BARNWELL INDUSTRIES INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Relevant to Forward-Looking Information For the Purpose Of “Safe Harbor” Provisions Of The Private Securities Litigation Reform Act of 1995 This Form 10-Q, and the documents incorporated herein by reference, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). A forward-looking statement is one which is based on current expectations of future events or conditions and does not relate to historical or current facts. These statements include various estimates, forecasts, projections of Barnwell’s future performance, statements of Barnwell’s plans and objectives, and other similar statements. All such statements we make are forward-looking statements made under the safe harbor of the PSLRA, except to the extent such statements relate to the operations of a partnership or limited liability company. Forward-looking statements include phrases such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates,” “assumes,” “projects,” “may,” “will,” “will be,” “should,” or similar expressions. Although Barnwell believes that its current expectations are based on reasonable assumptions, it cannot assure that the expectations contained in such forward-looking statements will be achieved. Forward-looking statements involve risks, uncertainties and assumptions which could cause actual results to differ materially from those contained in such statements. The risks, uncertainties and other factors that might cause actual results to differ materially from Barnwell’s expectations are set forth in the “Forward-Looking Statements” and “Risk Factors” sections of Barnwell’s 2025 Annual Report. Investors should not place undue reliance on these forward-looking statements, as they speak only as of the date of filing of this Form 10-Q, and Barnwell expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein. Critical Accounting Policies and Estimates Management has determined that our most critical accounting policies and estimates are those related to the full-cost ceiling calculation and depletion of our oil and natural gas properties and the calculation of our income taxes, all of which are discussed in our 2025 Annual Report. There have been no significant changes to these critical accounting policies and estimates during the three months ended December 31, 2025. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. Current Outlook Going Concern The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business for the twelve-month period following the date of issuance of these condensed consolidated financial statements. 32 Overview As disclosed in Note 3 “Discontinued Operations” to the Condensed Consolidated Financial Statements (unaudited) included in this report, on March 14, 2025, the Company entered into and completed the sale of its wholly-owned subsidiary, Water Resources. Water Resources drilled water wells and installed and repaired water pumping systems in Hawaii and represented our contract drilling segment. As a result of the sale, the Company has classified the related assets and liabilities and the results of its contract drilling business as discontinued operations in the condensed consolidated financial statements for all periods presented. Accordingly, Barnwell’s continuing operations is engaged in the following lines of business: 1) acquiring, developing, producing and selling oil and natural gas in Canada (oil and natural gas segment) and 2) leasehold land interests in Hawaii (land investment segment). Oil and Natural Gas Segment Barnwell is involved in the acquisition and development of oil and natural gas properties in Canada where we initiate and participate in acquisition and developmental operations for oil and natural gas on properties in which we have an interest, and evaluate proposals by third parties with regard to participation in exploratory and developmental operations elsewhere. Additionally, through its wholly-owned subsidiaries, Barnwell was, until August 8, 2025, involved in several non-operated oil and natural gas investments in Oklahoma and Texas. Land Investment Segment Through Barnwell’s 77.6% interest in Kaupulehu Developments, 75.0% interest in KD Kona, and 34.45% non-controlling interest in KKM Makai, the Company’s land investment interests include the following: • The right to receive percentage of sales payments from KD I resulting from the sale of single-family residential lots by KD I, within Increment I of the Kaupulehu Lot 4A area located in the North Kona District of the island of Hawaii. However, in the quarter ended March 31, 2024, the last two remaining single-family lots of the 80 lots developed within Increment I were sold and there are no more lots available for sale in Increment I. Kaupulehu Developments was entitled to receive payments from KD I based on 10% of the gross receipts from KD I’s sales at Increment I. • The right to receive 15% of the distributions of KD II, the cost of which is to be solely borne by KDK out of its 55% ownership interest in KD II, plus a priority payout of 10% of KDK's cumulative net profits derived from Increment II sales subsequent to Phase 2A, up to a maximum of $3,000,000. Such interests are limited to distributions or net profits interests and Barnwell does not have any partnership interest in KD II or KDK through its interest in Kaupulehu Developments. Barnwell also has rights to three single-family residential lots in Phase 2A of Increment II, and four single-family residential lots in phases subsequent to Phase 2A when such lots are developed by KD II, all at no cost to Barnwell. Barnwell is committed to commence construction of improvements within 90 days of the transfer of the four lots in the phases subsequent to Phase 2A as a condition of the transfer of such lots. Also, in addition to Barnwell's existing obligations to pay professional fees to certain parties based on percentages of its gross receipts, Kaupulehu Developments is also obligated to pay an amount equal to 0.72% and 0.20%% of the cumulative net profits of KD II to KD Development, LLC and a pool of various individuals, 33 respectively, all of whom are partners of KKM and are unrelated to Barnwell. The remaining acreage within Increment II is not yet under development, and there is no assurance that development of such acreage will in fact occur. No definitive development plans have been made by KD II, the developer of Increment II, as of the date of this report. • An indirect 19.60% non-controlling ownership interest in KD Kukio Resorts, LLLP, KD Maniniowali, LLLP and KD I and an indirect 10.80% non-controlling ownership interest in KD II through KDK. These entities, collectively referred to hereinafter as the “Kukio Resort Land Development Partnerships,” own certain real estate and development rights interests in the Kukio, Maniniowali and Kaupulehu portions of Kukio Resort, a private residential community on the Kona coast of the island of Hawaii, as well as Kukio Resort’s real estate sales office operations. KDK was the developer of Kaupulehu Lot 4A Increments I and II. The partnerships derive income from the sale of residential parcels in Increment I, which is now completely sold, as well as from commissions on real estate resales by the real estate sales office and revenues resulting from the sale of private club memberships, a few of which remain available for sale. The Kukio Resort Land Development Partnerships have remaining Increment I obligations to complete project amenities, infrastructure, beautification, and restoration of certain areas and therefore has yet to fully recognize its deferred profit on the Increment I project as a whole. The Increment I deferred profit at December 31, 2025 for the Kukio Resort Land Development Partnerships as a whole was approximately $4,000,000; the recognition of which is dependent upon the completion of the Increment I obligations. The Kukio Resort Land Development Partnerships have accrued estimated costs of these obligations of approximately $2,600,000. The Kukio Resort Land Development Partnerships currently appears to have the ability to fund those obligations but there are no assurances that it can ultimately do so in the future if unforeseen events occur. The Kukio Resort Land Development Partnerships will recognize the Increment I deferred revenue and costs of sales on a percentage completion basis as the cash outlays to complete the remaining project obligations are made. The Kukio Resort Land Development Partnerships’ deferred profit and accrued costs to complete are not reflected in Barnwell’s Condensed Consolidated Balance Sheets as we account for our investment in the Kukio Resort Land Development Partnerships under the equity method of accounting. No percentage of sales payments will be earned by Barnwell on any future recognition of Increment I deferred profit as such payments were already fully earned and received based on cash received by the Kukio Resort Land Development Partnerships as the Increment I lots were sold. • Approximately 1,000 acres of vacant leasehold land zoned conservation in the Kaupulehu Lot 4C area, which currently has no development potential without both a development agreement with the lessor and zoning reclassification. The lease expired by its terms in December 2025. • Contracts to Sell Interests in Increment II ◦ In November 2025, Kaupulehu Developments entered into an agreement with Mr. David Johnston, the son of Mr. Terry Johnston, a partner in Kaupulehu Developments, to surrender any and all remaining rights of Kaupulehu Developments for Increment II for the total consideration of $2,000,000. The purchaser paid an initial $70,000 which was recognized as revenue during the three months ended December 31, 2025. Additionally, the purchaser has the right to extend the closing by up to two years by making a $70,000 payment in each of the next two years, with those payments applied against the $2,000,000 purchase price. The transaction iremains subject to the purchaser's election to proceed and 34 other closing conditions. Because the agreement is subject to substantive contingencies and closing conditions that has not been satisfied, the criteria for revenue recognition under ASC 606 have not been met. Accordingly, no additional revenue has been recognized in the financial statements. ◦ Also in November 2025, pursuant to a unit purchase agreement, KDK agreed to sell KDK’s interests in Increment II to Mr. David Johnston for $2,109,000. The unit purchase agreement is subject to due diligence, and there is no certainty that the transaction will close. Furthermore, there is also no assurance on the timing or amounts that the general partner of KDK would distribute upon a closing. Again, there are substantive contingencies and closing conditions that have not been satisfied, and in turn no revenue has been recognized in the financial statements. Results of Operations Summary of Results From Continuing Operations The net loss from continuing operations attributable to Barnwell for the three months ended December 31, 2025 totaled $1,426,000, a $172,000 increase from a net loss from continuing operations attributable to Barnwell of $1,598,000 for the three months ended December 31, 2024. The following factors affected the results of operations for the three months ended December 31, 2025 as compared to the prior year period: • General and administrative expenses increased $453,000 due to $257,000 higher personnel costs for new staff hired in Canada during the transition period in advance of closing of the Hawaii office on January 31, 2026, $101,000 higher non-cash cost shares issued to the new Chief Financial Officer and $116,000 higher professional service fees mainly due to the previously discussed proxy contest, consent solicitation and various legal actions; Partially offset by: • A $84,000 increase in oil and natural gas segment operating results primarily attributable to decreases of $613,000 in the ceiling test impairment, $425,000 in the expenses, and $313,000 in oil and natural gas depletion, partially offset by a $1,267,000 decrease in oil and natural gas revenues. The decrease in oil and natural gas revenues, expenses and depletion was primarily due to a decrease in net production resulting from the August 8, 2025 sale of U.S. oil and natural gas assets, and the August 28, 2025 sale of Barnwell's interest in certain oil and natural gas properties in Canada. Lower realized oil price also reduced revenue; • A $70,000 increase in land investment segment operating results as a result of partial proceeds received from the sale of the Increment II; and • A $398,000 increase in positive impacts due to a $47,000 foreign currency gain recorded in the current period as compared to a $351,000 loss recorded in the prior year period due to the effects of foreign currency exchange rate changes on intercompany loans and advances as a result of changes in the U.S. dollar against the Canadian dollar. 35 General Barnwell conducts operations in the U.S. and Canada. Consequently, Barnwell is subject to foreign currency translation and transaction gains and losses due to fluctuations of the exchange rates between the Canadian dollar and the U.S. dollar. Barnwell cannot accurately predict future fluctuations of the exchange rates and the impact of such fluctuations may be material from period to period. To date, we have not entered into foreign currency hedging transactions. Foreign currency gains or losses on intercompany loans and advances that are not considered long-term investments in nature because management intends to settle these intercompany balances in the future are included in our condensed consolidated statements of operations. The average exchange rate of the Canadian dollar to the U.S. dollar was flat in the three months ended December 31, 2025, as compared to the same period in the prior year. The exchange rate of the Canadian dollar to the U.S. dollar increased 1% at December 31, 2025, as compared to September 30, 2025. Accordingly, the assets, liabilities, stockholders’ equity, revenues and expenses of Barnwell’s subsidiaries operating in Canada have been adjusted to reflect the change in the exchange rates. Other comprehensive income and losses are not included in net earnings and net loss. Other comprehensive loss due to foreign currency translation adjustments, net of taxes, for the three months ended December 31, 2025 was $27,000, a $120,000 change from other comprehensive income due to foreign currency translation adjustments, net of taxes, of $93,000 for the same period in the prior year. There were no taxes on other comprehensive income (loss) due to foreign currency translation adjustments in the three months ended December 31, 2025 and 2024 due to a full valuation allowance on the related deferred tax asset. Oil and Natural Gas The following tables set forth Barnwell’s average prices per unit of production and net production volumes. Production amounts reported are net of royalties. Average Price Per Unit Three months ended Increase December 31, (Decrease) 2025 2024 $ % Natural Gas (Mcf)* $ 1.79 $ 1.09 $ 0.70 64 % Oil (Bbls)** $ 52.49 $ 65.53 $ (13.04) (20 %) Natural gas liquids (Bbls)** $ 25.58 $ 26.98 $ (1.40) (5 %) Net Production Three months ended Increase December 31, (Decrease) 2025 2024 Units % Natural Gas (Mcf)* 250,000 298,000 (48,000) (16 %) Oil (Bbls)** 35,000 48,000 (13,000) (27 %) Natural gas liquids (Bbls)** 10,000 15,000 (5,000) (33 %) _______________________________________ * Mcf = 1,000 cubic feet. Natural gas price per unit is net of pipeline charges. ** Bbl = stock tank barrel equivalent to 42 U.S. gallons 36 The oil and natural gas segment generated a $32,000 operating loss before general and administrative expenses in the three months ended December 31, 2025, an increase in operating results of $84,000 as compared to the $116,000 operating loss before general and administrative expenses generated during the same period of the prior year due to a decrease in operating results primarily from decreased revenues, partially offset by a decrease of $613,000 in the ceiling test impairment and a $313,000 decrease in oil and natural gas depletion in the current year period. The following table sets forth Barnwell’s oil and natural gas segment operating profit before general and administrative expenses by geographic location: Three months ended December 31, 2025 2024 Operating profit (loss) (before general and administrative expenses) Canada $ (32,000) $ 402,000 United States (1) — (518,000) Total operating profit $ (32,000) $ (116,000) ________________________ (1) The operating loss for the United States for the three months ended December 31, 2024 includes non-cash ceiling test impairments of $613,000. Oil and natural gas revenues decreased $1,267,000 (33%) for the three months ended December 31, 2025, as compared to the same period in the prior year, primarily due to decreases in natural gas, oil, and natural gas liquids production in the current year periods as compared to the same periods in the prior year. The decreases in production are primarily the result of the sale of the U.S. oil and natural gas assets, the sale of Barnwell's interest in certain oil and natural gas properties in Canada, and natural declines in production from wells in the Company's Twining area as the wells age. Revenues also decreased due to a decrease in oil prices. In February 2025, the Company amended certain of its Canadian purchase and sales contracts to change the sales price on 1,055 gross Mcf per day of the Canadian natural gas it sold during the period from April 1, 2025 to October 31, 2025 to a fixed index price before differentials of $1.95 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices. This per day volume of natural gas under this fixed index price contract was equivalent to approximately 39% of Canadian natural gas gross production per day for the three months ended December 31, 2025. Additionally, in September 2025, the Company amended the sales price on 1,583 gross Mcf per day of the Canadian natural gas it will sell during the period from November 1, 2025 to March 31, 2026 to a fixed index price before differentials of $3.03 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices. This per day volume of natural gas under this fixed index price contract that will affect the period from November 1, 2025 to March 31, 2026, is equivalent to approximately 58% of Canadian natural gas gross production per day for the three months ended December 31, 2025. These natural gas contracts were eligible for and elected as normal purchase and normal sales exception contracts and were thus excluded from derivative accounting. In November 2025, the Company amended certain of its Canadian purchase and sales contracts to change the sales price on 1,055 gross Mcf per day of the Canadian natural gas that it sold during the period from April 1, 2026 to October 31, 2026 to a fixed index price before differentials of $2.94 Canadian dollars per Mcf, with remaining volumes continuing to be sold at spot prices. This per day volume of natural gas under this fixed index price contract that will affect the period from April 1, 2026 to October 31, 2026, is equivalent to approximately 39% of Canadian natural gas gross production per day 37 for the quarter ended December 31, 2025. These natural gas contracts were eligible for and elected as normal purchase and normal sales exception contracts and were thus excluded from derivative accounting. In June 2025, the Company amended the sales price on 100 gross barrels per day of the Canadian oil to be sold during the period from July 1, 2025 to December 31, 2025 to a fixed index price before differentials of $70.35 per net barrel, with remaining volumes continuing to be sold at spot prices. This per day volume of oil under this fixed index price contract affected the period from July 1, 2025 to December 31, 2025, is equivalent to approximately 26% of Canadian oil gross production per day for the three months ended December 31, 2025. In January 2026, the Company amended the sales price on 100 gross barrels per day of the Canadian oil to be sold during the period from February 1, 2026 to July 31, 2026 to a fixed index price before differentials of $58.20 per net barrel, with remaining volumes continuing to be sold at spot prices. This per day volume of oil under this fixed index price contract that will affect the period from February 1, 2026 to July 31, 2026, is equivalent to approximately 26% of Canadian oil gross production per day for the quarter ended December 31, 2025. These natural gas contracts were eligible for and elected as normal purchase and normal sales exception contracts and were thus excluded from derivative accounting. These oil contracts were eligible for and elected as normal purchase and normal sales exception contracts and were thus excluded from derivative accounting. Oil and natural gas operating expenses decreased $425,000 (17%) for the three months ended December 31, 2025, as compared to the same period in the prior year, primarily due to decreases in production in the current year period due to the sale of the U.S. oil and natural gas properties and the sale of Barnwell's interest in certain oil and natural gas properties in Canada. Oil and natural gas segment depletion decreased $313,000 (35%) for the three months ended December 31, 2025, as compared to the same period in the prior year. The decrease was primarily due to decreases in production in the current year period as compared to the same period in the prior year. On August 8, 2025, Barnwell entered into an agreement with an independent third party to sell all of its working interest in U.S. oil and natural gas assets for a sales price of $ 2,300,000 . The sales price per the agreement was adjusted for customary purchase price adjustments to reflect the economic activity from the effective date of July 1, 2025 to the closing date August 8, 2025. The U.S. oil and natural gas assets were located in the states of Texas and Oklahoma and were owned by wholly-owned subsidiaries of Barnwell. Barnwell will no longer own any oil and natural gas assets in the U.S. as a result of this sale. Operating revenues from these U.S. oil and natural gas properties represented 9% of the total oil and natural gas segment operating revenues for the three months ended December 31, 2024. Contracts to Sell Interests in Increment II In November 2025, Kaupulehu Developments entered into an agreement with Mr. David Johnston, the son of Mr. Terry Johnston, a partner in Kaupulehu Developments, to surrender any and all remaining rights of Kaupulehu Developments for Increment II for the total consideration of $ 2,000,000 , of which $ 70,000 was received in the three months ended December 31, 2025. Additionally, the purchaser has the right to extend the closing by up to two years by making a $ 70,000 payment in each of the next two years , with those payments applied against the $ 2,000,000 purchase price. The closing of this transaction is entirely dependent on the purchaser and therefore may not happen. Also in November 2025, pursuant to a unit purchase agreement, KDK agreed to sell KDK’s interests in Increment II to Mr. David Johnston for $ 2,109,000 . The unit purchase agreement is subject to due diligence, and there is no certainty that the transaction will close. Furthermore, there is also no assurance on the timing or amounts that the general partner of KDK would distribute upon a closing. 38 General and Administrative Expenses General and administrative expenses increased $453,000 (39%) for the three months ended December 31, 2025 as compared to the same period in the prior year. The increase was due to $257,000 higher personnel costs for the new staff hired in Canada during the transition period in advance of closing of the Hawaii office on January 31, 2026, $101,000 higher non-cash cost shares issued to the new Chief Financial Officer and $116,000 higher professional service fees primarily due to in new fees and costs incurred, for legal services, proxy solicitation, proxy advisory, and public relations costs related to a shareholder consent solicitation, various legal actions between the Sherwood Group and the Company and certain of its directors, and a proxy contest in the current year period as compared to the same period in the prior year. The aforementioned shareholder proxy contest, consent solicitation and various legal actions is not continuing, though the Company incurred $169,000 of costs related thereto during the quarter. Since inception of these matters, the Company has received $ 250,000 in insurance proceeds towards these and other costs incurred thereto. In addition, the Company is expecting to receive another $ 150,000 in insurance proceeds and has accrued a receivable for this amount. In this regard, the insurer has confirmed that certain costs incurred by the Company are eligible for claim under the Company's insurance policies. However, the amount ultimately recoverable through insurance will depend upon their review of eligible legal costs incurred and the recoverable amount may differ from management's estimate. Depletion, Depreciation, and Amortization Depletion, depreciation, and amortization decreased $312,000 (35%) for the three months ended December 31, 2025, as compared to the same period in the prior year, primarily due to decreases in production, as discussed in the “Oil and natural gas” section above. Impairment of Assets Under the full cost method of accounting, the Company performs quarterly oil and natural gas ceiling test calculations. Changes in the 12-month rolling average first-day-of-the-month prices for oil, natural gas and natural gas liquids prices (except where prices are defined by contractual arrangements), the value of reserve additions as compared to the amount of capital expenditures to obtain them, and changes in production rates and estimated levels of reserves, future development costs and the market value of unproved properties, impact the determination of the maximum carrying value of oil and natural gas properties. During the three months ended December 31, 2025, the Company had no impairments to oil and natural gas properties. During the three months ended December 31, 2024, the Company incurred a non-cash ceiling test impairment on our U.S. oil and natural gas properties of $613,000. Foreign Currency (Gain) Loss During the three months ended December 31, 2025 and 2024, there was a $47,000 foreign currency gain and a $351,000 foreign currency loss, respectively, due to the effects of foreign exchange rate changes on intercompany loans and advances as a result of changes in the exchange rate between the 39 U.S. dollar against the Canadian dollar. The foreign currency losses or gains from intercompany balances are included in our Condensed Consolidated Statements of Operations as the intercompany balances were not considered long-term in nature because management estimates that these intercompany balances will be settled in the future. Equity in Income of Affiliates Equity in income of affiliates was nil for the three months ended December 31, 2025 and 2024 as there were no lots sold in the current year or prior year periods. No cash distributions were received during the three months ended December 31, 2025 and 2024. In the quarter ended June 30, 2021, the Company received cumulative distributions from the Kukio Resort Land Development Partnerships in excess of our investment balance and in accordance with applicable accounting guidance, the Company suspended its equity method earnings recognition and the Kukio Resort Land Development Partnerships investment balance was reduced to zero with the distributions received in excess of our investment balance recorded as equity in income of affiliates because the distributions are not refundable by agreement or by law and the Company is not liable for the obligations of or otherwise committed to provide financial support to the Kukio Resort Land Development Partnerships. The Company will record future equity method earnings only after our share of the Kukio Resort Land Development Partnerships’ cumulative earnings in excess of distributions during the suspended period exceeds our share of the Kukio Resort Land Development Partnerships’ income recognized for the excess distributions, and during this suspended period any distributions received will be recorded as equity in income of affiliates. Accordingly, no equity in income of affiliates was recognized in the three months ended December 31, 2025. Cumulative distributions received from the Kukio Resort Land Development Partnerships in excess of our investment balance was $ 116,000 at December 31, 2025 and $ 106,000 at September 30, 2025. Income Taxes Barnwell’s effective consolidated income tax rate from continuing operations, after adjusting loss from continuing operations before income taxes for non-controlling interests, was 5% for the three months ended December 31, 2025 as compared to nil for the three months ended December 31, 2024. Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. The Company operates two subsidiaries in Canada, one of which is a U.S. corporation operating as a branch in Canada that is treated as a non-resident for Canadian tax purposes and thus has operating results that cannot be offset against or combined with the other Canadian subsidiary that files as a resident for Canadian tax purposes. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. 40 Net (Loss) Earnings Attributable to Non-controlling Interests Earnings and losses attributable to non-controlling interests represent the non-controlling interests’ share of revenues and expenses related to the various partnerships and joint ventures in which Barnwell has controlling interests and consolidates. Net earnings attributable to non-controlling interests totaled $14,000 for the three months ended December 31, 2025 as compared to net loss attributable to non-controlling interests of $2,000 for the same period in the prior year. The change of $16,000 ( 800%) for the three months was primarily due to the increase in the amount of equity in income of affiliates and percentage of sales revenues received in the current year periods as compared to the same period in the prior year. Net (Loss) Earnings From Discontinued Operations Net earnings from discontinued operations was nil during three months ended December 31, 2025 as compared to net loss from discontinued operations of $ 319,000 during the three months ended December 31, 2024. On March 14, 2025, the Company completed the sale of Water Resources, which represented the Company’s contract drilling segment. The financial results of the Company’s contract drilling business has been presented as discontinued operations in the condensed consolidated financial statements for all periods presented. See Note 3 “Discontinued Operations” to the Condensed Consolidated Financial Statements (unaudited) included in this report for further discussion and additional disclosures related to discontinued operations. Liquidity and Capital Resources The Company has presented cash flows from discontinued operations in the accompanying Condensed Consolidated Statements of Cash Flows separately after the presentation of cash flows from operating, investing, and financing activities of continuing operations. See Note 3 “Discontinued Operations” to the Condensed Consolidated Financial Statements (unaudited) included in this report for further discussion and additional disclosures related to discontinued operations. The focus of this section, “Liquidity and Capital Resources,” is on the cash flows from continuing operations, which affects future liquidity and capital resources as the Company no longer has any significant continuing involvement with the discontinued operations after the sale. At December 31, 2025, Barnwell had a working capital surplus of $1,826,000. Barnwell’s primary sources of liquidity are cash on hand and cash flow generated by our oil and natural gas operations, as cash flow from our land investment segment, if any, are expected to be intermittent and not significant to our liquidity. Included in the working capital surplus at December 31, 2025 mentioned above are incurred but unpaid legal and other professional service costs related to the shareholder contest amounting to $596,000, or $446,000 net of $150,000 of estimated accrued insurance recoveries receivable. Future cash inflows will need to be utilized to pay down these incurred but unpaid costs. 41 Cash Flows From Continuing Operations Cash flows used in continuing operations totaled $1,767,000 for the three months ended December 31, 2025, as compared to cash flows used in continuing operations of $552,000 for the same period in the prior year. This $1,215,000 decrease in operating cash flows was primarily due to lower operating results for the oil and natural gas segment in the current year period as compared to the same period in the prior year as a result of the sale of the U.S. oil and gas operations and higher general and administrative expenses in the current year period. The change was also due to the effect of changes in current assets and liabilities, which was a decrease in operating cash flows of $615,000 in the current year period as compared to a decrease of $881,000 in the prior year period. Cash flows provided by financing activities from continuing operations totaled $2,426,000 and nil for the three months ended December 31, 2025, and 2024, respectively. The $2,426,000 change in financing cash flows was due to the private placement of 2,221,141 common shares at $1.10 per share in the three months ended December 31, 2025. Oil and Natural Gas Capital Expenditures Barnwell’s oil and natural gas capital expenditures, including accrued capital expenditures and excluding acquisitions and additions and revisions to estimated asset retirement obligations, totaled $28,000 for the three months ended December 31, 2025, as compared to $2,529,000 for the same period in the prior year. Oil and Natural Gas Property Dispositions There were no significant oil and natural gas property dispositions during the three months ended December 31, 2025. On August 8, 2025, Barnwell entered into an agreement with an independent third party to sell all of its working interest in U.S. oil and natural gas assets for a sales price of $2,300,000. The sales price per the agreement was adjusted for customary purchase price adjustments to reflect the economic activity from the effective date of July 1, 2025 to the closing date August 8, 2025. The U.S. oil and natural gas assets were located in the states of Texas and Oklahoma and were owned by wholly-owned subsidiaries of Barnwell. Barnwell no longer owns any oil and natural gas assets in the U.S. as a result of this sale. On August 28, 2025, Barnwell entered into and completed a purchase and sale agreement with an independent third party and sold its interests in certain oil and natural gas properties located in the Medicine River area of Alberta, Canada. The sales price per the agreement was adjusted for customary purchase price adjustments to $288,000 in order to, among other things, reflect an economic closing date of September 30, 2025. The final determination of the customary adjustments to the purchase price has not yet been made; however, it is not expected to result in a material adjustment. The proceeds were credited to the full cost pool, with no gain or loss recognized, as the sale did not result in a significant alteration of the relationship between capitalized costs and proved reserves.