# Comstock Holding Companies, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Comstock Holding Companies, Inc.](/companies/chci.md) (CIK 1299969)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:39 ET
- Period: 2023-09-30
- Accession: 0001299969-23-000034
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1299969/000129996923000034/chci-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1299969/000129996923000034/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $14.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $33.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $8.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $24.6m | us-gaap:CostOfRevenue |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $575.0k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $1.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $5.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $7.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $332.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $635.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $4.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $5.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.46 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.59 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.49 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.61 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 10,130,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 10,082,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Cash and equivalents | at 2023-09-30 | $10.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $22.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $46.7m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $5.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $11.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $35.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,477 characters.

*The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and the notes thereto and Management’s Discussion and Analysis included in our 2022 Annual Report on Form 10-K and our Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this document. Unless otherwise indicated, references to “2023” refer to the three and nine months ended September 30, 2023 and references to “2022” refer to the three and nine months ended September 30, 2022. The following discussion may contain forward-looking statements that reflect our plans and expectations. Our actual results could differ materially from those anticipated by these forward-looking statements. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.*

### Overview

Comstock is a leading real estate asset manager, developer, and operator of mixed-use and transit-oriented properties in the Washington, D.C. region. Since 1985, we have acquired, developed, operated, and sold millions of square feet of residential, commercial, and mixed-use properties. We benefit from our market-leading position in Northern Virginia's Dulles Corridor, one of the nation’s fastest growing real estate markets that is undergoing an urban transformation thanks to the recently completed construction of a Metro commuter rail connecting Dulles International Airport and the surrounding areas to Washington, D.C. and beyond.

Our fee-based, asset-light, and substantially debt-free business model allows us to mitigate many of the risks that are typically associated with real estate development and ownership. We provide a broad suite of asset management, property management, development and construction management, and other real estate services to our asset-owning clients, composed primarily of institutional real estate investors, high net worth family offices, and governmental bodies with surplus real estate holdings. Our primary focus is the continued growth of our managed portfolio and associated fee-based revenue; however, the fundamental strength of our balance sheet permits us to also explore strategic investment opportunities, typically in the form of a minority capital co-investment in select stabilized assets that complement our existing portfolio.

Our asset management services platform is anchored by a long-term full-service asset management agreement with a Comstock affiliate (the "2022 AMA" - see below for additional details) that extends through 2035 and covers most of the properties we currently manage, including two of the largest transit-oriented, mixed-use developments in the Washington, D.C. area: Reston Station and Loudoun Station.

As a vertically integrated real estate services company, we self-perform all property management activity through three wholly owned operational subsidiaries: CHCI Commercial Management, LC (“CHCI Commercial”); CHCI Residential Management, LC (“CHCI Residential”); and ParkX Management, LC (“ParkX”). All properties included in our managed portfolio have entered into property management agreements with our operational subsidiaries that provide for market-rate fees related to our services, including 11 commercial parking garages owned by unaffiliated parties and managed by ParkX.

The following table summarizes the operating assets that are included in our managed portfolio:

| Type | # of Assets | Size/Scale | % Leased |
| --- | ---: | --- | ---: |
| Commercial | 13 | 2.0 million sqft. | 92% |
| Residential | 6 | 1.8 million sqft. / ~1,700 units | 97% |
| Parking | 27 | 16,000+ spaces |  |
| **Total** | **46** |  |  |

In addition, in our development pipeline we currently have 17 assets representing a total of 5.8 million square feet that includes 6 office buildings, approximately 3,100 residential units, 2 hotels with approximately 380 keys, and 2 parking garages with approximately 2,900 spaces. At full build out, our managed portfolio of assets is currently projected to total 65 assets representing nearly 10 million square feet.

The following tables provide further details on the assets that comprise our managed portfolio:

| Anchor Portfolio |  |
| --- | --- |
| Reston Station | Mixed-use development on Metro's Silver Line; strategically located between Tyson's Corner, Va. and Dulles International Airport |
| Loudoun Station | Mixed-use development on Metro's Silver Line; first Metro-connected development in Loudoun County, Va. |
| Herndon Station | Mixed-use development in the historic downtown portion of Herndon, Va.; focus of public-private partnership with Town of Herndon |
| **Investments and Additional Assets Under Management** |  |
| The Hartford Building | Joint venture; 211,000 square foot mixed-use building on Metro's Orange Line in Arlington, Va. |
| BLVD Forty Four | Joint venture; 15-story, luxury high-rise apartment building near Rockville Metro Station in Montgomery County, Md.; adjacent to BLVD Ansel |
| BLVD Ansel | Joint venture; 18-story, luxury high-rise apartment building near Rockville Metro Station in Montgomery County, Md.; adjacent to BLVD Forty Four |
| Investors X | Investment in company that owns residual homebuilding operations |
| Parking | Commercial parking garages located both at commercial and residential properties we manage and on a stand-alone basis |

### Significant Developments

#### CES Divestiture

On March 31, 2022, we completed the sale of Comstock Environmental Services, LLC ("CES"), a wholly owned subsidiary, to August Mack Environmental, Inc. ("August Mack"). This strategic divestiture was based on the continued growth and future prospects of our asset management business. Accordingly, we have reflected CES as a discontinued operation in our consolidated financial statements for all periods presented, and unless otherwise noted, all amounts and disclosures relate solely to our continuing operations. (See Note 3 in the Notes to Consolidated Financial Statements for additional information).

#### Series C Preferred Stock Redemption and 2022 Asset Management Agreement

On June 13, 2022, we completed two separate significant transactions to further deleverage our balance sheet and enhance our long-term revenue outlook and growth potential. The first one with CP Real Estate Services, LC (“CPRES”), an entity owned by Christopher Clemente, Comstock’s Chief Executive Officer, redeemed all outstanding Series C preferred stock at a significant discount to carrying value. Secondly, we executed a new asset management agreement with Comstock Partners, LC ("CP"), an entity controlled by Mr. Clemente and wholly owned by Mr. Clemente and certain family members, which covers our Anchor Portfolio of assets (the "2022 AMA"). The 2022 AMA increased the base fees we collect, expanded the services that qualify for additional supplemental fees, extended the term through 2035, and most notably introduced a mark-to-market incentive fee based on the imputed profit of Anchor Portfolio assets, generally as each is stabilized and as further specified in the agreement. (See Notes 10 and 14 in the Notes to Consolidated Financial Statements for additional information).

### COVID-19 Update

On May 11, 2023 the U.S. Department of Health and Human Services declared an end to the public health emergency for COVID-19. While we never experienced any significant impacts on our business resulting from COVID-19, future regional or global health emergencies may have a negative impact on our results of operations and financial condition. Although the long-term impact of the COVID-19 pandemic on the greater Washington, D.C. area real estate market remains uncertain, we believe that our Anchor Portfolio is well positioned to withstand any future potential negative impacts.

### Outlook

Our management team is committed to executing our goal to provide exceptional experiences to those we do business with while maximizing shareholder value. We believe that we are properly staffed for current market conditions and the foreseeable future and feel that we will maintain the ability to manage risk and pursue opportunities for additional growth as market conditions warrant. Our real estate development and asset management operations are primarily focused on the greater Washington, D.C. area, where we believe our 35-plus years of experience provides us with the best opportunity to continue developing, managing, and investing in high-quality real estate assets and capitalizing on positive growth trends.

We aspire to be among the most admired real estate asset managers, operators, and developers by creating extraordinary places, providing exceptional experiences, and generating excellent results for all stakeholders. Our commitment to this mission drives our ability to expand our managed portfolio of assets, grow revenue, and deliver value to our shareholders.

### Results of Operations

The following tables set forth consolidated statement of operations data for the periods presented (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $14,463 | $12,813 | $33,705 | $30,011 |
| Operating costs and expenses: |  |  |  |  |
| Cost of revenue | 8,557 | 8,346 | 24,561 | 22,112 |
| Selling, general, and administrative | 575 | 537 | 1,711 | 1,393 |
| Depreciation and amortization | 74 | 55 | 212 | 149 |
| Total operating costs and expenses | 9,206 | 8,938 | 26,484 | 23,654 |
| Income (loss) from operations | 5,257 | 3,875 | 7,221 | 6,357 |
| Other income (expense): |  |  |  |  |
| Interest expense | — | (94) | — | (222) |
| Gain (loss) on real estate ventures | (241) | (31) | (720) | 238 |
| Other income (expense), net | 1 | 1 | 48 | 2 |
| Income (loss) from continuing operations before income tax | 5,017 | 3,751 | 6,549 | 6,375 |
| Provision for (benefit from) income tax | 332 | 62 | 635 | (42) |
| Net income (loss) from continuing operations | 4,685 | 3,689 | 5,914 | 6,417 |
| Net income (loss) from discontinued operations, net of tax | — | (99) | — | (376) |
| Net income (loss) | $4,685 | $3,590 | $5,914 | $6,041 |
| Impact of Series C preferred stock redemption | — | — | — | 2,046 |
| Net income (loss) attributable to common stockholders | $4,685 | $3,590 | $5,914 | $8,087 |

### Comparison of the Three Months Ended September 30, 2023 and September 30, 2022

#### Revenue

The following table summarizes revenue by line of business (in thousands):

|  | Three Months Ended September 30, 2023 Amount% |  | 2022 Amount% |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Asset management | $10,606 | 73.3% | $9,391 | 73.3% | $1,215 | 12.9% |
| Property management | 2,605 | 18.0% | 2,508 | 19.6% | 97 | 3.9% |
| Parking management | 1,252 | 8.7% | 914 | 7.1% | 338 | 37.0% |
| Total revenue | $14,463 | 100.0% | $12,813 | 100.0% | $1,650 | 12.9% |

Revenue increased 12.9% in 2023. The $1.7 million comparative increase was primarily driven by the continued expansion of our managed portfolio, which included 6 additional assets in 2023, and a $0.9 million increase in incentive fees, which were earned pursuant to the terms of the 2022 AMA. Recurring asset management and property management fee-based revenue increased $0.7 million, or 12.6%, across all lines of business, and reimbursable staffing charges increased $0.3 million, or 13.8%. Partially offsetting these revenue increases was a combined net $0.4 million decrease in supplemental leasing, acquisition, and development fees due to higher volume of transactional activity in 2022.

#### Operating costs and expenses

The following table summarizes operating costs and expenses (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $8,557 | $8,346 | $211 | 2.5% |
| Selling, general, and administrative | 575 | 537 | 38 | 7.1% |
| Depreciation and amortization | 74 | 55 | 19 | 34.5% |
| Total operating costs and expenses | $9,206 | $8,938 | $268 | 3.0% |

Operating costs and expenses increased 3.0% in 2023. The $0.3 million comparative increase was primarily due to a $0.1 million net increase in recoverable costs stemming from our managed properties and a $0.1 million increase in rent expense stemming from the corporate headquarters lease expansion that was executed in November 2022.

#### Other income (expense)

The following table summarizes other income (expense) (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $— | $(94) | $94 | (100.0)% |
| Gain (loss) on real estate ventures | (241) | (31) | (210) | 677.4% |
| Other income | 1 | 1 | — | N/M |
| Total other income (expense) | $(240) | $(124) | $(116) | 93.5% |

Other income (expense) was relatively flat in 2023, primarily driven by a $0.2 million net decrease in mark-to-market valuations of equity method investments in real estate ventures, and partially offset by a $0.1 million decrease in interest expense stemming from the full pay down of our outstanding debt in the third quarter of fiscal year 2022.

#### Income tax

Provision for income tax was $0.3 million in 2023, compared to $0.1 million in 2022. The $0.2 million increase primarily stems from a $0.7 million increase in pre-tax income as well as a higher annualized estimated tax rate in the current period.

### Comparison of the Nine Months Ended September 30, 2023 and September 30, 2022

#### Revenue

The following table summarizes revenue by line of business (in thousands):

|  | Nine Months Ended September 30, 2023 Amount% |  | 2022 Amount% |  | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Asset management | $22,502 | 66.8% | $20,926 | 69.7% | $1,576 | 7.5% |
| Property management | 7,731 | 22.9% | 6,831 | 22.8% | 900 | 13.2% |
| Parking management | 3,472 | 10.3% | 2,254 | 7.5% | 1,218 | 54.0% |
| Total revenue | $33,705 | 100.0% | $30,011 | 100.0% | $3,694 | 12.3% |

Revenue increased 12.3% in 2023. The $3.7 million comparative increase was primarily driven by the continued expansion of our managed portfolio, which included 6 additional assets in 2023, and a $0.9 million increase in incentive fees, which were earned pursuant to the terms of the 2022 AMA. Recurring asset management and property management fee-based revenue increased $2.2 million, or 12.7%, across all lines of business, and reimbursable staffing charges increased $1.5 million, or 26.4%. Partially offsetting these revenue increases was a combined $1.2 million decrease in supplemental leasing, acquisition, and development fees due to higher volume of transactional activity in 2022.

#### Operating costs and expenses

The following table summarizes operating costs and expenses (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Cost of revenue | $24,561 | $22,112 | $2,449 | 11.1% |
| Selling, general, and administrative | 1,711 | 1,393 | 318 | 22.8% |
| Depreciation and amortization | 212 | 149 | 63 | 42.3% |
| Total operating costs and expenses | $26,484 | $23,654 | $2,830 | 12.0% |

Operating costs and expenses increased 12.0% in 2023. The $2.8 million comparative increase was primarily due to a $1.5 million net increase in personnel expenses stemming from increased headcount and employee compensation, as well as a $0.3 million increase in rent expense stemming from the corporate headquarters lease expansion that was executed in November 2022 and a $0.2 million increase in regulatory and compliance costs.

#### Other income (expense)

The following table summarizes other income (expense) (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Interest expense | $— | $(222) | $222 | (100.0)% |
| Gain (loss) on real estate ventures | (720) | 238 | (958) | (402.5)% |
| Other income | 48 | 2 | 46 | N/M |
| Total other income (expense) | $(672) | $18 | $(690) | N/M |

Other income (expense) changed by $0.7 million in 2023, primarily driven by a $1.0 million net decrease in mark-to-market valuations of equity method investments in real estate ventures, and partially offset by a $0.2 million decrease in interest expense stemming from the full pay down of our outstanding debt in 2022.

#### Income taxes

Provision for income tax was $0.6 million in 2023, compared to an immaterial tax benefit in 2022. The $0.6 million variance was driven by a higher annualized estimated tax rate in the current period, primarily due to higher valuation allowance release in relation to pre-tax income in 2022.

### Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, we prepare certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), specifically Adjusted EBITDA.

We define Adjusted EBITDA as net income (loss) from continuing operations, excluding the impact of interest expense (net of interest income), income taxes, depreciation and amortization, stock-based compensation, and gain (loss) on equity method investments.

We use Adjusted EBITDA to evaluate financial performance, analyze the underlying trends in our business and establish operational goals and forecasts that are used when allocating resources. We expect to compute Adjusted EBITDA consistently using the same methods each period.

We believe Adjusted EBITDA is a useful measure because it permits investors to better understand changes over comparative periods by providing financial results that are unaffected by certain non-cash items that are not considered by management to be indicative of our operational performance.

While we believe that Adjusted EBITDA is useful to investors when evaluating our business, it is not prepared and presented in accordance with GAAP, and therefore should be considered supplemental in nature. Adjusted EBITDA should not be considered in isolation, or as a substitute, for other financial performance measures presented in accordance with GAAP. Adjusted EBITDA may differ from similarly titled measures presented by other companies.

The following table presents a reconciliation of net income (loss) from continuing operations, the most directly comparable financial measure as measured in accordance with GAAP, to Adjusted EBITDA (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income (loss) from continuing operations | $4,685 | $3,689 | $5,914 | $6,417 |
| Interest expense | — | 94 | — | 222 |
| Income taxes | 332 | 62 | 635 | (42) |
| Depreciation and amortization | 74 | 55 | 212 | 149 |
| Stock-based compensation | 273 | 212 | 777 | 629 |
| (Gain) loss on real estate ventures | 241 | 31 | 720 | (238) |
| Adjusted EBITDA | $5,605 | $4,143 | $8,258 | $7,137 |

### Liquidity and Capital Resources

Liquidity is defined as the current amount of readily available cash and the ability to generate adequate amounts of cash to meet the current needs for cash. We assess our liquidity in terms of our cash and cash equivalents on hand and the ability to generate cash to fund our operating activities.

Our principal sources of liquidity as of September 30, 2023 were our cash and cash equivalents of $10.9 million and our $10.0 million of available borrowings on our credit facility.

Significant factors which could affect future liquidity include the adequacy of available lines of credit, cash flows generated from operating activities, working capital management and investments.

Our primary capital needs are for working capital obligations and other general corporate purposes, including investments and capital expenditures. Our primary sources of working capital are cash from operations and distributions from investments in real estate ventures. We have historically financed our operations with internally generated funds and borrowings from our credit facilities. On September 30, 2022, we paid down the $5.5 million outstanding balance of our credit facility in full, primarily to avoid the rising interest costs that would accompany recent interest rate increases. (See Note 7 in the Notes to Consolidated Financial Statements for additional information).

We believe we currently have adequate liquidity and availability of capital to fund our present operations and meet our commitments on our existing debt.

### Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

| Continuing operations | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $(362) | $1,868 |
| Net cash provided by (used in) investing activities | (35) | (1,919) |
| Net cash provided by (used in) financing activities | (390) | (10,068) |
| Total net increase (decrease) in cash - continuing operations | (787) | (10,119) |
| Discontinued operations, net | — | (347) |
| Net increase (decrease) in cash and cash equivalents | $(787) | $(10,466) |

22

#### Operating Activities

The $2.2 million variance in net operating cash activities was primarily driven by a $3.7 million incremental cash outflow stemming from changes to our net working capital, partially offset by a $1.5 million increase in net income from continuing operations after adjustments for non-cash items. The net working capital impact was primarily influenced by higher accrued bonus payouts and increases in related party accounts receivable in the current period.

#### Investing Activities

The $1.9 million variance in net cash used in investing activities was primarily driven by a $2.6 million decrease in investments in real estate ventures, partially offset by $1.0 million in proceeds received from the CES divestiture that was finalized in the first quarter of fiscal year 2022.

#### Financing Activities

The $9.7 million decrease in net cash used in financing activities was primarily driven by a $4.0 million cash payment made in 2022 related to the early redemption of Series C Preferred Stock and a $5.5 million payment made in 2022 to satisfy the outstanding balance of our credit facility.

## Controls and procedures

As filed, 2,615 characters.

### Evaluation of Disclosure Controls and Procedures

As of September 30, 2023, management, including the CEO and CFO, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)).

Based on that evaluation, management, including the CEO and CFO, concluded that as of September 30, 2023, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

### Changes in Internal Control over Financial Reporting

There have been no material changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on the Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. We do not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met, therefore internal control over financial reporting may not prevent or detect misstatements.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001299969-23-000034. Last ingested by Listed: Nov 5, 2026, 20:56 ET. No prices; not investment advice.