# Cadiz Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Cadiz Inc](/companies/cdzi.md) (CIK 727273)
- Form: 10-Q
- Filed: 2023-11-13
- Accepted by EDGAR: Nov 13, 2023, 16:09 ET
- Period: 2023-09-30
- Accession: 0001437749-23-031613
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/727273/000143774923031613/cdzi20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/727273/000143774923031613/

## 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 | $368.0k | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.3m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $692.0k | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.5m | us-gaap:CostOfGoodsAndServicesSold |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$5.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$15.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $1.2m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $3.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $4.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $8.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$6.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$24.7m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.12 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.44 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$15.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $3.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $3.8m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-09-30 | $13.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $16.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $114.5m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $5.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $66.8m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $37.4m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $193.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $47.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,371 characters.

*In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the following discussion contains trend analysis and other forward-looking statements. Forward-looking statements can be identified by the use of words such as “intends”, “anticipates”, “believes”, “estimates”, “projects”, “forecasts”, “expects”, “plans” and “proposes”. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. These include, among others, our ability to maximize value from our land and water resources and our ability to obtain new financings as needed to meet our ongoing working capital needs. See additional discussion under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. Our forward-looking statements are made only as of the date hereof. We assume no duty to update these forward-looking statements to reflect new, changed or unanticipated events or circumstances, other than as may be required by law.*

We are a water solutions provider dedicated to delivering clean, reliable, and affordable water for people through a variety of innovative water supply, storage, conveyance and treatment projects. We are advancing human access to clean water with our unique combination of land, water, infrastructure and technology assets, cutting-edge innovation, and industry-leading standards of environmental stewardship.

We own approximately 46,000 acres of land with access to high-quality, naturally-recharging groundwater resources in three areas of Southern California’s Mojave Desert – the Cadiz Valley (35,000 acres), Danby Dry Lake (2,000 acres), and the Piute Valley (9,000 acres) (“Cadiz Property”). Our land holdings with vested water rights were primarily assembled by our founders in the early 1980s, relying on NASA imagery that identified a unique desert aquifer system at the base of a vast Southern California watershed. This watershed underlying our property in the Cadiz Valley (“Cadiz Ranch”) presently holds 17-34 million acre-feet of groundwater in storage – comparable in size to the capacity of the largest reservoir in the United States, Lake Mead. The aquifer system is part of a closed-basin watershed in which all water flows downgradient to desert playas where it evaporates at the surface forming what are known as “desert dry lakes”.

Water Supply – We own vested water rights to withdraw 2.5 million acre-feet of groundwater to support farming at the Cadiz Ranch, one of the largest farming operations in San Bernardino County, and off property uses. Because all water in the aquifer system will eventually be lost to evaporation, surplus water that is captured and withdrawn before it evaporates is a new water supply known as “conserved” water. We have completed extensive environmental review in accordance with local, state and federal laws authorizing the management of the groundwater aquifer underlying the Cadiz Ranch to conserve an average of 50,000 acre-feet of water per year (“AFY”) for 50 years for use in communities.

Groundwater Storage - The alluvium aquifer that lies beneath the Cadiz Property is also large enough for conjunctive use as a water “banking” facility, capable of storing an additional 1 million acre-feet of imported surplus water for return during drought periods.

Pipeline Conveyance – We own a 30” steel natural gas pipeline (“Northern Pipeline”) that extends 220-miles from the Cadiz Ranch across San Bernardino and Kern Counties, terminating in California’s Central Valley. The pipeline, originally constructed to transport fossil fuels, is idle and capable of transporting water. The route of the Northern Pipeline crosses several underserved, rural low-income areas of California and intersects three major water conveyance facilities that deliver water to communities across Southern California - the California Aqueduct, the Los Angeles Aqueduct, and the Mojave River Pipeline. The estimated annual capacity of the Northern Pipeline for water conveyance is 25,000 AFY. In addition, we hold a 99-year lease with the Arizona & California Railroad (“ARZC”) to construct a 43-mile, 55-85” steel pipeline south from Cadiz within the ARZC’s existing railroad right-of-way to the Colorado River Aqueduct, one of Southern California’s primary sources of drinking water. The capacity of this pipeline (“Southern Pipeline”) ranges from 75,000 AFY to 150,000 AFY depending on the pipeline diameter selected to accommodate imported water storage.

We hold multiple binding agreements with public water systems and government agencies and are currently in discussions with other public water systems to enter into additional agreements that will enable project participants to manage, lease, own, finance and operate the Northern Pipeline and lease up to 25,000 AFY of annual water supply from the Water Project. In accordance with such agreements, we expect that we will contribute the Northern Pipeline and an annual supply of 25,000 AFY of water into Fenner Gap Mutual Water Company, comprised of shareholder public water systems that will receive water from the Water Project. In addition, we expect that Fenner Valley Water Authority, a public agency – joint powers agency with oversight over the Water Project - will represent the public water systems purchasing 25,000 AFY of water at our wellhead, take or pay, at an agreed upon net market price estimated to start at approximately $850/AFY and subject to annual adjustment. Through the JPA, which includes San Bernardino County, it is anticipated the public water agencies would fund capital costs for conversion of the pipeline from gas to water, construction of pumping stations and appurtenant facilities, and would be able to seek infrastructure funding and grants to achieve their lowest possible cost for delivered water. Any contracts and off take facility construction will be subject to standard environmental review and a project level permitting process. We expect that similar agreements will be negotiated and entered into for water supplies and storage delivered via the Southern Pipeline.

On November 2, 2023, we signed a binding agreement amending the 2012 Memorandum of Understanding (“MOU”) between the Company, San Bernardino County, Santa Margarita Water District and Fenner Gap Mutual Water Company governing groundwater management for the Water Project. The amendment to the MOU creates a new priority right for San Bernardino County that requires Water Project water supply not already subject to a binding contract to be offered to public water systems serving San Bernardino County communities, prior to exporting Project water for beneficial use outside of San Bernardino County. Five public water systems serving communities in San Bernardino County have expressed intent to receive supply from the Water Project.

Treatment – In the fourth quarter of 2022, we completed the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC (“ATEC”). ATEC is a leader in developing innovative water filtration solutions for impaired or contaminated groundwater sources. ATEC’s specialized filtration media provide cost-effective, high-rate of removal for common groundwater impairments and contaminants that pose health risks in drinking water including iron, manganese, arsenic, Chromium-6, nitrates, and other constituents of concern. ATEC filters have been installed in over 400 water treatment systems in the U.S, including 50 in California. In March, ATEC was awarded a $10 million contract to provide all wellhead filters required by the Central Utah Water Conservancy District Vineyard Wellfield Groundwater Polishing Project, a treatment facility that will deliver 60 million gallons per day or approximately 54,000 AFY. Delivery of filters under this contract is expected to begin in the first quarter of 2024.

Our ATEC and Cadiz Ranch agricultural operations provide the Company’s current principal source of revenue, although our working capital needs are not fully supported by our treatment or agricultural lease and farming returns at this time. We believe that as we enter contracts for water supply, treatment, storage, and pipeline conveyance, these assets will provide a significant source of future cash flow for the business and our stockholders.

To fund our working capital needs and development of our water solutions we rely on debt and equity financing. In February 2023, we completed a direct offering for net proceeds of $38 million led by our largest equity shareholders to fund capital expenditures to accelerate the development of water supply, storage and conveyance infrastructure, reduce our outstanding debt from $50 million to $35 million and provide working capital to the Company (see, “Liquidity and Capital Resources”, below).

Our current and future operations also include activities that further our commitments to sustainable stewardship of our land and water resources, good governance and corporate social responsibility. We believe these commitments are important investments that will assist in maintenance of sustained stockholder value.

### Results of Operations

### Three Months Ended September 30, 2023, Compared to Three Months Ended September 30, 2022

We have not received significant revenues from our water supply, storage, conveyance or treatment assets to date. Our revenues have been limited to rental income from our agricultural leases, sales from our alfalfa plantings beginning in 2022 and ATEC sales beginning in 2023. As a result, we have historically incurred a net loss from operations. The reporting segments have been combined as the revenue and operating results for the water treatment business were not material to the Company’s consolidated operations during the three months ended September 30, 2023. We incurred a net loss of $6.9 million in the three months ended September 30, 2023, compared to a $6.5 million net loss during the three months ended September 30, 2022.

Our primary expenses are our ongoing overhead costs associated with the development of our water supply, storage, conveyance and treatment assets (i.e., general and administrative expense) and our interest expense. We will continue to incur non-cash expenses in connection with our management and director equity incentive compensation plans.

***Revenues*** Revenue totaled $0.4 million during the three months ended September 30, 2023, primarily related to rental income from our agricultural leases totaling $0.1 million, sales from the harvest from our 760 acres of commercial alfalfa crop totaling $0.1 million and ATEC sales totaling $0.2 million. Revenue totaled $0.6 million for the three months ended September 30, 2022, primarily related to rental income from our agricultural leases and sales from the harvest from our 610 acres of commercial alfalfa crop.

***Cost of Sales*** Cost of sales totaled $0.7 million during the three months ended September 30, 2023, which comprised of $0.5 million related to our alfalfa crop harvest and $0.2 million related to ATEC. The 2023 alfalfa crop harvest loss primarily relates to a lower of cost or market adjustment recorded due to increased diesel costs for farming, as well as suppressed market conditions for alfalfa on the West Coast. Cost of sales totaled $1.2 million during the three months ended September 30, 2022. In June 2022, the Company converted 610 acres of agricultural development to alfalfa commercial production. The 2022 loss was primarily due to non-recurring start-up costs for the initial short year of commercial production.

***General and Administrative Expenses*** General and administrative expenses, exclusive of stock-based compensation costs, totaled $4.5 million in the three months ended September 30, 2023, compared to $3.2 million in the three months ended September 30, 2022. The increase in 2023 was primarily a result of community partnership and communications investments, including $0.6 million in water quality and infrastructure costs in coordination with community partners that will improve access to clean water in disadvantaged communities in the Coachella Valley and $0.4 million in corporate communications modernization expenses to the Company’s online, print, digital and social materials.

Compensation costs for stock and option awards for the three months ended September 30, 2023, were $0.7 million, compared to $0.5 million for the three months ended September 30, 2022.

***Depreciation*** Depreciation expense totaled $0.3 million during the three months ended September 30, 2023, compared to $0.2 million during the three months ended September 30, 2022. The higher depreciation expense in the 2023 period is primarily due to construction in progress placed into service in 2023, which included land development and stand establishment related to the planting of alfalfa, as well as $31,000 of depreciation for ATEC assets in 2023.

***Interest Expense, net*** Net interest expense totaled $1.2 million during the three months ended September 30, 2023 compared to $2.1 million during the same period in 2022. The following table summarizes the components of net interest expense for the two periods (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Interest on outstanding debt | $1,286 | $1,480 |
| Amortization of debt discount | 76 | 617 |
| Interest income | (164) | - |
| Other Income | (25) | - |
|  | $1,173 | $2,097 |

Interest income primarily relates to interest on investments in short-term deposits.

### Nine Months Ended September 30, 2023, Compared to Nine Months Ended September30, 2022

We incurred a net loss of $24.7 million in the nine months ended September 30, 2023, compared to a $17.9 million net loss during the nine months ended September 30, 2022. The higher 2023 loss was primarily due to a loss on extinguishment of debt in the amount of $5.3 million resulting from issuance of a conversion instrument, a repayment fee and elimination of debt discount associated with the paydown of $15 million of senior secured debt in February 2023.

***Revenues*** Revenue totaled $1.3 million during the nine months ended September 30, 2023, primarily related to rental income from our agricultural leases totaling $0.3 million, sales from the harvest from our 760 acres of commercial alfalfa crop totaling $0.4 million and ATEC sales totaling $0.6 million. Revenue totaled $0.9 million for the nine months ended September 30, 2022 primarily related to rental income from our agricultural leases and sales from the harvest from our 610 acres of commercial alfalfa crop.

***Cost of Sales*** Cost of sales totaled $1.5 million during the nine months ended September 30, 2023, which comprised of $1.0 million related to our alfalfa crop harvest and $0.5 million related to ATEC. The 2023 alfalfa crop harvest loss primarily relates to a lower of cost or market adjustment recorded due to increased diesel costs for farming, as well as suppressed market conditions for alfalfa on the West Coast. Cost of sales totaled $1.2 million during the nine months ended September 30, 2022. In June 2022, the Company converted 610 acres of agricultural development to alfalfa commercial production. The 2022 loss was primarily due to non-recurring start-up costs for the initial short year of commercial production.

***General and Administrative Expenses*** General and administrative expenses, exclusive of stock-based compensation costs, totaled $13.2 million in the nine months ended September 30, 2023, compared to $9.6 million in the nine months ended September 30, 2022. The increase in 2023 was primarily a result of community partnership and communications investments, including $1.8 million in water quality and infrastructure costs in coordination with community partners that will improve access to clean water in disadvantaged communities in the Coachella Valley and $1.0 million in corporate communications modernization expenses to the Company’s online, print, digital and social materials.

Compensation costs for stock and option awards for the nine months ended September 30, 2023, were $1.1 million, compared to $1.3 million for the nine months ended September 30, 2022.

***Depreciation*** Depreciation expense totaled $0.9 million during the nine months ended September 30, 2023, compared to $0.5 million during the nine months ended September 30, 2022. The higher 2023 depreciation expense is primarily due to construction in progress placed into service in 2023, which included land development and stand establishment related to the planting of 150 acres of alfalfa, as well as $0.1 million of depreciation for ATEC assets in 2023.

***Interest Expense, net*** Net interest expense totaled $3.6 million during the nine months ended September 30, 2023 compared to $6.1 million during the same period in 2022. The following table summarizes the components of net interest expense for the two periods (in thousands):

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Interest on outstanding debt | $3,867 | $4,367 |
| Amortization of debt discount | 337 | 1,777 |
| Interest Income | (542) | - |
| Other Income | (25) | - |
|  | $3,637 | $6,144 |

Interest income primarily relates to interest on investments in short-term deposits.

***Losses on Derivative Liabilities*** Losses on derivative liabilities totaled $220 thousand during the nine months ended September 30, 2023 compared to $0 in the nine months ended September 30, 2022. The losses recorded in 2023 were a result of a remeasurement of a conversion option under the Company’s senior secured debt.

***Loss on Early Extinguishment of Debt*** Loss on early extinguishment of debt totaled $5.3 million during the nine months ended September 30, 2023 compared to $0 in the nine months ended September 30, 2022. The 2023 loss on early extinguishment of debt was a result of a conversion instrument, a repayment fee and elimination of debt discount associated with the paydown of $15 million of senior secured debt in February 2023.

### Liquidity and Capital Resources

### Current Financing Arrangements

As we have not received sufficient revenues from our water, agriculture or treatment activities to date, we have been required to obtain financing to bridge the gap between the time water resource and other development expenses are incurred and the time that revenue will commence. Historically, we have addressed these needs primarily through secured debt financing arrangements and private equity placements.

On January 30, 2023, we completed the sale and issuance of 10,500,000 shares of our common stock to certain institutional investors in a registered direct offering (“January 2023 Direct Offering”). The shares of common stock were sold at a purchase price of $3.84 per share, for aggregate gross proceeds of $40.32 million and aggregate net proceeds of approximately $38.5 million. A portion of the net proceeds were used to repay our debt in the principal amount of $15 million, together with fees and interest required to be paid in connection with such repayment.

The remaining proceeds from the January 2023 Direct Offering will be used for capital expenditures to accelerate development of water supply, storage, conveyance and treatment assets, working capital and development of additional water resources to meet increased demand on an accelerated timetable.

On March 23, 2022, we completed the sale and issuance of 6,857,140 shares of our common stock to certain institutional and individual investors in a registered direct offering. The shares of common stock were sold at a purchase price of $1.75 per share, for aggregate gross proceeds of $12 million and aggregate net proceeds of approximately $11.8 million. The proceeds were used for working capital needs and for general corporate purposes.

On November 14, 2022, we completed the sale and issuance of 5,000,000 shares of our common stock to certain institutional investors in a registered direct offering (“November 2022 Direct Offering”). The shares of common stock were sold at a purchase price of $2.00 per share, for aggregate gross proceeds of $10 million and aggregate net proceeds of approximately $9.9 million.

In July 2021, we completed the sale of 2,300,000 depositary shares each representing 1/1000th of a share of Series A Preferred Stock (“Depositary Share Offering”) for net proceeds of approximately $54 million.

Concurrently in July 2021, we entered into a $50 million new credit agreement (“Credit Agreement”) (see Note 3 to the Condensed Consolidated Financial Statements – “Long-Term Debt”). The proceeds of the Credit Agreement, together with the proceeds from the Depositary Share Offering, were used to (a) to repay all our outstanding senior secured debt obligations in the amount of approximately $77.6 million, (b) to deposit approximately $10.2 million into a segregated account, representing an amount sufficient to pre-fund eight quarterly dividend payments on the Series A Preferred Stock underlying the Depositary Shares issued in the Depositary Share Offering, and (c) to pay transaction related expenses. The remaining proceeds were used for working capital needs and for general corporate purposes.

On February 2, 2023, we entered into a First Amendment to Credit Agreement to amend certain provisions of the Credit Agreement (“First Amended Credit Agreement). Under the First Amended Credit Agreement, the lenders have a right to convert up to $15 million of outstanding principal, plus any PIK interest and any accrued and unpaid interest (the “Convertible Loan”) into shares of our common stock at a conversion price of $4.80 per share (the “Conversion Price”). In addition, prior to the maturity of the Credit Agreement, we will have the right to require that the lenders convert the outstanding principal amount, plus any PIK Interest and accrued and unpaid interest, of the Convertible Loan if the following conditions are met: (i) the average VWAP of the Company’s common stock on The Nasdaq Stock Market, or such other national securities exchange on which the shares of common stock are listed for trading, over 30 consecutive trading dates exceeds 115% of the then Conversion Price, (ii) a registration statement registering the resale of the shares issuable upon conversion of the Convertible Loan has been declared effective by the Securities and Exchange Commission, (iii) the Stockholder Approval has been obtained, and (iv) there is no event of default under certain provisions of the Credit Agreement.

Under the First Amended Credit Agreement, the maturity date of the Credit Agreement has been extended from July 2, 2024, to June 30, 2026. The annual interest rate will remain unchanged at 7.00%. Interest on $20 million of the remaining principal amount will be paid in cash. Interest on the $15 million principal amount of the Convertible Loan will be paid in kind on a quarterly basis by addition such amount to the outstanding principal amount of the outstanding Convertible Loan.

Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities. To the extent additional capital is required, we may increase liquidity through a variety of means, including equity or debt placements, through the lease, sale or other disposition of assets or reductions in operating costs. If additional capital is required, no assurances can be given as to the availability and terms of any new financing.

As we continue to actively pursue our business strategy, additional financing will continue to be required (see “Outlook”, below). The covenants in the Credit Agreement do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds of any common equity financing. We do not expect the loan covenants to materially limit our ability to finance our water and agricultural development activities.

**Cash Used in Operating Activities**. Cash used in operating activities totaled $15.4 million and $13.4 million for the nine months ended September 30, 2023, and 2022, respectively. The cash was primarily used to fund general and administration expenses related to our water development efforts and agricultural development efforts.

**Cash Used in Investing Activities**. Cash used in investing activities totaled $3.8 million for the nine months ended September 30, 2023, and $2.5 million for the nine months ended September 30, 2022. The cash used in the 2023 period primarily related to the development of three new wells. The cash used in the 2022 period primarily related to development costs for the initial planting of 760 acres of alfalfa.

**Cash Provided by Financing Activities.** Cash provided by financing activities totaled $18.9 million for the nine months ended September 30, 2023, compared with cash provided of $8.1 million for the nine months ended September 30, 2022. Proceeds from financing activities for both periods reported are primarily related to the issuance of shares under direct offerings, offset by the paydown of $15 million of senior secured debt in February 2023.

### Outlook

***Short-Term Outlook.*** The January 2023 Direct Offering provided net cash proceeds of approximately $38.5 million. A portion of these net proceeds were used to repay our debt in the principal amount of $15 million, together with fees and interest required to be paid in connection with such repayment. The remaining proceeds, together with cash on hand, provide us with sufficient funds to meet our short-term working capital needs. The Company’s agricultural and ATEC water treatment operations is expected to be funded using existing capital and cash profits generated from operations.

**Long-Term Outlook.** In the longer term, we will need to raise additional capital to finance working capital needs and capital expenditures (see “Current Financing Arrangements”, above). Our future working capital needs will depend upon the specific measures we pursue in the entitlement and development of our water supply, storage, conveyance and treatment solutions and other developments. Future capital expenditures will depend on the progress of the Water Project and any further expansion of our agricultural development.

We are evaluating the amount of cash needed, and the manner in which such cash will be raised, on an ongoing basis. We may meet any future cash requirements through a variety of means, including equity or debt placements, or through the sale or other disposition of assets. Equity placements will be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements upon our existing stockholders. No assurances can be given, however, as to the availability or terms of any new financing. Limitations on our liquidity and ability to raise capital may adversely affect us. Sufficient liquidity is critical to meet our resource development activities.

### Recent Accounting Pronouncements

See Note 1 to the Condensed Consolidated Financial Statements – “Basis of Presentation”.

## Market risk

As filed, 171 characters.

We are a smaller reporting company as defined by Reg. 240.12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.

## Controls and procedures

As filed, 2,298 characters.

### Disclosure Controls and Procedures

The Company established disclosure controls and procedures to ensure that material information related to the Company, including its consolidated entities, is accumulated and communicated to senior management, including the Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial Officer (the “Principal Financial Officer”) and to its Board of Directors. Based on their evaluation as of September 30, 2023, the Company's Principal Executive Officer and Principal Financial Officer have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and such information is accumulated and communicated to management, including the principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosures.

### Changes in Internal Controls Over Financial Reporting

In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, excluding the acquisition of the assets of ATEC Systems, Inc. into ATEC Water Systems, LLC, there was no change identified in the Company's internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in

conditions, or that the degree of compliance with the policies or procedures may deteriorate.

## Risk factors

As filed, 137 characters.

There have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Nov 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-031613. Last ingested by Listed: Oct 29, 2026, 16:21 ET. No prices; not investment advice.