Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operation.
The information set forth in this section contains
certain “forward-looking statements”, including, among others (i) expected changes in our revenue and profitability, (ii)
prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other
than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such
as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements
relate to our plans, liquidity, ability to complete financing and purchase capital expenditures, growth of our business including entering
into future agreements with companies, and plans to successfully develop and obtain approval to market our product. We have based these
forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe
may affect our financial condition, results of operations, business strategy and financial needs.
48
Although we believe that our expectations with
respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and
operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in
this Annual Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.
We assume no obligation to update these forward-looking
statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.
Our revenues and results of operations could
differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to,
the following: the risk of significant natural disaster, the inability of our company to insure against certain risks, inflationary and
deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting
our products and businesses.
You should read the following discussion and
analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this
Annual Report.
US Dollars are denoted herein by “USD”,
“$” and “dollars”.
Organization and Overview of Operations
On December 31, 2024, the Company entered into
an asset purchase agreement (the “Asset Purchase Agreement”) with an unrelated third party, pursuant to which the Company
agreed to sell, and the unrelated third party agreed to purchase, the Company’s skincare business. The sale of the skincare business
was consummated on January 16, 2025.
Prior to entering into the Asset Purchase Agreement,
the Company’s principal business was operating a skincare development company engaged in the design, manufacture, and marketing
of skincare products in the skincare industry. After the sale of the skincare business, the Company changed its principal business. PMGC
Holdings Inc. is a diversified holding company that manages and grows its portfolio through strategic acquisitions, investments, and development
across various industries.
As part of its diversification and growth strategy,
the Company completed the following acquisitions during the third quarter of 2025:
●
On July 7, 2025, the Company completed the acquisition of Pacific Sun Packaging Inc., a California-based custom IT packaging company.
●
On July 18, 2025, the Company acquired AGA Precision Systems LLC, a California-based CNC machining company.
●
On October 26, 2025, the Company, through its wholly owned subsidiary AGA Precision Systems LLC, acquired certain assets of Indarg Engineering, Inc., a California-based precision CNC machining business.
The Company manages and operates a diverse portfolio of wholly owned
subsidiaries, as of December 31, 2025:
●
NorthStrive BioSciences Inc. – Biosciences is a biopharmaceutical company focusing on the development and acquisition of cutting-edge aesthetic medicines and therapeutic products. This company’s lead asset, EL-22, is leveraging a first-in-class engineered probiotic approach to address obesity’s pressing issue of preserving muscle while on weight loss treatments, including GLP-1 receptor agonists. For more information, please visit www.northstrivebio.com.
●
PMGC Research Inc. – PMGC Research was based in
Canada and dedicated to medical scientific research and development efforts, utilizing Canadian research grants and partnering with leading
Canadian Universities, with aims of pushing the boundaries of innovation. On November 12, 2025, PMGC Research was dissolved.
●
PMGC Capital LLC – PMGC
Capital is a multi-strategy investment firm focused on direct investments, strategic lending, and acquiring undervalued companies
and assets across diverse markets. This company’s mission is to identify and seize high-potential opportunities, delivering
sustainable growth and maximizing returns on capital.
●
Pacific Sun Packaging Inc . – Pacific Sun is a California-based custom IT packaging company providing innovative, sustainable, and technology-driven packaging solutions to industrial and consumer markets.
●
AGA Precision Systems LLC. – AGA is a California-based precision engineering and CNC machining company specializing in the design and production of high-tolerance components for industrial and technology applications. In October 2025, AGA acquired substantially all the operating assets of Indarg Engineering, Inc. AGA expands PMGC’s advanced manufacturing footprint and enhances its capacity to deliver vertically integrated engineering and production solutions across multiple sectors.
49
Outlook
Management’s Plans
Over the next twelve months, we intend to focus
on:
●
Increasing revenue by achieving successful returns on capital through PMGC Capital LLC, our multi-strategy investment vehicle, by acquiring and managing undervalued assets, public and private investments, and structured financing opportunities.
●
Establishing new wholly owned subsidiaries to develop and commercialize newly acquired or licensed assets across various industries.
●
Utilizing clinical validation studies to strengthen the commercial potential and scientific credibility of our portfolio companies’ technologies.
●
Advancing clinical development to progress NorthStrive Biosciences, Inc.’s clinical assets toward Investigational New Drug (IND) applications.
●
Pursuing additional acquisitions of operating business-to-business companies with positive EBITDA.
●
Evaluating potential opportunities such as out licensing our biotechnology applications, potential spin-offs, and creating new publicly traded companies, such as Special Purpose Acquisition Corporations (“SPACs”).
Results of Operations
Comparison of the Years Ended December 31,
2025 and 2024.
The following table provides certain selected
financial information for continuing operations for the periods presented:
Year Ended
December 31,
2025
Year Ended
December 31, 2024
Change
Revenue
590,084
-
590,084
Cost of goods sold
404,770
-
404,770
Gross profit
185,314
-
185,314
Marketing and Promotion
$ 200,940
292,522
(91,582 )
Consulting Fees
$ 1,769,505
1,367,273
402,232
Office and Administration
$ 2,238,660
1,092,576
1,146,084
Professional Fees
$ 1,423,021
563,242
859,779
Investor Relations
$ 253,333
208,326
45,007
Research and Development
$ 147,010
104,654
42,356
Repair and maintenance
717,654
-
717,654
Total operating expenses
$ 7,067,262
3,663,566
3,403,696
Other income (expense) 1
$ (867,820 )
(353,148 )
(514,672 )
Net loss from continuing operations
$ (7,780,740 )
(4,016,714 )
(3,764,026 )
Basic and dilutive loss per common share – continuing operations
$ (382.301 )
(4,239.702 )
3,857.401
Weighted average number of shares outstanding – basic and diluted
20,352
947
1
Other expenses relate to finance cost, interest income, interest expense,
dividend income, unrealized fair value gain/loss on investment, realized loss on sale of investments, fair value change on derivative
liabilities, gain on the termination of the intangible asset and fair value gain/loss on derivative liability, gain on extinguish of related
party debt, impairment on prepaid expense and loss on disposal of PP&E.
50
Revenue
Revenue for the year ended December 31, 2025, was
$590,084 as compared to $nil for the year ended December 31, 2024, an increase of $590,084. Revenue was generated by the Company’s
newly acquired subsidiaries.
Our revenue by category is as follows:
For the
year Ended
December 31,
2025
Pacific Sun – Sale of IT packaging
$ 374,874
AGA – Machine work
215,210
Total Revenue
$ 590,084
Cost of Revenue
Cost of revenue for the year ended December 31,
2025, was $404,770 as compared to $nil for the year ended December 31, 2024.
The increase in cost of revenue is directly attributed
to the increase in sales during the year ended December 31, 2025, compared to 2024. The following is a breakdown of the components of
the cost of revenue:
For the year ended December 31, 2025
Pacific Sun – Sale of IT
packaging
AGA – Machine work
Total
Cost of inventory
$ 208,402
$ 109,347
$ 317,749
Sales commission
6,875
-
6,875
Assembly and manufacturing expense
1,088
23,560
24,648
Shipping and handling cost
48,466
6,149
54,615
Inventory write down and wastage
883
-
883
Total Cost of Revenue
$ 265,714
$ 139,056
$ 404,770
Gross Profit
Gross profit for the year ended December 31, 2025,
was $185,314, as compared to $nil for the year ended December 31, 2024, an increase of $185,314. This represents an overall gross margin
percentage of 31.4% for the year ended December 31, 2025, compared to $nil in 2024. The increase in gross profit and gross margin percentage
was primarily attributable to the inclusion of revenues generated from the newly acquired subsidiaries.
The following is a breakdown of gross profit percentage
by category:
For the
year Ended
December 31,
2025
Pacific Sun – Sale of IT packaging
29.1 %
AGA – Machine work
35.4 %
Overall Gross Profit Percentage
31.4 %
The gross margin percentage on the sale of IT
packaging is negatively impacted by the fair value adjustment to inventory recorded as part of the purchase price allocation. This adjustment
is expensed to cost of revenue as inventory is sold. Normalizing for this adjustment, the gross margin percentage on the sale of IT packaging
would have been 49.2%.
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Research and Development Expenses
Research and development expenses for the year
ended December 31, 2025, were $147,010 compared to $104,654 for the year ended December 31, 2024, an increase of $42,356. Research and
development related to the Company’s spending on clinical validation studies. The increase in research and development was mainly
driven by the Company continuously working on its research project of EL-22 and the costs of its Type B pre-Investigational New Drug (“pre-IND”)
meeting with the U.S. Food and Drug Administration.
Marketing and Promotion
Marketing and promotion expenses for the year
ended December 31, 2025, were $200,940 compared to $292,522 for the year ended December 31, 2024, a decrease of $91,582. During the year
ended December 31, 2024, the Company engaged an investor relations agency under a $125,000 agreement signed on January 5, 2024, to support
external communications and investor engagement efforts. No comparable agreement was entered into during the year ended December 31, 2025.
Office and Administrative Expenses
Office and administrative expenses for the year
ended December 31, 2025, were $2,238,660, compared to $1,092,576 for year ended December 31, 2024, an increase of $1,146,084. The increase
was driven by higher business activity levels, general price increases, and a shift in cost responsibilities following the disposition
of the Company’s skincare business. The newly acquired businesses contributed $508,291 to office and administrative expenses since
the acquisitions.
Consulting Fees
Consulting fees for the year ended December 31,
2025, were $1,769,505, compared to $1,367,273 for the year ended December 31, 2024, an increase of $402,232. The Company’s Chief
Executive Officer, Chief Financial Officer, and Chairman provide services in a consulting capacity. The increase was primarily driven
by bonus-related consulting expenses of $871,600 (2024 – $350,000), representing contractual bonuses approved by the Board of Directors
and the Compensation Committee. The increases were partially offset by a decrease in external consulting services.
Professional Fees
Professional fees for the year ended December
31, 2025, was $1,423,021, compared to $563,242 for the year ended December 31, 2024, an increase of $859,779. Professional fees are comprised
of legal, audit and accounting services. The increase during 2025, was primarily due to an increase in audit, legal
and accounting services given the Company’s corporate restructuring, business acquisition due diligence, and financing efforts conducted
during the year ended December 31, 2025.
Investor Relations
Investor relations expenses for the year ended
December 31, 2025, were $253,333, compared to $208,326 for the year ended December 31, 2024, an increase of $45,007. The increase is primarily
attributable to an increase in public relations and media coverage expenses during the year ended December 31, 2025 compared to the year
ended December 31, 2024.
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Repairs and Maintenance
Repairs and maintenance expenses for the year
ended December 31, 2025, were $717,654, with no comparable expense in the year ended December 31, 2024. Following the acquisition of AGA and certain assets of Indarg Engineering, the Company incurred cost on building maintenance, machine repair and recalibration
of equipment. These costs were necessary to optimize operations and maintain the useful lives of equipment acquired in the acquisition.
Other income (expense)
Other income (expense) for the year ended December 31, 2025, amounted
to a net loss of $ 867,820, compared to net loss of $353,148 for the year ended December 31, 2024, representing an unfavorable variance
of $514,672. The variance was primarily attributable to $500,000 of impairment on prepaid expense, $179,479 of finance costs, $113,917
of realized losses on investments, and $216,043 of unrealized losses on investments recognized during 2025, whereas no comparable amounts
were recorded in the prior year and a decrease in fair value gain on derivative liabilities from $369,158 in the prior year to $214,167
in the current year. In addition, the Company recognized a $32,432 loss on the disposal of property and equipment during the year. These
unfavorable items were partially offset by several favorable changes compared to the prior year, including a $490,563 decrease in interest
expense to $244,634 in 2025 from $735,197 in 2024, $107,190 higher interest income, $15,550 of dividend income, a $129,613 gain on the
termination of an intangible asset, a $31,261 gain on extinguishment of related-party debt, and a $31,028 increase in other income.
Liquidity and Capital Resources
The accompanying consolidated financial statements
have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities
in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support
from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and ultimately the attainment
of profitable operations.
As of December 31, 2025 and 2024, the Company had a net working capital
of $2,928,959 and $4,251,867, respectively, and has an accumulated deficit of $21,017,440 and $13,269,627, respectively. Furthermore,
for the years ended December 31, 2025 and 2024, the Company incurred a net loss of $7,747,813 and $6,245,737, respectively and used $5,933,881
and $5,486,980, respectively of cash flows for operating activities. These factors raise substantial doubt regarding the Company’s
ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Our principal liquidity requirements are for working
capital, capital expenditure and research and development. We fund our liquidity requirements primarily through cash on hand and the issuance
of common and preferred stock. As of December 31, 2025, we had cash of $5,402,333, with $3,984,453 as of December 31, 2024.
The Company expects an improvement in liquidity
and capital resources, including cash obtained from any sale of investment securities it currently owns. Cash flows used in discontinued
operating and investing activities and assets and liabilities held for sale has been excluded from our analysis. The Company may be paid
additional earn-out consideration in connection with the sale of its skincare business, consisting of potential payments for each year
ending on the anniversary of the closing date of the disposition during the five-year period following the closing equal to 5% of the
sales generated during such year from the existing products as of the closing and a one-time payment of $500,000 if the buyer achieves
$500,000 in revenue from sales of the existing hair and scalp products as of the closing on or before the 24-month anniversary of the
closing date of the disposition. The Company plans to use the cash obtained from any sale of investment securities or earnout payment
for working capital.
53
The following table provides selected financial
data as of December 31, 2025, and December 31, 2024, respectively (excluding assets and liabilities held for sale).
December 31, 2025
December 31, 2024
Change
Current assets
$ 6,871,255
$ 4,858,193
$ 2,013,062
Current liabilities
$ 3,942,296
$ 1,250,218
$ 2,692,078
Working capital
$ 2,928,959
$ 3,607,975
$ (679,016 )
The following table summarizes our cash flows
from operating, investing and financing activities from continuing operations:
Year Ended December 31, 2025
Year Ended December 31, 2024
Change
Cash used in operating activities
$ (5,802,550 )
$ (2,800,601 )
$ (3,001,949 )
Cash used in investing activities
$ (2,765,154 )
$ (601,404 )
$ (2,163,750 )
Cash provided by financing activities
$ 10,116,738
$ 6,757,500
$ 3,359,238
Cash Flow from Operating Activities
For the year ended December 31, 2025, net cash
flows used in operating activities for continuing operations was $5,802,550 compared to $2,800,601 used during the year ended December
31, 2024, respectively, primarily due to net loss and timing of settlement of assets and liabilities.
Cash Flows from Investing Activities
During the year ended December 31, 2025, and 2024,
we used $2,765,154 and $601,404, respectively, in investing activities. The increase was primarily driven by business acquisition activity
of $2,162,756, purchases of investments of $1,789,044, equipment purchases of $442,255, earnout payments of $114,969, and purchases of
intangible assets of $6,000. These uses of cash were partially offset by $1,762,201 proceeds from the sale of investments and $127,300
related to the issuance of a promissory note.
Cash Flows from Financing Activities
During the year ended December 31, 2025, we
had net cash flow provided by financing activities of $10,116,738 compared to cash flow provided by financing activities of
$6,757,500 in 2024. During 2025, the Company received $3,990,007 from the initial pre-paid purchase under its equity purchase
facility (ELOC), $1,672,103 from the issuance of common stock under its At-the-Market (“ATM”) sales agreement, and $1,245,306 from
a registered direct offering of common stock and prefunded warrants. In addition, the Company received $1,698,058 from the exercise
of Series A warrants and $1,511,443 from the exercise of replacement warrants issued on January 27, 2025. These inflows were
partially offset by $179 used for the repurchase of shares.
Critical Accounting Policies and Significant
Judgments and Estimates
This discussion and analysis of our financial
condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States (“U.S. GAAP”). The preparation of the consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to revenue recognition, the collectability
of receivables, valuation of inventory, fair value of investments in securities, derivative liabilities and stock options, useful lives
and recoverability of long-lived assets, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions
on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results
of which form the basis for making judgements about the carrying value of assets and liabilities and the accrual of costs and expenses
that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from
those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the consolidated financial
statements in the period they are determined.
54
Business Combinations
The Company accounts for business combinations
using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under this method, the purchase consideration
transferred is measured at fair value on the acquisition date and allocated to the identifiable assets acquired and liabilities assumed
based on their estimated fair values. Any excess of the purchase consideration over the fair value of the identifiable net assets acquired
is recorded as goodwill.
Acquisition-related costs (such as legal, due
diligence, and advisory fees) are expensed as incurred and presented within general and administrative expenses in the consolidated statements
of operations.
Contingent consideration, if any, is recorded
at fair value on the acquisition date and subsequently remeasured at each reporting period, with changes in fair value recognized in earnings
in accordance with ASC 805-30-35 and ASC 450, Contingencies.
During the year ended December 31, 2025, the
Company completed three acquisitions—Pacific Sun Packaging Inc. AGA Precision Systems LLC and certain assets of Indarg
Engineering, Inc. —which were accounted for under ASC 805. The initial purchase price allocations are preliminary and subject
to adjustment upon completion of final valuation analyses.
Foreign Currency Translation
The Company’s functional and reporting currency
is the U.S. dollar. The functional currency of the Company’s Canadian subsidiary, PMGC Research Inc. (“PMGC Research”)
is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing
at the balance sheet date. Non-monetary assets, liabilities, and items recorded in income arising from transactions denominated in foreign
currencies are translated at rates of exchange in effect at the date of the transaction. Gains and losses arising on translation or settlement
of foreign currency denominated transactions or balances are included in the determination of income.
The accounts of PMGC Research are translated to
U.S. dollars using the current rate method. Accordingly, assets and liabilities are translated into U.S. dollars at the period-end exchange
rate while revenues and expenses are translated at the average exchange rates during the period. Related exchange gains and losses are
included in a separate component of stockholders’ equity as accumulated other comprehensive income (loss).
Revenue Recognition
Revenue is recognized in accordance with ASC 606,
Revenue from Contracts with Customers, when control of the promised goods or services is transferred to the customer, in an amount that
reflects the consideration the Company expects to receive.
For Pacific Sun Packaging Inc., revenue is recognized at a point in
time upon shipment or delivery, as control transfers to the customer at that stage. For AGA Precision Systems LLC, which includes Indarg
Engineering, Inc., revenue from CNC machining and precision component manufacturing is recognized at a point in time when control of the
finished parts transfers to the customer. Standard shipping terms are FOB shipping point, resulting in transfer of control upon shipment.
In limited delivery arrangements where AGA delivers parts to the customer’s dock, control transfers upon customer receipt.
Convertible debt and embedded derivative liabilities
Hybrid financial instruments with a convertible
debt host contract and embedded derivative liability conversion feature are bifurcated and accounted for separately. The embedded derivative
liability is initially and subsequently measured at fair value in accordance with ASC 815-15 Derivatives and Hedging — Embedded
Derivatives. The convertible debt host contract is accounted for at amortized cost in accordance with ASC 470, Debt and Convertible Instruments.
55
Stock-Based Compensation
Employees - The Company accounts for share-based
compensation under the fair value method which requires all such compensation to employees, including the grant of employee stock options,
to be calculated based on its fair value at the measurement date (generally the grant date), and recognized in the consolidated statement
of operations over the requisite service period.
Nonemployees - During June 2018, the FASB
issued ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU
2018-07”) to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based
payments to employees. Under the requirements of ASU 2018-07, the Company accounts for share-based compensation to non-employees under
the fair value method which requires all such compensation to be calculated based on the fair value at the measurement date (generally
the grant date) and recognized in the statement of operations over the requisite service period.
During the years ended December 31, 2025 and 2024,
the Company recorded $(19,160) and $97,167, respectively, in share-based compensation expense, of which $60,440 and $(79,600) and $93,449
and $3,718, respectively is included in office and administration and discontinued operations, respectively. Within discontinued operations
for the years ended December 31, 2025 and 2024, $(73,768) and $(5,832), and ($599) and $4,317, respectively is included in office and
administration and research and development, respectively.
Determining the appropriate fair value model and
the related assumptions requires judgment. During the year ended December 31, 2025 and the year ended 2024, the fair value of each option
grant was estimated using a Black-Scholes option-pricing model.
The expected volatility represents the historical
volatility of comparable publicly traded companies in similar industries, adjusted for variables such as stock price, market capitalization
and life cycle. Due to limited historical data, the expected term for options granted is equal to the contractual life. The risk-free
interest rate is based on a treasury instrument whose term is consistent with the expected life of stock options. The Company has not
paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to
be zero.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditure or capital resources that is material to investors.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups
Act (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, eases certain reporting
requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will
be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies.
We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial
statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective
dates.
56
Future Related Party Transactions
The Corporate Governance Committee of our
Board of Directors is required to approve all related party transactions. All related party transactions are made or entered into on
terms that are no less favorable to use than can be obtained from unaffiliated third parties.
Impact of Inflation
We do not believe the impact of inflation on our
Company is material.
Inflation Risk
We are also exposed to inflation risk. Inflationary
factors, such as increases in labor costs, could impair our operating results. Although we do not believe that inflation has had a material
impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on
our ability to maintain current levels of gross margin and operating expenses.
Market Risk
Market risk is the risk of loss arising from adverse
changes in market rates and prices. Our market risk exposure is generally limited to those risks that arise in the normal course of business,
as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments
for trading purposes.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk.
We are a smaller reporting company as defined
by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.