 2D.

Despite the lots being transferred to the homebuilders, we still have minor construction activities to complete Phase 2B to turn over the completed infrastructure to the applicable governmental agency that will maintain the infrastructure.

We did receive certain milestone payments for Phase 2C and 2D lots.

Because we record lot sales as construction progresses, the timing of revenue and lot deliveries are not necessarily correlated.

Single-Family Rental Results of Operations

(In thousands)

August 31, 2025

August 31, 2024

Single-family rentals revenue

Single-family rentals cost

Segment operating income

Single-family rentals revenue – Fiscal 2025 and 2024 revenue represented rental income for our first 14 completed homes.

Each home is rented under a one-year non-cancelable lease agreement which typically includes annual rental rate increases.

We expect to rent 5 townhomes in the first quarter of fiscal 2026 and we are currently under contract with several national home builders to construct the next 40 single-family detached homes in Phases 2B and 2C at Sky Ranch for delivery in fiscal 2026.

Single-family rentals cost – The costs reflected as cost of sales for the rental units include a pro-rata share of the annual property taxes and insurance related specifically to the rental units as well as immaterial fees related to the operations and maintenance assessments from the Sky Ranch CAB that are assessed to every home in Sky Ranch.

Our tenants are responsible for all other utilities including water and wastewater services that are paid to us through the Rangeview District.

General and Administrative Expenses

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G&A Expenses as reported

Salary and Salary-Related Expenses – Salary and salary-related expenses net increased in fiscal 2024 compared to fiscal 2023 due to the receipt of three quarters worth of Employee Retention Credits from the Internal Revenue Service in 2023.

During fiscal 2024, we increased our staff by one employee.

Share-based compensation expense decreased due to options and restricted stock grant forfeitures during fiscal 2024.

Salary and Salary-Related Expenses – Salary and salary-related expenses net increased in fiscal 2025 compared to fiscal 2024 due to the addition of six employees to the overall headcount and the related salaries, benefits, and taxes associated with the increased workforce employed by the Company.

Although the increase in base salaries was offset by the reduction in bonuses, other related costs like benefits and payroll taxes accounted for the increase.

Share-based compensation decreased in fiscal 2025 compared to fiscal 2024 primarily due to the vesting of outstanding options and no options being issued in the current year.

Professional Fees – Professional fees consist mainly of IT, telecom, legal, consulting and accounting fees.

IT, telecom, accounting and legal fees increased over the prior year as information technology and cyber security have continued to take on an increased focused, and we amended builder contracts to better time lot delivers to a slowing residential housing market.

Legal fees increased year over year due to the water court case discussed further in Note 4 to the financial statements.

Public Entity-Related Expenses, including director fees – Costs associated with being a corporation and costs associated with being a publicly traded entity consist primarily of XBRL and EDGAR conversion fees, stock exchange fees, and press releases.

These costs fluctuate from year to year but remained relatively consistent from 2023 to 2024.

These costs fluctuate from year to year and were higher in 2024 compared to 2025, primarily due to the cost of filing the Company’s S-8 in 2024.

Compensation including stock grants paid to our board was consistent in fiscal 2025 compared to fiscal 2024.

Corporate insurance – Corporate insurance costs increased as our operations continue to expand, which is due to adding additional construction and rental home policies, and overall insurance rate increases.

All other – All other expenses include typical operating expenses related to the maintenance of our office and equipment, business development, travel, property taxes, and funding provided to the Rangeview District and the Sky Ranch Districts.

Other expenses increased during fiscal 2024 compared to fiscal 2023.

The changes were primarily the result of increased equipment maintenance and the timing of various expenses, which will fluctuate year over year.

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

All other – All other expenses include typical operating expenses related to the maintenance of our office and equipment, business development, travel, and property taxes.

Other expenses increased during 2025 compared to 2024.

The changes were primarily the result of increased equipment maintenance, various software subscription expenses and a donation to the Sky Ranch Academy.

Liquidity, Capital Resources and Financial Position

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We believe that as of August 31, 2025, and as of the date of the filing of this Annual Report on Form 10-K, we have sufficient working capital to fund our operations for the next 12 months.

We have completed Phase 1 and have completed approximately 99% of the work required to deliver Phase 2A at Sky Ranch.

Phase 2B is approximately 92% complete, and Phase 2C is approximately 27% complete.

We anticipate starting work on Phase 2D during fiscal 2025.

We sold 219 lots in Phase 2A at Sky Ranch (retaining 10 lots for ourselves) and have only 1% of the construction-related activities remaining for Phase 2A to be finished.

We expect to spend $0.2 million in the next twelve months completing the construction of Phase 2A (of which we estimate $0.2 million will be reimbursable by the Sky Ranch CAB).

We have sold 194 lots in Phase 2B at Sky Ranch (retaining 17 lots for ourselves) and have approximately 8% of construction-related activities remaining for Phase 2B to be finished.

We have completed Phase 1 and Phase 2A at Sky Ranch.

Phase 2B is approximately 97% complete, Phase 2C is approximately 82% complete, and Phase 2D is approximately 43% complete.

We anticipate starting work on Phase 2E during fiscal 2026.

We have sold 194 lots in Phase 2B at Sky Ranch (retaining an additional 17 lots for ourselves) and have approximately 3% of construction-related activities remaining for Phase 2B to be finished.

We expect to spend $0.5 million in the next twelve months on remaining Phase 2B construction activities (of which we estimate $0.3 million will be reimbursable by the Sky Ranch CAB).

We expect to be substantially complete with Phase 2C during our fiscal 2025 and expect to spend $13.2 million in the next twelve months on

remaining Phase 2C construction activities (of which we estimate $12.0 million will be reimbursable by the Sky Ranch CAB).

We anticipate starting work on Phase 2D during fiscal 2025 and expect to spend $6.4 million in the next twelve months on remaining Phase 2D construction activities (of which we estimate $5.4 million will be reimbursable by the Sky Ranch CAB).

We anticipate receiving nearly $18.0 million in milestone payments and approximately $5.8 million of water and wastewater taps fees from the homebuilders over the same period.

We also anticipate receiving reimbursement from Sky Ranch CAB of approximately $10.1 million pursuant to a refinancing of the 2019 Bonds.

We have sold 180 of the 188 for sale lots in Phase 2C at Sky Ranch (retaining an additional 40 lots for ourselves) and have approximately 18% of construction-related activities remaining for Phase 2C to be finished.

We expect to sell the remaining eight lots in the first quarter of fiscal 2026.

We expect to be complete with Phase 2C during fiscal 2026 and expect to spend $3.0 million in the next twelve months on remaining Phase 2C construction activities (of which we estimate $2.4 million will be reimbursable by the Sky Ranch CAB).

We expect to be substantially complete with Phase 2D during fiscal 2026 and expect to spend $7.8 million in the next twelve months on Phase 2D construction-related activities (of which we estimate $7.0 million will be reimbursable by the Sky Ranch CAB).

We anticipate starting work on Phase 2E during fiscal 2026 and expect to spend $3.2 million in the next twelve months on Phase 2E construction-related activities (of which we estimate $2.4 million will be reimbursable by the Sky Ranch CAB).

We anticipate receiving approximately $19.8 million in milestone and finished lot payments and approximately $7 million of water and wastewater tap fees from the homebuilders over the same period.

We also anticipate receiving reimbursement from Sky Ranch CAB of approximately $4 million from excess funds from higher fees and property taxes collected by the Sky Ranch CAB.

We believe we can fund such capital expenditures from cash and cash equivalents on hand, phased payments from our lot sales agreements, and payments from the Sky Ranch CAB for reimbursement of public improvements.

We expect to complete approximately 45 additional single-family rental homes in the next twelve months.

The Company expects to fund the construction of our new rental homes with a debt facility agreement.

Notes payable – Notes payable includes limited recourse secured notes with third parties that totaled $6.8 million at August 31, 2025.

These notes have maturities ranging up to seven years, are secured by the applicable asset to which they relate, and generally have no recourse to other assets.

The stated interest rates on these notes range up to 7.51%.

Summary Cash Flows

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Net Change in cash

Changes in Operating Activities – Operating activities include amounts we receive from the sale of wholesale water and wastewater services, costs incurred in the delivery of those services, the sale of lots, the costs incurred in completing and delivering finished lots, rental income from single-family homes and the cost incurred in constructing and maintaining our single-family rental homes, and G&A Expenses.

Cash provided by operations in fiscal 2024 increased due to the timing of cash receipts of trade receivables, payments of payables and accrued liabilities, and federal and state income taxes payable, partially offset by increases to the note receivable from the Sky Ranch CAB for continued construction costs related to public improvements.

Cash provided by operations in fiscal 2025 increased due to the timing of cash receipts of trade receivables, payments of payables and accrued liabilities, and collection of oil and gas royalty income, which was offset by net increases to the note receivable from the Sky Ranch CAB for continued construction costs related to public improvements.

The Sky Ranch CAB made payments to us totaling $15.2 million in fiscal 2025 from the refinancing of the bonds issued in 2019 and excess funds from higher fees and property taxes collected by the Sky Ranch CAB.

The Sky Ranch CAB made payments to us totaling $0.7 million in fiscal 2024 from excess funds from higher fees and property taxes collected by the Sky Ranch CAB.

In fiscal 2023, cash used by operations was primarily related to increases to the note receivable from the Sky Ranch CAB for the continued construction costs related to public improvements, partially offset by the timing differences on payments of payables and accrued liabilities, deferred revenue, and federal and state income taxes payable.

Changes in Investing Activities – Investing activities in fiscal 2024 consisted primarily of the investment in our land and water system of $1.9 million and investments in future development phases of Sky Ranch for $2.2 million.

Investing activities in fiscal 2023 consisted primarily of the investment in our land and water system of $3.9 million and investments in future development phases of Sky Ranch for $1.7 million.

Changes in Investing Activities – Investing activities in fiscal 2025 consisted primarily of the investment in our water system of $8.6 million and investments in future development phases of Sky Ranch for $0.9 million.

Investing activities in fiscal 2024 consisted primarily of the investment in our land and water system of $1.9 million and investments in future development phases of Sky Ranch of $2.2 million.

We capitalize costs associated with obtaining, defending, enhancing, and developing our water rights.

We capitalize costs incurred to construct infrastructure required to deliver water and wastewater services to our customers, and we capitalize costs to develop our land assets that are not sold to home builders.

Changes in Financing Activities – Financing activities in 2024 consisted of payments on existing debt facilities as well as cash used to repurchase the Company’s common stock.

Financing activities in 2023 consisted of proceeds from debt of $3.0 million to finance 11 single-family rental homes.

Changes in Financing Activities – Financing activities in 2025 and 2024 consisted of payments on existing debt facilities as well as cash used to repurchase the Company’s common stock.

Critical Accounting Estimates

11 unchanged sentences

The notes are evaluated for a credit loss at each reporting period based on the factors indicated, and an impairment would be recognized whenever it was determined that a credit loss had occurred.

Management applies judgment to assess whether a credit loss has occurred, and factors that are considered include, but are not limited to:

Management applies judgment to assess whether a credit loss has occurred,

and factors that are considered include, but are not limited to:

significant decreases in the market price of houses which generate tax payments to the Sky Ranch CAB;

3 unchanged sentences

Recoverability of these notes is measured by comparing the carrying value to the future cash flows expected to be generated by the Sky Ranch CAB which can be used to repay us.

If the carrying value of the notes exceeds the fair value of the estimated cash flows, an impairment loss would be recorded by writing down the carrying value of the related asset to its estimated fair value, which is determined using discounted future cash flows or other measures of fair value.

Revenue recognition on lot sales under the percentage-of-completion method – We recognize lot revenue over time as construction progresses for most of our lot development contracts.

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis