Tejon Ranch Co: Form 10-Q for the period ended Sep 30, 2023

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, including without limitation statements regarding strategic alliances, the almond, pistachio and grape industries, the future plantings of permanent crops, future yields, prices and water availability for the Company's crops and real estate operations, future prices, production and demand for oil and other minerals, future development of the Company's property, future revenue and income of its jointly-owned travel plaza and other joint venture operations, potential losses to Tejon Ranch Co. and its subsidiaries (the Company, Tejon, we, us, and our) as a result of pending environmental proceedings, the adequacy of future cash flows to fund our operations, and of current assets and contracts to meet our water and other commitments, market value risks associated with investment and risk management activities and with respect to inventory, accounts receivable and our own outstanding indebtedness, ongoing negotiations and other future events and conditions. In some cases, these statements are identifiable through use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “will,” “should,” “would,” “likely,” and similar expressions such as “in the process.” In addition, any statements that refer to projections of our future financial performance, our anticipated growth, and trends in our business and other characterizations of future events or circumstances are forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. These forward-looking statements are not a guarantee of future performance, are subject to assumptions and involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance, or achievement implied by such forward-looking statements. These risks, uncertainties and important factors include, but are not limited to, weather, market and economic forces, availability of financing for land development activities, and competition and success in obtaining various governmental approvals and entitlements for land development activities. No assurance can be given that the actual future results will not differ materially from the forward-looking statements that we make for several reasons, including those described above and in the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K.

OVERVIEW

We are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing, employment, and lifestyle needs of Californians and to create value for our shareholders. In support of these objectives, we have been investing in land planning and entitlement activities for new commercial/industrial and resort/residential land developments and in infrastructure improvements within our active industrial development. Our prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north of Los Angeles and, at its most northerly border, is 15 miles east of Bakersfield.

Business Objectives and Strategies

Our primary business objective is to maximize long-term shareholder value through the monetization of our land-based assets. A key element of our strategy is to entitle and then develop large-scale mixed-use master planned residential and commercial/industrial real estate development projects to serve the growing populations of Southern and Central California. Our mixed-use master planned residential developments include up to 35,278 housing units, and more than 35 million square feet of commercial space. We have obtained entitlements for MV and the first approved final map for the project consisting of 401 residential lots and parcels for hospitality, amenities, and public uses. The Grapevine at Tejon Community has approved entitlements for 12,000 units and 5 million square feet of commercial development. Centennial at Tejon Ranch, or Centennial, had entitlements approved in 2019 by the Los Angeles County Board of Supervisors. These approvals were litigated in two lawsuits filed in Los Angeles County Superior Court in May 2019 and the Company has since worked on defending and addressing the ongoing litigation, including considering all options to address the Superior Court’s January 2022 decision and the Superior Court’s March 22, 2023 final judgment. On May 26, 2023, we filed a Notice of Appeal, thereby appealing the Superior Court’s decision to the Second District of the California Court of Appeal. On June 27, 2023, CBD/CNPS cross-appealed the Superior Court’s ruling. During the appeal process the Superior Court’s order of the rescission of project approvals have been placed on hold. See Note 12 (Commitments and Contingencies) of the Notes to Unaudited Consolidated Financial Statements for additional information regarding the Centennial litigation.

We are currently executing on value creation as we are engaged in construction, commercial sales, and leasing at our fully operational commercial/industrial center, TRCC. As previously reported, we received approval from Kern County allowing for development of multi-family apartment uses within TRCC, on a 27-acre site located immediately north of the Outlets at Tejon. This authorization allows us to develop up to a maximum of 495 multi-family residences, in thirteen apartment buildings, as well as approximately 6,500 square feet of community amenity space and up to 8,000 square feet of community serving retail. All of these efforts are supported by diverse revenue streams generated from other operations, including: farming, mineral resources, ranch operations, and our various joint ventures.

Our Business

We currently operate in five reporting segments: commercial/industrial real estate development; resort/residential real estate development; mineral resources; farming; and ranch operations.

Activities within the commercial/industrial real estate development segment include planning and permitting of land for development; construction of infrastructure; construction of pre-leased buildings; construction of buildings to be leased or sold; and the sale of land to third-parties for their own development. The commercial/industrial real estate development segment also includes activities related to the power plant lease and communications leases.

At the heart of the commercial/industrial real estate development segment is TRCC, a 20 million square foot commercial/industrial development on Interstate 5 just north of the Los Angeles basin. Over six million square feet of industrial, commercial and retail space has already been developed, including distribution centers for IKEA, Caterpillar, Famous Footwear, L'Oreal, Camping World, and Dollar General. TRCC sits on both sides of Interstate 5, giving distributors immediate access to the west coast’s principal north-south goods movement corridor.

We are also involved in multiple joint ventures within TRCC with several partners that help us expand our commercial/industrial business activities:

• A joint venture with TravelCenters of America that owns and operates two travel and truck stop facilities, comprised of five separate gas stations with convenience stores and fast-food restaurants within TRCC-West and TRCC-East.
• A joint venture with Rockefeller Development Group, or Rockefeller:
• TRCC/Rock Outlet Center LLC operates the Outlets at Tejon, a net leasable 326,000 square foot shopping experience in TRCC-East.
• Five joint ventures with Majestic Realty Co., or Majestic, to develop, manage, and operate industrial buildings within TRCC:
• TRC-MRC 1, LLC operates a 480,480 square foot industrial building in TRCC-East, which was completed during 2017 and is fully leased;
• TRC-MRC 2, LLC owns and operates a 651,909 square foot building in TRCC-West that is fully leased;
• TRC-MRC 3, LLC operates a 579,040 square foot industrial building in TRCC-East that is fully leased;
• TRC-MRC 4, LLC was formed in 2021 to pursue the development, construction, leasing and management of a 629,274 square foot industrial building in TRCC-East that is fully leased; and
• TRC-MRC 5 LLC was formed on March 29, 2022, to pursue the development, construction, lease-up, and management of an approximately 446,400 square foot industrial building located within TRCC-East. The project is currently under construction and is expected to be completed by the first quarter of 2024. The building is fully leased.

The resort/residential real estate development segment is actively involved in the land entitlement and development process internally and through a joint venture. Our active developments within this segment are MV, Centennial, and Grapevine.

• MV encompasses a total of 26,417 acres, of which 5,082 acres will be used for a mixed-use development that will include housing, retail, and commercial components. MV is entitled for 3,450 homes, 160,000 square feet of commercial development, 750 hotel keys, and more than 21,335 acres of open space. The first final map for the project consisting of 401 residential lots and parcels for hospitality, amenities, and public uses was approved by Kern County in December 2021;
• The Centennial development is a mixed-use master planned community development encompassing 12,323 acres of our land within Los Angeles County. Upon completion of Centennial, it is estimated that the community will include approximately 19,333 homes and 10.1 million square feet of commercial development, including nearly 3,500 affordable units. See Note 12 (Commitments and Contingencies) of the Notes to Unaudited Consolidated Financial Statements for additional information related to current litigation;
• Grapevine is an 8,010-acre development area located on the San Joaquin Valley floor area of our lands, adjacent to TRCC. Upon completion of Grapevine, the community will include 12,000 homes, 5.1 million square feet of commercial development, and more than 3,367 acres of open space and parks; and
• Immediately northeast of Grapevine is Grapevine North, a 7,655-acre development area, which is currently used for agricultural purposes. Identified as a development area in the RWA, Grapevine North presents a significant opportunity for future development. Grapevine North is envisioned to be a mixed-use community development similar to Grapevine at Tejon Ranch, or other development uses as appropriate based upon market conditions at the time.

Please refer to our Annual Report on Form 10-K for the year ended December 31, 2022, for a more detailed description of our active developments within the resort/residential real estate development segment.

Our mineral resources segment generates revenues from oil and gas royalty leases, rock and aggregate mining leases, a lease with National Cement Company of California Inc., and water sales.

The farming segment produces revenues from the sale of wine grapes, almonds, and pistachios.

Lastly, the ranch operations segment consists of game management revenues and ancillary land uses such as grazing leases and filming.

Summary of 2023 Performance

For the three months ended September 30, 2023, we had a net loss attributable to common stockholders of $341,000 compared to net income of $10,184,000 for the three months ended September 30, 2022. The primary driver of this decrease was from our commercial/industrial segment, which had a $14,247,000 decline in its operating profit over the comparative period. The decline was caused by the absence of land sales during the current period. Partially offsetting this decrease was a $4,461,000 improvement in farming segment operating results, driven by lower cost of sales and lower water costs.

For the nine months ended September 30, 2023, we had net income attributable to common stockholders of $1,700,000 compared to $13,824,000 for the same period in 2022. The primary factor driving this decline was due to the absence of land sales in 2023 compared to two land sales in 2022 in our commercial/industrial segment, contributing to a $17,571,000 decrease in operating income. Another factor driving the decline was a $3,252,000 decrease in mineral resources segment operating profit, mainly attributable to limited opportunities to sell water as a result of the 100% SWP allocation. The above decreases were offset by an improvement in farming segment operating results of $5,832,000, attributable primarily to lower cost of sales and lower water costs. Also offsetting the decreases was lower income tax expense by $2,643,000 over the comparative period, resulting from lower operating income recognized for the year.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations provides a narrative discussion of our results of operations. It contains the results of operations for each reporting segment of the business and is followed by a discussion of our financial position. It is useful to read the reporting segment information in conjunction with Note 14 (Reporting Segments and Related Information) of the Notes to Unaudited Consolidated Financial Statements.

Critical Accounting Estimates

The preparation of our interim financial statements in accordance with GAAP in the United States, or GAAP, requires us to make estimates and judgments that affect the reported amounts for assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimates that are likely to occur from period to period, use of different estimates that we reasonably could have used in the current period, or would have a material impact on our financial condition or results of operations. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, impairment of long-lived assets, capitalization of costs, allocation of costs related to land sales and leases, stock compensation, and our future ability to utilize deferred tax assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

During the nine months ended September 30, 2023, our critical accounting policies have not changed since the filing of our Annual Report on Form 10-K for the year ended December 31, 2022. Please refer to that filing for a description of our critical accounting policies. Please also refer to Note 1 (Basis of Presentation) in the Notes to Unaudited Consolidated Financial Statements in this report for newly adopted accounting principles.

Results of Operations by Segment

We evaluate the performance of our reporting segments separately, to monitor the different factors affecting financial results. Each reporting segment is subject to review and evaluation, as we monitor current market conditions, market opportunities, and available resources. The performance of each reporting segment is discussed below:

Real Estate – Commercial/Industrial:

($ in thousands)

• Commercial/industrial real estate development segment revenues were $3,397,000 for the three months ended September 30, 2023, a decrease of $18,955,000, or 85%, from $22,352,000 for the three months ended September 30, 2022. The absence of a land sale was the primary driver of this decrease.
• Commercial/industrial real estate development segment expenses were $2,137,000 for the three months ended September 30, 2023, a decrease of $4,708,000, or 69%, from $6,845,000 for the three months ended September 30, 2022. The decrease was primarily attributable to not incurring land cost of sales due to the absence of a land sale in 2023.

($ in thousands)

• Commercial/industrial real estate development segment revenues were $8,706,000 for the first nine months of 2023, a decrease of $23,457,000, or 73%, from $32,163,000 for the first nine months of 2022. As mentioned above, this decrease in revenues was primarily attributable to the absence of land sales during 2023.
• Commercial/industrial real estate development segment expenses were $5,517,000 during the first nine months of 2023, a decrease of $5,886,000, or 52%, from $11,403,000 during the first nine months of 2022. The decrease in expenses is consistent with the reduced revenues from the absence of land sales.

The logistics operators currently located within TRCC have demonstrated success in serving all of California and the western region of the United States, and we showcase their success in our marketing efforts. We expect to continue to focus our marketing strategy for TRCC on the significant labor and logistical benefits of our site, the pro-business approach of Kern County, and the demonstrated success of the current tenants and owners within our development. Our location fits within the logistics model that many companies are using, which favors large, centralized distribution facilities which have been strategically located to maximize the balance of inbound and outbound efficiencies, rather than many decentralized smaller distribution centers. The world-class logistics operators located within TRCC have demonstrated success through utilization of this model. With access to markets of over 40 million people for next-day delivery service, they are also demonstrating success with e-commerce fulfillment.

Our FTZ designation allows businesses to secure the many benefits and cost reductions associated with streamlined movement of goods in and out of the trade zone. This FTZ designation is further supplemented by the AKIP adopted by the Kern County Board of Supervisors. AKIP aims to expand and enhance Kern County's competitiveness by taking affirmative steps to attract new businesses and to encourage the growth and resilience of existing businesses. AKIP provides incentives, such as assistance in obtaining tax incentives, building supporting infrastructure, and workforce development.

We believe the FTZ and AKIP, along with our ability to provide fully entitled, shovel-ready land parcels to support buildings of any size, including buildings one million square feet or larger, can provide us with a potential marketing advantage. Our marketing efforts target the Inland Empire region of Southern California, the Santa Clarita Valley of northern Los Angeles County, the northern part of the San Fernando Valley (due to the limited availability of new product and high real estate costs in these locations), and the San Joaquin Valley of California. We continue to analyze the market and evaluate expansions of industrial buildings for lease either on our own or in partnerships, as we have done with the buildings developed within our joint ventures.

A potential disadvantage to our development strategy is our distance from the ports of Los Angeles and Long Beach in comparison to the warehouse/distribution centers located in the Inland Empire, a large industrial area located east of Los Angeles, which continues its expansion eastward beyond Riverside and San Bernardino, to include Perris, Moreno Valley, and Beaumont. As development in the Inland Empire continues to move east and farther away from the ports, the potential disadvantage of our distance from the ports is being mitigated. Demand for large distribution facilities is continuing to drive development farther east in a search for large, entitled parcels.

During the quarter ended September 30, 2023, vacancy rates in the Inland Empire climbed 100 basis points to 3.9% and net absorption rebounded due to large preleased deliveries. However, new supply continued to outpace net absorption for the seventh consecutive quarter. The average asking rent growth streak snapped, dropping by $0.10 from June 30, 2023 and $0.02 from September 30, 2022. With an increasing vacancy and another 27.4 million square feet in the construction pipeline, vacancy will continue to tick up with rents flattening out. The San Fernando Valley and Ventura County industrial markets continue to see tight conditions, as vacancy and availability sit at historically low numbers. Some vacancy was returned to the market, and the overall vacancy rate in the San Fernando Valley increased by 10 basis points to 0.9%, while in Ventura County, it decreased by 10 basis points to 1.4%. Average asking rates remained strong in the San Fernando Valley at $1.73 per square foot, whereas Ventura County saw a slight decrease to $1.20 per square foot.

Industrial vacancy rates are expected to remain low, and industrial users seeking larger spaces are going further north into neighboring Kern County, and particularly, TRCC, which has attracted increased attention as market conditions tightened. Additionally, TRCC is in a position to capture tenant awareness due to our ability to provide a competitive alternative for users in the Inland Empire and the Santa Clarita Valley. As an example, the Company's TRC-MRC 5 LLC joint venture with Majestic, a Los Angeles-based commercial industrial developer, formed to pursue the development, construction, lease-up, and management of an approximately 446,400 square foot industrial building located within TRCC-East. This industrial building is currently under construction with completion expected during the first quarter of 2024. A lease was secured, in advance of construction, for the entirety of this space with Sunrise Brands, a leading designer, producer, distributor, and retailer of both branded and private-label apparel, who is moving out of Los Angeles.

We expect our commercial/industrial real estate development segment to continue to experience costs, net of amounts capitalized, primarily related to professional service fees, marketing costs, commissions, planning costs, and staffing costs, as we continue to pursue development opportunities. We continue to see the impact of inflation within our construction costs and expect our costs to be impacted by inflation throughout 2023 and possibly into 2024. From a macroeconomic perspective, the tightening of capital markets may cause a near-term slowdown in new commercial real estate developments.

The actual timing and completion of development is difficult to predict, due to the uncertainties of the market. Infrastructure development and marketing activities and costs could continue to increase over several years, as we develop our land holdings. We will also continue to evaluate land resources to determine the highest and best uses for our land holdings. Future land sales are dependent on market circumstances and specific opportunities. Our goal in the future is to increase land value and create future revenue growth through planning and development of commercial and industrial properties.

Real Estate – Resort/Residential:

We are in the preliminary stages of property development for this segment; hence, no revenues or profits are attributed to this segment.

Resort/residential real estate development segment expenses were $367,000 for the three months ended September 30, 2023, a decrease of $5,000, or 1%, from $372,000 for the three months ended September 30, 2022.

Resort/residential real estate development segment expenses were $1,079,000 for the first nine months of 2023, a decrease of $139,000, or 11%, from $1,218,000 for the first nine months of 2022. The decrease is namely attributed to a decrease in payroll and consulting costs.

Our long-term business plan of developing the communities of MV, Centennial, and Grapevine remains unchanged. As home buyer trends change in California to a more suburban orientation and the economy stabilizes, we believe the perception of land values will continue to improve. Long-term macro fundamentals, primarily California's population growth and household formation, will also support housing demand in our region. California also has a significant documented housing shortage, which we believe our communities will help ease. A majority the expenditures and capital investment to be incurred within our resort/residential real estate segment are expected to continue to focus on the mixed-use master planned communities of Centennial, Grapevine, and Mountain Village.

As we move forward with our master planned communities, we expect to explore funding opportunities for the future development of our projects. Such funding opportunities could come from a variety of sources, such as joint ventures with financial partners, debt financing, or the Company’s issuance of additional common stock.

Mineral Resources:

($ in thousands)

• Mineral resources segment revenues were $3,118,000 for the three months ended September 30, 2023, a decrease of $21,000, or 1%, from $3,139,000 for the three months ended September 30, 2022. The reduction in revenues is primarily attributed to a decline in royalties recognized on cement, aggregate and oil gas sales, partially offset by an increase in water sales revenue during the period.
• Mineral resources segment expenses were $2,000,000 for the three months ended September 30, 2023, an increase of $255,000, or 15%, from $1,745,000 for the three months ended September 30, 2022. The increase is primarily due to higher water cost of sales recognized and an increase in property tax expense when compared to the previous year.

($ in thousands)

• Mineral resources segment revenues were $11,630,000 for the first nine months of 2023, a decrease of $7,608,000, or 40%, from $19,238,000 for the first nine months of 2022. The reduction in revenues is primarily attributed to increased water availability. The SWP allocation is currently at 100%, whereas in 2022 it was at 5%, which severely limits the Company's water sales opportunities. Additionally, the Company experienced a decline in royalties due to lower production volume of cement, aggregate and oil and gas.
• Mineral resources segment expenses were $6,991,000 for the first nine months of 2023, a decrease of $4,356,000, or 38%, when compared to the same period in 2022. This decrease is consistent with the reduced water sales volume when compared to the previous year. This decrease was partially offset by an increase in property tax expense.

As anticipated changes arise in the future related to groundwater management in California, such as limits on groundwater pumping, we believe our water assets, including water banking operations, ground water recharge programs, and access to water contracts like those we have purchased in the past, will become even more important and valuable in servicing our projects and providing opportunities for water sales to third-parties.

Prices for oil and natural gas fluctuate in response to relatively minor changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control, such as: changes in domestic and global supply and demand, domestic and global inventory levels, political and regulatory conditions in California, and international disputes. Production has seen an overall decline in California as a result of regulatory conditions.

Farming:

($ in thousands)

• Farming segment revenues were $2,642,000 for the three months ended September 30, 2023, a decrease of $2,134,000, or 45%, from $4,776,000 during the same period in 2022. The decrease is mainly caused by declines in almond and pistachio sales. The decline in almond sales is attributed to delay in harvesting the 2023 crops, which resulted in less almonds available for sale when compared to 2022 for the same three-month period. Comparatively, we sold 345,000 and 863,000 pounds of almonds during the three months ended September 30, 2023 and 2022, respectively. For pistachios, the harvest has also been delayed due to weather conditions during the year, resulting in no revenue realized on this crop for the current period.
• Farming segment expenses were $2,157,000 for the three months ended September 30, 2023, a decrease of $6,595,000, or 75%, from $8,752,000 during the same period in 2022. The decrease in expenses resulted from having fewer almond sales over the comparative periods, as well as no pistachio crop expense due to late harvest, compared to the $2,922,000 in pistachio crop expense recognized in 2022.

($ in thousands)

• Farming segment revenues were $4,852,000 for the first nine months of 2023, a decrease of $2,500,000, or 34%, from $7,352,000 during the same period in 2022. The decline is primarily driven by a decline in almond selling price, along with variations in the mix of almonds sold. During 2022, a majority of the almonds sold were of the Nonpareil and Monterey varieties, which generally sell at a higher price. In terms of units sold, the Company sold 989,000 and 1,500,000 pounds of almonds during the nine months ended September 30, 2023 and 2022, respectively. Delayed harvest for pistachios also attributed to the decline in farming revenues.
• Farming segment expenses were $5,644,000 for the first nine months of 2023, a decrease of $8,332,000, or 60%, from $13,976,000 when compared to the same period in 2022. The decline in farming expenses is primarily driven by lower almond cost of sales that resulted from lower almond sales. The late pistachio harvest delayed the timing of recognition in crop costs, which historically have commenced in the third quarter of the year. Additionally, the Company incurred less fixed water charges due to greater water availability in 2023.

Our almond, pistachio, and wine grape crop sales are highly seasonal, with most of our sales occurring during the third and fourth quarters. Each year, almonds and pistachios are sold at market prices, while grapes are sold to wineries at contracted prices. We expect that our farming operations during 2023 will continue to be impacted by higher costs of production, such as fuel costs, fertilizer costs, pest control costs, and labor costs. Higher than historically normal almond inventory levels are anticipated to have a continuing adverse effect on selling prices for the remainder of 2023. The current industry subjective estimate for the 2023 almond crop is 2.6 billion pounds, which is consistent with 2022.

Weather conditions can also impact the number of tree and vine dormant hours, which are integral to tree and vine growth. Farmers in California have faced a series of challenges in recent years, and this wet, cool winter and spring created different obstacles after three years of drought. In addition, higher cultural and financing costs and a reduced bloom cycle with highly compromised bee flight hours created more adversity for farmers. The Company's harvest has been delayed for pistachios and almonds as a result of spring and early summer weather conditions. However, the abundant rain and snow has vastly improved the water situation while shipping logistics continue to improve.

Lastly, the impact of state ground water management laws on new plantings and continuing crop production remains unknown. Water delivery and water availability continues to be a long-term concern within California. Any limitation of delivery of SWP water, and the absence of available alternatives during drought periods, could potentially cause permanent damage to orchards and vineyards throughout California. While this could impact us, we believe we have sufficient water resources available to meet our requirements for the next crop year.

Ranch Operations:

($ in thousands)

• Ranch operations revenues were $1,052,000 for the three months ended September 30, 2023, a decrease of $156,000, or 13%, from $1,208,000 for the same period in 2022. The decrease is primarily attributed to lower filming location revenues, offset by higher revenues recognized for guided hunts.
• Ranch operations expenses were $1,196,000 for the three months ended September 30, 2023, an increase of $53,000, or 5%, from $1,143,000 for the same period in 2022. This slight increase is attributed to an increase in insurance costs and third-party landscaping services when compared to the prior period. The increase in landscaping services will continue throughout the year as we shift to third-parties for landscaping services.

($ in thousands)

• Ranch operations revenues were $3,384,000 for the first nine months of 2023, an increase of $373,000, or 12%, from $3,011,000 for the same period in 2022. The increase is primarily attributed to higher grazing lease revenues.
• Ranch operations expenses were $3,864,000 for the first nine months of 2023, an increase of $156,000, or 4%, from $3,708,000 for the same period in 2022. This slight increase is attributed to an increase in insurance costs and third-party landscaping services when compared to the prior period.

Corporate and Other:

Corporate general and administrative costs were $2,315,000 for the three months ended September 30, 2023, an increase of $685,000, or 42%, from $1,630,000 for the same period in 2022. The increase is primarily attributable to higher salary expense and stock compensation expense recognized during the period.

Corporate general and administrative costs were $6,824,000 for the first nine months of September 30, 2023, an increase of $594,000, or 10%, from $6,230,000 for the same period in 2022. The increase in expenses relates to higher salary expense and professional accounting fees over the comparative periods.

Total other income was $670,000 for the three months ended September 30, 2023, an increase of $255,000 from $415,000 for the same period in 2022. This increase is primarily attributed to an increase in interest income resulting from higher interest rates over the comparative periods.

Total other income was $2,047,000 for the nine months ended September 30, 2023, an increase of $709,000, from $1,338,000 for the same period in 2022. This increase is attributed to an increase in interest income resulting from an increase in marketable securities invested and higher interest rates over the comparative periods.

Joint Ventures:

($ in thousands)

• Equity in earnings was $1,161,000 for the three months ended September 30, 2023, a decrease of $830,000, from $1,991,000 during the same period in 2022. The decrease is primarily attributed to lower equity in earnings realized on Petro Travel Plaza joint venture as a result of lower fuel margins as inventory costs increased. We expect margins to normalize in the fourth quarter of 2023.

($ in thousands)

• Equity in earnings was $4,616,000 for the nine months ended September 30, 2023, a decrease of $251,000, or 5%, from $4,867,000 during the same period in 2022. Petro Travel Plaza equity in earnings decreased during the year due to lower fuel margins. This decrease is partially offset by increases in equity in earnings of TRC-MRC 1, LLC and TRC-MRC 2, LLC joint ventures, mainly attributed to a combination of new leases at higher rental rates and rent escalations. Additionally, the lease within the TRC-MRC 4, LLC joint venture commenced in late 2022, bringing on a new revenue stream.

Please refer to "Non-GAAP Financial Measures" for further financial discussion of the results of our joint ventures.

General Outlook

Our operations are seasonal and future results of operations cannot reliably be predicted based on quarterly results. Historically, our largest percentage of farming revenues are recognized during the third and fourth quarters of the fiscal year. Real estate activity and leasing activities are dependent on market circumstances and specific opportunities and therefore are difficult to predict from period to period.

For further discussion of the risks and uncertainties that could potentially adversely affect us, please refer to Part I, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022, or Annual Report, and to Part I, Item 1A - "Risk Factors" of our Annual Report. We continue to be involved in various legal proceedings related to leased acreage. For further discussion, please refer to Note 12 (Commitments and Contingencies) of the Notes to Unaudited Consolidated Financial Statements in this report.

Income Taxes

For the nine months ended September 30, 2023, we had net income tax expense of $3,619,000 compared to $6,262,000 for the nine months ended September 30, 2022. The effective tax rates approximated 68% and 31% for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, income taxes payable amounted to $3,088,000. We classify interest and penalties incurred on tax payments as income tax expenses. Our effective tax rates were higher than statutory rates primarily because of permanent differences related to Section 162(m). The Section 162(m) compensation deduction limitations occurred due to changes in tax law arising from the 2017 Tax Cuts and Jobs Act.

Cash Flow and Liquidity

Our financial position allows us to pursue our strategies of land entitlement, development, and conservation. Accordingly, we have established well-defined priorities for our available cash, including investing in core operating segments to achieve profitable future growth. We have historically funded our operations with cash flows from operating activities, investment proceeds, and short-term borrowings from our bank credit facilities. In the past, we have also issued common stock and used the proceeds for capital investment activities.

To enhance shareholder value over the long-term, we expect to continue to make investments in our real estate segments to secure land entitlement approvals, build infrastructure for our developments, provide adequate water supplies, and provide funds for general land development activities. Within our farming segment, we intend to make investments, as needed, to improve efficiency and add capacity to its operations, when it is profitable to do so.

Our cash, cash equivalents and marketable securities totaled $72,605,000 as of September 30, 2023, an increase of $42,000 from $72,563,000 as of December 31, 2022.

The following table shows our cash flow activities for the nine months ended September 30,

(in thousands)

Operating Activities

During the first nine months of 2023, our operations provided $14,750,000 primarily as a result of distributions of earnings from unconsolidated joint ventures.

During the first nine months of 2022, our operations provided $1,868,000 primarily as a result of distributions of earnings from unconsolidated joint ventures.

Investing Activities

During the first nine months of 2023, investing activities used $6,805,000. We made capital expenditures, inclusive of capitalized interest and payroll (exclusive of stock compensation), of $13,513,000, which includes predevelopment activities for our master planned communities; $1,444,000 consisting of permitting efforts for MV; $907,000 consisting of permitting efforts for Grapevine; and costs related to litigation defense for Centennial of $2,123,000. At TRCC, we spent $4,492,000 on infrastructure improvements at TRCC-East. Within our farming segment, we spent $3,983,000, which includes cultural costs for orchards currently classified as under development and replacing machinery and equipment. Additionally, we used $6,070,000 to acquire water assets. We had marketable securities of $91,831,000 that matured, and we reinvested $87,272,000. We contributed $3,750,000 into our unconsolidated joint ventures during the year. Lastly, we received proceeds of $10,645,200, and $1,324,000 from joint venture distributions, and water sales, respectively.

During the first nine months of 2022, investing activities used $5,383,000. We made capital expenditures, inclusive of capitalized interest and payroll (exclusive of stock compensation), of $17,687,000, which includes predevelopment activities for our master planned communities; $2,465,000 consisting of permitting efforts for MV; $657,000 consisting of permitting efforts for Grapevine, and costs related to litigation defense for Centennial of $2,675,000. At TRCC, we spent $6,399,000 on infrastructure improvements and planning on the residential community at TRCC-East. Within our farming segment, we spent $5,046,000, which includes cultural costs for orchards not currently in production and replacing machinery and equipment.

Lastly, we used $988,000 to acquire water assets. We had marketable securities of $27,961,000 that matured and we invested $48,614,000. Lastly, we received proceeds of $3,968,000, $5,202,000, and $24,950,000, from joint venture distributions, water sales, and land sales, respectively.

As we move forward, we anticipate we will continue to use cash from operations, proceeds from the maturity of securities, and anticipated distributions from joint ventures to fund real estate project investments, including the investments summarized below.

Our estimated capital investment, inclusive of capitalized interest and payroll, for the remainder of 2023 is primarily related to our real estate projects. These estimated investments include approximately $6,298,000 of infrastructure development at TRCC-East to support continued commercial retail and industrial development and to design and construct water facilities to support future anticipated absorption. We also plan to continue to invest in cultural costs tied to new almond orchards and vineyards, and to replace farm equipment. The farm investments are part of a long-term farm management program to redevelop declining orchards and vineyards to maintain and improve future farm revenues. Lastly, we expect to invest up to $2,480,000 for land planning, litigation/appeals, federal and state agency permitting activities, and development activities at MV, Centennial, and Grapevine during the remainder of 2023.

We capitalize interest cost as a cost of the project only during the period for which activities necessary to prepare an asset for its intended use are ongoing, provided expenditures for the asset have been made and interest cost has been incurred. Capitalized interest for the nine months ended September 30, 2023 and 2022, was $1,828,000 and $1,682,000, respectively, and is classified within real estate development. We also capitalized payroll costs related to development, pre-construction, and construction projects, which aggregated $1,744,000 and $1,779,000 for the nine months ended September 30, 2023 and 2022, respectively. Expenditures for repairs and maintenance are expensed as incurred.

Financing Activities

During the first nine months of 2023, financing activities used $3,915,000, which was attributable to long-term debt service of $1,321,000, and tax payments on vested share grants of $2,594,000.

During the first nine months of 2022, financing activities used $2,372,000, which was attributable to long-term debt service of $51,272,000, tax payments on vested share grants of $1,122,000, offset by debt issuance of $49,080,000 and proceeds from interest rate swap termination of $1,123,000.

It is difficult to accurately predict cash flows due to the nature of our businesses and fluctuating economic conditions. Our earnings and cash flows will be affected from period to period by the commodity nature of our farming and mineral operations, the timing of sales and leases of property within our development projects, and the beginning of development within our residential projects. The timing of sales and leases within our development projects is difficult to predict due to the time necessary to complete the development process and negotiate sales or lease contracts. Often, the timing aspect of land development can lead to certain years or periods having different earnings than comparable periods. Based on our experience, we believe we will have adequate cash flows, cash balances, and availability on our line of credit (discussed below) over the next twelve months to fund internal operations. As we move forward with the completion of our litigation, permitting and engineering design for our master planned communities and prepare to move into the development stage, we will need to secure additional funding through the issuance of equity or secure other forms of financing such as joint ventures and possibly debt financing.

We regularly evaluate our short-term and long-term capital investment needs. Based on the timing of capital investments, we may supplement our current cash, marketable securities, and operational funding sources through the sale of common stock and the incurrence of additional debt.

Capital Structure and Financial Condition

At September 30, 2023, total capitalization at book value was $529,822,000, consisting of $48,832,000 of debt and $480,990,000 of equity, resulting in a debt-to-total-capitalization ratio of approximately 9.2%.

On June 30, 2022, we entered into a variable rate term note, or New Term Note, and a New Revolving Line of Credit Note, or New RLC, with Bank of America, N.A, (Lender) or collectively the New Credit Facility. The New Term Loan provides a principal amount of $49,080,000 and a maturity date of June 30, 2032, which was used to pay off the existing Wells Fargo Amended Term Note. We evaluated the exchange under ASC 470 and determined that the exchange should be treated as a debt extinguishment. The amount available from the New RLC under the New Credit Facility is $40,607,000. As a subfacility under the New RLC, the Lender agrees to provide up to $10,000,000 of capacity to issue standby letters of credit. The Company currently has $4,393,000 outstanding on a standby letter of credit (see Off-Balance Sheet Arrangements section below for further discussion). We can issue an additional $5,607,000 in standby letters of credit.

The New Term Note had a $47,338,000 balance as of September 30, 2023. The interest rate per annum applicable to the New Term Loan is the daily SOFR plus a margin of 1.55 percentage points. The interest rate for the term of the New Term Note has been fixed through the use of an interest rate swap at a rate of 4.62%. The New Term Note requires monthly amortization payments pursuant to a schedule set forth in the New Term Note, with the final outstanding principal amount due June 30, 2032. The New Credit Facility is secured by our farmland and farm assets, which include equipment, crops and crop receivables; the PEF power plant lease and lease site; and related accounts and other rights to payment and inventory.

The New RLC had no outstanding balance as of September 30, 2023. At our option, the interest rate on this line of credit can float at a rate equal to Daily SOFR plus 1.37% or can be fixed at a rate equal to Term SOFR plus 1.37% for interest periods elected by us. During the term of the New RLC (which expires on June 30, 2027), the Company can borrow at any time and partially or wholly repay any outstanding borrowings and then reborrow, as necessary.

Any future borrowings under the New RLC are expected to be used for ongoing working capital requirements and other general corporate purposes. To maintain availability of funds under the New RLC, undrawn amounts under the New RLC will accrue a commitment fee of 10 basis points per annum. Our ability to borrow additional funds in the future under the New RLC is subject to compliance with certain financial covenants and making certain representations and warranties, which are typical in this type of borrowing arrangement.

The New Credit Facility requires compliance with two financial covenants: (a) total liabilities divided by tangible net worth not greater than 0.75 to 1.0 at each quarter end; and (b) a debt service coverage ratio not less than 1.25 to 1.00 as of each quarter end on a rolling four quarter basis.

At September 30, 2023 and December 31, 2022, we were in compliance with all financial covenants.

The New Credit Facility also contains customary negative covenants that limit the ability for us to, among other things, make capital expenditures, incur indebtedness and issue guaranties, consummate certain asset sales, acquisitions or mergers, make investments, pay dividends or repurchase stock, make a change in capital ownership, or incur liens on any assets.

The New Credit Facility contains customary events of default, including: failure to make required payments; failure to comply with terms of the New Credit Facility; bankruptcy and insolvency. The New Credit Facility contains other customary terms and conditions, including representations and warranties, which are typical for credit facilities of this type.

We also have a $4,750,000 promissory note agreement, whose monthly principal and interest began October 1, 2013. The interest rate on this promissory note is 4.25% per annum, with principal and interest payments ending on September 1, 2028. The balance as of September 30, 2023 was $1,494,000.

We expect that current and future capital resource requirements will be provided primarily from current cash and marketable securities, cash flow from ongoing operations, distributions from joint ventures, proceeds from the sale of developed and undeveloped land parcels, potential sales of assets, additional use of debt or drawdowns against our line of credit, proceeds from the reimbursement of public infrastructure costs through CFD bond debt (described below under “Off-Balance Sheet Arrangements”), or issuance of additional common stock.

In May 2022, we filed an updated shelf registration statement on Form S-3, which went effective in May 2022. Under the shelf registration statement, we may offer and sell in the future through one or more offerings not to exceed $200,000,000 of common stock, preferred stock, debt securities, warrants or any combination of the foregoing. The shelf registration allows for efficient and timely access to capital markets and, when combined with our other potential funding sources just noted, provides us with a variety of capital funding options that can then be used and appropriately matched to our funding needs.

Although we had a strong liquidity position at September 30, 2023 with $72,605,000 in cash and securities and $40,607,000 available on our New RLC to meet any short-term liquidity needs, we have taken steps to maximize positive cash flow in case a lack of liquidity in the economy limits our access to third-party funding by responsibly limiting cash expenditures to the extent practical. See Note 3 (Marketable Securities) and Note 7 (Line of Credit and Long-Term Debt) of the Notes to Unaudited Consolidated Financial Statements for more information.

We continue to expect that substantial investments will be required to develop our land assets. To meet these capital requirements, we may need to secure additional debt financing and continue to renew our existing credit facilities. In addition to debt financing, we will use other capital alternatives such as joint ventures with financial partners, sales of assets, and/or the issuance of common stock. We will use a combination of the above funding sources to properly match funding requirements with the assets or development project being funded. There is no assurance that we can obtain financing or that we can obtain financing at favorable terms. We believe we have adequate capital resources to fund our cash needs and our capital investment requirements in the near term as described earlier in the cash flow and liquidity discussions.

Contractual Cash Obligations

The following table summarizes our contractual cash obligations and commercial commitments as of September 30, 2023, to be paid over the next five years and thereafter:

(In thousands)

The table above includes only those contracts that include fixed or minimum obligations. It does not include normal purchases that are made in the ordinary course of business.

Estimated water payments include the Nickel Family, LLC water contract, which obligates us to purchase 6,693 acre-feet of water annually through 2044 and SWP contracts with WRMWSD, TCWD, Tulare Lake Basin Water Storage District, and Dudley-Ridge Water Storage District. These contracts for the supply of future water run through 2035. Please refer to Note 5 (Long-Term Water Assets) of the Notes to Consolidated Financial Statements for additional information regarding water assets.

Our cash contract commitments consist of contracts in various stages of completion related to infrastructure development within our industrial developments and entitlement costs related to our industrial and residential development projects. Also included in the cash contract commitments are operating lease obligations. Our operating lease obligations are for office equipment. At the present time, we do not have any capital lease obligations or purchase obligations outstanding.

As discussed in Note 13 (Retirement Plans) of the Notes to Unaudited Consolidated Financial Statements, we have long-term liabilities for deferred employee compensation, including pension and supplemental retirement plans. Payments in the above table reflect estimates of future defined benefit plan contributions from us to the plan trust, estimates of payments to employees from the plan trust, and estimates of future payments to employees from us that are in the SERP program. We contributed $165,000 to our defined benefit plan in 2023.

Off-Balance Sheet Arrangements

The following table shows contingent obligations we have with respect to certain bonds issued by the CFDs:

($ in thousands)

The TRPFFA is a joint powers authority formed by Kern County and TCWD to finance public infrastructure within our Kern County developments. TRPFFA created two CFDs, the West CFD and the East CFD. The West CFD has placed liens on 420 acres of our land to secure payment of special taxes related to $19,540,000 of bond debt sold by TRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of our land to secure payments of special taxes related to $72,055,000 of bond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD has no additional bond debt approved for issuance. At TRCC-East, the East CFD has approximately $44,035,000 of additional bond debt authorized by TRPFFA.

In connection with the sale of the bonds, there is a standby letter of credit for $4,393,000 related to the issuance of East CFD bonds. The standby letter of credit is in place to provide additional credit enhancement and cover approximately two years' worth of interest on the outstanding bonds. This letter of credit will not be drawn upon unless we, as the largest landowner in the CFD, fail to make our property tax payments. As development occurs within TRCC-East, there is a mechanism in the bond documents to reduce the amount of the letter of credit. As of September 30, 2023, we believe that the letter of credit will likely never be drawn upon. This letter of credit is for a two-year period and will be renewed in two-year intervals, as necessary. The annual cost related to the letter of credit is approximately $62,000. The tax assessment of each individual property sold or leased within each CFD is not determinable at this time, because it is based on the current tax rate of the property at the time of sale or at the time it is leased to a third-party. Accordingly, we were not required to recognize an obligation as of September 30, 2023.

As of September 30, 2023, aggregate outstanding debt of unconsolidated joint ventures was $198,977,000; $186,231,000 of this debt is subject to various degrees of guarantees ranging from 0% to 100% of the total debt outstanding, with construction loans generally being 100% guaranteed. As of September 30, 2023, only $45,973,000 of outstanding debt is subject to guarantees. Because of positive cash flow generation within the Rockefeller and Majestic joint ventures, we, as of September 30, 2023, do not expect any guarantee to be called upon. We do not provide a guarantee on the $12,746,000 of debt related to our joint venture with TA/Petro.

Non-GAAP Financial Measures

EBITDA represents earnings before interest, taxes, depreciation, and amortization, a non-GAAP financial measure, and is used by us and others as a supplemental measure of performance. Adjusted EBITDA is used to assess the performance of our core operations, for financial and operational decision making, and as a supplemental or additional means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated as EBITDA, excluding stock compensation expense. We believe Adjusted EBITDA provides investors relevant and useful information because it permits investors to view income from our operations on an unleveraged basis before the effects of taxes, depreciation and amortization, and stock compensation expense. By excluding interest expense and income, EBITDA and Adjusted EBITDA allow investors to measure our performance independent of our capital structure and indebtedness and, therefore, allow for a more meaningful comparison of our performance to that of other companies, both in the real estate industry and in other industries. We believe that excluding charges related to share-based compensation facilitates a comparison of our operations across periods and among other companies without the variances caused by different valuation methodologies, the volatility of the expense (which depends on market forces outside our control), and the assumptions and the variety of award types that a company can use. EBITDA and Adjusted EBITDA have limitations as measures of our performance. EBITDA and Adjusted EBITDA do not reflect our historical cash expenditures or future cash requirements for capital expenditures or contractual commitments. While EBITDA and Adjusted EBITDA are relevant and widely used measures of performance, they do not represent net income or cash flows from operations as defined by GAAP. Further, our computation of EBITDA and Adjusted EBITDA may not be comparable to similar measures reported by other companies.

($ in thousands)

Net operating income (NOI) is a non-GAAP financial measure calculated as operating income, the most directly comparable financial measure calculated and presented in accordance with GAAP, excluding general and administrative expenses, interest expense, depreciation and amortization, and gain or loss on sales of real estate. We believe NOI provides useful information to investors regarding our financial condition and results of operations because it primarily reflects those income and expense items that are incurred at the property level. Therefore, we believe NOI is a useful measure for evaluating the operating performance of our real estate assets.

($ in thousands)

($ in thousands)

The Company utilizes NOI of unconsolidated joint ventures as a measure of financial or operating performance that is not specifically defined by GAAP. We believe NOI of unconsolidated joint ventures provides investors with additional information concerning operating performance of our unconsolidated joint ventures. We also use this measure internally to monitor the operating performance of our unconsolidated joint ventures. Our computation of this non-GAAP measure may not be the same as similar measures reported by other companies. This non-GAAP financial measure should not be considered as an alternative to net income as a measure of the operating performance of our unconsolidated joint ventures or to cash flows computed in accordance with GAAP as a measure of liquidity, nor are they indicative of cash flows from operating and financial activities of our unconsolidated joint ventures.

The following schedule reconciles net income of unconsolidated joint ventures to NOI of unconsolidated joint ventures. Please refer to Note 15 (Investment in Unconsolidated and Consolidated Joint Ventures) of the Notes to Unaudited Consolidated Financial Statements for further discussion on joint ventures.

($ in thousands)

43

Market risk represents the risk of loss that may impact the financial position, results of operations, or cash flows of the Company due to adverse changes in financial or commodity market prices or rates. We are exposed to market risk in the areas of interest rates and commodity prices.

Financial Market Risks

Our exposure to financial market risks includes changes to interest rates and credit risks related to marketable securities, interest rates related to our outstanding indebtedness and trade receivables.

The primary objective of our investment activities is to preserve capital, while at the same time maximizing yields and prudently managing risk. To achieve this objective and limit interest rate exposure, we limit our investments to securities with a maturity of less than five years and an investment grade rating from Moody’s or Standard and Poor’s. See Note 3 (Marketable Securities) of the Notes to Unaudited Consolidated Financial Statements.

The New RLC had no outstanding balance as of September 30, 2023. At our option, the interest rate on this line of credit can float at a rate equal to Daily SOFR plus 1.37% or can be fixed at a rate equal to Term SOFR plus 1.37% above Term SOFR for interest periods elected by us. During the term of the New RLC (which expires on June 30, 2027), we can borrow at any time and partially or wholly repay any outstanding borrowings and then re-borrow, as necessary.

We are exposed to interest rate risk on our long-term debt. Long-term debt consists of two term loans, one of which had a balance of $47,338,000 as of September 30, 2023 and is tied to the daily SOFR plus a margin of 1.55 percentage points. The interest rate for the term of the New Term Note has been fixed through the use of an interest rate swap at a rate of 4.62%. The outstanding balance on the second term loan as of September 30, 2023 was $1,494,000 and has a fixed rate of 4.25%. We believe it is prudent at times to limit the variability of floating-rate interest payments and have from time to time entered into interest rate swap arrangements to manage those fluctuations, as we did with the first term loan (discussed here).

Market risk related to our farming inventories ultimately depends on the value of almonds, grapes, and pistachios at the time of payment or sale. Credit risk related to our receivables depends upon the financial condition of our customers. Based on historical experience with our current customers and our periodic credit evaluations of our customers’ financial conditions, we believe our credit risk is minimal. Market risk related to our farming inventories is discussed below in the section pertaining to commodity price exposure.

The following tables provide information about our financial instruments that are sensitive to changes in interest rates. The tables present our debt obligations and marketable securities and their related weighted-average interest rates by expected maturity dates.

Interest Rate Sensitivity Financial Market Risks

Principal Amount by Expected Maturity

At September 30, 2023

(In thousands except percentage data)

44

Interest Rate Sensitivity Financial Market Risks

Principal Amount by Expected Maturity

At December 31, 2022

(In thousands except percentage data)

Commodity Price Exposure

Farming inventories and accounts receivable are exposed to adverse price fluctuations. Farming inventories consist of farming, cultural, and processing costs associated with crop production. Farming inventory costs are recorded as incurred. Historically, these costs have been recovered through crop sales occurring after harvest. As of the date of this report, there are no receivables that are subject to commodity price fluctuations given that there were no pistachio yields in 2022.

(a) Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that all information required in the reports we file or submit under the Exchange Act was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time period required by the rules and regulations of the SEC.

(b) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A in our most recent Annual Report on Form 10-K.