Belpointe PREP, LLC 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes appearing elsewhere in this Form 10-K. This discussion contains forward-looking statements that are subject to risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. The factors listed under “Risk Factors” and “Forward-Looking Statements” in this Form 10-K provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations described in any forward-looking statements. Overview We are the first and only publicly traded qualified opportunity fund listed on a national securities exchange. We are a Delaware limited liability company formed on January 24, 2020, and intend to operate in a manner that will allow us to qualify as a partnership for U.S. federal income tax purposes. We are focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within qualified opportunity zones. At least 90% of our assets consist of qualified opportunity zone property. We qualified as a qualified opportunity fund beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund certain of our investors are eligible for favorable capital gains tax treatment on their investments. All of our assets are held by, and all of our operations are conducted through, one or more of our Operating Companies, either directly or indirectly through their subsidiaries. We are externally managed by Belpointe PREP Manager, LLC (our “Manager”), which is an affiliate of our sponsor, Belpointe, LLC (our “Sponsor”). On September 30, 2021, the U.S. Securities and Exchange Commission (the “SEC”) declared effective our registration statement on Form S-11, as amended (File No. 333-255424) (the “Registration Statement”), registering a continuous primary offering of up to $750,000,000 in our Class A units (the “Primary Offering”). From the period of October 7, 2021 through December 31, 2021, we issued 2,132,039 Class A units in our Primary Offering, raising gross offering proceeds of $213.2 million. Together with the gross proceeds raised in Belpointe REIT’s prior offerings, as of December 31, 2021, we have raised aggregate gross offering cash proceeds of $332.2 million. Our Transactions with Belpointe REIT, Inc. Pursuant to the terms of an Agreement and Plan of Merger, dated April 21, 2021 (the “Merger Agreement”), we, through BREIT Merger, LLC, a Delaware limited liability company (“BREIT Merger”), and our wholly-owned subsidiary, completed an offer (the “Offer”) to exchange each outstanding share of common stock, par value $0.01 per share (the “Common Stock”), of Belpointe REIT, Inc., a Maryland corporation (“Belpointe REIT”) validly tendered in the Offer for 1.05 Class A units (the “Class A units”) representing limited liability company interests of the Company, with any fractional Class A units rounded up to the nearest whole unit (the “Transaction Consideration”). Following consummation of the Offer, and upon satisfaction of certain conditions precedent in the Merger Agreement, on October 1, 2021, in accordance with the terms of the Merger Agreement, Belpointe REIT converted from a corporation into BREIT, LLC, a Maryland limited liability company (“BREIT”), with each outstanding share of Common Stock being converted into a limited liability company interest (an “Interest”) in BREIT, and, on October 12, 2021, all other conditions to the Merger (as defined in the Merger Agreement) having been satisfied, BREIT merged with and into BREIT Merger, with BREIT Merger surviving. In the Merger, each Interest issued and outstanding immediately prior to the Merger was converted into the right to receive the Transaction Consideration. Prior to and in connection with the Offer and Merger, we entered into a series of loan transactions with Belpointe REIT whereby: (i) on October 28, 2020, Belpointe REIT advanced us $35.0 million evidenced by a secured promissory note (the “First Secured Note”) bearing interest at a rate of 0.14%, due and payable on the Maturity Date (as hereinafter defined) and secured by all of our assets, (ii) on February 16, 2021, Belpointe REIT advanced us an additional $24.0 million evidenced by a second secured promissory note (the “Second Secured Note”) on the same terms as the First Secured Note, and (iii) on May 28, 2021 we entered into an agreement with Belpointe REIT to amend the Maturity Date of the First Secured Note and Second Secured Note to December 31, 2021 (the “Maturity Date”) and Belpointe REIT advanced us an additional $15.0 million evidenced by a third secured promissory note (the “Third Secured Note” and, together with the First Secured Note and Second Secured Note, the “Secured Notes”) on the same terms as the First Secured Note and Second Secured Note. Upon consummation of the Merger, effective October 12, 2021, we entered into a Release and Cancellation of Indebtedness agreement with BREIT Merger, the surviving entity in the Merger, pursuant to the terms of which BREIT Merger cancelled the Secured Notes and discharged us from all obligations to repay the principal and any accrued interest on the Secured Notes. 38 Table of Contents COVID-19 COVID-19 has and continues to pose significant threats and in certain cases serious disruptions to the U.S. and global economy, and has, among other things, impacted job markets and created ongoing disruptions in global supply chains, leading, in some cases, to increased construction costs and project delays. With vaccines now more widely available, as of the year ended December 31, 2021, the global economy has started to reopen and restrictions previously imposed by governmental and other authorities to contain the spread of the virus have begun to ease. Nevertheless, the recovery could remain uneven and is subject to setbacks. An economic slowdown or sustained downturn, related to COVID-19 or otherwise, continued supply chain disruptions, rising inflation, interest rate increases or weakening of credit markets could adversely affect our financial condition. As a result, we remain unable to predict when normal economic activity and business operations will fully resume and COVID-19 continues to present material uncertainty and risk with respect to our future performance and future financial results, including the potential to negatively impact our costs of operations, the value of any investments we make and laws, regulations and governmental and regulatory policies applicable to us. Our Investments As of December 31, 2021, our investment portfolio consisted of 12 investments in three states. These investments include: Investments in Multifamily and Mixed-Use Rental Properties 1700 Main Street – Sarasota, Florida – 1700 Main Street (“1700 Main”) is a 1.3-acre site, consisting of a former gas station, a three-story office building with parking lot and a three-story retail building, located in Sarasota, Florida, which we acquired for an aggregate purchase price of $6.9 million, inclusive of transaction costs. We currently anticipate that 1700 Main will be redeveloped into a 168-apartment home community consisting of one-bedroom, two-bedroom and three-bedroom apartments, with approximately 7,000 square feet of retail space located on the first two levels. We anticipate that 1700 Main will consist of a 10-story podium style building with a 3-story, 360-space garage and 7-stories of apartments above, including a clubroom, fitness center, courtyards with a swimming pool and rooftop terraces as well as a leasing office. The existing three-story office building will remain, and the new building will wrap around it. 1701-1710 Ringling Boulevard – Sarasota, Florida – 1701-1710 Ringling Boulevard (“1701-1710 Ringling”) is a 1.62-acre site, consisting of a six-story previously owner-occupied office building with parking lot, located in Sarasota, Florida, which we acquired for an aggregate purchase price of $7.0 million, inclusive of transaction costs. We currently anticipate that 1701-1710 Ringling will be renovated into a fully functioning office building, consisting of approximately 80,000 square feet of rentable space and approximately 128 parking spaces, with an existing tenant leasing back approximately 42,000 square feet for 20 years with several lease extensions. 902-1020 First Avenue North and 900 First Avenue North – St. Petersburg, Florida – 902-1020 First Avenue North (“902-1020 First”) consists of several parcels, comprising 1.6-acres of land, located in St. Petersburg, Florida, which we acquired for an aggregate purchase price of $12.1 million, inclusive of transaction costs. We currently anticipate that 902-1020 First will be developed into a high-rise apartment featuring approximately 266-apartment homes consisting of one-bedroom, two-bedroom and three-bedroom apartments, with approximately 22,100 square feet of retail space located on the first level and a four-level parking garage. We anticipate that 902-1020 First will consist of two 15-story high-rise buildings and will have a clubroom, fitness center, courtyard with a swimming pool, shared working space and a game room as well as a leasing office. 900 First Avenue North (“900 First”) is a parcel of land with a two-tenant retail building, located in St. Petersburg, Florida, which we acquired for an aggregate purchase price of $2.5 million, inclusive of transaction costs. We currently anticipate that 900 First will remain a two-tenant retail building and that we will take the additional development rights and add them to 902-1020 First. 1900 Fruitville Road – Sarasota Florida – 1900 Fruitville Road is a 1.205-acre site, consisting of a fully leased retail building and parking lot located in Sarasota, Florida, which we acquired for an aggregate purchase price of $4.7 million, inclusive of transaction costs. The sole tenant in the building vacated in January 2022 and the property will be used as a future development site. 900 8th Avenue South – Nashville, Tennessee – 900 8th Avenue South (“900 8th Avenue South”) is a 3.17-acre land assemblage, consisting of a few small buildings, parking lots and open lots, located in Nashville, Tennessee, which we acquired for an aggregate purchase price of $19.7 million, inclusive of transaction costs. We currently anticipate that 900 8th Avenue South will be redeveloped into an approximately 266-apartment home community consisting of one-bedroom, two-bedroom and three-bedroom apartments, with approximately 14,100 square feet of retail space located on the first level. We anticipate that 900 8th Avenue South will consist of a 7-story building with a 2-story approximately 400-space garage, a fitness center, courtyard with a swimming pool and rooftop terraces as well as a leasing office. As of December 31, 2021 we have completed demolition of 900 8th Avenue South. 39 Table of Contents Storrs Road, Connecticut – Storrs Road (“Storrs Road”) is a 9-acre parcel of land located in Storrs, Connecticut, which we acquired for an aggregate purchase price of $0.1 million, inclusive of transaction costs. We currently anticipate holding Storrs Road for future multifamily development. Nashville No. 2 – Nashville, Tennessee – Our second investment in Nashville, Tennessee (“Nashville No. 2”) is an approximately 8-acre site, consisting of two industrial buildings and associated parking, which we acquired for an aggregate purchase price of $21.0 million, inclusive of transaction costs. We currently anticipate that Nashville No. 2 will be redeveloped into an approximately 412-apartment home community consisting of one-bedroom, two-bedroom and three-bedroom apartments. We anticipate that Nashville No. 2 will consist of two 7-story buildings with a 2-story approximately 533-space garage plus approximately 100 surface level parking spots. The buildings will have a fitness center, game room, co-working spaces, outdoor heated saltwater swimming pool, riverfront courtyards and rooftop terraces as well as a leasing office. Nashville No. 3 – Nashville, Tennessee – Our third investment in Nashville, Tennessee (“Nashville No. 3”) is an approximately 1.66-acre site consisting of a single-story 10,000 square foot retail building and associated parking lot, which we acquired for an aggregate purchase price of $2.1 million, inclusive of transaction costs. Upon closing, the building was leased to the seller through November 2022, with the ability to continue month to month thereafter. 1991 Main Street – Sarasota, Florida – 1991 Main Street (“1991 Main”) is a 5.2-acre site located in Sarasota, Florida, which was originally acquired by Belpointe REIT for an aggregate purchase price of $20.7 million, inclusive of transaction costs and deferred financing fees. In furtherance of the Merger, Belpointe REIT sold its interest in the holding company for 1991 Main (the “1991 Main Interest”) to Belpointe Investment Holding, LLC, a Delaware limited liability company (“BI Holding”) and affiliate of our Chief Executive Officer. In connection with the transaction we provided a $24.8 million loan to BI Holding, which was evidenced by a secured promissory note bearing interest at a rate of 5% per annum and due and payable at maturity on September 14, 2022 (the “BI Secured Note”). Upon consummation of the Merger, we acquired the BI Secured Note as successor in interest to Belpointe REIT. Effective November 30, 2021, we acquired the 1991 Main Interest from BI Holding in consideration of its payment to us of $0.3 million in interest that had accrued under the terms of the BI Secured Note through November 30, 2021, and in satisfaction of its remaining obligations under the BI Secured Note. We currently anticipate that 1991 Main will be redeveloped into an approximately 418-apartment home community consisting of one-, two- and three-bedroom apartments, and four-bedroom town home-style penthouse apartments, with approximately 60,000 square feet of retail space located on the first level. We anticipate that 1991 Main will consist of two high-rise buildings with 7-stories in the front and 10-stories in the rear, and approximately 715 parking spaces including 590 from an existing parking garage and 125 new spaces at the ground level. 901-909 Central Avenue North – St. Petersburg, Florida – 901-909 Central Avenue North is a 0.129-acre site consisting of a fully leased single-story 5,328 gross square foot retail/office building comprised of 4 units located in St. Petersburg, Florida, which we acquired for an aggregate purchase price of $2.6 million, inclusive of transaction costs. Investments in Commercial Real Estate Loans CMC Secured Loan – In furtherance of the Merger, we lent $3.5 million to CMC Storrs SPV, LLC a Connecticut limited liability company (“CMC”), pursuant to the terms of a non-recourse promissory note (the “CMC Note”) secured by a Mortgage Deed and Security Agreement on a property owned by CMC located in Mansfield, Connecticut. CMC used the proceeds from the CMC Note to enter into a Redemption Agreement with BPOZ 497 Middle Holding, LLC, a Connecticut limited liability company (“BPOZ 497”), and indirect majority-owned subsidiary of Belpointe REIT, to redeem BPOZ 497’s preferred equity investment in CMC. Interest accrues on the CMC Note at a rate of 12% per annum and is due and payable at maturity on March 29, 2022. Results of Operations Revenue Rental Revenue For the year ended December 31, 2021 and the period beginning January 24, 2020 (formation) to December 31, 2020, revenue totaled $1.0 million and $0.1 million, respectively, and was primarily derived from lease revenues. Revenue increased by $0.9 million in 2021 compared to the period beginning January 24, 2020 (formation) to December 31, 2020 primarily due to an increase in lease revenues as a result of properties acquired in 2021 as well as properties acquired during the fourth quarter of 2020. 40 Table of Contents Expenses Property Expenses For the year ended December 31, 2021, property expenses totaled $1.1 million, and consisted of property expenses, management fees, real estate taxes, utilities and insurance expenses incurred in relation to our acquired investments. For the period beginning January 24, 2020 (formation) to December 31, 2020, property expenses totaled less than $0.1 million, and consisted of property expenses, real estate taxes, utilities and insurance expenses incurred in relation to our acquired investments. General and Administrative For the year ended December 31, 2021, general and administrative expenses totaled $2.9 million and primarily consisted of employee cost sharing expenses (pursuant to the Management Agreement and Employee and Cost Sharing Agreement), marketing expenses, legal fees, audit and accounting fees. For the period beginning January 24, 2020 (formation) to December 31, 2020, general and administrative expenses totaled $0.1 million and primarily consisted of employee cost sharing expenses and audit fees. Depreciation and Amortization For the year ended December 31, 2021, depreciation and amortization expense totaled $0.6 million and was related to depreciation and amortization incurred on properties acquired. For the period beginning January 24, 2020 (formation) to December 31, 2020, depreciation and amortization expense totaled less than $0.1 million and was related to depreciation and amortization incurred on properties acquired after commencing operations. Other Income (Expense) Gain on Redemption of Equity Investment For the year ended December 31, 2021, gain on redemption of equity investment increased by $0.3 million and is related to CMC’s redemption of BPOZ 497’s preferred equity interest. For additional details, see “—Our Investments—Investments in Commercial Real Estate Loans” above. There was no comparable activity for the period beginning January 24, 2020 (formation) to December 31, 2020. Interest Income For the year ended December 31, 2021, interest income was $0.4 million and is primarily related to interest earned on the BI Secured Note of $0.3 million and interest earned on the CMC Note of $0.1 million. For additional information, see “—Our Investments—Investments in Multifamily and Mixed-Use Rental Properties” and “—Our Investments—Commercial Real Estate Loans” above. There was no comparable activity for the period beginning January 24, 2020 (formation) to December 31, 2020. Other Income (Expense) For the year ended December 31, 2021, other income (expense) primarily relates to sales tax in connection with the 1991 Main parking garage easement agreement and interest expense on the 900 Eighth Promissory Note ( Note 5 ). For the period beginning January 24, 2020 (formation) to December 31, 2020, other income (expense) relates to Belpointe PREP’s interest expense on the Secured Notes. Net income attributable to noncontrolling interest Net income attributable to noncontrolling interest represents the share of earnings generated in entities we consolidate in which we do not own 100% of the equity. For the year ended December 31, 2021, net income attributable to noncontrolling interest predominantly relates to income attributable to the shareholders of Belpointe REIT that did not tender their shares in the Offer for the period beginning on the Exchange Date through October 12, 2021 (the effective date of the Merger). Liquidity and Capital Resources Our primary needs for liquidity and capital resources are to fund our investments, including construction and development costs, pay our Primary Offering and operating fees and expenses, make distributions to the holders of our units and pay interest on any outstanding indebtedness that we incur. 41 Table of Contents Long-Term Liquidity We are dependent on the net proceeds from our Primary Offering to fund our operations. For additional details regarding our Primary Offering, see Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Use of Proceeds from Registered Securities.” We expect to obtain the liquidity and capital resources required to pay our Primary Offering and operating fees and expenses, fund our investments, including construction and development costs, make distributions to holders of our units and pay interest on any outstanding indebtedness that we incur, from the proceeds of the Primary Offering and any future offerings we may conduct, from the advancement of reimbursable expenses by our Manager and its affiliates, including our Sponsor, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations. In addition to making investments in accordance with our investment objectives and strategy, we expect our Primary Offering and operating fees and expenses will include, among other things, the management fee that we will pay to our Manager, legal, audit and valuation fees and expenses, federal and state filing fees, printing expenses, administrative fees, transfer agent fees, marketing and distribution fees, and expenses related to acquiring, financing, appraising and managing our commercial real estate properties. We do not have any office or personnel expenses as we do not have any employees. We will reimburse our Manager and its affiliates, including our Sponsor, for certain out-of-pocket expenses incurred in connection with our organization and operations. Fees payable and expenses reimbursable to our Manager and its affiliates, including our Sponsor, may be paid, at the election of the recipient, in cash, by issuance of our Class A Units at the then-current NAV, or through some combination of the foregoing. If we are unable to raise substantial offering proceeds in our Primary Offering, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate with the performance of the specific assets we acquire. Further, we will have certain fixed operating expenses, including certain expenses associated with our qualification as a publicly traded partnership, regardless of whether we are able to raise substantial funds in our Primary Offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make investments and distributions. Short-Term Liquidity Our Manager and its affiliates, including our Sponsor, have funded our liquidity and capital resources on a short-term basis by advancing us substantially all of our organization and Primary Offering and other operating expenses which we will reimburse to our Manager and its affiliates, including our Sponsor, pursuant to the terms of the Management Agreement and Employee and Cost Sharing Agreement. For additional details, see Item 1. “Business—Human Capital.” The Company became liable to reimburse the Manager and its affiliates, including our Sponsor, when the first closing was held in connection with our Offering, which occurred in October 2021. For the year ended December 31, 2021 and the period beginning January 24, 2020 (formation) to December 31, 2020, our Manager and its affiliates, including our Sponsor, have incurred organization and Primary Offering expenses of $0.6 million and $0.2 million, respectively, on our behalf. For the year ended December 31, 2021 and the period beginning January 24, 2020 (formation) to December 31, 2020, our Manager and its affiliates, including our Sponsor, have incurred operating expenses of $1.3 million and $0.1 million, respectively, on our behalf. Leverage We intend to employ leverage in order to provide more funds available for investment. We believe that careful use of conservatively structured leverage will help us to achieve our diversification goals and potentially enhance the returns on our investments. Our targeted aggregate property-level leverage, excluding any debt at the Company level or on assets under development or redevelopment, after we have acquired a substantial portfolio of stabilized commercial real estate, is between 50-70% of the greater of the cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During the period when we are acquiring, developing and redeveloping our investments, we may employ greater leverage on individual assets. An example of property-level leverage is a mortgage loan secured by an individual property or portfolio of properties incurred or assumed in connection with our acquisition of such property or portfolio of properties. An example of debt at the Company level is a line of credit obtained by us or our Operating Companies. Our Manager may from time to time modify our leverage policy in its discretion in light of then-current economic conditions, relative costs of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. There is no limit on the amount we may borrow with respect to any individual property or portfolio. 42 Table of Contents Capital Resources We currently anticipate that our available capital resources, including the proceeds from our Primary Offering and the proceeds from any construction or other loans that we may incur, when combined with cash flow generated from our operations, will be sufficient to meet our anticipated working capital and capital expenditure requirements for the next 12 months. A portion of the acquisition costs of 1991 Main were funded by a secured loan from First Florida Integrity Bank (the “Acquisition Loan”), which we assumed when we acquired 1991 Main from BI Holding. For additional details regarding our acquisition of 1991 Main, see “—Our Investments—Investments in Multifamily and Mixed-Use Rental Properties—1991 Main Street - Sarasota Florida.” The Acquisition Loan is payable in consecutive monthly payments of interest only, with the outstanding principal balance plus any accrued and unpaid interest due and payable on May 6, 2022. The Acquisition Loan bears interest at a fixed rate of 4.75% per annum and is guaranteed by our Chief Executive Officer. The current outstanding principal balance of the Acquisition Loan is $10.8 million. Cash Flows The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash (amounts in thousands): For the Year Ended December 31, 2021 For the Period Beginning January 24, 2020 (Formation) to December 31, 2020 Cash flows used in operating activities $ (2,268 ) $ (12 ) Cash flows used in investing activities (43,365 ) (28,420 ) Cash flows provided by financing activities 231,401 35,010 Net increase in cash and cash equivalents and restricted cash $ 185,768 $ 6,578 As of December 31, 2021 and 2020, cash and cash equivalents and restricted cash totaled $192.3 million and $6.6 million, respectively. Cash flows used in operating activities for the year ended December 31, 2021 and for the period from January 24, 2020 (formation) through December 31, 2020 primarily relate to the operating properties acquired. Cash flows used in investing activities for the year ended December 31, 2021 relate to properties acquired and property deposits paid, costs paid for our development properties and funding of a loan receivable, all of which were offset by CMC’s redemption of BPOZ 497’s preferred equity interest, the cash acquired in connection with the acquisition of the 1991 Main Interest and the Offer. For additional details regarding the Offer, see Item 1. “Business—Our Transactions with Belpointe REIT, Inc.” Cash flows used in investing activities for the period from January 24, 2020 (formation) through December 31, 2020 primarily relate to properties acquired and costs paid for our development properties. Cash flows provided by financing activities for the year ended December 31, 2021 primarily relates to net proceeds received from the Primary Offering and Secured Notes funded by Belpointe REIT. Cash flows provided by financing activities for the period from January 24, 2020 (formation) through December 31, 2020 primarily relate to the Secured Notes funded by Belpointe REIT, and the private offering proceeds received from our Sponsor and affiliate. For additional details see, Item 1. “Business—Our Transactions with Belpointe REIT, Inc.,” Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Use of Proceeds from Registered Securities,” and Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Unregistered Sales of Equity Securities.” Critical Accounting Policies Our audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. Our significant accounting policies are described in “Note 3 — Summary of Significant Accounting Policies.” Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. The recent accounting changes that may potentially impact our business are described under “Recent Accounting Pronouncements” in “Note 3 — Summary of Significant Accounting Policies.” Off-Balance Sheet Arrangements We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. We are a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, as as a result are not required to provide the information required by this Item. 43 Table of Contents