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DEBT AND OTHER LONG-TERM OBLIGATIONS | 12 Months Ended
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Aug. 31, 2023
DEBT AND OTHER LONG-TERM OBLIGATIONS |
DEBT AND OTHER LONG-TERM OBLIGATIONS | NOTE 8 – DEBT AND OTHER LONG-TERM OBLIGATIONS The total scheduled maturities of the Company’s loans for each of the years ending August 31 are as follows, with each loan described below the table:
​ | ​ | ​ | ​
(In thousands) | ​ | Scheduled principal payments
Within 1 year | ​ | $ | 41
Year 2 | ​ | ​ | 104
Year 3 | ​ | ​ | 418
Year 4 | ​ | ​ | 1,343
Year 5 | ​ | ​ | 3,154
Thereafter | ​ | ​ | 1,925
Total principal payments | ​ | $ | 6,985
​ SFR Note ​ On November 29, 2021, PCY Holdings, LLC, a wholly owned subsidiary of the Company, entered a Promissory Note (SFR Note) with its primary bank to reimburse amounts expended for the construction of the first three single-family rental homes. The SFR Note has the following terms: ​
| ● | Initial principal amount of $1.0 million
| ● | Floating per annum interest rate equal to the Western Edition of the “Wall Street Journal” Prime Rate plus 0.5% (4.25% as of August 31, 2023), which has a floor of 3.75% and a ceiling of 4.25%. 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 beginning January 1, 2022
| ● | Fifty-three principal and interest payments each month beginning 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 the three single-family rental homes
| ● | Required minimum debt service coverage ratio of 1.10, measured annually based on audited financial statements, 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.
​ 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 region of Colorado (Lost Creek Note). The Lost Creek Note has a principal balance of $3.0 million, a ten-year maturity, monthly interest only payments averaging $12,000 per month for thirty-six months beginning on July 28, 2022, twenty-four monthly principal and interest payments of $42,000 beginning on July 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. ​ 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.
​ Working Capital Line of Credit On January 31, 2022, the Company entered into 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 rate published in the Western Edition of the Wall Street Journal as the Prime Rate plus 0.5% (9.0% as of August 31, 2023), which has a floor of 3.75%. In the event of default, the interest rate on the Working Capital LOC would be increased by adding an additional 2.0%. As of August 31, 2023, the Company has not drawn on the Working Capital LOC. ​ Letters of Credit During the year August 31, 2021, the Company entered four Irrevocable Letters of Credit (LCs). The LCs are to guarantee the Company’s performance related to certain construction projects at Sky Ranch. As long as the Company performs on the contracts, which the Company has the full intent and ability to perform on the contracts, the LC’s will expire at various dates from December 2023 through July 2024. As of August 31, 2023, these four LCs totaled $2.3 million. During the year ended August 31, 2023, the Company entered into an additional LC for less than $0.2 million, which expires one year from date of issuance and can be renewed for periods of one year. All five LCs are secured by cash balances maintained in restricted cash accounts at the Company’s bank. The Participating Interests in Export Water Supply are obligations of the Company that have no scheduled maturity dates. Therefore, these liabilities are not disclosed in tabular format. However, the Participating Interests in Export Water Supply are described in Note 6. WISE Partnership During 2014, the Company, through the Rangeview District, consented to the waiver of all contingencies set forth in the Amended and Restated WISE Partnership – Water Delivery Agreement, dated December 31, 2013 (WISE Partnership Agreement), among the City and County of Denver acting through its Board of Water Commissioners (Denver Water), the City of Aurora acting by and through its utility enterprise (Aurora Water), and the South Metro WISE Authority (SMWA). SMWA was formed by the Rangeview District and nine other governmental or quasi-governmental water providers pursuant to the South Metro WISE Authority Formation and Organizational Intergovernmental Agreement, dated December 31, 2013 (SM-IGA), to enable the members of SMWA to participate in the regional water supply project known as the Water Infrastructure Supply Efficiency partnership (WISE) created by the WISE Partnership Agreement. The SM-IGA specifies each member’s pro rata share of WISE and the members’ rights and obligations with respect to WISE. The WISE Partnership Agreement provides for the purchase of certain infrastructure (i.e., pipelines, water storage facilities, water treatment facilities, and other appurtenant facilities) to deliver water to and among the members of SMWA, Denver Water and Aurora Water. Certain infrastructure has been constructed and other infrastructure will be constructed over the next several years. Pursuant to the terms of the Rangeview/Pure Cycle WISE Project Financing and Service Agreement (WISE Financing Agreement) between the Company and the Rangeview District, the Company has an agreement to fund the Rangeview District’s participation in WISE effective as of December 22, 2014. During each of the years ended August 31, 2023 and 2022, the Company, through the Rangeview District, purchased 199 acre-feet and 360 acre-feet of WISE water for $0.4 million and $0.7 million. See further discussion in Note 15. Lease Commitments Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet. For lease agreements with an initial term of more than twelve months, the Company combines the lease and non-lease components in determining the lease liabilities and right-of-use (ROU) assets. Operating lease expense is generally recognized evenly over the term of the lease. Effective June 1, 2023, the Company entered into an amendment of its July 1, 2022 operating lease. This amendment added 5,100 square feet of space to the Company’s more than 11,400 square-feet of office and warehouse space in Watkins, Colorado. Additionally, the Company entered into a sublease for the additional 5,100 square feet of space. The July 2022 lease replaced the Company’s prior office and warehouse lease when it moved to a new building in the same facility. The amended lease has an initial thirteen-month term with payments of approximately $11,300 per month and an option to extend the lease term for up to two two-year periods. The monthly payment will increase 2.5% after twelve months. The prior office and warehouse lease had a year and half left on the term which was cancelled when the Company moved to the new office location. As a result of the amended lease, the Company’s associated right of use asset and liability increased, as noted in the table below. For the years ended August 31, 2023 and 2022, rent expense consisted of operating lease expense of less than $0.1 million. The Company paid less than $0.1 million against Lease obligations — operating leases during fiscal 2022. The Company’s lease agreements generally do not provide an implicit borrowing rate; therefore, an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. The Company used the incremental borrowing rate of six percent (6%) for its office and warehouse lease. ROU lease assets and lease liabilities for the Company’s operating leases were recorded in the consolidated balance sheet as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(In thousands) |  | August 31, 2023 |  | ​ | August 31, 2022 |
Operating leases - ROU assets |  | $ | 357 |  | ​ | $ | 138 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Operating lease liabilities, current | ​ | $ | 118 | ​ | ​ | $ | 76 | ​
Operating lease liabilities, long term | ​ |  | 242 | ​ | ​ |  | 62 | ​
Total lease liability | ​ | $ | 360 | ​ | ​ | $ | 138 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Weighted average remaining lease term (in years) | ​ |  | 2.8 | ​ | ​ |  | 1.8 | ​
Weighted average discount rate | ​ |  | 6 | % | ​ |  | 6 | %
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