UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to
___________
Commission file number: 000-51640
ZONED PROPERTIES, INC.
(Exact name of registrant as specified in its
charter)
Nevada
46-5198242
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
8360 E. Raintree Drive, #230, Scottsdale, AZ
85260
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including
area code: (877) 360-8839
Securities registered pursuant to Section 12(b)
of the Exchange Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
N/A
N/A
N/A
Securities registered pursuant to Section 12(g)
of the Exchange Act: Common stock, par value $0.001
Indicate by check mark if the registrant is a
well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
(1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒ No ☐
Indicate by check mark whether registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company.
See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and
non-voting common equity held by non-affiliates, based upon the closing price of $0.62 per share of common
stock as of June 30, 2024
(the last business day of the registrant’s most recently completed second fiscal quarter), was $4,607,542.
Indicate the number of shares outstanding of
each of the registrant’s classes of common stock, as of the latest practicable date: 12,087,861 shares of
common stock are outstanding
as of March 25, 2025.
Documents Incorporated by Reference
None
ZONED PROPERTIES, INC.
TABLE OF CONTENTS
Page
PART I
Item 1.
Business
1
Item 1A.
Risk Factors
14
Item 1B.
Unresolved Staff Comments
24
Item 1C.
Cybersecurity
24
Item 2.
Properties
25
Item 3
Legal Proceedings
25
Item 4.
Mine Safety Disclosures
25
PART II
Item
5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
26
Item 6.
Reserved
28
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
37
Item 8.
Financial Statements and Supplementary Data
37
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
37
Item 9A.
Controls and Procedures
37
Item 9B.
Other Information
38
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
38
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
39
Item 11.
Executive Compensation
44
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
50
Item 13.
Certain Relationships and Related Transactions, and Director Independence
51
Item 14.
Principal Accountant Fees and Services
52
PART IV
Item 15.
Exhibits and Financial Statement Schedules
53
Item 16.
Form 10-K Summary
56
Signatures
57
i
PART I
ITEM 1. BUSINESS
The following discussion should be read in conjunction
with our consolidated financial statements and the related notes to the consolidated financial
statements that appear elsewhere in this
annual report on Form 10-K.
As used in this annual report on Form 10-K and
unless otherwise indicated, the terms the terms “Zoned Properties”, “Company,” “we,” “us,”
or “our” refer
to Zoned Properties, Inc. and its wholly owned subsidiaries as detailed below.
Overview
Zoned Properties, Inc. (“Zoned Properties”
or the “Company”) was incorporated in the State of Nevada on August 25, 2003. In October 2013, the
Company changed its name
to Zoned Properties, Inc. and in April 2014, the Company shifted its business model to address commercial real estate in the
regulated
cannabis industry.
Zoned Properties is a technology-driven property
investment company focused on acquiring value-add real estate within the regulated cannabis industry in
the United States. The Company
aspires to innovate within the real estate development sector, focusing on direct-to-consumer real estate that is leased to
the best-in-class
cannabis retailers. Headquartered in Scottsdale, Arizona, Zoned Properties is redefining the approach to commercial real estate investment
through its standardized investment model backed by its proprietary property technology. Zoned Properties has developed a national ecosystem
of real
estate services to support its real estate development model, including a commercial real estate brokerage and a real estate
advisory practice.
The Company operates in two organized segments;
(1) the operations, leasing and management of its commercial properties, herein known as the “Property
Investment Portfolio”
segment, and (2) the advisory, brokerage and technology services related to commercial properties, herein known as the “Real Estate
Services” segment. The Company targets commercial properties that face unique zoning or development challenges, identifies solutions
that can potentially
have a major impact on their commercial value, and then works to acquire the properties while securing long-term,
absolute-net leases. The Company does
not grow, harvest, sell or distribute cannabis or any substances regulated under United States
law such as the Controlled Substance Act of 1970, as
amended (the “CSA”). Zoned Properties corporate headquarters are located
at 8360 E. Raintree Dr., Suite 230, Scottsdale, Arizona. For more information,
call 877-360-8839 or visit www.ZonedProperties.com.
The Company has the following wholly owned subsidiaries:
●
Chino Valley Properties, LLC (“Chino Valley”)
was organized in the State of Arizona on April 15, 2014.
●
Kingman Property Group, LLC (“Kingman”)
was organized in the State of Arizona on April 15, 2014.
●
Green Valley Group, LLC (“Green Valley”)
organized in the State of Arizona on April 15, 2014.
●
Zoned Arizona Properties, LLC (“Zoned Arizona”)
was organized in the State of Arizona on June 2, 2017.
●
Zoned Advisory Services, LLC (“Zoned Advisory”)
was organized in the State of Arizona on July 27, 2018.
●
Zoned Properties Brokerage, LLC (“Arizona Brokerage”)
was organized in the State of Arizona on March 17, 2021.
●
ZP Data Platform 1, LLC (“ZP Data 1”) was
organized in the State of Arizona on April 14, 2021 (inactive).
●
ZP Data Platform 2, LLC (“ZP Data 2”) was
organized in the State of Arizona on June 21, 2022.
●
ZP RE Holdings, LLC (“ZPRE Holdings”) was
organized in the State of Arizona on September 20, 2022.
●
ZP Brokerage MS, LLC (“Mississippi Brokerage”)
was organized in the State of Mississippi on October 4, 2022 (inactive and dissolved on
January 13, 2025).
●
ZP Brokerage FL, LLC (“Florida Brokerage”)
was organized in the State of Florida on October 20, 2022.
●
ZP Brokerage AL, LLC (“Alabama Brokerage”)
was organized in the State of Alabama on October 20, 2022 (inactive and dissolved on January 9,
2025).
●
ZP RE MI Woodward, LLC (“ZP Woodward”)
was organized in the State of Michigan on November 22, 2022
●
ZP Brokerage MO, LLC (“Missouri Brokerage”)
was organized in the State of Missouri on November 30, 2022 (inactive and dissolved on January
13, 2025).
●
ZP RE IL Ashland, LLC (“ZP Ashland”) was
organized in the State of Illinois on February 14, 2024.
●
ZP RE AZ DYSART. LLC (“ZP Dysart”) was
organized in the State of Arizona on May 24, 2024.
The Company also maintains a 50% equity interest in two joint ventures
(see Note 5).
1
Our Business
We believe in the value of building long-term
relationships with our tenants, clients and the local communities in which our properties are located in order
to position the Company
for short-term success and long-term growth backed by sophisticated, safe, and sustainable assets.
The core of our business operations involves
identifying, securing, acquiring, and leasing commercial properties that intend to operate within highly
regulated industries, including
the legalized cannabis industry. Within highly regulated industries, local municipalities typically develop strict regulations,
including
zoning and permitting requirements related to commercial real estate, that dictate the specific locations and parameters under which
regulated
properties can operate, including cannabis properties. We often refer to these requirements as cannabis approvals. These regulations
often include complex
permitting processes that require longer development timelines than traditional commercial real estate and can
include non-standard codes governing each
location; for example, restricting a regulated property or facility from operating within a
certain distance of any parks, schools, churches, or residential
districts, or restricting a regulated property from operating outside
a defined set of hours of operation. When an organization can collaborate with local
representatives, a proactive set of rules and regulations
can be established and followed to meet the needs of both the regulated operators and the local
community.
Due to the complex nature of the Company’s
core business operations and target investment properties, the Company may secure dozens of potential
property candidates for acquisition
and prospective tenant candidates for leasing at any given time, all in the normal course of business. The process of
securing a potential
property candidate may include completing contractual agreements such as an option agreement or a purchase agreement, which may
include
various contingencies and conditions precedent related to the ultimate consummation of the acquisition, investment, or transaction. Simultaneously
with the securing of potential property candidates, the Company will advertise and market a property to prospective tenant candidates
for a long-term,
absolute-net lease agreement, which may include various contingencies and conditions precedent related to the ultimate
commencement of the lease and
tenancy. In order to deliver a successful investment property transaction, the Company must collectively
receive all cannabis approvals from state and local
governing authorities that may be required at a given property, secure a qualified
tenant to lease and operate the property, and complete the acquisition of
the property.
The Company’s current investment properties
are located in Arizona, Illinois, and Michigan with 100% occupancy and a weighted average lease term over
10 years. Each of the Company’s
leased properties is occupied by a commercial cannabis tenant.
Zoned Properties maintains a portfolio of properties
that it owns, develops and leases. As of March 2025, the Company leases land and/or building space at
the seven properties in its portfolio
to licensed and regulated cannabis tenants in areas with established cannabis regulations and zoning procedures. Four of
the leased properties
are zoned and permitted as regulated cannabis retail dispensaries, two of the leased properties are zoned and permitted as regulated
cannabis cultivation and processing facilities, and one property is land leased currently under development to for a regulated cannabis
retail dispensary. The
Company considers the two cultivation sites in its portfolio as legacy properties and may consider selling or
leveraging those properties to unlock equity
and create capital availability in the future. The Zoned Properties investment thesis has
evolved over the years as the cannabis industry has emerged, and is
currently focused on investing capital into direct-to-consumer properties,
located in state-markets with robust cannabis consumer demand in the industry.
Our primary focus is on investing in the acquisition
and development of new properties to grow the equity value of our real estate portfolio, and as such we
may consider refinancing and/or
selling an asset when the circumstances and opportunity present a value opportunity for the Company.
Zoned Properties is in pursuit of property acquisitions
that can be characterized as consumer-facing, retail dispensary properties that are positioned to be
leased to regulated cannabis retail
dispensary tenants under net leasing structures. As of March 2025, the Company has additional agreements in place
contractually securing
the rights to acquire prospective investment properties with prospective regulated cannabis tenants located in Delaware, Kentucky,
Illinois,
and Ohio. In the coming quarters and years, the Company plans to initiate and target its investment activity in additional potential
state-markets
with robust cannabis consumer demand.
Over the past few years, the Company has completed
a strategic shift in focus towards direct-to-consumer real estate that is leased to the best-in-class
cannabis retailers in the industry.
The Company will continue to utilize its proprietary property technology as a competitive edge when identifying
investment properties.
There are significant challenges that take place
when zoning, permitting, and developing real estate with facilities that intend to operate within a regulated
industry, including the
legalized cannabis industry. Each state and local jurisdiction may adopt specific zoning and permitting regulations that may be
unique
compared to alternative jurisdictions. The Company has gained valuable knowledge and developed best practices in this area by successfully
completing projects for third party clients across the country in multiple states, as well as our own projects located in Arizona, Illinois,
and Michigan, each
highly regulated markets for the legalized cannabis industry. The Company intends to replicate this business model
across the nation as markets mature and
rules and regulations are established.
The process for obtaining zoning authorizations
and permitting for a regulated cannabis facility can take months or sometimes years to complete. The
process primarily involves working
directly with the local government representatives following state-level legalization. Notwithstanding proper zoning
and permitted use,
we may work with local zoning authorities in order to revise zoning codes and regulations. The Company has been involved with local
representatives
on behalf of our own properties held in our portfolio and on behalf of third-party clients across the nation. For example, the Company
worked directly with local representatives in Tempe, Arizona to update the local zoning code that regulates licensed cannabis facilities.
The successfully
adoption of these code amendments can directly impact the continued development of any licensed cannabis facilities
that operate within municipal limits.
2
In the event a property is not currently zoned
correctly or does not currently allow permitted use as a regulated cannabis facility, we may work with local
authorities to rezone the
property or seek changes to existing zoning codes or permitted uses. Our efforts may not be successful. In the event that local
zoning,
permitting or any other required cannabis approvals are not received, a prospective investment property opportunity may fail, in which
case the
Company would move to terminate any agreements in place with prospective property sellers and prospective tenants at the property.
While the Company
intends to include contingencies and conditions precedent in its agreements with property sellers and prospective tenants,
it may be possible that these risk
mitigants fail, causing the Company to incur fess and/or lose escrow deposits.
The Company has established a network of experts
in various fields of real estate: title and escrow, property insurance, property lending, property
technology, commercial banking, commercial
brokerage, property design and construction, property management and operations, and property security in
order to provide tenants and
clients with a full-spectrum of real estate solutions to best meet their needs. We require our prospective tenants and clients to
go
through due diligence in order to meet the Company’s standards.
As of March 2025, we are the sole member of 13
limited liability companies: Chino Valley, Green Valley, Kingman, Zoned Arizona, Zoned Advisory, ZP
Data 1, ZP Data 2, Arizona Brokerage,
Florida Brokerage, ZPRE Holdings, ZP Woodward, ZP Dysart, and ZP Ashland. Seven of these entities—Zoned
Arizona, Green Valley,
Kingman, Chino Valley, ZPRE Holdings, ZP Woodward, and ZP Dysart have acquired land and/or real property and own our
properties.
Many of the best-known, state-licensed cannabis
operators from across the United States have approached Zoned Properties for strategic partnership related
to the acquisition and leasing
of retail dispensary properties and/or real estate services related to cannabis real estate projects. We are continuously
evaluating
these opportunities as we expand our investment property pipeline. Zoned Properties has built an active cannabis real estate investment
and
services ecosystem in which we are exploring various development partnerships, preferred service provider arrangements, and partnerships
with capital
funding sources.
As it relates to the regulated cannabis industry,
we are strictly a non-plant touching organization. We believe that we are well positioned to benefit from
ancillary development opportunities
that the regulated cannabis industry presents without having to deal with the risk of directly cultivating, distributing, or
dispensing
the product, which is still illegal under federal law.
Our initial real estate services and property
acquisition targets have been in Arizona. Recently, we have expanded real estate services, namely advisory
services and brokerage services,
across multiple state markets, and we have acquired properties in Michigan and Illinois. We believe that Arizona,
Michigan and Illinois
have established state-regulated cannabis programs with robust regulatory frameworks for licensing and operating within their
respective
regulatory marketplaces (i.e. the business environment in which our clients and tenants operate) and have strong consumer demand to support
the business operators in their respective state marketplaces (i.e. the consumers that support our clients’ and tenants’
business operations). The Company
expects to target expansion into new state marketplaces for both its real estate services and its acquisition
of properties into its property investment
portfolio that have strong growth trends in both regulatory frameworks and consumer demand.
The Company believes these are two of the most important
market factors that have influence related to the value of real estate development
and property investment potential.
Recent Corporate History and Transactions
Our property located in Chino Valley, AZ is leased
by Broken Arrow Herbal Center, Inc. (“Broken Arrow”), doing business as Hana Dispensaries.
Our property located in Green Valley, AZ is leased
by Broken Arrow, doing business as Hana Dispensaries.
Our property located in Kingman, AZ is leased
by CJK, Inc. (“CJK”).
Our property located in Tempe, AZ is leased by
VSM, LLC (“VSM”), doing business as Green Dot Labs.
Our property located in Pleasant Ridge, MI is
leased by Rapid Fish, LLC (“Rapid Fish”), doing business as NOXX Cannabis.
Our property located in Chicago, IL is leased
by JG IL LLC (“Justice Grown”), doing business as Justice Cannabis Co.
Our land located in Surprise, AZ is leased by
The Pharm, LLC (“Sunday Goods”). doing business as Sunday Goods.
Chino Valley, Arizona
On May 29, 2020, Chino Valley and Broken Arrow
entered into a Second Amendment to the 2018 Chino Valley Lease, as amended (the “2020 Chino
Valley Amendment”), effective
May 31, 2020 (“Effective Date”). Pursuant to the terms of the 2020 Chino Valley Amendment, among other things, the base
rent
was adjusted to $32,800 per month. Any increase in the rentable area of the leased premises will result in an increase in all amounts
calculated based
on the same, including, without limitation, base rent. Pursuant to the terms of the 2020 Chino Valley Amendment, the
parties agreed that if there is any
change in laws such that the dispensing, sale or cultivation of marijuana upon the premises is prohibited
or materially and adversely affected as mutually
and reasonably determined by Chino Valley and Broken Arrow, Broken Arrow may terminate
the 2018 Chino Valley Lease, as amended, by delivering
written notice to Chino Valley, together with a termination payment which shall
be the sum of (i) any unpaid rent and interest, plus (ii) 5% of the base rent
which would have been earned after termination for the
balance of the term. In addition, the parties agreed that from the period from the Effective Date to
June 30, 2022 (the “Improvement
Period”), Broken Arrow will and/or Broken Arrow will cause its affiliate, CJK, to invest a combined total of at least
$8,000,000
of improvements (“Investment by Tenants”) in and to the property that is the subject of the Chino Valley Lease and the property
that is the
subject of the Tempe Lease (discussed below, and collectively referred to as the “Facilities”). The Company’s
Significant Tenants have completed the
Investment by Tenants to the Facilities totaling in excess of $8,000,000 and have satisfied the
contractual obligations related to the same.
3
On August 23, 2021, Chino Valley and Broken Arrow
entered into the Third Amendment (the “Third Chino Valley Amendment”) to the 2018 Chino Valley
Lease, as amended (the “Chino
Valley Lease”), effective September 1, 2021. The parties previously agreed that the base rental payments under the Chino
Valley
Lease would increase commensurate to any and all expanded and operational square footage on the premises by calculating the fixed rate
of $0.82
per square foot per month by the new operational square footage. Accordingly, in the Third Chino Valley Amendment, the parties
agreed that, as of
September 1, 2021, the rental payment is increased to $55,195 per month base rental payment, plus additional rental
payments, as a result of the increase in
the square footage to 67,312 square feet of operational space. This lease modification qualifies
as a separate contract as the modification grants the tenant
additional right of use not included in the original lease, as amended,
and the increase in monthly rent payments is commensurate with the standalone price
for the additional square footage being leased.
On January 24, 2022 and effective on March 1,
2022, Chino Valley and Broken Arrow entered into the Fourth Amendment (the “Fourth Chino Valley
Amendment”) to the Chino
Valley Lease, as amended. Pursuant to the terms of the Fourth Chino Valley Amendment, the parties acknowledge that an
additional 30,000
square feet have become operational, increasing the premises to a total of 97,312 square feet of operational space. In connection with
the
Fourth Chino Valley Amendment, the Company paid $500,000 to Tenant as a tenant improvement allowance or lease incentive for investment
into the
premises, which was capitalized as a lease incentive receivable and is recognized on a straight-line basis over the remaining
lease term as a reduction to the
lease income. Pursuant to the terms of the Fourth Chino Valley Amendment, effective March 1, 2022, the
monthly base rent was increased to $87,581,
representing an increase from $0.82 per square foot to $0.90 per square foot, for all current
and future operational square footage that may be developed as
the premises continues to expand.
Green Valley, Arizona
On May 29, 2020, Green Valley and Broken Arrow
entered into the First Amendment (the “Green Valley Amendment”) to the Green Valley Lease,
effective May 31, 2020. Pursuant
to the terms of the Green Valley Amendment, among other things, the parties agreed to abate the fixed base rent of $3,500
from June 1,
2020 to July 31, 2020. In addition, the Green Valley Amendment provides that any increase in the rentable area of the leases premises
will
result in an increase in all amounts calculated based on the same, including, without limitation, base rent. The parties also agreed
that if there is any change
in laws such that the dispensing, sale or cultivation of marijuana upon the premises is prohibited or materially
and adversely affected as mutually and
reasonably determined by Green Valley and Broken Arrow, Broken Arrow may terminate the Green Valley
Lease by delivering written notice to Green
Valley, together with a termination payment which shall be the sum of (i) any unpaid rent
and interest, plus (ii) 5% of the base rent which would have been
earned after termination for the balance of the term.
Tempe, Arizona
On May 29, 2020, Zoned Arizona and CJK entered
into the First Amendment (the “Tempe Amendment”) to the Tempe Lease, effective May 31, 2020.
Pursuant to the terms of the
Tempe Amendment, among other things, the base rent was increased to $49,200 per month. Any increase in the rentable area of
the leased
premises will result in an increase in all amounts calculated based on the same, including, without limitation, base rent. Pursuant to
the terms of
the Tempe Amendment, the parties agreed that if there is any change in laws such that the dispensing, sale or cultivation
of marijuana upon the premises is
prohibited or materially and adversely affected as mutually and reasonably determined by Zoned Arizona
and CJK, CJK may terminate the Tempe Lease by
delivering written notice to Zoned Arizona, together with a termination payment which shall
be the sum of (i) any unpaid rent and interest, plus (ii) 5% of
the base rent which would have been earned after termination for the
balance of the term.
In addition, under the Tempe Amendment the parties
agreed to an Investment by Tenant (as defined above in the subheading Chino Valley) to the property
that is the subject of the
Chino Valley Lease and the property that is the subject of the Tempe Lease. If Broken Arrow and/or CJK fails to deliver to the
Company
receipted bills for hard and soft costs of improvements to the Facilities totaling at least $8,000,000 on or before June 30, 2022, Broken
Arrow and
CJK will be in default under the Chino Valley Lease and Tempe Lease, as amended. The Company’s Significant Tenants have
completed the Investment by
Tenants to the Facilities totaling in excess of $8,000,000 and have satisfied the contractual obligations
related to the same.
In connection with a promissory note, on July
11, 2022 and reaffirmed on December 7, 2022, the Company entered into a Deed of Trust Agreement that
secures the Company’s performance
under the promissory note. The Deed of Trust Agreement transfers and assigns to the lender the right to sell the assets
of Tempe and
rights to rental income in case of default under the promissory note.
On November 30, 2022, Zoned Arizona, CJK, and
VSM entered into that Second Amendment (the “Tempe Second Amendment”) to the Tempe Lease, as
amended. Concurrently with the
execution of the Tempe Second Amendment: (i) CJK assigned all its interest in the Tempe Lease to VSM (the
“Assignment”),
and (ii) VSM subleased a portion of the Premises (as defined in the Tempe Lease), pursuant to that certain Sublease dated November 30,
2022 between VSM, as sublessor, and CJK, as sublessee.
Pursuant to the terms of the Tempe Second Amendment,
among other things, and in consideration of Zoned Arizona’s agreement to enter into the Tempe
Second Amendment: (i) VSM paid Zoned
Arizona $300,000 (the “Assignment Price”), (ii) VSM agreed to commit at least $3,000,000 to be spent toward
capital improvements
to the Premises within two years after the effective date of the Tempe Second Amendment (the “Capital Commitment”), (iii)
VSM
agreed to deposit an additional security deposit (the “Additional Security Deposit”) of $147,600 to be held by Zoned
Arizona per the terms of the Tempe
Lease, and (iv) VSM agreed to cause its affiliate, GDL Inc. (doing business as Green Dot Labs) (“GDL”)
to execute and deliver to Zoned Arizona that
Guaranty of Payment and Performance dated on the same date as the Tempe Amendment, which
Guaranty of Payment and Performance requires GDL to
guarantee and be liable for VSM’s compliance with and performance under the
Tempe Lease. The Guaranty of Payment and Performance was entered into
on November 30, 2022. If VSM fails to deliver to Zoned Arizona
invoices or other documentation acceptable to Zoned Arizona showing the Capital
Commitment has been satisfied in a timely manner, VSM
will be in default under the Tempe Lease. No other terms of the Tempe Lease were modified.
4
Pursuant to the Financial Accounting Standards
Board’s (“FASB”) Accounting Standards Codification (“ASC”) 842-10-25, the lease modification was not
accounted
for as a separate contract and the Company shall account for the modification as if it were a termination of the existing lease and the
creation of a
new lease that commenced on the effective date of the modification. Accordingly, the Company recorded the $300,000 as a
contract liability and will
amortize the $300,000 Assignment Fees into rental revenue on a straight-line basis over the remaining term
of the lease through April 2040. On December
31, 2024 and 2023, contract liability related to this lease modification amounted to $264,115
and $281,340, respectively, which has been included in
contract liabilities on the accompanying consolidated balance sheets.
Additionally, on the Tempe property, the Company
leases parking lot space for an antenna location to a third party.
Kingman, Arizona
On May 29, 2020, Kingman and CJK entered into
the First Amendment (the “Kingman Amendment”) to the Kingman Lease, effective May 31, 2020.
Pursuant to the terms of the
Kingman Amendment, among other things, the parties agreed to abate the $4,000 base rent from June 1, 2020 to July 31, 2020.
In addition,
the Kingman Amendment provides that any increase in the rentable area of the leases premises will result in an increase in all amounts
calculated based on the same, including, without limitation, base rent. The parties also agreed that if there is any change in laws such
that the dispensing,
sale or cultivation of cannabis upon the premises is prohibited or materially and adversely affected as mutually
and reasonably determined by Kingman and
CJK, CJK may terminate the Kingman Lease by delivering written notice to Kingman, together with
a termination payment which shall be the sum of (i)
any unpaid rent and interest, plus (ii) 5% of the base rent which would have been
earned after termination for the balance of the term. On November 30,
2022, Kingman and CJK entered into the Second Amendment (the “Kingman
Second Amendment”) to the Licensed Medical Marijuana Facility Triple Net
(NNN) Lease Agreement dated May 1, 2018 between Kingman
and CJK. Pursuant to the terms of the Kingman Second Amendment, CJK agreed to grant
Kingman a right to terminate the Kingman Lease upon
15 days’ prior written notice in Kingman’s sole discretion, without any obligation to do so, provided
that Kingman may not
exercise this right to terminate if CJK is operating its business as a going concern at the premises which is the subject of the
Kingman
Lease.
On August 2, 2023, the Company entered into a
Sublease Agreement (the “Sublease”) with CJK and a subtenant in connection with the Company’s
Kingman property. Pursuant
to the Sublease, the Sublease shall be effective on August 2, 2023 and end on the one year anniversary, or (ii) the last day of
the Term
of the Master Lease (whether due to expiration or termination thereof by the Company, whichever is earlier (the “Sublease Expiration
Date”),
such period being referred to herein as the “Sublease Term”, unless terminated earlier pursuant to the terms
of this Sublease or otherwise by consent of the
Company, CJK and Subtenant.
The subtenant shall have two options to extend
the Sublease Term by one year periods each (each a “Sublease Term Extension” and collectively the
“Sublease Term Extensions”),
which shall be exercisable by Subtenant no later than 90 days prior to the expiration of the Sublease Term, as may be
extended.
Pursuant to the Kingman Lease, if pursuant to
any assignment or sublease, CJK receives rent, either initially or over the Term of the assignment or
sublease, in excess of the Rent
called for hereunder, or in the case of this sublease of a portion of the Premises in excess of such Rent fairly allocable to
such portion,
after appropriate adjustments to assure that all other payments called for hereunder are appropriately taken into account, CJK shall
pay to the
Company, as Additional Rent hereunder, 50% of the excess of each such payment of rent received by CJK. Accordingly, the Company
shall receive
additional rent of $3,500 per month during the term of the sublease.
Additionally, the subtenant paid a security deposit
of $22,000 per the terms of the sublease. The Company and CJK agreed to split the Security Deposit at
68% (the Company received $14,960
of the $22,000 Security Deposit), of which $14,960 was included in security deposits payable on the accompanying
consolidated balance
sheet as of December 31, 2023. Upon expiration of the Sublease, the Security Deposit of $14,960 was refunded to the subtenant.
Pleasant Ridge, Michigan
On November 29, 2022, ZP Woodward, as landlord,
entered into a Licensed Cannabis Facility Absolute Net Lease Agreement (the “Woodward Lease”)
with Rapid Fish 2 LLC, as tenant
(“Woodward Tenant”), whereby ZP Woodward leased the Woodward Property located in Pleasant Ridge. Michigan to the
Woodward
Tenant. The Woodward Lease commenced on December 1, 2022 and has a term of 14 years and 4 months through March 1, 2037, with two 5-
year
options to extend the term, exercisable by the Woodward Tenant pursuant to the terms and conditions of the Woodward Lease. The Woodward
Lease
contains customary obligations of the Woodward Tenant consistent with an absolute triple net lease agreement, including (i) the
payment of real property
taxes, personal property taxes, privilege, sales, rental, excise, use and/or other taxes (excluding income or
estate taxes), (ii) payment of insurance premiums
and operating costs of ZP Woodward related to the operation of the Woodward Property,
and (iii) maintenance and repair obligations to maintain the
Woodward Property in first-class retail condition. The Woodward Lease includes
a Guaranty of Payment and Performance by Ammar Kattoula and Thomas
Nafso. The Woodward Lease contains an abatement of the full or partial
rent that would otherwise have been due for the months from December 2022 to
March 2023. Subsequent to the abatement period. the Woodward
Lease provides for payment by the tenant of monthly base rent beginning at $40,319 per
month and increasing by 3% per year over the term
of the lease, as well as real property taxes, personal property taxes, privilege, sales, rental, excise, use
and/or other taxes (excluding
income or estate taxes) levied upon or assessed against the Company. In addition, pursuant to the terms of the Woodward
Lease, the Woodward
Tenant agreed to maintain insurance in full force during the term of the Woodward Lease and any other period of occupancy of the
premises
by the tenant. The tenant shall have the option, exercisable by written notice to ZP Woodward given not later than 180 days prior to
the expiration
of the then current term, to extend the term for two further terms of five years each on the same terms and conditions
as provided in this Lease.
5
On May 1, 2024, ZP Woodward and Rapid Fish, LLC
(the “Parties”), with individual Guarantors, Thomas Nafso and Ammar Kattoula (the “Guarantors”),
entered into
a First Amendment to the Absolute Net Lease Agreement (the “First Amendment”) pertaining to premises located at 23600-23634
Woodward
Ave, Pleasant Ridge MI 48069. The Parties also agreed to a fully executed Reaffirmation of Guaranty from the Guarantors.
According to the terms of the First Amendment,
the following changes have been agreed to by the Parties:
Amended Rental Payment Schedule
The First Amendment provides that as long as the
Company’s Conditions, as outlined in this First Amendment, are satisfied including a Renovation
Completion Commitment, the Rental
Payment Schedule of the Lease will be amended to the schedule set forth in the First Amendment.
Capital Commitment
The First Amendment provides for the inclusion
of the Capital Commitment as follows: Tenant shall cause a total of at least $850,000 to be spent toward
capital improvements to the Premises
(the “Commitment Improvements” and/or the “Capital Commitment”). Any such Commitment Improvements shall
be made
in accordance with the Lease as amended. Commitment Improvements to be counted toward satisfying the Capital Commitment shall include
capital improvements to the Premises and any part thereof, as well as other improvements approved in advance in writing by the Company,
and shall
exclude soft costs, permit, design, architectural and engineering fees, and legal fees. Tenant acknowledges that the Capital
Commitment is material to the
Company and the Company would not have agreed to enter into this First Amendment but for Tenant’s
obligations in this paragraph. If the Capital
Commitment is not completed in the prescribed time period, as evidenced by invoices or similar
documentation reasonably acceptable to the Company,
Tenant’s failure shall constitute an Event of Default under the Lease.
Renovation Completion Commitment
The First Amendment provides for the inclusion
of the Renovation Completion Commitment as follows: Tenant shall cause its Capital Commitment at the
Premises (the “Renovation Completion
Commitment”) to be completed within three (3) months after the First Amendment Effective Date (the “Renovation
Completion
Commitment Date”). In order to satisfy the Renovation Completion Commitment, Tenant must satisfy the following prior to the Renovation
Completion Commitment Date (i) deliver to the Company the appropriate deliverables evidencing renovation completion (the “Renovation
Completion
Deliverables”) (as defined below) (ii) open for business to the public for its intended Use of the Premises (the “Store
Opening”), (iii) and complete its first
bona fide sale to the public. The Renovation Completion Deliverables include the following:
(x) Tenant has furnished to the Company a copy of a
commercially reasonably detailed final cost breakdown for Tenant’s Work and
the Company has inspected the Premises to confirm that Tenant’s Work has
been completed in a good and workmanlike manner according
to the Tenant’s Approved Plans; (y) Tenant has furnished to the Company commercially
reasonable final affidavits and final lien
releases from Tenant’s general contractor, if any, all subcontractors and all material suppliers for all labor and
materials performed
or supplied as part of Tenant’s Work (whether or not the Allowance is applicable thereto); (z) a copy of the certificate of occupancy
from the governmental authority having jurisdiction has been delivered to the Company. Tenant acknowledges that the Renovation Completion
Commitment is material to the Company and the Company would not have agreed to enter into this First Amendment but for Tenant’s
obligations in this
paragraph. If the Renovation Completion Commitment is not completed in the prescribed time period, Tenant’s
failure shall constitute an Event of Default
under the Lease. the Company shall grant Tenant up to two (2) additional 30-day extension
upon request, so long as at the time of the extension the site is
conducting inspections toward certificate of occupancy.
North Lot
The First Amendment also provides that if within
18 months of the date of this First Amendment, Tenant is able to complete all of the following related to
23634 Woodward Ave, Pleasant
Ridge MI 48069 with an APN of 25-27-181-003 (the “North Lot”): (i) obtain authorization from all required jurisdictions
(including
the City of Pleasant Ridge) that the use of the North Lot parking spaces is no longer required and releases the Company from all obligations
related to the North Lot under the Declaration of Restrictions and Parking Easement (the “Parking Agreement”), and (ii) confirm
that the Tenant is able to
continue to use the lot for purposes of ingress and egress, and (iii) Tenant is able to arrange a deal with
the seller of the North Lot, which is currently under
a Land Contract with outstanding installment payments, that (x) provides the Company
with indemnity from Tenant that completely releases the Company
of any operational obligations or liabilities related to the North Lot,
(y) provides the Company with indemnity from Tenant that completely release the
Company of any financial obligations or liabilities related
to the North Lot, and (z) does not cause any encumbrance or legal liability to the remaining
properties at the Premises; then within 30
days of the Company’s receipt of written confirmation from all appropriate parties that all requirements noted
above have been satisfied,
at the Company sole discretion, the Company agrees that the parties shall enter into a Lease Amendment acknowledging the
same and modifying
Tenant’s lease base rental rate to be reduced by $3,846 for the Lease.
Reaffirmation of Guarantee
In consideration of the First Amendment, the Guarantors
executed and delivered a Reaffirmation of Guaranty (the “Reaffirmation of Guaranty”) effective
as of the First Amendment Effective
Date, May 3, 2024. Related to the Guaranty and the Original Guarantors, the Company agreed, that so long as there
are no uncured Events
of Default and Tenant remains in good standing under the Lease, then the Original Guarantors shall be released of their guarantees
following
the original lease term of fourteen and a half (14.5) years. The Company also agreed that, provided the Company has given written approval,
at
its discretion, which shall not be unreasonably withheld, then the Original Guarantors may be permitted to transfer the obligations
under their Guarantees in
the event of a Permitted Transfer, on to a new Guarantor(s) that are of at least equal or greater credit than
the Original Guarantors, to be determined by the
Company in its discretion, which shall not be unreasonably withheld.
6
Chicago, Illinois
On December 15, 2023, ZPRE Holdings entered into
an Agreement Regarding Purchase and Sale Contract (the “Agreement”), effective as of December
15, 2023, by and between Keystone,
as assignor, and ZPRE Holdings as assignee. Pursuant to the terms of the Agreement, Keystone agreed to assign to
ZPRE Holdings its right,
title and interest in that certain Purchase and Sale Agreement dated May 5, 2022, by and between the Seller and Keystone, as
amended
(the “Original PSA”). Pursuant to the terms of the Original PSA, the Seller agreed to sell to Keystone certain real property
located at 3499, 3451,
and 3455 South Ashland Avenue, Chicago, Illinois, 60608 (the “Ashland Avenue Property”) in exchange
for a purchase price of $1,250,000, to be paid by
Keystone (the “Purchase Price”). Pursuant to the terms of the Agreement,
ZPRE Holdings agreed to deposit the following amounts into escrow: (i)
$40,000, representing reimbursement to Keystone or its designee
for the earnest money deposit paid under the terms of the Original PSA, (ii) assignment
fees of $185,000, and (iii) $1,210,000, representing
the Purchase Price less the $40,000 earnest money payment. On January 19, 2024, the Company paid
these funds in the aggregate amount
$1,435,000.
On January 19, 2024, ZPRE Holdings and Keystone
entered into that certain Assignment and Assumption Agreement, dated as of January 19, 2024, by and
between Keystone and ZP Holdings
(the “Assignment Agreement”). Pursuant to the terms of the Assignment Agreement, Keystone assigned to ZP
Holdings all of
Keystone’s right, title and interest in and to the Original PSA to purchase the Ashland Avenue Property. On January 19, 2024, the
transactions contemplated by the Agreement and Assignment and Assumption Agreement closed and ZPE Holdings completed the acquisition
of the
Ashland Avenue Property under the Original PSA, as assigned. The completed transactions were subject to closing costs, commissions,
and fees customary
to the acquisition of real estate, including a $65,000 commission payable and a $79,634 sponsor fee payable.
On January 18, 2024, ZPRE Holdings entered into
a Licensed Cannabis Facility Absolute Net Lease Agreement (the “Justice Grown Lease”), with a
commencement date of January
19, 2024, by and between ZPRE Holdings, as landlord, and JG IL LLC (“Justice Grown”), as tenant. Pursuant to the terms
of
the Lease, ZPRE Holdings agreed to lease the Ashland Avenue Property to Justice Grown for use as a licensed recreational adult-use (and,
if permitted,
medical) cannabis dispensary in accordance with Illinois law. The Justice Grown Lease has a term of 15 years, with four
five-year renewal terms.
Surprise, AZ
On January 2, 2024, ZPRE Holdings entered into
a contingent Licensed Cannabis Facility Absolute Net Ground Lease Agreement (the “Sunday Goods
Lease”), with a commencement
date contingent upon the satisfaction of various contingencies to the Sunday Goods Lease, by and between ZPRE
Holdings, as landlord,
and Sunday Goods, as tenant. Pursuant to the terms of the Sunday Goods Lease, ZPRE Holdings agreed to lease the Surprise
Property to
Sunday Goods for use as a licensed medical and adult use marijuana retail dispensary in accordance with the laws of Arizona. The Sunday
Goods Lease has a term of 15 years, with four five-year renewal terms. Pursuant to the Sunday Goods Lease, ZPRE Holdings has agreed to
provide a
tenant improvement allowance for up to $1,000,000 to Sunday Goods to be reimbursed in tranches following completion of tenant’s
work. Pursuant to the
terms of the Contingent Lease, on February 27, 2024, Sunday Goods executed a guaranty (the “Guaranty”)
in favor of ZP Holdings, guaranteeing the
prompt and complete payment and performance of all of Sunday Goods’ obligations to ZPRE
Holdings arising under the Contingent Lease. As of July 8,
2024, all contingencies were satisfied and the Contingent Lease commenced
on July 13, 2024. Pursuant to the Sunday Goods Lease, beginning in July
2025, Sunday Goods shall pay monthly base rent of $25,000
through June 2026, with an annual increase of 3% per annum through June 2040.
On March 3, 2025, ZP Dysart entered into a First
Amendment with its tenant related to the Sunday Goods Lease at the Surprise Property. The First
Amendment clarifies and defines the process
by which the tenant improvement Allowance for the Tenant Work at the Surprise Property would be
completed. Subject to the terms and conditions
of the Sunday Goods Lease, and so long as there is no default ongoing beyond any notice and/or cure
period, partial payments of the Allowance
(the “Allowance Payments”) provided by Landlord shall be made to Tenant as follows: (#1) $300,000 to be paid
upon the full
execution of the First Amendment to the Lease; (#2) $150,000 to be paid on April 01, 2025 (#3) $150,000 to be paid on May 01, 2025, and
(#4) the remaining $400,000 of the Allowance shall be withheld by Landlord until completion of the Tenant’s Work on the Property;
provided however,
Landlord’s obligation to disburse the final $400,000 (Payment #4 of the Allowance Payments) is expressly conditioned
upon Landlord’s receipt of the
following “Allowance Deliverables”: (i) Tenant has furnished to Landlord a copy of a
commercially reasonably detailed final cost breakdown for Tenant’s
Work and Landlord has inspected the Premises to confirm that
Tenant’s Work has been completed in a good and workmanlike manner according to the
Tenant’s Approved Plans; (ii) Tenant has
furnished to Landlord commercially reasonable final affidavits and final lien releases from Tenant’s general
contractor, and if
any, all subcontractors and all material suppliers for all labor and materials performed or supplied as part of Tenant’s Work (whether
or
not the Allowance is applicable thereto); and (iii) a copy of the certificate of occupancy from the governmental authority having jurisdiction
has been
delivered to Landlord. Throughout the project, Tenant shall be required to provide Landlord with ongoing accounting reflecting
a commercially reasonable
breakdown of the Tenant’s Work paid for with the Allowance Payments, and also a current Form W-9, Request
for Taxpayer Identification Number and
Certification, executed by Tenant.
Property Investment Portfolio
The Company considers tenants whose annual base
rent exceeds over 10% of the Company’s annual rental income to be a Significant Tenant.
The Tempe Lease, Chino Valley Lease, and the
Woodward Lease are considered significant and the tenants are referred to as the Significant Tenants.
During the years ended December 31, 2024 and
2023, all of the Company’s real estate properties are leased under triple-net and absolute-net leases to
tenants that are controlled
by Significant Tenants. For the years ended December 31, 2024 and 2023, revenues associated with Significant Tenant leases
described
above are summarized as follows:
For the Year
Ended
December 31,
2024
% of
Total
Revenues
For the Year
Ended
December 31,
2023
% of
Total
Revenues
Broken Arrow
$
1,120,431
29.5% $
1,120,431
38.8%
VSM *
656,736
17.3%
656,736
22.7%
Woodward lease *
589,478
15.6%
616,862
21.4%
Total
$
2,366,645
62.4% $
2,394,029
82.9%
7
As of December 31, 2024 and 2023, the Company
had an asset concentration related to the Significant Tenants. As of December 31, 2024 and 2023, the
Significant Tenants collectively
leased approximately 55.4% and 69.4% of the Company’s total assets, respectively. Additionally, the Company had an
asset concentration
related its Surprise, AZ property, which leased approximately 10.6% of the Company’s total assets of the Company. Through December
31, 2024, all rental payments have been made on a timely basis.
Future minimum lease payments to be received,
on all leased properties, for each of the five succeeding calendar years and thereafter as of December 31,
2024, consists of the following:
Future annual base rent:
Amount
2025
$
2,563,226
2026
2,725,617
2027
2,746,432
2028
2,776,883
2029
2,808,247
Thereafter
31,338,074
Total
$
44,958,479
Investment in Joint Ventures and Equity Investments
On December 31, 2024 and 2023, the Company held
investments with aggregate carrying values of $4,923. The entities listed below are partially owned by
the Company. The Company accounts
for these investments under the equity method of accounting as the Company exercises significant influence but does
not exercise financial
and operating control over these entities. Investments are reviewed for changes in circumstance or the occurrence of events that
suggest
an other than temporary event where the Company’s investment may not be recoverable.
On May 1, 2021, the Company entered into a Limited
Liability Company Operating Agreement (the “Zoneomics Green Operating Agreement”) with a
non-affiliated joint venture partner
in connection with the formation of Zoneomics Green, LLC (“Zoneomics Green”), a Delaware limited liability company
formed
on May 1, 2021. Zoneomics Green’s goal is to utilize advanced property technology to provide solutions for property identification
in regulated
industries such as regulated cannabis. Pursuant to the Zoneomics Green Operating Agreement, the Company purchased 50 units
of Zoneomics Green for a
capital contribution of $90,000, which represents 50% of the membership interests of Zoneomics Green and the
other joint venture partner received 50% of
the membership interests for the contribution of its intellectual property and a number of
non-monetary contributions. identified in the Zoneomics Green
Operation Agreement but provided no capital contributions. Each unit represents,
with respect to any member, such member’s: (i) interest in Zoneomics
Green’s capital, (ii) share of Zoneomics Green’s
net profits and net losses (and specially allocated items of income, gain, and deduction), and the right to
receive distributions of
net cash flow from Zoneomics Green, (iii) right to inspect Zoneomics Green’s books and records, and (iv) right to participate in
the
management of and vote on matters coming before the members as provided in the Zoneomics Green Operating Agreement. The transactions
discussed
above resulted in a joint venture, in accordance with ASC 323-10 – Investments- Equity and Joint Ventures, between
the Company and the non-affiliated
party. Each of the entities has 50% equity ownership and voting rights, and joint control in Zoneomics
Green. In June 2021, the Company contributed
$90,000 to Zoneomics Green. Currently, the Zoneomics Green team has completed the creation
of the foundational design, technology platform, and
market positioning for Zoneomics Green to launch in the cannabis industry. However,
in order to successfully launch, the technology platform relies upon a
required merchant banking component. While Company management
knew this risk was a major factor going into the investment, it was not foreseen
exactly when an appropriate merchant banking solution
would be available given the federal status of regulated cannabis and specifically the federal
banking status as it relates to regulated
cannabis, even for ancillary services such as Zoneomics Green. The regulatory status related to cannabis banking
reform and regulation
at the federal level, which the Zoneomics platform relies upon, is uncertain and the Company believes it is appropriate to cause an
impairment
of the Zoneomics Green investment at this time, while also understanding that Company believes Zoneomics Green may still create material
value for the Company in the future. Additionally, the Company is using the Zoneomics Green technology within its own business to generate
leads for
new projects. The Company has no further financial or investment obligations at this time. Accordingly, on December 31, 2023,
the Company recorded an
other-than-temporary impairment loss of $45,000 because it was determined that the fair value of its equity method
investment in Zoneomics was less than
its carrying value. Based on management’s evaluation, it was determined that due to market
and regulatory conditions, implementing the Company’s
business model was at risk and that the Company’s ability to recover
the carrying amount of the investment in Zoneomics was impaired.
On June 24, 2022, the Company’s wholly-owned
subsidiary, ZP Data Platform 2 LLC, purchased 875 shares of Series A convertible preferred stock of
Anami Technology, Inc., a California
corporation, for $50,000, or $57.14 per share. The Company’s ownership percentage is less than 20% and it does not
have the ability
to exercise significant influence as described in ASC 323-10-15-6. This equity instrument does not have a readily determinable fair value.
Accordingly, the Company elected to measure this equity security at its cost minus impairment, if any. If the Company identifies observable
price changes
in orderly transactions for the identical or a similar investment of the same issuer, the Company shall measure the equity
security at fair value as of the date
that the observable transaction occurred. If the Company subsequently elects to measure this equity
security at fair value, the Company shall measure all
identical or similar investments of the same issuer, including future purchases
of identical or similar investments of the same issuer, at fair value. The
election to measure this equity security at fair value shall
be irrevocable. Any resulting gains or losses on the securities for which that election is made shall
be recorded in earnings at the
time of the election. On December 31, 2024 and 2023, investment in equity securities amounted to $50,000.
8
Tenants and Clients
We target tenants for our Property Investment
Portfolio activity and clients for our Real Estate Services activity who require assistance with the
identification and development of
regulated cannabis properties. Our ideal prospective tenants and/or clients will have a commitment to operating their
business and real
estate projects with an emphasis on sophistication, safety, sustainability, and stewardship to the local community in which they operate.
We complete significant due diligence on prospective
tenants and prospective clients. Credit-worthiness, character, and capital are all important variables
that contribute to a target tenant
and/or client for the Company.
Marketing
Currently, the Company uses general industry
marketing to communicate its Property Investment Portfolio and Real Estate Services to industry operators
and prospective clients. These
include an industry newsletter that the Company distributes, as well as electronic and physical mailers directed to cannabis
industry
operators and property owners. Industry reputation, word-of-mouth, and networking are the primary tools the Company has used to complete
the
marketing of our services. We have previously and may in the future engaged with marketing, design, and public relations firms to
assist with our industry
branding and to help maintain an updated website, shareholder presentation, and profile outlining the Company’s
services. These tools are created for
transparency of operations and activities. Our executive management believes the reputation of
having integrity is an essential tool for marketing and
business development.
Competition
The commercial real estate market is highly competitive.
We believe finding properties that are zoned an/or approved for the specific use of allowing
regulated cannabis operations may be limited
as more competitors enter the market. More competitors continue to enter the marketplace. We face
significant competition from a diverse
mix of market participants, including but not limited to, other public companies with similar business models,
independent investors,
hedge funds and other real estate investors, hard money lenders, as well as would be clients, regulated cannabis operators
themselves,
all of whom, may compete against us in our efforts to secure and acquire real estate zoned and/or approved for cannabis operations. In
some
instances, we will be competing to acquire real estate with persons who have no interest in the regulated cannabis business but
have identified alternative
value in a piece of real estate that we may be interested in acquiring.
Government Regulation
Real Estate & General Business Regulations
We are subject to applicable provisions of federal
and state securities laws and to regulations specifically governing the real estate industry, including those
governing fair housing
and federally backed mortgage programs. Our operations will also be subject to regulations normally incident to business
operations,
such as occupational safety and health acts, workmen’s compensation statutes, unemployment insurance legislation and income tax
and social
security related regulations. Although we will use our best efforts to comply with applicable regulations, we can provide
no assurance of our ability to do
so, nor can we fully predict the effect of these regulations on our proposed activities.
In addition, zoning commercial properties for
specific purposes, such as regulated cannabis dispensaries or cultivation facilities, is subject to specific
regulations to the zoning
requirements for the city, county and state related to any regulated cannabis facility. We expect regulations to get tighter as time
goes on.
Federal and State Regulation of Cannabis
Controlled Substances Act and “Cole Memorandum”
The U.S. federal government regulates drugs through
the Controlled Substances Act (21 U.S.C. § 811) (the “CSA”), which places controlled substances,
including cannabis,
in a schedule. Cannabis is classified as a Schedule I drug. Under U.S. federal law, a Schedule I drug or substance has a high potential
for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision.
The United States
Food and Drug Administration (the “FDA”) has approved Epidiolex, which contains a purified form of cannabidiol
(“CBD”), a non-psychoactive
cannabinoid found in the cannabis plant, for the treatment of seizures associated with two epilepsy
conditions. The FDA has not approved cannabis or
cannabis derived compounds as a safe and effective drug for any other indication.
In the United States, cannabis is largely regulated
at the state level. State laws regulating cannabis are in direct conflict with the federal CSA, which makes
cannabis use and possession
federally illegal. Although most U.S. states authorize medical or adult-use cannabis production and distribution by licensed or
registered
entities, under U.S. federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal,
and any
such acts are criminal acts under federal law. The Company faces risks for operating in an industry that is illegal under federal
law, including that third
party service providers could suspend or withdraw services. See section entitled “Risk Factors”
herein.
9
Due to the conflicting views between state governments
and the federal government regarding cannabis, cannabis businesses are subject to inconsistent
laws and regulations. In response and until
2018, the federal government provided guidance to federal law enforcement agencies and banking institutions
through a series of United
States Department of Justice (“DOJ”) memoranda. The most significant of these memoranda was drafted by former Deputy
Attorney
General James Cole in 2013 (the “Cole Memo”).
The Cole Memo offered guidance to federal enforcement
agencies as to how to prioritize civil enforcement, criminal investigations and prosecutions
regarding marijuana in all states. The Cole
Memo put forth eight prosecution priorities:
●
Preventing
the distribution of marijuana to minors;
●
Preventing
revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;
●
Preventing
the diversion of marijuana from states where it is legal under state law in some form to other states;
●
Preventing
the state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other
illegal
activity;
●
Preventing
violence and the use of firearms in the cultivation and distribution of marijuana;
●
Preventing
drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
●
Preventing
the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production
on
public lands; and
●
Preventing
marijuana possession or use on federal property.
On January 4, 2018, former United States Attorney
General Jefferson Sessions rescinded the Cole Memo by issuing a new memorandum to all United
States Attorneys (the “Sessions Memo”).
Rather than establish national enforcement priorities particular to marijuana-related crimes in jurisdictions where
certain marijuana
activity was legal under state law, the Sessions Memo instructs that “[i]n deciding which marijuana activities to prosecute ...
with the
DOJ’s finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions.”
Namely, these include the
seriousness of the offense, history of criminal activity, deterrent effect of prosecution, the interests of
victims, and other principles.
The former Attorneys Generals who succeeded former Attorney General
Sessions following his resignation have not provided a clear policy directive for
the United States as it pertains to state-legal marijuana-related
activities. However, as discussed herein, during his term, President Joseph R. Biden,
announced multiple mass pardons and clemency of
persons who had been convicted of simple marijuana possession under federal law and initiated a
regulatory process under the CSA to move
cannabis from Schedule I to Schedule III. However, with the recent re-election of President Donald J. Trump,
who took office on January
20, 2025, the future of the rescheduling process is uncertain.
2018 Farm Bill
Following the passage of the Agriculture Improvement
Act of 2018 (popularly known as the “2018 Farm Bill”), cannabis with a tetrahydrocannabinol
(“THC”) content below
0.3% dry weight volume is classified as hemp and has been removed from the CSA. Hemp and products derived from it that are
lawfully cultivated
or manufactured in accordance with the 2018 Farm Bill, U.S. Department of Agriculture regulations and applicable state laws may now
be
sold into commerce and transported across state lines. The 2018 Farm Bill explicitly preserves the authority of the FDA to regulate certain
products
containing cannabis or cannabis-derived compounds such as CBD under the federal Food, Drug and Cosmetic Act (“FD&C
Act”) and Section 351 of the
Public Health Service Act. In conjunction with the enactment of the 2018 Farm Bill, the FDA released
a statement about the regulatory status of CBD,
noting the FDA’s position that it is unlawful to introduce food containing added
CBD into interstate commerce, or to market CBD products as, or in, dietary
supplements, regardless of whether the substances are hemp-derived.
In January 2023, the FDA issued a statement in connection with its denial of three
citizen petitions requesting that the agency engage
in rulemaking to establish regulations under which CBD derived from hemp could be legally marketed
as a dietary ingredient in foods and
dietary supplements. The FDA stated that it is seeking assistance from Congress to create a new regulatory pathway
that is better designed
to regulate products that contain hemp derived cannabinoids, including CBD. In the interim, the FDA stated that products (including
dietary
supplements, conventional foods, and animal foods) on the market are at risk of FDA enforcement as the agency deems “appropriate.”
To date, the
FDA’s enforcement actions against companies manufacturing CBD products has primarily been limited to the issuance of
warning letters to companies
whose products have made prohibited, misleading, and unapproved drug claims. Various states have also enacted
state-specific laws pertaining to the
handling, manufacturing, labeling, and sale of CBD and other hemp consumable products. While some
states explicitly authorize and regulate the
production and sale of hemp-derived CBD consumable products or otherwise provide legal protection
for authorized individuals to engage in such
activities, other states restrict the sale of CBD products or prohibit such products outright.
The 2018 Farm Bill’s provisions regarding hemp have been
extended through congressional appropriations “riders” following
the 2018 Farm Bill’s expiration in 2023. It is uncertain whether Congress will further
amend the definition of “hemp”
through subsequent legislation.
10
Financial Institutions and Banking
Due to the CSA categorization of marijuana as
a Schedule I drug, federal law also makes it illegal for financial institutions that depend on the Federal
Reserve’s money transfer
system to take any proceeds from marijuana sales as deposits. Banks and other financial institutions could be prosecuted and
possibly
convicted of money laundering for providing services to cannabis businesses under the United States Currency and Foreign Transactions
Reporting Act of 1970 (the “Bank Secrecy Act”). Therefore, under the Bank Secrecy Act, banks or other financial institutions
that provide a cannabis
business with a checking account, debit or credit card, small business loan, or any other service could be charged
with money laundering or conspiracy.
While there has been no change in U.S. federal
banking laws to accommodate businesses in the large and increasing number of U.S. states that have
legalized medical and/or adult-use
marijuana, the Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”), in 2014, issued
guidance to prosecutors
of money laundering and other financial crimes (the “FinCEN Guidance”). The FinCEN Guidance advised prosecutors not to focus
their enforcement efforts on banks and other financial institutions that serve marijuana-related businesses so long as that business
is legal in their state and
none of the federal enforcement priorities referenced in the Cole Memo are being violated (such as keeping
marijuana away from children and out of the
hands of organized crime). The FinCEN Guidance also clarifies how financial institutions
can provide services to marijuana-related businesses consistent
with their Bank Secrecy Act obligations, including thorough customer
due diligence, but makes it clear that they are doing so at their own risk. The
customer due diligence steps include:
1.
Verifying
with the appropriate state authorities whether the business is duly licensed and registered;
2.
Reviewing
the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-
related
business;
3.
Requesting
from state licensing and enforcement authorities available information about the business and related parties;
4.
Developing
an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of
customers to be served (e.g., medical versus adult-use customers);
5.
Ongoing
monitoring of publicly available sources for adverse information about the business and related parties;
6.
Ongoing
monitoring for suspicious activity, including for any of the red flags described in this guidance; and
7.
Refreshing
information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.
With respect to information regarding state licensure
obtained in connection with such customer due diligence, a financial institution may reasonably rely
on the accuracy of information provided
by state licensing authorities, where states make such information available.
Because most banks and other financial institutions
are unwilling to provide any banking or financial services to marijuana businesses, these businesses can
be forced into becoming “cash-only”
businesses. While the FinCEN Guidance decreased some risk for banks and financial institutions considering serving
the industry, in practice
it has not substantially increased banks’ willingness to provide services to marijuana businesses. This is because, as described
above, the current law does not guarantee banks immunity from prosecution, and it also requires banks and other financial institutions
to undertake time-
consuming and costly due diligence on each marijuana business they accept as a customer.
Those state-chartered banks and credit unions
that do have customers in the marijuana industry charge marijuana businesses high fees to pass on the added
cost of ensuring compliance
with the FinCEN Guidance. Unlike the Cole Memo, however, the FinCEN Guidance from 2014 has not been rescinded.
As a result, those businesses involved in the
marijuana industry continue to encounter difficulty establishing banking relationships, which may increase
over time. Our inability to
maintain our current bank accounts would make it difficult for us to operate our business, increase our operating costs, and pose
additional
operational, logistical and security challenges and could result in our inability to implement our business plan.
The inability of our current and potential tenants
to open accounts and continue using the services of banks will limit their ability to enter into triple-net
lease arrangements with us
or may result in their default under our lease agreements, either of which could materially harm our business and the trading
price of
our securities.
Controlled Substances Act Rescheduling
There have been recent
developments regarding the potential for cannabis to be removed from the most restrictive schedule under the CSA, but with the
recent
re-election of President Trump, the regulatory process for this so-called “rescheduling” is uncertain. On October 6, 2022,
President Joe Biden
requested that the Secretary of the U.S. Department of Health and Human Services (“HHS”), Xavier Becerra,
and Attorney General Merick Garland initiate
a scientific review of the basis for cannabis’ scheduling under the CSA. After approximately
11 months of review, on August 29, 2023, HHS Assistant
Secretary of Health, Rachel Levine, sent a letter to Drug Enforcement Administration
(“DEA”) Administrator, Anne Milgram, recommending rescheduling
marijuana from Schedule I to Schedule III of the CSA. The recommendation
was based on a scientific and medical review by the FDA with an analysis of
the eight factors determinative of control of a substance
under the CSA. The National Institute on Drug Abuse ("NIDA"), a part of the National Institutes of
Health ("NIH"),
agreed with the HHS/FDA recommendation to reclassify cannabis.
11
On
May 16, 2024, the DEA issued a Notice of Proposed Rulemaking (“NPRM”) to reclassify marijuana to Schedule III. A formal
adjudicatory proceeding
was opened by a DEA Administrative Law Judge (“ALJ”). Following
the introduction of all evidence, testimony, and briefings in the hearings, the ALJ
would issue a final determination on the proposed
rescheduling, However, these proceedings have been indefinitely delayed. On
January 13, 2025, the ALJ
cancelled a hearing set for January 21, 2025, which effectively pauses the rescheduling process indefinitely
while an interlocutory appeal by two pro-
rescheduling participants is considered by the DEA Administrator. There is no clear timeline
for when the hearings will resume.
During the presidential
campaign in 2024, President Trump publicly stated that his administration would support reclassification of cannabis as a Schedule
III
substance and would not stop or reverse a Schedule III determination. However, it is uncertain whether President Trump, new Attorney
General Pamela
Jo Bondi, or President Trump’s nominee for DEA Administrator, Derek Maltz, will withdraw the NPRM or otherwise end
these rescheduling proceedings.
Internal Revenue Code, Section 280E
An additional challenge to marijuana-related businesses
is that the provisions of the Internal Revenue Code, Section 280E (“Section 280E”), are being
applied by the IRS to businesses
operating in the medical and adult-use marijuana industry. Section 280E prohibits marijuana businesses from deducting
ordinary and necessary
business expenses, forcing them to pay higher effective federal tax rates than similar companies in other industries. As a result of
Section
280E, the effective tax rate for many of the Company’s tenants and clients can be highly variable and depends on how large its ratio
of non-
deductible expenses is to its total revenues. Therefore, businesses in the legal cannabis industry may be less profitable than
they would otherwise be. If
rescheduling were to occur, it is anticipated that the IRS will provide additional guidance on Section 280E
and its applicability to the Company’s business.
That said, legislation has been introduced in the U.S. House of Representatives
and U.S. Senate that would make 280E applicable to any trade or business
involved in cannabis even if cannabis is rescheduled to Schedule
III under the CSA. It is not clear whether these bills have a high likelihood of passage.
Federal Protections
Moreover, certain temporary federal legislative
enactments that protect the medical marijuana industries have also been in effect for several years. For
instance, certain marijuana
businesses receive a measure of protection from federal prosecution by operation of temporary appropriations measures that
have been
enacted into law as amendments (or “riders”) to federal spending bills passed by Congress and signed by the past three presidents.
For instance,
in the Appropriations Act of 2015, Congress included a budget “rider” that prohibits the DOJ from expending
any funds to enforce any law that interferes
with a state’s implementation of its own medical marijuana laws. The rider is known
as the “Rohrabacher-Farr Amendment” after its original lead sponsors.
Notably, the Rohrabacher-Farr Amendment has applied
only to medical marijuana programs and has not provided the same protections to enforcement
against adult-use activities. While the Rohrabacher-Farr
Amendment has been included in successive appropriations legislation or resolutions since 2015,
its inclusion or non-inclusion is subject
to political change.
12
In sum, there is no guarantee that state laws
legalizing and regulating the sale and use of marijuana will not be repealed or overturned, or that local
governmental authorities will
not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress
amends the
CSA with respect to marijuana (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk
that
federal authorities may enforce current U.S. federal law. Currently, in the absence of uniform federal guidance, as had been established
by the Cole Memo,
enforcement priorities are determined by respective United States Attorneys, and notwithstanding public statements to
the contrary, federal law
enforcement could enforce the CSA – and its criminal prohibition on commercial cannabis activity.
For these reasons, the Company’s investments in the U.S. cannabis
market may subject the Company to heightened scrutiny by regulators, stock exchanges,
clearing agencies and other U.S. authorities. See
section entitled “Risk Factors” herein.
Although the Company’s activities are believed
to be compliant with applicable state and local laws, strict compliance with state and local laws with
respect to cannabis may neither
absolve the Company of liability under U.S. federal law, nor may it provide a defense to any federal proceeding which may
be brought
against the Company.
We will continue to monitor compliance on an
ongoing basis in accordance with our compliance program and standard operating procedures. For the
reasons described above and the risks
further described in “Risk Factors,” there are significant risks associated with our business.
Local, state and federal marijuana laws and regulations
are broad in scope and subject to evolving interpretations, which could require us to incur
substantial costs associated with compliance
or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt
our business and
result in a material adverse effect on its operations. In addition, it is possible that regulations may be enacted in the future that
will be
directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or
applications, nor can we
determine what effect additional governmental regulations or administrative policies and procedures, when and
if promulgated, could have on our business.
Employees
As of December 31, 2024, we had seven full-time
and part-time employees, including our chief executive officer and chief operating officer. We have
established a national network of
external partners, contractors, and consultants to which we outsource various operational tasks in an effort to minimize
administrative
overhead and maximize efficiency.
We believe that a diverse workforce is important
to our success. We will continue to focus on the hiring the best-qualified individuals for our various
workforce needs, with an emphasis
on retention and advancement of women and underrepresented populations, and to cultivate an inclusive and diverse
corporate culture.
In the future, we intend to continue to evaluate our use of human capital measures or objectives in managing our business such as the
factors we employ or seek to employ in the development, attraction and retention of personnel and maintenance of diversity in our workforce.
The success of our business is fundamentally
connected to the well-being of our people. Accordingly, we are committed to the health, safety and wellness
of our employees. We provide
our employees and their families with access to a variety of innovative, flexible and convenient health and wellness
programs, including
benefits that provide protection and security so they can have peace of mind concerning events that may require time away from work
or
that impact their financial well-being; that support their physical and mental health by providing tools and resources to help them improve
or maintain
their health status and encourage engagement in healthy behaviors; and that offer choice where possible so they can customize
their benefits to meet their
needs and the needs of their families.
We also provide robust compensation and benefits
programs to help meet the needs of our employees. We believe that we maintain a strong working
relationship with our employees and have
not experienced any labor disputes.
13
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high
degree of risk. You should not invest in our stock unless you are able to bear the complete loss of your
investment. You should carefully
consider the risks described below, as well as other information provided to you in this annual report on Form 10-K,
including information
in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cautionary Note Regarding
Forward-Looking Information and Factors That May Affect Future Results” before making an investment decision. The risks and uncertainties
described
below are not the only ones facing Zoned Properties. Additional risks and uncertainties not presently known to us or that we
currently believe are
immaterial may also impair our business operations. If any of the following risks actually occur, our business,
financial condition or results of operations
could be materially adversely affected, the value of our common stock could decline, and
you may lose all or part of your investment.
Risks Related to Our Business and Our Industry
Because we have limited operating history
in the real estate industry, we may not succeed.
We have limited operating history or experience
in procuring, building out or leasing real estate for agricultural purposes, specifically legalized marijuana
grow facilities, or with
respect to any other activity in the cannabis industry. Moreover, we are subject to all risks inherent in developing a new business
enterprise.
Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered
in connection with establishing a new business and the competitive and regulatory environment in which we operate. For example, the regulated
cannabis
industry is new and may not succeed, particularly should the federal government change course and decide to prosecute those
dealing in medical marijuana.
If that happens there may not be an adequate market for our properties or other activities we propose to
engage in.
You should further consider, among other factors,
our prospects for success in light of the risks and uncertainties encountered by companies that, like us,
are in their early stages.
For example, unanticipated expenses, delays and or complications with build outs, zoning issues, legal disputes with neighbors,
local
governments, communities and or tenants. We may not successfully address these risks and uncertainties or successfully implement our
operating
strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could
impair the value of our common
stock to the point investors may lose their entire investment.
Although we generate positive cash flows
from operations, we may need to raise additional capital to fund our expansion.
We may need to raise additional funds through
public or private debt or equity financings, as well as obtain credit from vendors to be able to fully execute
our business plan. If
we cannot raise additional capital, we may be otherwise unable to achieve our goals or continue our property development. While we
believe
that we will be able to raise the capital we need to continue our operations, there can be no assurances that we will be successful in
these efforts or
will be able to resolve any liquidity issues or eliminate our operating losses. In addition, any additional capital
raised through the sale of equity may dilute
your ownership interest. We may not be able to raise additional funds on favorable terms,
or at all. If we are unable to obtain additional funds or credit from
our vendors, we may be unable to execute our business plan and
you could lose your investment.
Because we may be unable to identify and/or
successfully acquire properties which are suitable for our business, our financial condition may be
negatively affected.
Our business plan involves the identification
and the successful acquisition of properties, which are zoned for legalized cannabis businesses, including
cultivation and retail. The
properties we acquire will be leased to regulated cannabis operators. Local governments must approve and adopt zoning
ordinances for
medical cannabis facilities and retail dispensaries. A lack of properly zoned real estate may reduce our prospects and limit our opportunity
for growth and or increase the cost at which suitable properties are available to us. Conversely a surplus of real estate zoned for medical
cannabis
establishments may reduce demand and prices we are able to charge for properties we may have previously acquired.
In addition, some jurisdictions, such as Arizona,
impose limits on the number of medical cannabis dispensaries that will be permitted to operate within
designated geographic areas. Such
limitations inherently place constraints on the number of properties we acquire for lease to operators in the cannabis
industry.
If we fail to diversify our property investment
portfolio or advisory and real estate services offered, downturns relating to certain industries or business
sectors or the financial
stability of our significant tenants may have a significant adverse impact on our assets and our ability to pay our operating
expenses
or pay dividends than if we had a diversified property portfolio and service offerings.
While we intend to diversify our portfolio of
properties, we are not required to observe specific diversification criteria. Therefore, our total assets are
concentrated into a limited
number of tenants who were considered significant tenants. To the extent that our total assets are concentrated in a limited
number of
tenants that are in the regulated cannabis industry, downturns relating generally to such industry or business sector, or a decline in
the financial
stability of our Significant Tenants may result in defaults on all of our leases within a short time period, which may
reduce our net income and the value of
our common stock and accordingly, limit our ability to pay or operating expenses or pay dividends
to our stockholders. As of December 31, 2024 and 2023,
we had an asset concentration related to our Significant Tenant leases at our
Tempe, Chino Valley, Green Valley and Kingman, Arizona properties and our
property located in Pleasant Ridge, Michigan. As of December
31, 2024 and 2023, the Significant Tenants collectively leased approximately 55.4% and
69.4% of the Company’s total assets, respectively.
Additionally, the Company had an asset concentration related its Surprise, AZ property, which leased
approximately 10.6% of the Company’s
total assets of the Company. If our tenants are prohibited from operating or cannot pay their rent, we may not have
enough working capital
to support our operations and we would have to seek out new tenants at rental rates per square foot that may be less than our
current
rate per square foot.
Any adverse economic or real estate developments
in the medical cannabis industry could adversely affect our operating results and our ability to collect
rent from out tenants, pay our
operating expenses or pay dividends to our stockholders.
14
Because our business is dependent upon
continued market acceptance by our tenants’ consumers, any negative trends will adversely affect our
business operations.
Out tenants are substantially dependent on continued
market acceptance and proliferation of consumers of regulated cannabis. We believe that as cannabis
becomes more accepted, the stigma
associated with cannabis use will diminish and as a result, consumer demand will continue to grow. And while we
believe that the market
and opportunity in the cannabis space continues to grow, we cannot predict the future growth rate and size of the market. Any
negative
outlook on the cannabis industry will adversely affect our tenants’ business operations and their ability to pay rent to us.
In addition, it is believed by many that large
well-funded businesses may have a strong economic opposition to the cannabis industry. We believe that the
pharmaceutical industry clearly
does not want to cede control of any product that could generate significant revenue. For example, medical cannabis will
likely adversely
impact the existing market for the current “marijuana pill” sold by the mainstream pharmaceutical industry, should cannabis
displace other
drugs or encroach upon the pharmaceutical industry’s products. The pharmaceutical industry is well funded with a
strong and experienced lobby that
eclipses the funding of the medical cannabis movement. Any inroads the pharmaceutical could make in
halting the impending cannabis industry could have
a detrimental impact on our proposed business.
Because we buy and lease property, we will
be subject to general real estate risks.
We will be subject to risks generally incident
to the ownership of real estate, including: (a) changes in general economic or local conditions; (b) changes in
supply of, or demand
for, similar or competing properties in the area; (c) bankruptcies, financial difficulties or defaults by tenants or other parties; (d)
increases in operating costs, such as taxes and insurance; (e) the inability to achieve full stabilized occupancy at rental rates adequate
to produce targeted
returns; (f) periods of high interest rates and tight money supply; (g) excess supply of rental properties in the
market area; (h) liability for uninsured losses
resulting from natural disasters or other perils; (i) liability for environmental hazards;
and (j) changes in tax, real estate, environmental, zoning or other
laws or regulations. For these and other reasons, no assurance can
be given that we will be profitable.
Our growth depends on external sources
of capital, which may not be available on favorable terms or at all. In addition, banks and other financial
institutions may be reluctant
to enter into lending transactions with us, including secured lending, because our properties are used in the cannabis
industry. If this
source of funding is unavailable to us, our growth may be limited and our business may be materially adversely affected.
Our ability to acquire, operate and sell properties,
engage in the business activities that we have planned and achieve positive financial performance
depends, in large measure, on our ability
to obtain financing in amounts and on terms that are favorable. The capital markets in the United States in general,
and in the cannabis
sector in particular, have undergone a turbulent period in which lending was severely restricted. Although there appear to be signs that
financial institutions are resuming lending, the market has not yet returned to its pre-2008 state. The cannabis sector has experienced
significant volatility
and such volatility is expected to continue in 2025. Obtaining favorable financing in the current environment
remains challenging.
In order to grow our business, we may seek financing
through newly issued equity or debt. We may not be in a position to take advantage of attractive
investment opportunities for growth
if we are unable, due to global or regional economic uncertainty, changes in the state or federal regulatory environment
relating to
the medical-use cannabis industry, changes in market conditions for the regulated cannabis industry, our own operating or financial performance
or otherwise, to access capital markets on a timely basis and on favorable terms, or at all.
Our access to capital will depend upon a number
of factors over which we have little or no control, including general market conditions and the market’s
perception of our current
and potential future earnings. If general economic instability or downturn, or volatility within the cannabis sector, leads to an
inability
to borrow at attractive rates or at all, our ability to obtain capital could be negatively impacted. In addition, banks and other financial
institutions
may be reluctant to enter into lending transactions with us, particularly secured lending, because our properties are used
in the cultivation, production or
dispensing of medical-use cannabis. If this source of funding is unavailable to us, our growth may
be limited and our business may be materially adversely
affected.
If we are unable to obtain capital on terms and
conditions that we find acceptable, we likely will have to curtail operations and reduce the number of
properties we purchase in the
future. In addition, our ability to refinance all or any debt we may incur in the future, on acceptable terms or at all, is subject
to
all of the above factors, and will also be affected by our future financial position, results of operations and cash flows, which additional
factors are also
subject to significant uncertainties, and therefore we may be unable to refinance any debt we may incur in the future,
as it matures, on acceptable terms or
at all. All of these events would have a material adverse effect on our business, financial condition,
liquidity and results of operations.
In addition, securities clearing firms may refuse
to accept deposits of our securities, which may negatively impact the trading of our securities and have a
material adverse impact on
our ability to obtain capital.
15
Because we will compete with others for
suitable properties, competition will result in higher costs that could materially affect our financial condition.
We will experience competition for real estate
investments from individuals, corporations and other entities engaged in real estate investment activities,
many of whom have greater
financial resources than us. Competition for investments may have the effect of increasing costs and reducing returns to our
investors.
Because we are liable for hazardous substances
on our properties, environmental liabilities are possible and can be costly.
Federal, state and local laws impose liability
on a landowner for releases or the otherwise improper presence on the premises of hazardous substances. This
liability is without regard
to fault for, or knowledge of, the presence of such substances. A landowner may be held liable for hazardous materials brought
onto a
property before it acquired title and for hazardous materials that are not discovered until after it sells the property. Similar liability
may occur under
applicable state law. Sellers of properties may make only limited representations as to the absence of hazardous substances.
If any hazardous materials are
found within our properties in violation of law at any time, we may be liable for all cleanup costs, fines,
penalties and other costs. This potential liability
will continue after we sell the properties and may apply to hazardous materials present
within the properties before we acquire the properties. If losses arise
from hazardous substance contamination, which cannot be recovered
from a responsible party, the financial viability of the properties may be adversely
affected. It is possible that we will purchase properties
with known or unknown environmental problems, which may require material expenditures for
remediation.
Because we may not be adequately insured,
we could experience significant liability for uninsured events.
While our tenants currently carry comprehensive
insurance on our properties, including fire, liability and extended coverage insurance, there are certain
risks that may be uninsurable
or not insurable on terms that management believes to be economical. For example, management may not obtain insurance
against floods,
terrorism, mold-related claims, or earthquake insurance. If such an event occurs to, or causes the damage or destruction of, a property,
we
could suffer financial losses.
If we are found non-compliance with the
Americans with Disabilities Act, we will be subject to significant liabilities.
If any of our properties are not in compliance
with the Americans with Disabilities Act of 1990, as amended (the “ADA”), we may be required to pay for
any required improvements.
Under the ADA, public accommodations must meet certain federal requirements related to access and use by disabled persons.
The ADA requirements
could require significant expenditures and could result in the imposition of fines or an award of damages to private litigants. We
cannot
assure that ADA violations do not or will not exist at any of our properties.
16
Our inability to effectively manage our
growth could harm our business and materially and adversely affect our operating results and financial
condition.
Our strategy envisions growing our business.
Any growth in or expansion of our business is likely to continue to place a strain on our management and
administrative resources, infrastructure
and systems. As with other growing businesses, we expect that we will need to further refine and expand our
business development capabilities,
our systems and processes and our access to financing sources. We also will need to hire, train, supervise and manage
new employees.
These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. We
cannot assure you that we will be able to:
●
expand
our business effectively or efficiently or in a timely manner;
●
allocate
our human resources optimally;
●
meet
our capital needs;
●
identify
and hire qualified employees or retain valued employees; or
●
effectively
incorporate the components of any business or product line that we may acquire in our effort to achieve growth.
Our inability or failure to manage our growth
and expansion effectively could harm our business, and materially and adversely affect our operating results
and financial condition.
Unfavorable global economic, business or
political conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely
affected by general conditions in the global economy and in the global financial markets, including conditions
that are outside of our
control, including the impact of health and safety concerns, such as those relating to the current COVID-19 outbreak and conflicts in
Ukraine and the Middle East. The most recent global financial crisis caused extreme volatility and disruptions in the capital and credit
markets. A severe or
prolonged economic downturn could result in a variety of risks to our business, including weakened demand for our
properties and our ability to raise
additional capital when needed on acceptable terms, if at all. A weak or declining economy could
strain our tenants, possibly resulting in delays in tenant
payments. Any of the foregoing could harm our business and we cannot anticipate
all the ways in which the current economic climate and financial market
conditions could adversely impact our business.
We hold our cash and cash equivalents that
we use to meet our working capital and operating expense needs in deposit accounts that could be adversely
affected if the financial
institution holding such funds fail.
We hold our cash and cash equivalents that we
use to meet our working capital and operating expense needs in deposit accounts at one financial institution.
The balance held in these
accounts exceeds the Federal Deposit Insurance Corporation, or FDIC, standard deposit insurance limit of $250,000. If the
financial institution
in which we hold such funds fails or is subject to significant adverse conditions in the financial or credit markets, we could be subject
to a risk of loss of all or a portion of such uninsured funds or be subject to a delay in accessing all or a portion of such uninsured
funds. Any such loss or
lack of access to these funds could adversely impact our short-term liquidity and ability to meet our operating
expense obligations, including payroll
obligations.
We will be required to attract and retain
top quality talent to compete in the marketplace.
We believe our future growth and success will
depend in part on our ability to attract and retain highly skilled managerial, sales and marketing, and finance
personnel. There can
be no assurance of success in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability to
compete
in the marketplace.
We are dependent on Bryan McLaren, our Chief
Executive Officer, Chief Financial Officer and Chairman of the Board, and the loss of this officer
could harm our business and prevent
us from implementing our business plan in a timely manner.
In view of his direct relationships with industry
partners that directly contribute to our business development strategy, our success depends substantially
upon the continued services
of Mr. McLaren. We previously purchased a one-year key person life insurance policy on Mr. McLaren with a base coverage
amount of $8,000,000
renewable annually at a 10-year fixed guaranteed premium. The policy was renewed in January 2025. The loss of Mr. McLaren’s
services
could have a material adverse effect on our business and operations.
Risks Related to Government Regulation
Marijuana remains illegal under federal
law, and therefore, strict enforcement of federal laws regarding marijuana would likely result in our inability
and the inability of
our tenants to execute our respective business plans.
Cannabis is a Schedule
I controlled substance under the CSA. Even in those jurisdictions in which cannabis has been legalized at the state level, the
possession,
distribution, cultivation, manufacture and use of cannabis all remain violations of federal law that are punishable by imprisonment, substantial
fines and forfeiture. Moreover, individuals and entities may violate federal law if they intentionally aid and abet another in violating
these federal
controlled substance laws, or conspire with another to violate them. The U.S. Supreme Court has ruled in United
States v. Oakland Cannabis Buyers’
Coop. and Gonzales v. Raich that it is the federal government that
has the right to regulate and criminalize the sale, possession and use of cannabis, even for
medical purposes. We would likely be unable
to execute our business plan if the federal government were to strictly enforce federal law regarding cannabis.
17
In January 2018,
the DOJ rescinded certain memoranda, including the so-called “Cole Memo” issued on August 29, 2013 under the Obama Administration,
which had characterized enforcement of federal cannabis prohibitions under the CSA to prosecute those complying with state regulatory
systems allowing
the use, manufacture and distribution of medical cannabis as an inefficient use of federal investigative and prosecutorial
resources when state regulatory
and enforcement efforts are effective with respect to enumerated federal enforcement priorities under
the CSA. In rescinding the Cole Memo, DOJ
instructed its prosecutors to enforce the laws enacted by Congress and to follow well-established
principles that govern all federal prosecutions when
deciding whether to pursue prosecutions related to cannabis activities. As a result,
federal prosecutors could, and still can, use their prosecutorial discretion
to decide to prosecute actors compliant with their state
laws. Although there have not been any identified prosecutions of state law compliant cannabis
entities, there can be no assurance that
the federal government will not enforce federal laws against the regulated cannabis industry generally, including our
tenants and us.
Pamela Bondi was confirmed
by the United States Senate as Attorney General of the United States on February 4, 2025. During her tenure as Attorney
General in the
State of Florida, Bondi routinely opposed the softening of anti-cannabis laws, including opposition to ballot initiatives to broaden access
to
medical cannabis, but she also generally faithfully enforced state cannabis laws to maintain a well-regulated medical cannabis market.
Bondi has not
provided a clear policy directive for the United States as it pertains to state-level cannabis-related activities, and there
can be no assurances that DOJ or
other law enforcement authorities will not seek to vigorously enforce current U.S. federal laws. It is
generally expected that Bondi will closely follow the
Trump Administration’s enforcement priorities.
Congress previously enacted
an omnibus spending bill that includes the Rohrabacher-Blumenauer Amendment prohibiting the DOJ (which includes the
DEA) from using funds
appropriated by that bill to prevent states from implementing their medical-use cannabis laws. This provision will expire on March
8,
2024. On December 20, 2024, Congress passed a continuing resolution to extend government funding, extending the application of the Rohrabacher-
Blumenauer
Amendment until March 14, 2025. There can be no assurance that Congress will approve inclusion of a similar prohibition in future
appropriations
bills to prevent DOJ from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis
actors operating in compliance with state and local law. In USA vs. McIntosh, the U.S. Court of Appeals for the Ninth Circuit
held that this provision
prohibits the DOJ from spending funds from relevant appropriations acts to prosecute individuals who engage in
conduct permitted by state medical-use
cannabis laws and who strictly comply with such laws. However, the Ninth Circuit’s opinion,
which only applies to the states of Alaska, Arizona,
California, Hawaii, and Idaho, also held that persons who do not strictly comply
with all state laws and regulations regarding the distribution, possession
and cultivation of medical-use cannabis have engaged in conduct
that is unauthorized, and in such instances the DOJ may prosecute those individuals.
Additionally, financial
transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money
laundering
statutes, unlicensed money transmitter statutes and the Bank Secrecy Act. The penalties for violation of these laws include imprisonment,
substantial fines and forfeiture. Prior to the DOJ’s rescission of the Cole Memo, supplemental guidance from the DOJ issued in the
2014 Cole
Memorandum directed federal prosecutors to consider the federal enforcement priorities enumerated in the Cole Memo when determining
whether to
charge institutions or individuals with any of the financial crimes described above based upon cannabis-related activity. This
supplemental guidance was
followed by the February 14, 2014 FinCEN Memorandum outlining the pathways for financial institutions to provide
services to state-sanctioned cannabis
businesses consistent with Bank Secrecy Act obligations and in alignment with federal enforcement
priorities. Under these guidelines, financial institutions
must submit a SAR in connection with all cannabis-related banking activities
by any client of such financial institution, in accordance with federal money
laundering laws. These cannabis-related SARs are divided
into three categories - cannabis limited, cannabis priority, and cannabis terminated - based on the
financial institution’s belief
that the business in question follows state law, is operating outside of compliance with state law, or where the banking
relationship
has been terminated, respectively. The FinCEN Memorandum states that in some circumstances, it is permissible for banks to provide services
to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. Although the Cole Memo has
been rescinded,
the FinCEN Memorandum technically remains intact; however, it is unclear whether the current administration will continue
to follow the FinCEN
Memorandum. The DOJ continues to have the right and power to prosecute crimes committed by banks and financial institutions,
such as money
laundering and violations of the Bank Secrecy Act, that occur in any state including states that have in some form legalized
the sale of cannabis. Further,
the conduct of the DOJ’s enforcement priorities could change for any number of reasons. A change
in the DOJ’s priorities could result in the DOJ’s
prosecuting banks and financial institutions for crimes that were not previously
prosecuted.
18
Federal prosecutors have
significant discretion and no assurance can be given that the federal prosecutor in each judicial district where we purchase a
property
will not choose to strictly enforce the federal laws governing cannabis operations. Any change in the federal government’s enforcement
posture
with respect to state-licensed cannabis operations, including the enforcement postures of individual federal prosecutors in judicial
districts where we
purchase properties, would result in our inability to execute our business plan, and we would likely suffer significant
losses with respect to our investment
in cannabis facilities in the United States, which would adversely affect the trading price of our
securities. Furthermore, following any such change in the
federal government’s enforcement position, we could be subject to criminal
prosecution, which could lead to imprisonment and/or the imposition of
penalties, fines, or forfeiture.
Owners of properties located in close proximity
to our properties may assert claims against us regarding the use of the property as a marijuana
dispensary or marijuana cultivation and
processing facility, which if successful, could materially and adversely affect our business.
Owners of properties located in close proximity
to our properties may assert claims against us regarding the use of our properties as cannabis dispensaries
or for cannabis cultivation
and processing, including assertions that the use of the property constitutes a nuisance that diminishes the market value of such
owner’s
nearby property. Such property owners may also attempt to assert such a claim in federal court as a civil matter under the Racketeer
Influenced and
Corrupt Organizations Act. If a property owner were to assert such a claim against us, we may be required to devote significant
resources and costs to
defending ourselves against such a claim, and if a property owner were to be successful on such a claim, our tenants
may be unable to continue to operate
their business in its current form at the property, which could materially adversely impact the
tenant’s business and the value of our property, our business
and financial results and the trading price of our securities.
We and our tenants may have difficulty
accessing the services of banks, which may make it difficult to contract for real estate needs.
Financial transactions involving proceeds generated
by marijuana-related conduct can form the basis for prosecution under the federal money laundering
statutes, unlicensed money transmitter
statute and the Bank Secrecy Act. Previous guidance issued by the Financial Crimes Enforcement Network, a
division of the U.S. Department
of the Treasury (“FinCEN”), clarifies how financial institutions can provide services to marijuana-related businesses
consistent
with their obligations under the Bank Secrecy Act. Prior to the DOJ’s announcement in 2018 of the rescission of the Cole Memo and
related
memoranda, supplemental guidance from the DOJ directed federal prosecutors to consider the federal enforcement priorities enumerated
in the Cole Memo
when determining whether to charge institutions or individuals with any of the financial crimes described above based
upon marijuana-related activity.
Consequently, those businesses involved in the
marijuana industry continue to encounter difficulty establishing banking relationships, which may increase
over time. Our inability to
maintain our current bank accounts would make it difficult for us to operate our business, increase our operating costs, and pose
additional
operational, logistical and security challenges and could result in our inability to implement our business plan.
The inability of our current and potential tenants
to open accounts and continue using the services of banks will limit their ability to enter into triple-net
lease arrangements with us
or may result in their default under our lease agreements, either of which could materially harm our business and the trading
price of
our securities.
19
Many of our existing tenants are, and
we expect that many of our future tenants will be, companies with limited histories of operations and may be
unable to pay rent with funds
from operations or at all, which could adversely affect the value of our common stock.
Our success is dependent
on the financial stability of our tenants. We rely on our management team to perform due diligence investigations of our potential
tenants,
related guarantors and their properties, operations and prospects, of which there is generally little or no publicly available operating
and financial
information. We may not learn all of the material information we need to know regarding these businesses through our investigations,
and these businesses
are subject to numerous risks and uncertainties, including but not limited to regulatory risks and the rapidly evolving
market dynamics of each state’s
regulated cannabis program. As a result, it is possible that we could lease properties to tenants
that ultimately are unable to pay rent to us, which could
adversely impact our business.
In addition, in general,
our tenants are more vulnerable to adverse conditions resulting from federal and state regulations affecting their businesses or
industries
or other changes in the marketplace for their products, and have limited access to traditional forms of financing. For example, during
the
COVID-19 pandemic, our tenants were generally not able to access federal assistance programs that were available to companies in other
industries, due to
cannabis being a Schedule I controlled substance under the CSA. The success of our tenants will also heavily depend
on the growth and development of the
state markets in which the tenants operate, many of which have a very limited history or are still
in the stages of establishing the regulatory framework.
Some of our tenants may
be subject to significant debt obligations and may rely on debt financing to make rent payments to us. Tenants that are subject to
significant
debt obligations may be unable to make their rent payments if there are adverse changes in their business plans or prospects, the regulatory
environment in which they operate or in general economic conditions. In addition, the payment of rent and debt service may reduce the
working capital
available to tenants for the start-up phase of their business. Furthermore, we may be unable to monitor and evaluate tenant
credit quality on an on-going
basis.
Any lease payment defaults
by a tenant could adversely affect our cash flows. In the event of a default by a tenant, we may also experience delays in
enforcing our
rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property as operators of regulated
cannabis
cultivation and production facilities are generally subject to extensive state licensing requirements, including limited licenses
in certain states.
Continuing unfavorable
market dynamics affecting the regulated cannabis industry could adversely affect our business, liquidity and
financial condition,
and overall results of operations.
Market dynamics in the
regulated cannabis industry have negatively impacted our tenants’ ability to make their lease payments on the properties they lease
from us. Regulated cannabis operators have experienced, among other things:
●
federal, state and local taxation and regulatory burdens;
●
declines in unit pricing for regulated cannabis products;
●
ineffective state and local law enforcement efforts to curtail
the illicit production and sale of cannabis; and
●
limited access to capital on acceptable terms or at all.
As a result of these
unfavorable market dynamics, certain regulated cannabis operators, including some of our tenants, have consolidated operations or
shuttered
certain operations to reduce costs, which may lead to increased default rates on the leases for our properties.
Failure by any of our tenants to comply with the terms of its lease
agreement with us could require us to seek another lessee for the applicable property. We
cannot assure you that we will be able to re-lease
that property for the rent we currently receive, or at all, or that a lease termination would not result in our
having to sell the property
at a loss. In addition, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting
our
investment and re-leasing properties on which any of our tenants default on their lease obligations. The result of any of the foregoing
risks could
materially and adversely affect our business, liquidity, financial condition and results of operations.
20
Laws and regulations affecting the regulated
cannabis and marijuana industry are constantly changing, which could materially adversely affect our
operations, and we cannot predict
the impact that future regulations may have on us.
Local, state and federal marijuana laws and regulations
are broad in scope and subject to evolving interpretations, which could require us to incur
substantial costs associated with compliance
or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt
our business and
result in a material adverse effect on its operations. In addition, it is possible that regulations may be enacted in the future that
will be
directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or
applications, nor can we
determine what effect additional governmental regulations or administrative policies and procedures, when and
if promulgated, could have on our business.
FDA regulation of marijuana and the possible
registration of facilities where medical marijuana is grown could negatively affect the marijuana
industry, which would directly affect
our financial condition.
Should the federal government legalize marijuana
for medical use, it is possible that the FDA would seek to regulate it under the Food, Drug and Cosmetics
Act of 1938. Additionally,
the FDA may issue rules and regulations including cGMPs (certified good manufacturing practices) related to the growth,
cultivation,
harvesting and processing of medical marijuana. Clinical trials may be needed to verify efficacy and safety. It is also possible that
the FDA
would require that facilities where medical marijuana is grown be registered with the FDA and comply with certain federally prescribed
regulations. In the
event that some or all of these regulations are imposed, we do not know what the impact would be on the medical marijuana
industry, what costs,
requirements and possible prohibitions may be enforced. If we or our tenants are unable to comply with the regulations
and or registration as prescribed by
the FDA, we and or our tenants may be unable to continue to operate their and our business in its
current form or at all.
Risks Related to Our Common Stock
Our common stock is quoted on the OTCQB,
which may limit the liquidity and price of our common stock more than if our common stock were listed
on The NASDAQ Stock Market or another
national exchange.
Our securities are currently quoted on the OTCQB,
an inter-dealer automated quotation system for equity securities. Quotation of our securities on the
OTCQB may limit the liquidity and
price of our securities more than if our securities were listed on The NASDAQ Stock Market (“NASDAQ”) or another
national
exchange. As an OTCQB company, we do not attract the extensive analyst coverage that accompanies companies listed on national securities
exchanges. Further, institutional and other investors may have investment guidelines that restrict or prohibit investing in securities
traded on the OTCQB.
These factors may have an adverse impact on the trading and price of our common stock.
21
The trading price of our common stock may
decrease due to factors beyond our control.
The stock market from time to time has experienced
extreme price and volume fluctuations, which have particularly affected the market prices for smaller
reporting companies and which often
have been unrelated to the operating performance of the companies. These broad market fluctuations may adversely
affect the market price
of our common stock. If our shareholders sell substantial amounts of their common stock in the public market, the price of our
common
stock could fall. These sales also might make it more difficult for us to sell equity, or equity-related securities, in the future at
a price we deem
appropriate.
The market price of our common stock may also
fluctuate significantly in response to the following factors, most of which are beyond our control:
●
variations
in our quarterly operating results,
●
changes
in general economic conditions and in the real estate industry,
●
changes
in market valuations of similar companies,
●
announcements
by us or our competitors of significant new contracts, acquisitions, strategic partnerships or joint ventures, or capital
commitments,
●
loss
of a major customer, partner or joint venture participant and
●
the
addition or loss of key managerial and collaborative personnel.
Any such fluctuations may adversely affect the
market price of our common stock, regardless of our actual operating performance. As a result, stockholders
may be unable to sell their
shares, or may be forced to sell them at a loss.
The market price for our common shares
is particularly volatile given our status as a relatively unknown company with a small and thinly traded public
float, limited operating
history and lack of profits which could lead to wide fluctuations in our share price. You may be unable to sell your common
shares at
or above your purchase price, which may result in substantial losses to you.
The market for our common shares is characterized
by significant price volatility when compared to seasoned issuers, and we expect that our share price
will continue to be more volatile
than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First,
as
noted above, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively
small quantities
of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price
for our shares could, for example,
decline precipitously in the event that a large number of our common shares are sold on the market
without commensurate demand, as compared to a
seasoned issuer which could better absorb those sales without adverse impact on its share
price. Secondly, we are a speculative or “risky” investment due to
our limited operating history and lack of profits to date.
As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing
all or most of their investment in
the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at
greater discounts
than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market
price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing
market price
for our common shares will be at any time, including as to whether our common shares will sustain their current market prices,
or as to what effect that the
sale of shares or the availability of common shares for sale at any time will have on the prevailing market
price.
Our preferred stockholders together have
voting control, which will limit your ability to influence the outcome of important transactions, including a
change in control.
Each of our preferred stockholders beneficially
owns 1,000,000 shares of our preferred stock. Each share of preferred stock entitles the holder to 50 votes
per share. In contrast, each
share of our common stock has one vote per share. Each of our two preferred stockholders holds approximately 45.5% and
45.8% of the voting
power of our outstanding capital stock, respectively. Because of the 50-to-1 voting ratio between our preferred stock and our common
stock, our preferred stockholders together control a majority of the combined voting power of our capital stock and therefore are able
to control all matters
submitted to our stockholders for approval. The preferred stockholders may also have interests that differ from
yours and may vote in a way with which
you disagree and which may be adverse to your interests. This concentrated control may have the
effect of delaying, preventing or deterring a change in
control of our company, could deprive our stockholders of an opportunity to receive
a premium for their capital stock as part of a sale of our company and
might ultimately affect the market price of our common stock.
We may face continuing challenges in complying
with the Sarbanes-Oxley Act, and any failure to comply or any adverse result from management’s
evaluation of our internal control
over financial reporting may have an adverse effect on our stock price.
As a smaller reporting company as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are required to
evaluate our internal
control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Section 404 requires
us to
include an internal control report with our Annual Report on Form 10-K. The report must include management’s assessment of
the effectiveness of our
internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure
of any material weaknesses in internal
control over financial reporting that we have identified.
22
Failure to comply, or any adverse results from
such evaluation, could result in a loss of investor confidence in our financial reports and have an adverse
effect on the trading price
of our equity securities. Management concluded that our internal control over financial reporting as of December 31, 2024 were
not effective.
Management realizes there are deficiencies in the design or operation of our internal control over financial reporting that adversely
affect our
internal controls, and management considers such deficiencies to be material weaknesses. As of the end of our 2024 fiscal
year, management identified the
following material weaknesses:
●
we
had not implemented comprehensive entity-level internal controls;
●
we
had not implemented adequate system and manual controls; and
●
we
did not have sufficient segregation of duties.
Achieving continued compliance with Section 404
may require us to incur significant costs and expend significant time and management resources. We
cannot assure you that we will be
able to fully comply with Section 404 or that we will be able to conclude that our internal control over financial reporting
is effective
at fiscal year-end. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect
on the
trading price of our securities.
We have never paid dividends on our common
stock and cannot guarantee that we will pay dividends to our stockholders in the future.
We have never paid dividends on our common stock.
For the foreseeable future, we intend to retain our future earnings, if any, in order to reinvest in the
development and growth of our
business and, therefore, do not intend to pay dividends on our common stock. However, in the future, our board of directors
may declare
dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will
depend
on our financial condition, results of operations, capital requirements, and such other factors as our board of directors deems
relevant. Accordingly,
investors may need to sell their shares of our common stock to realize a return on their investment, and they
may not be able to sell such shares at or above
the price paid for them. We cannot guarantee that we will pay dividends to our stockholders
in the future.
Our common stock is a “penny stock”
under SEC rules. It may be more difficult to resell securities classified as “penny stock.”
Our common stock is considered a “penny
stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below
$5.00). Unless we
maintain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend the
purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited
investors.” For example, broker-dealers
must determine the appropriateness for non-qualifying persons of investments in penny stocks.
Broker-dealers must also provide, prior to a transaction in a
penny stock not otherwise exempt from the rules, a standardized risk disclosure
document that provides information about penny stocks and the risks in the
penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, disclose the compensation
of the broker-dealer and its salesperson
in the transaction, furnish monthly account statements showing the market value of each penny stock held in the
customer’s account,
provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s
written agreement to the transaction.
Legal remedies available to an investor in “penny
stocks” may include the following:
●
If
a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities
laws, the investor may
be able to cancel the purchase and receive a refund of the investment.
●
If
a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms
that committed the fraud for
damages.
However, investors who have signed arbitration
agreements may have to pursue their claims through arbitration.
These requirements may have the effect of reducing
the level of trading activity, if any, in the secondary market for a security that is or becomes subject to
the penny stock rules. The
additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting
transactions in our
securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability
of
broker-dealers to sell our common stock and may affect your ability to resell our common stock.
Many brokerage firms will discourage or refrain
from recommending investments in penny stocks. Most institutional investors will not invest in penny
stocks. In addition, many individual
investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated
with these investments.
For these reasons, penny stocks may have a limited
market and, consequently, limited liquidity. We can give no assurance that our common stock will not
be classified as a “penny
stock” in the future.
Rule 144 Related Risks
Pursuant to Rule 144, a person who has beneficially
owned restricted shares of our common stock for at least six months is entitled to sell his or her
securities provided that: (i) such
person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a
sale, (ii)
we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale and (iii) if the sale occurs
prior to
satisfaction of a one-year holding period, we provide current information at the time of sale.
23
Persons who have beneficially owned restricted
shares of our common stock for at least six months but who are our affiliates at the time of, or at any time
during the three months
preceding a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month
period only a number of securities that does not exceed the greater of either of the following:
●
1%
of the total number of securities of the same class then outstanding; or
●
the
average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144 with
respect to
the sale;
provided, in each case that we are subject
to the Exchange Act periodic reporting requirements for at least three months before the sale. Such sales by
affiliates must also comply
with the manner of sale, current public information and notice provisions of Rule 144.
In addition, as a former shell company, we are
subject to additional restrictions. Historically, the SEC staff has taken the position that Rule 144 is not
available for the resale
of securities initially issued by companies that are, or previously were, shell companies, such as Zoned Properties. Rule 144 is not
available for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer
that has been at any
time previously a shell company. The SEC has provided an exception to this prohibition, however, if the following
conditions are met:
●
The
issuer of the securities that was formerly a shell company has ceased to be a shell company,
●
The
issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
●
The
issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding
12 months (or
such shorter period that the issuer was required to file such reports and materials), other than current reports on
Form 8-K, and
●
At
least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status
as an entity
that is not a shell company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
This Item 1B is not applicable to smaller reporting companies.
ITEM 1C. CYBERSECURITY
Cybersecurity Risk Management and Strategy
The cybersecurity risk management program, processes
and strategy described in this section are limited to the personal and business information
belonging to or maintained by the Company
(collectively, “Confidential Information”), our own third-party critical systems and services supporting or used
by the Company
(collectively, “Critical Systems”), and service providers. The Company’s subsidiaries lease to our tenants the properties
we own, but we
do not have actual or contractual access to the systems or information maintained or used by our tenants. Our tenants
are directly or indirectly (through
their own service providers) responsible for maintaining programs and processes to protect their
systems and information from various risks from
cybersecurity threats.
We will develop and implement a cybersecurity
risk management program intended to protect the confidentiality, integrity, and availability of our
Confidential Information and Critical
Systems. Our cybersecurity risk management program will be integrated into our overall enterprise risk management
program and includes
a cybersecurity incident response plan.
Our cybersecurity risk management program shall include:
●
risk
assessments designed to help identify material cybersecurity risks to our Confidential Information, Critical Systems and the broader
enterprise IT environment;
●
a
security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and
(3) our
response to cybersecurity incidents;
●
cybersecurity awareness
and spear-phishing resistance training of our employees, and senior management;
●
a
cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
●
a vendor management policy
for service providers.
We have not identified risks from known cybersecurity
threats, including as a result of any prior cybersecurity incidents, that have materially affected or are
reasonably likely to materially
affect us, including our operations, business strategy, results of operations, or financial condition. We face risks from
cybersecurity
threats that, if realized, could have a material adverse effect on us including an adverse effect on our business, financial condition
and results
of operations.
24
Cybersecurity Governance
Our executive management team, along with our
managed information technology service provider, is responsible for assessing and managing risks from
cybersecurity threats to the Company,
including our Confidential Information and Critical Systems. The team has primary responsibility for our overall
cybersecurity risk management
program. Our management team works closely with our information technology service provider.
Our management team meets with our information technology service
provider periodically to discuss then-current cybersecurity issues, which may include
efforts to prevent, detect, mitigate, and remediate
cybersecurity risks and incidents through various means, including threat intelligence and other
information obtained from governmental,
public or private sources, and external service providers engaged by us; and alerts and reports produced by
security tools deployed in
the information technology environment including a spear-phishing report.
Our Board considers cybersecurity risk as part
of its risk oversight function and oversight of cybersecurity and other information technology risks.
Our Board oversees management’s implementation
of our cybersecurity risk management program. Our executive management team is responsible for
updating the Board, as necessary, regarding
significant cybersecurity incidents.
Our Board shall also receive period reports from
management on our cybersecurity risks and cybersecurity risk management program.
ITEM 2. PROPERTIES
Our principal executive office is currently located
at 8360 E. Raintree Drive, #230, Scottsdale, AZ 85260. On March 15, 2022, we entered to an
Assumption of Lease and Consent Agreement with
a landlord, whereby the landlord consented to the assignment of an office lease, as amended, from the
original tenant to the Company.
The lease term shall begin on March 15, 2022 and expired on November 30, 2024, provided the Company has the option to
extend the lease
for an additional five years. On June 3, 2024 the Company extended the lease for an additional 24 months through November 30, 2026.
Effective
December 1, 2024, the monthly base rent shall be $3,665 per month through November 30, 2025, $3,775 from December 1, 2025 through
November
30, 2026, $3,887 from December 1, 2026 through November 30, 2027, and $4,004 from December 1, 2027 through November 30, 2028. The
Company
has the option to extend the lease for a two-year period through November 2028.
We are in the business of property acquisition,
development, and commercial leasing and intend to primarily structure lease agreements with prospective
tenants using a triple-net or
absolute-net lease model. The property investment portfolio currently includes (i) land and real property constructed in Green
Valley,
Arizona, (ii) land and real property in Kingman, Arizona, (iii) land and real property in Tempe Arizona, (iv) land and real property
of approximately
47 acres in Chino Valley, Arizona, (v) land and real property in Pleasant Ridge, Michigan and (vi) land and real property
in Chicago, Illinois which we
recently acquired in January 2024, and (vii) land held in Surprise Arizona. The properties in Tempe, Green
Valley, Kingman, and Chino Valley, Arizona,
Pleasant Ridge, Michigan and Chicago, Illinois are currently leasing space to tenants that
operate licensed cannabis facilities. Additionally, we lease our
land located in Surprise, Arizona for future development of a licensed
medical and adult use marijuana retail dispensary. As of December 31, 2024, each of
our leased properties was generating revenues.
ITEM 3. LEGAL PROCEEDINGS
There are no pending or threatened legal or administrative
actions pending or threatened against us that we believe would have a material effect on our
business.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
25
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our common stock is quoted on the OTCQB, operated
by the OTC Markets Group, under the symbol “ZDPY.” Trading in OTCQB stocks can be volatile,
sporadic and risky, as thinly
traded stocks tend to move more rapidly in price than more liquid securities. Such trading may also depress the market price of
our common
stock and make it difficult for our stockholders to resell their common stock.
The following table reflects the high and low
closing price for our common stock for the period indicated. The bid information was obtained from the OTC
Markets Group, Inc. and reflects
inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual
transactions.
Quarter Ended
High
Low
December 31, 2024
$
0.55 $
0.39
September 30, 2024
$
0.66 $
0.51
June 30, 2024
$
0.70 $
0.45
March 31, 2024
$
0.55 $
0.35
December 31, 2023
$
0.60 $
0.37
September 30, 2023
$
0.80 $
0.52
June 30, 2023
$
0.80 $
0.52
March 31, 2023
$
0.73 $
0.58
On March 21, 2025, the closing price of our common stock on the OTCQB
was $0.36 per share.
Holders of Common Stock
As of March 21, 2025, there were approximately
1,168 beneficial shareholders of our common stock. The number of record holders does not include
beneficial owners of common stock whose
shares are held in the names of banks, brokers, nominees or other fiduciaries.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On October 10, 2023, the Company entered into
a Stock Redemption Agreement, whereby the Company purchased 100,000 shares of its common stock
from a shareholder for $15,000, or $0.15
per share, which are reflected as treasury stock on the consolidated balance sheet until such time as the shares are
cancelled. During
the year ended December 31, 2024 the Company purchased an additional 13,687 shares of common stock for $8,010 or $.59 per share.
Securities Authorized for Issuance under Equity Compensation Plans
On August 9, 2016, the Company’s Board
of Directors authorized the 2016 Equity Incentive Plan (the “2016 Plan”) and reserved 10,000,000 shares of
common stock for
issuance thereunder. The 2016 Plan was approved by shareholders on November 21, 2016. The 2016 Plan’s purpose is to encourage
ownership
in the Company by employees, officers, directors and consultants whose long-term service the Company considers essential to its continued
progress and, thereby, encourage recipients to act in the stockholders’ interest and share in the Company’s success. The
2016 Plan authorizes the grant of
awards in the form of options intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended, options
that do not qualify (non-statutory stock options) and grants of restricted shares
of common stock. Restricted shares granted pursuant to the 2016 Plan are
amortized to expense over the vesting period. Options vest and
expire over a period not to exceed seven years. If any share of common stock underlying a
stock option that has been granted ceases to
be subject to a stock option, or if any shares of common stock that are subject to any other stock-based award
granted are forfeited
or terminate, such shares shall again be available for distribution in connection with future grants and awards under the 2016 Plan.
As
of December 31, 2024, 1,117,500 stock option awards are outstanding and 826,250 options are exercisable under the 2016 Plan. As of
December 31, 2023,
1,012,500 stock option awards are outstanding and 585,000 options are exercisable under the 2016 Plan. As of December
31, 2024 and 2023, 8,882,500
and 8,987,500 shares, respectively, were available for future issuance.
26
The Company also continues to maintain its 2014
Equity Compensation Plan (the “2014 Plan”), pursuant to which 1,250,000 previously awarded stock
options are outstanding.
The 2014 Plan has been superseded by the 2016 Plan. Accordingly, no additional shares subject to the existing 2014 Plan will be
issued
and the 1,250,000 shares issuable upon exercise of stock options will be issued pursuant to the 2014 Plan, if exercised. As of December
31, 2024,
options to purchase 1,250,000 shares of common stock are outstanding and 1,250,000 options are exercisable pursuant to the
2014 Plan. As of December
31, 2023, options to purchase 1,250,000 shares of common stock are outstanding and 1,225,000 options are exercisable
pursuant to the 2014 Plan.
DESCRIPTION OF SECURITIES
General
Outstanding Shares and Holders
As of March 25, 2025, our authorized capital
stock consists of 100,000,000 shares of common stock, $0.001 par value per share, of which 12,201,548 were
issued and 12,087,861 were
outstanding, and 5,000,000 shares of preferred stock, $0.001 par value per share, 2,000,000 of which were issued and
outstanding.
Common Stock
Holders of the Company’s common stock are
entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock
do not have cumulative voting
rights. Holders of the Company’s common stock are entitled to share in all dividends that our board of directors, in its
discretion,
declares from legally available funds. In the event of a liquidation, dissolution or winding up, each outstanding share entitles its
holder to
participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if
any, having preference over the
common stock. The Company’s common stock has no pre-emptive rights, no conversion rights and there
are no redemption provisions applicable to the
Company’s common stock.
Preferred Stock
Our articles of incorporation, as amended, authorizes
our board of directors, subject to any limitations prescribed by law, without further stockholder
approval, to establish and to issue
from time to time one or more classes or series of preferred stock. Each class or series of preferred stock will cover the
number of
shares and will have the powers, preferences, rights, qualifications, limitations and restrictions determined by the board of directors,
which may
include, among others, dividend rights, liquidation preferences, voting rights, conversion rights, preemptive rights and redemption
rights. Except as
provided by law or in a preferred stock designation, the holders of preferred stock will not be entitled to vote at
or receive notice of any meeting of
stockholders.
The certificate of designation for the preferred
stock provides that the shares are not convertible into any other class or series of stock. Holders of preferred
shares are entitled
to 50 votes for each share held. Voting rights are not subject to adjustment for splits that increase or decrease the common shares
outstanding.
Upon liquidation, holders of preferred stock will be entitled to receive $1.00 per share plus redemption provision before assets are
distributed
to other stockholders. Holders of preferred shares are entitled to dividends equal to common share dividends. Once any shares
of preferred stock are
outstanding, at least 51% of the total number of shares of preferred stock outstanding must approve the following
transactions:
●
alteration
of the rights, preferences of privileges of the preferred stock,
●
creation
of any new class of stock having preferences over the preferred stock,
●
repurchase
of any of our common stock,
●
merger
of consolidation with any other company, other than one of our wholly owned subsidiaries,
●
sale,
conveyance or other disposal of, or creation or incurrence of any mortgage, lien, or charge or encumbrance or security interest in
or pledge
of, or sale and leaseback of, all or substantially all of our property or business, or
●
incurrence,
assumption or guarantee of any indebtedness maturing more than 18 months after the date on which it is incurred, assumed or
guaranteed
by us, except for operating leases and obligations assumed as part of the purchase price of property.
Holders of a majority of the voting power of
our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to
constitute a quorum at
any meeting of stockholders. A vote by the holders of a majority of our outstanding voting shares is required to effectuate certain
fundamental
corporate changes such as liquidation, merger or an amendment to our articles of incorporation.
Holders of preferred shares vote along with common
stockholders on each matter submitted to a vote of security holders. As a result of the multiple votes
accorded to holders of the preferred
stock, Greg Johnston and Alex McLaren have the ability to control the outcome of all matters submitted to a vote of
stockholders, including
the election of directors. On those matters that require the approval of at least 51% of the preferred stock, both Mr. Johnston and
Mr.
McLaren must provide their approval inasmuch as each of them owns 50% of the outstanding preferred stock.
27
Dividends
Historically, we have not paid any cash dividends
on our common stock. It is our present intention not to pay any cash dividends in the foreseeable future,
but rather to reinvest cash
flow and earnings, if any, in our business operations. However, in the future, our board of directors may declare dividends on our
common
stock. Payment of future dividends on our common stock, if any, will be at the discretion of our board of directors and will depend on,
among
other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other
factors that our board of
directors may deem relevant. In addition, the agreements into which we may enter in the future, including indebtedness,
may impose limitations on our
ability to pay dividends or make other distributions on our capital stock. We cannot guarantee that we
will pay dividends to our stockholders in the future.
Holders of preferred shares are entitled to dividends equal to common share dividends.
Anti-Takeover Effects of Certain Provisions
of Our Articles of Incorporation, as Amended, and Our Bylaws
These provisions, summarized below, are expected
to discourage coercive takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the benefits of increased protection and our
potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging
these proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Preferred Stock. Our articles of incorporation,
as amended, authorize our board of directors to issue from time to time any series of preferred stock and fix
the voting powers, designation,
powers, preferences and rights of the shares of such series of preferred stock.
Calling of Special Meetings of Stockholders.
Our bylaws provide that special meetings of the stockholders may be called only by the chairman of the board
or the chief executive
officer, and shall be called by the chairman of the board or the secretary (i) when so directed by the board, or (ii) at the written
request of stockholders owning shares representing at least 25% of voting power in the election of directors.
Advance Notice Requirements for Stockholder
Proposals and Director Nominations. Our bylaws establish an advance notice procedure for stockholder
proposals to be brought before
a meeting of our stockholders, including proposed nominations of persons for election to the board of directors.
Removal of Directors; Vacancies. Our bylaws
provide that a director may be removed from office by stockholders for cause, or without cause by a majority
vote of the stockholders.
A vacancy on the board of directors may be filled only by a majority of the directors then in office.
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking
Information and Factors That May Affect Future Results
This annual report on Form 10-K contains forward-looking
statements regarding our business, financial condition, results of operations and prospects. The
Securities and Exchange Commission (the
“SEC”) encourages companies to disclose forward-looking information so that investors can better understand a
company’s
future prospects and make informed investment decisions. This annual report on Form 10-K and other written and oral statements that we
make
from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and
assumptions regarding future
events or performance. We have tried, wherever possible, to identify such statements by using words such
as “anticipate,” “estimate,” “expect,” “project,”
“intend,” “plan,”
“believe,” “will” and similar expressions in connection with any discussion of future operating or financial
performance. In particular,
these include statements relating to future actions, future performance or results of current and anticipated
sales efforts, expenses, the outcome of
contingencies, such as legal proceedings, and financial results. Factors that could cause our
actual results of operations and financial condition to differ
materially are set forth in the “Risk Factors” section of
this annual report on Form 10-K.
We caution that these factors could cause our
actual results of operations and financial condition to differ materially from those expressed in any forward-
looking statements we make
and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking
statement speaks
only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events
or circumstances.
New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot
assess the impact of each such factor on
our results of operations or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in
any forward-looking statements.
28
The following discussion should be read in conjunction
with our audited consolidated financial statements and the related notes that appear elsewhere in
this annual report on Form 10-K.
Overview
Zoned Properties, Inc. (“Zoned Properties”
or the “Company”) was incorporated in the State of Nevada on August 25, 2003. In October 2013, the
Company changed its name
to Zoned Properties, Inc. and in April 2014, the Company shifted its business model to address commercial real estate in the
regulated
cannabis industry. Zoned Properties is a technology-driven property investment company focused on acquiring value-add real estate within
the
regulated cannabis industry in the United States. The Company aspires to innovate within the real estate development sector, focusing
on direct-to-
consumer real estate that is leased to the best-in-class cannabis retailers. Headquartered in Scottsdale, Arizona, Zoned
Properties is redefining the approach
to commercial real estate investment through its standardized investment model backed by its proprietary
property technology. Zoned Properties has
developed a national ecosystem of real estate services to support its real estate development
model, including a commercial real estate brokerage and a real
estate advisory practice.
The Company operates in two organized segments;
(1) the operations, leasing and management of its commercial properties, herein known as the “Property
Investment Portfolio”
segment, and (2) the advisory, brokerage and technology services related to commercial properties, herein known as the “Real Estate
Services” segment. The Company targets commercial properties that face unique zoning or development challenges, identifies solutions
that can potentially
have a major impact on their commercial value, and then works to acquire the properties while securing long-term,
absolute-net leases. The Company does
not grow, harvest, sell or distribute cannabis or any substances regulated under United States
law such as the Controlled Substance Act of 1970, as
amended (the “CSA”).
The core of our business operations involves
identifying, securing, acquiring, and leasing commercial properties that intend to operate within highly
regulated industries, including
the legalized cannabis industry. Within highly regulated industries, local municipalities typically develop strict regulations,
including
zoning and permitting requirements related to commercial real estate, that dictate the specific locations and parameters under which
regulated
properties can operate, including cannabis properties. We often refer to these requirements as cannabis approvals. These regulations
often include complex
permitting processes that require longer development timelines than traditional commercial real estate and can
include non-standard codes governing each
location; for example, restricting a regulated property or facility from operating within a
certain distance of any parks, schools, churches, or residential
districts, or restricting a regulated property from operating outside
a defined set of hours of operation. When an organization can collaborate with local
representatives, a proactive set of rules and regulations
can be established and followed to meet the needs of both the regulated operators and the local
community.
Due
to the complex nature of the Company’s core business operations and target investment properties, the Company may secure dozens
of potential
property candidates for acquisition and prospective tenant candidates for leasing at any given time, all in the normal course
of business. The process of
securing a potential property candidate may include completing contractual agreements such as an option agreement
or a purchase agreement, which may
include various contingencies and conditions precedent related to the ultimate consummation of the
acquisition, investment, or transaction. Simultaneously
with the securing of potential property candidates, the Company will advertise
and market a property to prospective tenant candidates for a long-term,
absolute-net lease agreement, which may include various contingencies
and conditions precedent related to the ultimate commencement of the lease and
tenancy. In order to deliver a successful investment property
transaction, the Company must collectively receive all cannabis approvals from state and local
governing authorities that may be required
at a given property, secure a qualified tenant to lease and operate the property, and complete the acquisition of
the property.
The
Company’s current investment properties are located in Arizona, Illinois, and Michigan with 100% occupancy and a weighted average
lease term over
10 years. Each of the Company’s leased properties is occupied by a commercial cannabis tenant.
29
Zoned
Properties maintains a portfolio of properties that it owns, develops and leases. As of December 31, 2024, the Company leases land and/or
building
space at the seven properties in its portfolio to licensed and regulated cannabis tenants in areas with established cannabis
regulations and zoning
procedures. Four of the leased properties are zoned and permitted as regulated cannabis retail dispensaries, two
of the leased properties are zoned and
permitted as regulated cannabis cultivation and processing facilities, and one property is leased
for the future development of a licensed medical and adult
use marijuana retail dispensary. The Company considers the two cultivation
sites in its portfolio as legacy properties and may consider selling or leveraging
those properties to unlock equity and create capital
availability in the future. The Zoned Properties investment thesis has evolved over the years as the
cannabis industry has emerged, and
is currently focused on investing capital into direct-to-consumer properties, located in state-markets with robust
cannabis consumer
demand in the industry.
As
of March 25, 2025, a summary of rental properties owned by us consisted of the following:
Location
Tempe,
AZ
Chino Valley,
AZ
Green Valley,
AZ
Kingman,
AZ
Pleasant
Ridge, MI
Chicago,
IL
Surprise,
AZ
Property
Investment
Portfolio
Total
Description
Industrial
/Office
Greenhouse/
Nursery
Retail
(special use)
Retail
(special use)
Retail
(special use)
Retail
(special use)
Development
Project
Current Use
Cannabis
Facility
Cannabis
Facility
Cannabis
Dispensary
Cannabis
Dispensary
Cannabis
Dispensary
Cannabis
Dispensary
-
Date Acquired
March 2014 August 2015
Oct 2014
May 2014 Dec 22/Feb 23 January 2024
July 2024
Lease Start Date
May 2018
May 2018
May 2018
May 2018 December 2022 January 2024
July 2024
Lease End Date
April 2040
April 2040
April 2040 April 2040
March 2037 January 2039
June 2040
No. of Tenants
1
1
1
1
1
1
1
Land Area: (Acres)
3.65
47.60
1.33
0.32
0.56
0.37
1.11
55.14
Land Area: (Sq. Feet)
158,772
2,072,149
57,769
13,939
24,306
16,000
48,541
2,391,476
Undeveloped Land Area
(Sq. Feet)
-
1,782,563
-
6,878
-
-
48,541
1,837,982
Developed Land Area (Sq.
Feet)
158,772
289,586
57,769
7,061
24,306
16,000
-
553,494
Total Rentable Building
Sq. Ft.
60,000
97,312
1,440
1,497
17,192
2,800
-
180,576
Vacant Rentable (Sq. Ft.)
-
-
-
-
-
-
-
-
Sq. Ft. rented as of
December 31, 2024
60,000
97,312
1,440
1,497
17,192
2,800
-
180,576
Annual Base Rent (*,**)
2025
$
611,093 $
1,050,970 $
42,000 $
48,000 $
434,567 $
226,596 $
150,000 $ 2,563,226
2026
599,149
1,050,970
42,000
48,000
447,604
233,394
304,500
2,725,617
2027
590,400
1,050,970
42,000
48,000
461,032
240,395
313,635
2,746,432
2028
590,400
1,050,970
42,000
48,000
474,862
247,607
323,044
2,776,883
2029
590,400
1,050,970
42,000
48,000
489,109
255,036
332,732
2,808,247
Thereafter
6,100,800
10,860,019
434,000
496,000
6,622,835
2,668,663
4,155,757 31,338,074
Total
$ 9,082,242 $ 16,114,869 $
644,000 $
736,000 $
8,930,009 $
3,871,691 $
5,579,668 $44,958,479
*
Annual base
rent represents amount of cash payments due from tenants.
**
For Tempe, AZ, table includes
rental income generated from the lease of parking lot space used by a third party as an antenna location.
Annualized
$ per Rented Sq. Ft. (Base Rent)
Year
Tempe,
AZ
Chino
Valley,
AZ
Green
Valley,
AZ
Kingman,
AZ
Pleasant
Ridge,
MI
Chicago,
IL
Surprise,
AZ
2025
$
9.8 $
10.8 $
29.2 $
32.1 $
24.8 $
80.9 $
53.6
2026
$
9.8 $
10.8 $
29.2 $
32.1 $
25.5 $
83.4 $
108.8
2027
$
9.8 $
10.8 $
29.2 $
32.1 $
26.3 $
85.9 $
112.0
2028
$
9.8 $
10.8 $
29.2 $
32.1 $
27.1 $
88.4 $
115.4
2029
$
9.8 $
10.8 $
29.2 $
32.1 $
27.9 $
91.1 $
118.8
30
Results
of Operations
The
following comparative analysis on results of operations was based primarily on the comparative financial statements, footnotes and related
information
for the periods identified below and should be read in conjunction with the consolidated financial statements and the notes
to those statements for the years
ended December 31, 2024 and 2023, which are included elsewhere in this annual report on Form 10-K.
The results discussed below are for the years ended
December 31, 2024 and 2023.
Comparison
of Results of Operations for the Years Ended December 31, 2024 and 2023
Revenues
For
the years ended December 31, 2024 and 2023, revenues by reportable business segments were as follows:
Years Ended
December 31,
2024
2023
Revenues:
Property investment portfolio
$
2,884,286 $
2,481,892
Real estate services
909,003
405,099
Total revenues
$
3,793,289 $
2,886,991
For
the years ended December 31, 2024, total revenues amounted to $3,793,289, including property investment portfolio revenues $2,884,286,
which
consists of rental revenues, as compared to total revenues of $2,886,991, including property investment portfolio revenues of $2,481,892,
for the year
ended December 31, 2023, an overall increase of $906,298, or 31.4%. This increase was attributable to an increase in rental
revenues of $402,394, or
16.2%, primarily attributable to an increase in rental revenue from our recently acquired property in Chicago,
IL and Surprise, AZ, and a net increase in
real estate services revenues of $503,904, or 124.4%, attributable to an increase in commissions
and assignment fees earned on real estate listings, offset by
a decrease in advisory fees.
The
increase in property investment portfolio revenues was primarily due to the signing of a new lease with new tenants at our recently acquired
properties
located in Chicago, Illinois which began in January 2024 and Surprise, AZ which began in July 2024. All of the Company’s
real estate properties are leased
under absolute-net or triple-net leases with our tenants.
Operating
expenses
For
the year ended December 31, 2024, operating expenses amounted to $2,690,119 as compared to $2,717,804 for the year ended December 31,
2023, a
decrease of $27,685, or 1.0%. For the years ended December 31, 2024 and 2023, operating expenses consisted of the following:
Years Ended
December 31,
2024
2023
Compensation and benefits
$
1,287,744 $
1,326,485
Professional fees
351,426
388,807
Brokerage fees
158,871
64,680
General and administrative expenses
331,495
367,175
Depreciation and amortization
357,946
380,761
Real estate taxes
148,762
163,896
Business development costs
53,875
26,000
Total
$
2,690,119 $
2,717,804
●
For the year ended December 31, 2024, compensation and benefit expense decreased by $38,741, or 2.9%, as compared to the year ended
December 31, 2023. The decrease was attributable to a decrease in health insurance expense of $37,752 and a decrease in stock-based
compensation of $61,760 related to a decrease in accretion of stock option expense, offset by an increase in compensation and benefits of $60,771.
●
For the year ended December 31, 2024, professional fees decreased by $37,381, or 9.6%, as compared to the year ended December 31, 2023. This
decrease was primarily attributable to a decrease in consulting fees of $36,518, a decrease in public relation fees of $18,257, and a decrease in
other professional fees of $1,000, offset by an increase in accounting fees of $10,749 and legal fees of $7,916.
●
For the year ended December 31, 2024 and 2023, we recorded brokerage fees amounting to $158,871 and $64,680, respectively, representing an
increase of $94,191, or 145.6%. Brokerage fees occur as the result of various percentage-based commission splits we pay to our licensed
brokerage team members who participate in various real estate listing transactions.
●
General and administrative expenses consist of expenses such as
rent expense, insurance expense, travel expenses, office expenses, telephone and
internet expenses, advertising and marketing expense,
and other general operating expenses. For the year ended December 31, 2024, general and
administrative expenses decreased by $35,680,
or 9.7%, as compared to the year ended December 31, 2023, primarily to a decrease in travel and
conference fee expenses.
31
●
For the year ended December 31, 2024, depreciation expense decreased by $22,815, or 6.0%, as compared to the year ended December 31, 2023
due to a decrease in depreciable rental properties.
●
For the year ended December 31, 2024, real estate taxes decreased by $15,134, or 9.2%, as compared to the year ended December 31, 2023 related
to our Michigan property.
●
For the year ended December 31, 2024, property portfolio business development costs increased by $27,875, or 107.2%, as compared to the year
ended December 31, 2023. Property portfolio business development costs are costs related to forfeited escrow deposits and the write off of costs
related to projects which we decided not to pursue.
Income
from operations
As
a result of the factors described above, for the year ended December 31, 2024, income from operations amounted to $1,103,170 as compared
to income
from operations of $169,187 for the year ended December 31, 2023, an increase of $933,983, or 552.0%.
Other
(expenses) income, net
Other
(expense) income primarily includes interest expense incurred on debt with third parties and also includes other income (expense). For
the year
ended December 31, 2024, total other expenses, net amounted to $529,212 as compared to total other expenses, net of $657,335,
respectively, representing
a decrease of $128,123, or 19.5%. This decrease was attributable to an increase in interest expense of $71,979
primarily related to an increase in notes
payable, and a decrease in loss in fair value from an interest rate swap of $200,102 resulting
in 2024 other income of $167,460 from the interest rate swap.
Equity
method loss
For
the year ended December 31, 2024 and 2023, we incurred an equity method loss of $0 and $52,110, respectively, a decrease of $52,110,
or 100.0%.
During the year ended December 31, 2023, we recorded an impairment loss from unconsolidated joint ventures of $45,000 and
a loss from unconsolidated
joint ventures of $7,110.
Net
income (loss)
As
a result of the foregoing for the year ended December 31, 2024 and 2023, net income (loss) amounted to $573,958, or $0.05 per common
share (basic)
and $0.06 per common share (diluted), and $(540,258), or $(0.04) per common share (basic and diluted), respectively.
Liquidity
and Capital Resources
Liquidity
is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had cash of $1,019,980
and
$3,099,795 as of December 31, 2024 and 2023, respectively.
Our
primary uses of cash have been for the acquisition of new property investments, compensation and benefits, fees paid to third parties
for professional
services, real estate taxes, general and administrative expenses, and the development of rental properties and other
lines of business. All funds received
have been expended in the furtherance of growing the business. We receive funds from the collection
of rental income, and real estate services, which
primarily includes advisory fees and brokerage fees. The following trends are reasonably
likely to result in changes in our liquidity over the near term to
long term:
●
An increase
in working capital requirements to finance our current business,
●
Addition of administrative
and sales personnel as the business grows,
●
The cost of being a public
company,
●
An increase in investments
in joint ventures and other projects, and
●
An increase in investments
in rental properties.
We
may need to raise additional funds, particularly if we are unable to continue to generate positive cash flows from our operations. We
estimate that based
on current plans and assumptions, that our available cash will be sufficient to satisfy our cash requirements under
our present operating expectations for the
next 12 months from the date of this annual report on Form 10-K. Other than revenue received
from the lease of our rental properties and real estate
services, and from a bank note, we presently have no other significant alternative
source of working capital.
We
have used these funds to fund our operating expenses, pay our obligations, acquire and develop rental properties, invest in joint ventures,
and to grow
our company. We may need to raise significant additional capital or debt financing to acquire new properties, to develop
existing properties, to assure we
have sufficient working capital for our ongoing operations and debt obligations, and to invest in new
joint venture and other projects.
32
Recent
Property Acquisitions and Related Note Payables
On
July 8, 2024 (the “Closing”), ZP Dysart acquired a property in Surprise AZ (the “Surprise Property”) from NWC
Dysart & Bell LLC (“NWC”).
Surprise Property is a tract or parcel of land containing approximately 1.114 acres, together
with all improvements, buildings, leases, rights, easements, and
appurtenances pertaining thereto. The Surprise Property was acquired
for an aggregate purchase price of $1,712,541, which included (i) $1,100,000,
representing the Purchase Price, (ii) reimburse to NWC
for onsite and offsite improvements of $492,022, and (iii) closing costs, commissions, and fees
customary to the acquisition of real
estate of $120,519. As previously disclosed, on January 23, 2023, ZPRE Holdings entered into a Purchase and Sale
Agreement and Joint
Escrow Instructions, by and between NWC, as the seller, and ZPRE Holdings, as the buyer. Such agreement was subsequently
amended on May
12, 2023, October 25, 2023, and December 20, 2023 (as amended, the “Agreement”). Pursuant to the terms of the Agreement,
NWC also
agreed to complete a number of on-site and off-site improvements to the Surprise Property (the “NWC’s Work”)
in exchange for ZPRE Holdings’
reimbursement of up to $250,000 for the off-site work and reimbursement of up to $350,000 for the
on-site work (collectively, the “Reimbursements”). The
obligation to complete the Reimbursements was conditioned upon the
closing of the sale of the Surprise Property. Subsequent to entry into the Agreement
and as approved by NWC under the terms of the Agreement,
ZPRE Holdings designated ZP Dysart as the named buyer for the Closing.
In
connection with the Surprise Property Closing, ZP Dysart entered into the Construction Loan Agreement (the “PMF Loan Agreement”),
dated as of July
8, 2024, by and between ZP Dysart and Private Money Funding, LLC (“PMF”). Pursuant to the terms of the PMF
Loan Agreement, PMF agreed to loan up
to $1,620,000 to ZP Dysart, which loan is evidenced by a promissory note (the “PMF Note”).
ZP Dysart’s obligations under the PMF Note and the PMF
Loan Agreement are secured by a Deed of Trust, Assignment of Leases and
Rents, Security Agreement and Fixture Filing (the “PMF Deed”). The PMF
Loan Agreement, the PMF Note, any guaranties, and
all other related documents executed and delivered concurrently with the PMF Loan Agreement are
referred to herein as the “PMF
Loan Documents.” Pursuant to the terms of the PMF Loan Agreement, on July 8, 2024, ZP Dysart issued the PMF Note
with the maximum
principal amount of $1,620,000 to PMF (the “Maximum Amount”). Interest accrues at the rate of 12% per annum, with ZP Dysart
paying interest only in arrears, in monthly installment payments, beginning on August 1, 2024 through July 1, 2029 (the “Maturity
Date”). ZP Dysart may
prepay the PMF Loan in full or in part at any time. However, during the first 48 months of the term of the
loan, if ZP Dysart pays any principal payment,
ZP Dysart will pay to PMF a prepayment premium equal to (i) 5% of the amount of principal
prepaid in months 1-24; (ii) 2% of the amount of principal
prepaid in months 25-36; and (iii) 1% of the amount of principal prepaid in
months 36-48, which amount will be due and payable at the time ZP Dysart
pays the principal payment. During the year ended December 31,
2024, the Company borrowed $1,020,000 of the Maximum Amount and received net
proceeds of $983,940, net of origination fees and costs
of $36,060. As of December 31, 2024, the principal amount of the loan is $1,020,000 and accrued
interest payable amounted to $0.
During
the existence of any event of default, PMF may, at its option, exercise any one or more of the remedies described in the PMF Loan Documents
or
otherwise available, including declaring all unpaid indebtedness then evidenced by the Note (including any late charges that are then
due and payable, any
advances thereafter made from the loan and any accruing costs and reasonable attorneys’ fees which are the
obligation of ZP Dysart under the PMF Loan
Documents) to become immediately due and payable. Unless PMF otherwise elects, such acceleration
will occur automatically upon the occurrence of any
event of default described in PMF Loan Agreement or PMF Deed.
After
maturity or during the existence of any event of default, or at any time that ZP Dysart is more than 10 days delinquent in the payment
of money as
required by the Note or the other Loan Documents (whether or not Holder has given any notice of default or any cure period
has expired), then all amounts
outstanding thereunder will thereafter bear interest at the default rate of 18% per annum from the date
such payment became due until paid, but in no event
to exceed the highest rate lawfully collectible under applicable law.
Pursuant
to the terms of the PMF Loan Agreement, following ZP Dysart’s satisfaction of the conditions to funding the PMF Loan and recordation
of the
PMF Deed, the loan proceeds will be disbursed in multiple advances through escrow, first in the form of an initial advance in
the amount of $1,020,000 for
the purpose of contributing funding towards acquiring the Surprise Property (the “Acquisition Advance”).
The remaining loan proceeds will be used for the
purpose of financing for the completion of Sunday Goods’ Work (as hereinafter
defined) (the “Construction Advances”). Following the Acquisition
Advance, subject to satisfying the conditions set forth
in the PMF Loan Agreement, ZP Dysart will be entitled to request the Construction Advances from
the remaining loan proceeds at the following
stages of completion of the construction of Sunday Goods’ Work: (i) first advance in the amount of $300,000
at 50% completion,
and (ii) final advance in the amount of $300,000 at 100% completion and issuance of certificate of occupancy.
The
PMF Loan Agreement contains representations, warranties and covenants customary for a transaction of this type.
Pursuant
to the terms of the Unconditional Repayment Guaranty (the “PMF Guaranty”), dated as of July 8, 2024, by Zoned Properties,
Inc. in favor of
PMF, the Company guaranteed to PMF the full and prompt payment of the principal sum of the PMF Note or so much thereof
that may be outstanding at
any one time or from time to time in accordance with its terms when due, by acceleration or otherwise, together
with all interest accrued thereon, and the
full and prompt payment of all other sums, together with all interest accrued thereon, when
due under the terms of the PMF Loan Agreement, the PMF
Note, and in any deed of trust, security agreement, lease assignment and other
assignment or agreement referred to in the PMF Loan Agreement or the PMF
Note and/or now or hereafter securing the PMF Note or setting
forth any obligations of ZP Dysart in connection with the loan.
33
We
may secure additional financing to acquire and develop additional and existing properties. Financing transactions may include the issuance
of equity or
debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to raise the funds required,
it is possible that we could incur
unexpected costs and expenses or experience unexpected cash requirements that would force us to seek
alternative financing. Furthermore, if we issue
additional equity or debt securities, stockholders may experience additional dilution
or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of our common stock. The
inability to obtain additional capital may restrict our ability to grow our business operations.
Cash
Flow
For
the Years Ended December 31, 2024 and 2023
Net
cash flow provided by operating activities was $578,218 for the year ended December 31, 2024, as compared to net cash flow provided by
operating
activities of $82,547 for the year ended December 31, 2023, representing an increase of $495,671.
●
Net
cash flow provided by operating activities for the year ended December 31, 2024 primarily reflected net income of $573,958, adjusted
for the
add-back of non-cash items consisting of depreciation of $357,946, amortization of debt discount of $22,066 accretion of stock-based
stock option
expense of $54,833, a loss on forfeited escrow deposit of $22,875, an increase in bad debt expense of $20,000, and gain
from the changes in fair
value from an interest rate swap of $167,460, offset by changes in operating assets and liabilities primarily
consisting of an increase in accounts
receivable of $253,538, an increase in deferred rent of $376,032 attributable to rent abatement
on our new tenant leases at our Chicago, Illinois
and Surprise, AZ properties, an increase in accrued expenses of $256,951, a decrease
in contract liabilities of $27,225, and an increase in security
deposits payable of $71,217.
●
Net
cash flow provided by operating activities for the year ended December 31, 2023 primarily reflected a net loss of $540,258 adjusted for
the
add-back of non-cash items consisting of depreciation of $380,761, amortization of debt discount of $18,460, accretion of stock-based
stock
option expense of $116,643, a loss on forfeited escrow deposit of $15,000, a loss from unconsolidated joint ventures of $8,370,
a non-cash
impairment loss from unconsolidated joint ventures of $45,000, and a loss from the changes in fair value from an interest
rate swap of $32,642,
offset by changes in operating assets and liabilities primarily consisting of an increase in deferred rent of $167,393
attributable to rent abatement
on our new tenant lease at our Woodward Properties, a decrease in prepaid expenses and other assets of
$31,653, a decrease in lease incentive
receivable of $27,523, an increase in accounts payable of $9,576, a decrease in accrued expenses
of $11,698, an increase in contract liabilities of
$42,861, and an increase in security deposits payable of $71,060 attributable to the
collection of additional security deposit on our Woodward
Properties.
During
the year ended December 31 2024, net cash flow used in investing activities amounted to $3,527,929 as compared to net cash used in investing
activities of $1,239,084, an increase of $2,288,845. During the year ended December 31, 2024, net cash used in investing activities was
attributable to the
purchase of rental properties of $3,336,763 primarily in connection with the acquisition of properties in Chicago,
IL and Surprise, AZ, a purchase of
property and equipment of $6,480, an increase in capitalized project costs of $168,984, and an increase
in escrow deposits of $15,702. During the year
ended December 31, 2023, net cash used in investing activities was attributable to the
purchase of rental property of $1,007,941 primarily in connection
with the acquisition of property in Pleasant Ridge, Michigan, an increase
in capitalized project costs of $38,016, and an increase in escrow deposits of
$192,048 in connection with escrow deposits made on other
potential acquisitions of rental properties.
During
the year ended December 31, 2024 and 2023, net cash provided by (used in) financing activities amounted to $869,896 and $(79,508), respectively.
During the year ended December 31, 2024, net cash provided by financing activities consisted of net proceeds from a note payable of $983,940
used to
acquire our Surprise, AZ property, offset by cash used for the repayment of notes payable of $106,034 and the purchase of treasury
stock of $8,010. During
the year ended December 31, 2023, net cash used in financing activities amounted to $79,508 and consisted of
the repayment of notes payable of $64,508
and the purchase of treasury stock of $15,000.
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations
We
have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation
provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide
certainty regarding the
timing and amounts of payments. We have presented below a summary of the most significant assumptions used in
our determination of amounts presented
in the tables, in order to assist in the review of this information within the context of our
consolidated financial position, results of operations, and cash
flows.
34
The
following tables summarize our contractual obligations as of December 31, 2024 (dollars in thousands), and the effect these obligations
are expected to
have on our liquidity and cash flows in future periods.
Payments Due by Period
Contractual obligations:
Total
Less than
1 year
1-3 years
3-5 years
5 + years
Convertible notes
$
2,000 $
- $
- $
- $
2,000
Interest on convertible notes
610
120
240
240
10
Notes payable
7,190
48
1,765
1,060
4,317
Total
$
9,800 $
168 $
2,005 $
1,300 $
6,327
Off-balance
Sheet Arrangements
Other than discussed herein, we have not entered
into any other financial guarantees or other commitments to guarantee the payment obligations of any
third parties. We have not entered
into any derivative contracts that are indexed to our shares and classified as shareholders’ equity. Furthermore, we do not
have
any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk
support to such entity.
We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk
or credit support to us or engages in leasing,
hedging or research and development services with us. Our off-balance sheet arrangement
includes the notional amount of our interest rate swaps which we
use to hedge a portion of our exposure to interest rate fluctuations.
Currently, our interest rate swap fixes the variable rate interest on our bank swap note
payable. We intend to fund our interest rate
swap payments utilizing cash flows from operations. As of December 31, 2024, the notional amount of our
interest rate swaps was $4,418,471.
In interest rate swaps, the notional amount is the specified value upon which interest rate payments will be exchanged.
The notional amount
in interest rate swaps is used to come up with the amount of interest due.
Critical
Accounting Estimates
Our
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which
have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated
financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of
contingent assets and liabilities. We continually evaluate our estimates, including the critical
ones related to an interest rate swap, the allowance for
accounts receivable, impairment of rental properties, and the valuation of equity
transactions. We base our estimates on historical experience and on various
other assumptions that we believe 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. Any future changes to these estimates and assumptions could cause a
material change to our
reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different
assumptions
or conditions. We believe the following critical accounting estimates affect our more significant judgments and estimates used in the
preparation of the financial statements.
Interest
rate swap
In
connection with a bank loan executed in 2022, the Company entered into an interest rate swap agreement to manage interest rate risk related
to debt that
accrues interest at variable rates. The Company accounts for its interest rate swap agreement in accordance with the guidance
related to derivatives and
hedging activities. The Company is exposed to market risk from changes in interest rates. The Company agrees
to exchange, at specified intervals, the
difference between fixed and variable interest amounts calculated by reference to an agreed
upon notional principal amount. Interest payments receivable
and payable under the terms of the interest rate swap agreement are accrued
over the period to which the payment relates and the net difference is treated as
an adjustment of interest expense related to the underlying
liability. Because the variable interest rates used to calculate payments under the terms of the
swap agreement are calculated using
different benchmarks than those included in the Company’s variable rate debt agreement, the swap agreement is not
considered an
effective cash flow hedge.
Accordingly,
changes in the underlying market value of the remaining swap payments are recognized into income as an increase or decrease to other
income (expense) each reporting period. In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company believes
values provided
by its counterparty represent the fair value of its swap agreement. The Company believes that the quality of the counterparty
to its swap agreement
mitigates the counterparty credit risk.
The
estimated fair value of the interest rate swap agreement is reflected as a derivative liability on the accompanying balance sheets with
changes in the fair
value reflected in income (loss) from derivative - interest rate swap on the accompanying statements of operations.
The Company uses derivative financial
instruments only to manage interest rate risks and not as investment vehicles.
35
Information
regarding the interest rate swap is as follows:
Description
Notional
Amount on
December 31,
2024
Interest
Rate
Maturity
Fair Value of
Asset on
December 31,
2024
Fair Value of
Liability on
December 31,
2023
December 7, 2022 interest rate swap
$
4,418,471
7.65% December 10, 2032 $
44,581 $
122,879
Accounts
receivable
We
recognize an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries under
the current
expected credit loss method. The allowance is based on an analysis of historical bad debt experience, current receivables
aging and expected future write-
offs, as well as an assessment of specific identifiable customer accounts receivable considered at risk
or uncollectible. On January 1, 2023, we adopted
ASC 326, “Financial Instruments - Credit Losses”. In accordance with ASC
326, an allowance is maintained for estimated forward-looking losses resulting
from the possible inability of customers to make required
payments (current expected losses). The amount of the allowance is determined principally on the
basis of past collection experience
and known financial factors regarding specific customers. The expense associated with the allowance for doubtful
accounts on accounts
receivable is recognized in general and administrative expenses.
Rental
properties
Rental
properties are carried at cost less accumulated depreciation and amortization. Betterments, major renovations and certain costs directly
related to the
improvement of rental properties are capitalized. Maintenance and repair expenses are charged to expense as incurred.
Depreciation is recognized on a
straight-line basis over estimated useful lives of the assets, which range from 5 to 39 years. Tenant
improvements are amortized on a straight-line basis over
the lives of the related leases, which approximate the useful lives of the assets.
Upon
the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles,
such as
acquired above-market leases and acquired in-place leases) and acquired liabilities (such as acquired below-market leases) and
allocate the purchase price
based on these assessments. The Company assesses fair value based on estimated cash flow projections that
utilize appropriate discount and capitalization
rates and available market information. Estimates of future cash flows are based on a
number of factors including historical operating results, known trends,
and market/economic conditions.
Our
properties are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not
be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash
flows over the anticipated holding
period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s
carrying amount over its estimated fair value.
Impairment analyses are based on our current plans, intended holding periods and available
market information at the time the analyses are prepared. If our
estimates of the projected future cash flows, anticipated holding periods,
or market conditions change, our evaluation of impairment losses may be different
and such differences could be material to our consolidated
financial statements. The evaluation of anticipated cash flows is subjective and is based, in part,
on assumptions regarding future occupancy,
rental rates and capital requirements that could differ materially from actual results.
Impairment
occurs when the carrying amount of our rental properties exceeds its recoverable amount. For our rental property, we considered the
recoverable
amount to be the respective properties fair value less costs to sell (FVLCS) plus its value in use (VIU). The recoverable amount is the
higher of
the asset’s fair value less costs to sell (FVLCS) and its value in use (VIU). FVLCS and VIU as defined as follows:
■
Fair
Value Less Costs to Sell (FVLCS):
■
Fair
value is typically determined by market prices or appraisals or tax value.
■
Subtract
any costs that would be incurred to sell the asset (like commissions).
■
Value
in Use (VIU):
■
This
is the present value of the future cash flows the asset is expected to generate.
■
Cash
flows should be based on leases in place.
36
We
have capitalized land, which is not subject to depreciation.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”,
which requires recognition in
the financial statements of the cost of employee, director, and non-employee services received in exchange
for an award of equity instruments over the
period the employee, director, or non-employee is required to perform the services in exchange
for the award (presumptively, the vesting period). The ASC
also requires measurement of the cost of employee, director, and non-employee
services received in exchange for an award based on the grant-date fair
value of the award. The Company has elected to recognize forfeitures
as they occur as permitted under ASU 2016-09 Improvements to Employee Share-
Based Payment Accounting. Assumptions used in the
estimation of stock-based grants may include the volatility of our common stock, expected term of
exercise, our discount rate and our
dividend rate.
Recent
Accounting Pronouncements
Management
does not believe that recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the
accompanying consolidated financial statements.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable to smaller reporting companies.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See
Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules appearing on pages F-1 to F-35
of this annual report on
Form 10-K.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
We
maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant
to the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls
and procedures designed to ensure that information
required to be disclosed in our company’s reports filed under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, to allow
timely decisions regarding required disclosure. Our management, with the participation of our principal
executive officer and principal
financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this
annual
report on Form 10-K. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December
31,
2024, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was
due to material
weaknesses, which we identified in our report on internal control over financial reporting.
Internal
control over financial reporting
Management’s
annual report on internal control over financial reporting
Our
management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining
adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation
of our principal executive
officer and principal financial officer, evaluated the effectiveness of our internal control over financial
reporting as of December 31, 2024. Our
management’s evaluation of our internal control over financial reporting was based on the
2013 framework in Internal Control-Integrated Framework,
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, our management concluded that as of
December 31, 2024, our internal control over financial reporting was not
effective.
The
ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses which we identified in our internal
control over
financial reporting: (1) the lack of multiples levels of management review on complex accounting and financial reporting
issues, (2) we had not
implemented adequate system and manual controls, and (3) a lack of adequate segregation of duties and necessary
corporate accounting resources in our
financial reporting process and accounting function as a result of our limited financial resources
to support hiring of personnel and implementation of
accounting systems. Until such time as we expand our staff to include additional
accounting personnel and hire a full-time chief financial officer, it is likely
we will continue to report material weaknesses in our
internal control over financial reporting.
37
A
material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there
is a reasonable
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected
on a timely basis.
Limitations
on Effectiveness of Controls
Our
principal executive officer and principal financial officer does not expect that our disclosure controls or our internal control over
financial reporting
will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent limitations include
the realities that judgments in decision-making
can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can
be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any
system of controls
also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes
in conditions, or
the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Changes
in Internal Control
There
were no changes in our internal control over financial reporting during the quarter ended December 31, 2024 that have materially affected,
or are
reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
ITEM
9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not
applicable.
38
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our
Board of Directors currently has six members and there is one vacancy.
The
following table sets forth the names, positions and ages of our directors and executive officers as of the date of this annual report
on Form 10-K. All of
the current directors’ terms expire as of the Annual Meeting and will serve until their successors are duly
elected and qualified.
Set
forth below is certain information regarding our executive officers and directors.
Name
Age
Position
Bryan McLaren
37
Chairman, Chief Executive
Officer, Chief Financial Officer, Treasurer, and Secretary
Berekk Blackwell
35
President and Chief
Operating Officer
Art Friedman
65
Independent Director,
Chair of the Compensation Committee
Alex McLaren, MD
72
Director, Chair of the
Strategic Committee
David G. Honaman
73
Independent Director,
Chair of the Audit Committee
Derek Overstreet, PhD.
38
Independent Director
Jody Kane
45
Independent Director,
Chair of the Nominating and Governance Committee
Cole Stevens.
28
Independent Director
Bryan
McLaren is the son of Dr. Alex McLaren.
Background
Information about our Officers and Directors
Biographical
information concerning the directors and executive officers listed above is set forth below. The information presented includes information
each individual has given us about all positions they hold and their principal occupation and business experience for the past five years.
In addition to the
information presented below regarding each director’s specific experience, qualifications, attributes and skills
that led our board to conclude that he should
serve as a director, we also believe that each of our directors has a reputation for integrity,
honesty and adherence to high ethical standards. Each has
demonstrated business acumen and an ability to exercise sound judgment, as
well as a commitment of service to our company and our board of directors.
Bryan
McLaren, MBA. Mr. McLaren has served as Chairman and Chief Executive Officer of the Company since 2014 and as Chief Financial Officer
of
the Company since 2018. Mr. McLaren has a dedicated history of work in the sustainability industry and in business development. Prior
to joining the
Company, McLaren worked as a sustainable development expert for both large corporations such as Waste Management, Inc.,
and for institutions of higher
education such as Northern Arizona University. Mr. McLaren has a Masters of Business Administration Degree
with an emphasis on Sustainable
Development, a Master’s Degree in Sustainable Community Development, and an Executive Master’s
Degree in Sustainability Leadership. As Chief
Executive Officer and Chief Financial Officer, Mr. McLaren is able to provide our Board
with valuable insight regarding the Company’s operations, its
management team and associates as a result of his day-to-day involvement
with the Company.
Berekk
Blackwell. Mr. Blackwell has served as our Chief Operating Officer since July 1, 2021, and as our President since July 1, 2022. Prior
to his
appointment to these positions and since September 2020, Mr. Blackwell served as our Director of Business Development. From December
2018 until June
2021, Mr. Blackwell also served as President of Daily Jam Holdings LLC. From January 2016 to December 2018, he served
as Vice President of Due North
Holdings LLC. Prior to joining the Company, Mr. Blackwell developed domestic and international markets
for Kahala Brands, a global franchise
organization with more than 3,000 retail locations in over a dozen countries. He also led emerging
brand and portfolio operations for several private equity
groups investing in the restaurant franchise space. Mr. Blackwell earned his
B.A. in Finance from Fort Lewis College. Mr. Blackwell and his spouse filed
for bankruptcy in the U.S. Bankruptcy Court, District of
Arizona on November 13, 2020.
Art
Friedman. Mr. Friedman, who has served as a director since 2014, is the Owner/Principal of Triple J Management Services, which specializes
in
consulting and professional services for the alcoholic beverage industry. Mr. Friedman was most recently President and CEO of Gold
Coast Beverage
Distributors, a position he held for the last 10 years of his 23 years with the company. During his tenure as President/CEO,
Gold Coast more than tripled
sales revenue and increased EBITDA by more than five-fold. Over the same period, Mr. Friedman led significant
market share gains through organic
growth as well as consolidating wholesaler acquisitions. Mr. Friedman began his career with General
Foods Corporation, now part of Kraft Foods. He has
served on the distributor advisory councils of Diageo-Guinness, Heineken USA, InBev
and Miller-Coors. Mr. Friedman graduation Cum Laude with a
Bachelor of Science in Business Management from the University of Florida,
Warrington School of Business. We believe that Mr. Friedman’s background
as an advisor in the area of business management and his
experience in operating, growing and advising companies provides us with the requisite skills and
qualifications required to serve on
our board. Mr. Friedman’s service as a director at the Company since 2014, together with his business background,
provides business,
governance, organizational and strategic planning expertise to our Board and makes him a valued member of the Audit Committee, the
Compensation
Committee, which he chairs, and the Strategic Committee.
39
Alex
McLaren, MD. Dr. McLaren, who has served as a director since 2014, is an accomplished and well-known orthopedic surgeon, professor
and
researcher. Alex was most recently Vice President of Clinical Outcomes for Shared Clarity, LLC from 2016-2019. From 2006 until 2016,
Dr. McLaren
served as program director of the Banner University Medical Center-Phoenix (Ariz.) Residency Program in Orthopedic Surgery.
He is the former director
of Orthopedic Education for Banner Good Samaritan Medical Center in Phoenix. He was also the program director
of the Phoenix Orthopedic Residency
Program at Maricopa County Medical Center between 1998 and 2000. He has been in private orthopedic
surgery practice twice during his career in
Phoenix. After graduating from Queen’s University School of Medicine, Kingston, Ontario,
Canada in 1977, Dr. McLaren completed an orthopedic
residency at the University of Western Ontario in 1982 and a fellowship at the University
of Southern California in 1983. Dr. McLaren is first and foremost
an orthopedic educator and researcher whose career has included
teaching, research and administration of educational programs. His clinical interest
includes orthopedic infections, revision arthroplasty
and complex musculoskeletal trauma. With hundreds of publications, numerous grand-funded projects,
and medical association postings,
Dr. McLaren has established a prized reputation in his field. We believe that Dr. McLaren’s services provided to
numerous organizations
provide us with the requisite skills and qualifications to serve on our board and as a member of the Compensation Committee and
the Strategic
Committee, which he chairs.
David
G. Honaman. Mr. Honaman, who has served as a director since 2016, is the Principal and CFO of Advanced Benefit Solutions, Inc. (d/b/a
44
North), an insurance agent and consultant, since 2010. From 2008 to 2009, Mr. Honaman served as an independent financial consultant.
Prior to that time,
Mr. Honaman spent seven years at Wilcox Associates, Inc., a civil engineering firm, most recently as CFO and Treasurer.
Mr. Honaman also served in
several capacities at Wolohan Lumber Co. for over 20 years, including as Vice President of Merchandising,
Senior Vice President of Finance and CFO. Mr.
Honaman began his career as a CPA on the audit staff at Ernst & Young LLP. Mr.
Honaman brings to the Board extensive experience dealing with and
overseeing the implementation of accounting principles and financial
reporting rules and regulations. With his substantial business and management
experience for five years as a certified public accountant
and an auditor at Ernst & Young LLP serving numerous public companies in various business
sectors, including insurance agencies,
Mr. Honaman provides relevant expertise on accounting, investment and financial matters. His service as a chief
financial officer at
Advanced Benefit Solutions, Inc. (d/b/a 44 North), Wilcox Associates, Inc. and Wolohan Lumber Co., together with his accounting and
management
experience, make him a valued member of our Board, Compensation Committee and Strategic Committee, and an effective Non-Executive
Chair
of the Audit Committee. Mr. Honaman meets the definition of an “audit committee financial expert” as established by the SEC.
Derek
Overstreet, PhD. Dr. Overstreet, who has served as a director since 2017, is the co-founder and CEO of Sonoran Biosciences, Inc.
Sonoran
Biosciences, Inc. develops new sustained-release pharmaceutical formulations for applications including orthopedic infection
and postoperative pain
management. Dr. Overstreet holds a Bachelor’s degree in Biomedical Engineering from Case Western Reserve
University and a Doctoral degree in
Biomedical Engineering from Arizona State University. His expertise is in the development of novel
polymer-based materials for medical applications
including drug delivery. He has authored 11 peer-reviewed scientific publications and
two patent applications. We believe that Dr. Overstreet’s experience
navigating the scientific field of pharmaceuticals and drug
delivery can be instrumental in assisting the strategic development and implementation of the
Zoned Properties’ business model.
Prior to 2012, Dr. Overstreet was a post-doctoral fellow at the Laboratory for Nanomedicine at the Barrow Neurological
Institute.
Jody
Kane. Mr. Kane, who has served as a director since January 21, 2022, is the co-founder and Managing Partner of Diamond Bridge Capital,
an
investment firm, where he has managed a portfolio of public and private investments primarily focused on the small cap sector since
2008. In addition,
since May 2021, Mr. Kane has served as an advisor to Harbor Access LLC, a U.S. and Canadian based investor relations
firm. In this role, he advises
companies on corporate strategy and investor awareness. In addition, Mr. Kane owns and manages a real
estate portfolio in the New York and Connecticut
regions. From August 2014 to July 2020, he served as a research analyst for Wooster
Capital Management, LLC, a hedge fund. Mr. Kane has a long history
in the investment management business, previously working at the multi-billion
dollar Schonfeld Group hedge fund, serving as a published analyst at Sidoti
& Co. and working for the billion dollar Michael Steinhardt
family office. Mr. Kane was one of the first investors in GrowGeneration Corp. (Nasdaq:
GRWG) and served on its board of directors from
May 2014 to January 2018. He graduated from Troy University, with a B.S. in Finance.
Cole
Stevens. Mr. Stevens, who has served as a director since November 2024, brings over a decade of experience in capital markets advisory,
corporate
finance, and strategic growth leadership. He has a proven track record of driving value creation and expansion across diverse
industries, including
technology, healthcare, and real estate. Since 2019, Mr. Stevens has served as President of AllAccess Capital Markets,
a prominent North American capital
markets advisory firm. In this capacity, he has consistently demonstrated exceptional leadership and
financial acumen, successfully guiding organizations
through periods of growth, transformation, and strategic evolution. Mr. Stevens’
expertise has earned him recognition on leading broadcast platforms,
including appearances on CBC’s Lang & O’Leary
Exchange and multiple features on BNN (Business News Network). Mr. Stevens
has a Bachelor of
Commerce from the Ted Rogers School of Management at Toronto Metropolitan University (formerly Ryerson University),
with a focus on Global
Management. The Company believes that Mr. Stevens’ strategic experience will be invaluable to the Company
as it pursues its mission to deliver
innovative, value-driven real estate solutions in emerging regulated markets
40
Involvement
in Certain Legal Proceedings
Our
directors and executive officers have not been involved in any of the following events during the past 10 years:
1.
any bankruptcy
petition filed by or against any business of which such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
2.
any conviction in a criminal
proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.
being subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking
activities;
4.
being found by a court
of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a
federal or
state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
5.
being the subject of, or
a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed,
suspended
or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any
law or
regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent
injunction, order of
disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal
or prohibition order; or (iii) any
law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity;
or
6.
being the subject of, or
a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as
defined
in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or
any
equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated
with a member.
Code
of Ethics
We
have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those employees
responsible
for financial reporting. The code of business conduct and ethics is available on our corporate website, www.zonedproperties.com.
We intend to disclose any
amendments to our code of business conduct and ethics, or waivers of its requirements, on our website or in
filings under the Exchange Act to the extent
required by applicable rules and exchange requirements.
Director
Independence
Five
of our seven board members are independent. The Board has determined that each of Messrs. Friedman, Honaman, Kane, Dr. Overstreet, and
Mr.
Stevens is an independent director pursuant to the NASDAQ listing standards. Under the NASDAQ rules, no director qualifies as independent
unless the
Board affirmatively determines that the director has no material relationship with us (directly, or as a partner, stockholder
or officer of an organization that
has a relationship with us).
In
assessing the independence of our directors, the Board considers all of the business relationships between the Company and our directors
and their
respective affiliated companies. This review is based primarily on the Company’s review of its own records and on responses
of the directors to questions
in a questionnaire regarding employment, business, family, compensation and other relationships with the
Company and our management. Where
relationships exist, the Board determines whether the relationship between the Company and the directors
or the directors’ affiliated companies impairs the
directors’ independence. After consideration of the directors’ relationships
with the Company, the Board has affirmatively determined that none of the
individuals serving as non-employee directors during the fiscal
year ended December 31, 2024 had a material relationship with us and that each of such
non-employee directors is independent.
41
Bryan
McLaren was not considered an independent director during his service on the Board during the fiscal year ended December 31, 2024 and
2023
because of his employment as our Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Treasurer, and Secretary.
Alex McLaren, MD
was not considered an independent director during his service on the Board during the fiscal years ended December 31,
2024 and 2023 because Bryan
McLaren is the son of Dr. McLaren.
Board
of Directors and Board Committees
All
of our directors and director nominees are encouraged to attend the annual meetings of our stockholders, as may be applicable.
The
Board of Directors held two meetings during the fiscal year ended December 31, 2024. Each of our current directors attended 100% of the
aggregate
number of the meetings of the Board and meetings of the committees on which he or she served.
Our
Board currently has four committees: the Audit Committee, the Strategic Committee, the Compensation Committee, and the Nominating and
Governance Committee. As of March 25, 2025, the members and Chairs of our standing Board committees were:
Audit
Compensation
Strategic
Nom. & Gov
Independent Directors
Art Friedman
X
Chair
X
X
David G. Honaman
Chair
X
X
X
Derek Overstreet
X
X
X
X
Jody Kane
X
X
X
Chair
Cole Stevens
X
X
X
X
Non-Independent Director
Alex McLaren, MD
X
Chair
X
Audit
Committee
All
Audit Committee members are “independent” under the NASDAQ listing standards and SEC rules and regulations. Our Board of
Directors has
determined that one of the members of the Audit Committee, Mr. Honaman, meets the definition of an “audit committee
financial expert” as established by
the SEC, and that Mr. Friedman, Dr. Overstreet, and Mr. Kane as the three other members of
the Audit Committee, meet the definition of “financially
literate” as established by the SEC. The Audit Committee provides
assistance to the Board in fulfilling its oversight responsibilities relating to the quality
and integrity of the financial reports of
the Company. The Audit Committee has the sole authority to appoint, review and discharge our independent
accountants, and has established
procedures for the receipt, retention, response to and treatment of complaints regarding accounting, internal controls and
audit matters.
In addition, the Audit Committee is responsible for:
●
reviewing the
scope, results, timing and costs of the audit with our independent accountants and reviewing the results of the annual audit
examination
and any accompanying management letters;
●
assessing the independence
of the outside accountants on an annual basis, including receipt and review of a written report from the independent
accountants
regarding their independence consistent with the independence standards of the board;
●
reviewing and approving
the services provided by the independent accountants;
●
overseeing the internal
audit function; and
●
reviewing our significant
accounting policies, financial results and earnings releases, and the adequacy of our internal controls.
The
responsibilities of the Audit Committee are more fully described in the Audit Committee’s charter.
The
Audit Committee held four meetings during the fiscal year ended December 31, 2024.
42
Compensation
Committee
All
Compensation Committee members other than Dr. McLaren are “independent” under applicable NASDAQ listing standards. The Compensation
Committee assists the Board in fulfilling its oversight responsibilities relating to executive compensation, employee compensation and
benefit programs
and plans, and leadership development and succession planning. In addition, the Compensation Committee is responsible
for:
●
reviewing the
performance of our Chief Executive Officer;
●
determining the compensation
and benefits for our Chief Executive Officer and other executive officers;
●
establishing our compensation
policies and practices;
●
administering our incentive
compensation and stock plans (except for the issuance of securities to non-employee directors for services which is
administered
by the Board); and
●
approving the adoption
of material changes to or the termination of our benefit plans.
The
Compensation Committee reviews and discusses with management the disclosures regarding executive compensation to be included in our annual
proxy statement. The responsibilities of the Compensation Committee are more fully described in the Compensation Committee’s charter.
The
Compensation Committee held two meetings during the fiscal year ended December 31, 2024.
Strategic
Committee
All
Strategic Committee members other than Dr. McLaren are “independent” under the applicable NASDAQ listing standards. The Strategic
Committee
assists the Board in developing and maintaining the Company’s business strategies and any related matters required by
federal securities laws. In addition,
the Strategic Committee is responsible for:
●
Review the
Company’s current business strategies.
●
Explore new business strategies
for the Company.
●
Report business strategy
analyses to the Board.
The
Strategic Committee held two meetings during the fiscal year ended December 31, 2024.
Nominating
and Governance Committee
All
Nominating and Governance members (except for Dr. McLaren) are “independent” under applicable NASDAQ listing standards. The
Nominating and
Governance Committee assists the Board in fulfilling its oversight responsibilities relating to Company and Board policies,
and in relation to the
nomination and election of Board Members. In addition, the Nominating and Governance Committee is responsible
for:
●
establishing
and reviewing the Nominating and Governance Committee Charter; and
●
establishing and reviewing
various Company policies, such as the Company’s Insider Trading Policy and Code of Ethics.
The
responsibilities of the Nominating and Governance Committee are more fully described in the Nominating and Governance Committee’s
charter.
The
Nominating and Governance Committee held two meetings during the fiscal year ended December 31, 2024.
During
the fourth quarter of the fiscal year ended December 31, 2023, there were no material changes to the procedures by which stockholders
may
recommend nominees to the Board.
Officer
and Director Indemnification Agreements
The
Company entered into an Indemnification Agreement (each, an “Indemnification Agreement” and collectively, the “Indemnification
Agreements”)
with each of the Company’s officers and directors. The Indemnification Agreements supplement the indemnification
provisions provided in the Company’s
articles of incorporation and bylaws and any resolutions adopted pursuant thereto and generally
provide that the Company shall indemnify the indemnitees
to the fullest extent permitted by applicable law, subject to certain exceptions,
against expenses, judgments, fines and other amounts actually and
reasonably incurred in connection with their service as a director
or officer and also provide for rights to advancement of expenses and contribution.
43
ITEM
11. EXECUTIVE COMPENSATION
Summary
Compensation
The
following 2024 Summary Compensation Table (the “SCT”) summarizes all compensation recorded by us for the years ended December
31, 2024 and
2023 for our “named executive officers” as such term is defined in Item 402(m)(2) of Regulation S-K (each, an
“NEO” and collectively, the “NEOs”).
2024
Summary Compensation Table
Name and principal
position
Year
Salary
$
Bonus
$(1)
Stock
Awards
$ (2)
Option
Awards
$
Non-Equity
Incentive Plan
Compensation
$
Nonqualified
Deferred
Compensation
Earnings
$
All Other
Compensation
$
Total
$
Bryan McLaren,
2024 250,000
56,473
-
-
-
-
-
306,473
Chief Executive Officer
and Chief Financial
Officer
2023
250,000
-
-
-
-
-
-
250,000
Berekk Blackwell,
2024 190,000
57,473
-
-
-
-
-
247,473
President and
Chief Operating Officer
(2)
2023
184,294
-
-
-
-
-
-
185,294
(1) On
August 16, 2024, the Company’s Compensation Committee approved a Compensation Memo whereby project team members may receive up
to
80% bonus splits of project fees generated by transactions. Project fees may include Acquisition Fees, Management Fees, Disposition
Fees, or Promote
Fees. Each transaction may vary significantly in the types of fees generated and the amount of fees generated depending
on project terms and
conditions. Such amounts are included in bonus above.
(2) As required by SEC rules,
the amounts in this column reflect the grant date or modification date fair value as required by FASB ASC Topic 718. A
discussion
of the assumptions and methodologies used to calculate these amounts, are contained in the notes to our financial statements under
“Note 11
– Shareholders’ Equity”.
Narrative
Disclosure to Summary Compensation Table
Except
as otherwise described below, there are no compensatory plans or arrangements, including payments to be received from the Company with
respect
to any executive officer, that would result in payments to such person because of his or her resignation, retirement or other
termination of employment with
the Company, or our subsidiaries, any change in control, or a change in the person’s responsibilities
following a change in control of the Company.
McLaren
Employment Agreement & Golden Parachute Agreement
On
May 23, 2018, we entered into an employment agreement with Mr. McLaren (the “2018 Employment Agreement”). Pursuant to the
terms of the 2018
Employment Agreement, the Company agreed to continue to pay Mr. McLaren a base annual salary of $214,500, and to award
Mr. McLaren with an annual
and/or quarterly bonus payable in either cash and/or equity of no less than 2.5% of the Company’s net
income for the associated period.
The
2018 Employment Agreement has a term of 10 years. The term and Mr. McLaren’s employment will terminate (a “Termination”)
in any of the
following circumstances:
(i)
immediately,
if Mr. McLaren dies;
(ii)
immediately, if Mr. McLaren
receives benefits under the long-term disability insurance coverage then
(iii) provided by the Company
or, if no such insurance is in effect, upon Mr. McLaren’s disability;
(iv) on the expiration date,
as the same may be extended by the parties by written amendment to the 2018 Employment Agreement prior to the
occasion thereof;
44
(v)
at the option of the Company
for Cause (as hereinafter defined) upon the Company’s provision of written notice to Mr. McLaren of the basis for
such Termination;
(vi)
at the option of the Company,
without Cause;
(vii) by Mr. McLaren at any time
with Good Reason (as hereinafter defined), upon 30 days’ prior written notice to the Company delivered not later
than within
90 days of the existence of the condition therefor; or
(viii) by Mr. McLaren at any time
without Good Reason, upon not less than three months’ prior written notice to the Company.
In
the event of a Termination for any reason or for no reason whatsoever, or upon the expiration date of the 2018 Employment Agreement,
whichever
comes first, all rights and obligations under the 2018 Employment Agreement shall cease (i) as to the Company, except for the
Company’s obligations for
the payment of applicable severance benefits thereunder, and for indemnification thereunder, and (ii)
as to Mr. McLaren, except for his obligation under the
restrictive covenants in the 2018 Employment Agreement.
The
Company and Mr. McLaren also entered into a Golden Parachute Agreement (the “Golden Parachute Agreement”) on May 23, 2018.
No benefits shall
be payable under the Golden Parachute Agreement unless there shall have been a change in control of the Company, as
set forth below. For purposes of the
Golden Parachute Agreement, a “change in control of the Company” shall mean a change
of control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
whether or not the Company is in fact required to comply
with that regulation, provided that, without limitation, such a change in control shall be deemed
to have occurred if (A) any “person”
(as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding
securities under
an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the shareholders of the Company in
substantially
the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule
13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined voting
power of the Company’s then
outstanding securities; or (B) during any period of two consecutive years (not including any period
prior to the execution of the Golden Parachute
Agreement), individuals who at the beginning of such period constitute the Board and any
new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in clauses (A) or (D) of this paragraph) whose election by the Board or
nomination for election by the Company’s shareholders
was approved by a vote of at least two-thirds of the directors then still in office who either were
directors at the beginning of the
period or whose election or nomination for election was previously so approved, cease for any reason to constitute a
majority; (C) the
Company enters into an agreement, the consummation of which would result in the occurrence of a change in control of the Company; or
(D) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger
or consolidation
which would result in the voting securities of the Company outstanding immediately prior to it continuing to represent
(either by remaining outstanding or
by being converted into voting securities of the surviving entity) of more than 50% of the combined
voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such merger or consolidation,
or the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company’s assets.
For
purposes of the Golden Parachute Agreement, “Cause” means termination upon (a) the willful and continued failure to substantially
perform duties
with the Company after a written demand for substantial performance is delivered by the Board, which demand specifically
identifies the manner in which
the Board believes that duties have not substantially been performed, or (b) the willful engaging in conduct
which is demonstrably and materially injurious
to the Company, monetarily or otherwise.
For
purposes of the Golden Parachute Agreement, “Good Reason” means, without express written consent, the occurrence after a
change in control of the
Company of any of the following circumstances unless, such circumstances are fully corrected prior to the date
of Termination specified in the notice of
Termination:
(a) a material
diminution in Mr. McLaren’s authority, duties or responsibility from those in effect immediately prior to the change in control
of the
Company;
(b) a material diminution in
Mr. McLaren’s base compensation;
(c) a material change in the
geographic location at which Mr. McLaren performs his duties;
(d) a material diminution in
the authority, duties, or responsibilities of the supervisor to whom Mr. McLaren is required to report, including a
requirement that
McLaren report to a corporate officer or employee instead of reporting directly to the Board;
(e) a material diminution in
the budget over which Mr. McLaren retains authority;
45
(f)
a material breach under
any agreement with the Company to continue in effect any bonus to which Mr. McLaren was entitled, or any
compensation plan in which
Mr. McLaren participates immediately prior to the change in control of the Company which is material to Mr.
McLaren’s total
compensation;
(g) a material breach under
any agreement with the Company to provide Mr. McLaren benefits substantially similar to those enjoyed by Mr. McLaren
under any of
the Company’s life insurance, medical, health and accident, or disability plans in which he was participating at the time of
the change
in control of the Company, the failure to continue to provide Mr. McLaren with a Company automobile or allowance in lieu
of it, if Mr. McLaren
was provided with such an automobile or allowance in lieu of it at the time of the change of control of the
Company, the taking of any action by
the Company which would directly or indirectly materially reduce any of such benefits or deprive
Mr. McLaren of any material fringe benefit
enjoyed by Mr. McLaren at the time of the change in control of the Company, or the failure
by the Company to provide him with the number of
paid vacation days to which he is entitled on the basis of years of service with
the Company in accordance with the Company’s normal vacation
policy in effect at the time of the change in control of the Company;
Following
a change in control of the Company, upon termination of Mr. McLaren’s employment or during a period of disability, Mr. McLaren
will be
entitled to the following benefits:
(i)
During any
period that Mr. McLaren fails to perform his full-time duties with the Company as a result of incapacity due to physical or mental
illness, Mr. McLaren will continue to receive his base salary at the rate in effect at the commencement of any such period, together
with all
amounts payable to Mr. McLaren under any compensation plan of the Company during such period, until the Golden Parachute
Agreement is
terminated.
(ii) If Mr. McLaren’s
employment is terminated by the Company for Cause or by Mr. McLaren other than for Good Reason, disability, death or
retirement,
the Company will pay Mr. McLaren his full base salary through the date of Termination at the rate in effect at the time notice of
Termination is given, plus all other amounts and benefits to which Mr. McLaren is entitled under any compensation plan of the Company
at the
time such payments are due.
(iii) If employment by the Company
shall be terminated (a) by the Company other than for Cause, death or disability or (b) by Mr. McLaren for Good
Reason, Mr. McLaren
will be entitled to benefits provided below:
a.
The
Company will pay Mr. McLaren his full base salary through the date of Termination at the rate in effect at the time notice of Termination
is given, plus all other amounts and benefits to which Mr. McLaren is entitled under any compensation plan of the Company.
b.
In lieu of
any further salary payments to Mr. McLaren for periods subsequent to the date of Termination, the Company will pay as severance
pay
to Mr. McLaren a lump sum severance payment (together with the payments provided in clauses (c) and (d) below) equal to five times
the
sum of Mr. McLaren’s annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to
the notice of
Termination given in respect of them.
c.
The Company will pay Mr.
McLaren any deferred compensation allocated or credited to Mr. McLaren or his account as of the date of
Termination.
d.
In lieu of shares of common
stock of the Company issuable upon exercise of outstanding options, if any, granted to Mr. McLaren under the
Company’s stock
option plans (which options shall be cancelled upon the making of the payment referred to below), Mr. McLaren will
receive an amount
in cash equal to the product of (i) the excess of the closing price of the Company’s common stock as reported on or nearest
the date of Termination (or, if not so reported, on the basis of the average of the lowest asked and highest bid prices on or nearest
the date of
Termination), over the per share exercise price of each option held by Mr. McLaren (whether or not then fully exercisable)
plus the amount of
any applicable cash appreciation rights, times (ii) the number of the Company’s common stock covered by
each such option.
e.
The Company will also pay
Mr. McLaren all legal fees and expenses incurred by Mr. McLaren as a result of such Termination.
(iv) In
the event that Mr. McLaren is a “disqualified individual” within the meaning of Section 280G of the Code, the parties expressly
agree that the
payments described herein and all other payments to Mr. McLaren under any other agreements or arrangements with any persons
which constitute
“parachute payments” within the meaning of Section 280G of the Code are collectively subject to an overall
maximum limit. Such maximum limit
shall be $1 less than the aggregate amount which would otherwise cause any such payments to be considered
a “parachute payment” within the
meaning of Section 280G of the Code, as determined by the Company.
Additionally,
on August 16, 2024, the Company’s Compensation Committee approved a Compensation Memo whereby brokerage project team members
shall
receive up to 80% bonus splits of the fees generated by transactions. In connection with such a bonus, in 2024, the Company paid Mr.
McLaren a
bonus of $56,473.
46
Blackwell
Employment Agreement
On
July 26, 2022, the Company entered into an employment agreement, effective July 1, 2022, with Mr. Blackwell (the “Blackwell Employment
Agreement”). Pursuant to the terms of the Blackwell Employment Agreement, the Company agreed to pay Mr. Blackwell a base annual
salary of $150,000
for his services as President and Chief Operating Officer. The Company may also award Mr. Blackwell discretionary
cash and/or equity bonuses. In April
2023, Mr. Blackwells base annual salary was increased in $190,000.
The
Blackwell Employment Agreement has a term of one year, expiring on July 1, 2023. During the initial term, neither party may terminate
the Blackwell
Employment Agreement except for Cause (as hereinafter defined). For purposes of the Blackwell Employment Agreement, Cause,
with respect to Mr.
Blackwell, means:
(i)
a
material violation of any material written rule or policy of the Company applicable to Mr. Blackwell and which Mr. Blackwell fails to
correct
within 10 days after notice;
(ii) misconduct
by Mr. Blackwell to the material and demonstrable detriment of the Company;
(iii) Mr.
Blackwell’s conviction of, or pleading guilty to, a felony; or
(iv) Mr.
Blackwell’s material failure to perform his obligations and fulfill the covenants and agreements in the Blackwell Employment Agreement,
after notice and failure to cure, as provided in the Blackwell Employment Agreement.
With
respect to the Company, “Cause” means the Company’s material failure to perform the Company’s obligations and
fulfill the covenants and
agreements in the Blackwell Employment Agreement, after notice and failure to cure, as provided in the Blackwell
Employment Agreement.
The
Blackwell Employment Agreement will continue to be in full force and effect after July 1, 2023, except that either party may terminate
the Blackwell
Employment Agreement for any reason upon 30 days’ written notice.
The
Blackwell Employment Agreement contains representations, warranties and covenants customary for an agreement of this type.
Additionally,
on August 16, 2024, the Company’s Compensation Committee approved a Compensation Memo whereby brokerage project team members
shall
receive up to 80% bonus splits of the fees generated by brokerage transactions. In connection with such a bonus, in 2024, the Company
paid Mr.
Blackwell a bonus of $57,473.
Outstanding
Equity Awards at 2024 Fiscal Year-End
The
following table sets forth information as options outstanding on December 31, 2024.
OUTSTANDING EQUITY AWARDS AT 2023 FISCAL YEAR-END
OPTION AWARDS
STOCK AWARDS
Name
Number of
Securities
Underlying
Unexercised
options (#)
Exercisable
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Unexercisable
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares
or
Units
of Stock
that have
not
Vested
(#)
Market
Value of
Shares or
Units of
Stock
that
Have not
Vested
($)
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares,
Units or
Other Rights
that have
not
Vested
(#)
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
other Rights
that have not
Vested
($)
Bryan McLaren
250,000
—(a)
—
1.00 12/26/2026
—
—
—
—
Berekk
Blackwell
55,000
70,000(b)
—
1.00
1/1/2031
—
—
—
—
Berekk
Blackwell
30.000
45,000(c)
—
1.00 1/21/2032
—
—
—
—
(a) Vested annually
at 25,000 options per year through December 2024.
(b) Vest annually at 10,000
options per year through January 1, 2031.
(c) 15,000 options vested in
2022 and remainder vest annually at 7,500 options per year through January 21, 2030.
47
Pay
Versus Performance (PVP)
In
accordance with the SEC’s disclosure requirements regarding pay versus performance (“PVP”), this section presents the
SEC-defined “Compensation
Actually Paid,” or “CAP”. Also required by the SEC, this section compares CAP to various
measures used to gauge performance at Company.
Pay
versus Performance Table - Compensation Definitions
Salary,
Bonus, Stock Awards, and All Other Compensation are each calculated in the same manner for purposes of both CAP and SCT values. The primary
difference between the calculation of CAP and SCT total compensation is “Stock Awards.”
SCT
Total
CAP
Stock Awards
Grant date fair value of
stock and option awards granted during
the year
Year over year change in
the fair value of stock and option
awards that are unvested as of the end of the year, or vested or
were forfeited during the year
2024
Pay Versus Performance Table
In
accordance with the SEC’s new PVP rules, the following table sets forth information concerning the compensation of our NEOs for
each of the fiscal
years ended December 31, 2024, 2023 and 2022, and our financial performance for each such fiscal year:
Year (1)
Summary
Compensation
Table Total
for PEO
Compensation
Actually Paid
to PEO
(2)(3)
Average
Summary
Compensation
Table Total
for Non-PEO
NEOs
Average
Compensation
Actually Paid
to Non-PEO
NEOs
Value of
Initial Fixed
$100
Investment
Based On
Total
Shareholder
Return
Net Income
(Loss)
2024
$
306,473 $
307,515 $
247,473 $
245,170 $
109.56 $
573,958
2023
$
250,000 $
228,486 $
157,864 $
104,921 $
116.55 $
(540,258)
2022
$
246,758 $
228,999 $
203,280 $
194,180 $
174.78 $
(574,355)
(1) The principal
executive officer (“PEO”) in 2024, 2023, and 2022 is Bryan McLaren, our Chief Executive Officer and Chief Financial Officer.
The non-
PEO NEOs in 2024 is Berekk Blackwell, and in 2023 and 2022 was Berekk Blackwell and Dan Gauthier.
(2) The CAP was calculated
beginning with the PEO’s SCT total. The following amounts were deducted from and added to the applicable SCT total
compensation:
SCT Total
Stock Awards
Deducted
from
SCT
Stock Awards
Added to
CAP
Stock
Option
Awards
Deducted
from SCT
Stock
Option
Awards
Added to
CAP
Total CAP
A - (B + D)
(A)
(B)
(C)
(D)
(E)
+ (C + E)
PEO
2024
$
306,473 $
- $
- $
- $
1,042 $
307,515
2023
$
250,000 $
- $
- $
- $
(21,514) $
228,486
2022
$
246,758 $
- $
- $
- $
(17,759) $
228,999
Average Non-PEO NEO
2024
$
247,473 $
- $
- $
- $
(2,303) $
245,170
2023
$
157,864 $
- $
- $
- $
(52,943) $
104,921
2022
$
203,280 $
- $
- $
(137,754) $
128,654 $
194,180
(3) The fair value
of stock options reported for CAP purposes in columns (C) and (E) above was estimated using a Black-Scholes option pricing model
for
the purposes of this PVP calculation in accordance with the SEC rules. This model uses both historical data and current market
data to estimate the fair
value of options and requires several assumptions. The assumptions used in estimating fair value for awards
granted during 2024, 2023 and 2022 were
as follows:
Grant Year
2024
2023
2022
Volatility
75.0 – 83.4%
52.2 – 106.7% 106.7 – 112.3%
Expected life (in years)
2 – 7 years
3 – 7 years
4 – 10 years
Expected dividend yield
0.0%
0.0%
0.0%
Risk-free rate
4.01 – 4.38%
3.94 – 4.01%
1.75 – 3.94%
48
Securities
Authorized for Issuance under Equity Compensation Plans
On
August 9, 2016, our Board of Directors authorized the 2016 Plan and reserved 10,000,000 shares of common stock for issuance thereunder.
The 2016
Plan was approved by shareholders on November 21, 2016. The 2016 Plan’s purpose is to encourage ownership in the Company
by employees, officers,
directors and consultants whose long-term service the Company considers essential to its continued progress and,
thereby, encourage recipients to act in the
stockholders’ interest and share in the Company’s success. The 2016 Plan authorizes
the grant of awards in the form of options intended to qualify as
incentive stock options under Section 422 of the Code, options that
do not qualify (non-statutory stock options) and grants of restricted shares of common
stock. Restricted shares granted pursuant to the
2016 Plan are amortized to expense over the three-year vesting period. Options vest and expire over a
period not to exceed seven years.
If any share of common stock underlying a stock option that has been granted ceases to be subject to a stock option, or if
any shares
of common stock that are subject to any other stock-based award granted are forfeited or terminate, such shares shall again be available
for
distribution in connection with future grants and awards under the 2016 Plan. As of December 31, 2023, 1,012,500 stock option awards
have been granted
under the 2016 Plan. On December 31, 2023, 8,987,500 shares are available for future issuance.
The
Company also continues to maintain its 2014 Equity Compensation Plan (the “2014 Plan”), pursuant to which 1,250,000 previously
awarded stock
options are outstanding. The 2016 Plan has superseded the 2014 Plan. Accordingly, no additional shares subject to the existing
2014 Plan will be issued and
the 1,250,000 shares issuable upon exercise of stock options will be issued pursuant to the 2014 Plan, if
exercised. As of December 31, 2024, options to
purchase 1,250,000 shares of common stock are outstanding and 1,250,000 options are exercisable
pursuant to the 2014 Plan. As of December 31, 2023,
options to purchase 1,250,000 shares of common stock are outstanding and 1,225,000
options are exercisable pursuant to the 2014 Plan.
The
table below sets forth information as of December 31, 2024.
Plan Category
Number of
securities to
be issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted-
average
exercise price of
outstanding
options,
warrants and
rights
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(a)
(b)
(c)
Equity compensation plans approved by security holders
1,117,500 $
0.66
8,882,500
Equity compensation plans not approved by security holders
1,250,000 $
1.00
0
Total
2,367,500 $
0.92
8,882,500
Director
Compensation
The
following table sets forth compensation paid, earned or awarded during 2024 to each of our directors, other than Bryan McLaren, whose
compensation
is described above in the “2024 Summary Compensation Table”.
2024
Director Compensation
Name
Fees Earned
or Paid in
Cash ($)
Stock
Awards
($) (1)
All Other
Compensation
($)
Total
($)
Art Friedman
-
-
-
-
David G. Honaman
-
-
-
-
Alex McLaren, MD
-
-
-
-
Derek Overstreet
-
-
-
-
Jody Kane
-
-
-
-
Cole Stevens
-
35,506
-
35,506
(1) As
required by SEC rules, the amounts in this column reflect the grant date or modification date fair value as required by FASB ASC Topic
718. A
discussion of the assumptions and methodologies used to calculate these amounts is contained in the notes to our consolidated
financial statements
under “Shareholders’ Deficit”. On November 25, 2024, the director listed above received 105,000
stock options to purchase 105,000 shares of
restricted stock with an exercise price of $0.49 per share.
49
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
following table sets forth certain information regarding beneficial ownership of our common stock and preferred stock as of March 26,
2025, by:
●
Each director
and each of our Named Executive Officers,
●
All executive officers
and directors as a group, and
●
Each person known by us
to be the beneficial owner of more than 5% of our outstanding common stock.
As
of March 25, 2025, there were 12,087,861 shares of our
common stock outstanding and 2,000,000 shares of Preferred Stock outstanding.
The
number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information is not
necessarily
indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to
which such person has sole or
shared voting power or investment power and also any shares which the individual has the right to acquire
within 60 days after the date hereof, through the
exercise of any stock option, warrant or other right. Unless otherwise indicated, each
person has sole investment and voting power (or shares such power
with his or her spouse) with respect to the shares set forth in the
following table. The inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership
of those shares.
Common
Stock
Name and Address of Beneficial Owner
Amount and
Nature of
Beneficial
Ownership
Percent of
Class
Named Executive Officers and Directors:
Bryan McLaren
312,500(1)
2.5%
Berekk Blackwell
113,379(2)
0.9%
Art Friedman
269,325(3)
2.2%
Alex McLaren, MD
1,799,167(4)
14.7%
David G. Honaman
237,500(5)
1.9%
Derek Overstreet, PhD
241,537(6)
2.0%
Jody Kane
189,121(7)
1.6%
Cole Stevens
8,750(8)
*
All executive officers and directors as a group (seven persons)
2,792,029(9)
25.9%
Other 5% Stockholders:
Greg Johnston
c/o Zoned Properties, Inc.
8360 E. Raintree Drive #230
Scottsdale, AZ 85260
1,262,500
10.4%
Melinda Jay Johnston
c/o Zoned Properties, Inc.
8360 E. Raintree Drive #230
Scottsdale, AZ 85260
1,250,000
10.3%
Joseph Bartonek
c/o Zoned Properties, Inc.
8360 E. Raintree Drive #230
Scottsdale, AZ 85260
756,250
6.2%
*
Less than 1%.
(1) Includes 250,000 vested
stock options.
(2) Includes 102,500 vested
stock options.
(3) Includes 122,500 vested
stock options.
(4) Includes 1,501,667 shares
held by McLaren Family LLLP. Dr. McLaren is the general partner of McLaren Family LLLP and has voting and dispositive
power over
such shares and includes 137,500 vested stock options.
(5) Includes 137,500 vested
stock options.
(6) Includes 132,500 vested
stock options.
(7) Includes 122,500 vested
stock options and 13,175 shares owned by Diamond Bridge Capital, LP, which is 50% owned by Mr. Kane. Mr. Kane’s shares
voting
and dispositive power over these shares with the other 50% owner of Diamond Bridge Capital, LP.
(8) Includes 8,750 vested stock
options.
(9) Includes 1,013,750 vested
stock options.
50
Preferred
Stock
Name and Address of Beneficial Owner
Shares of
Preferred Stock
Beneficially
Owned
Percent of
Class
Beneficially
Owned
Percent of
Voting
Power (1)
Greg Johnston
c/o Zoned Properties, Inc.
8360 E. Raintree Drive #230
Scottsdale, AZ 85260
1,000,000
50.0%
45.7%(2)
Alex McLaren
c/o Zoned Properties, Inc.
8360 E. Raintree Drive #230
Scottsdale, AZ 85260
1,000,000(3)
50.0%
46.1%(4)
(1) As a result
of the multiple votes afforded to holders of the preferred stock (50 votes per share), Mr. Johnston and Dr. McLaren have the ability
to
control the outcome of all matters submitted to a vote of stockholders, including the election of directors. The percent of voting
power in the table
gives effect to the holder’s beneficial ownership of common stock and preferred stock.
(2) Combined with Mr. Johnston’s
common stockholdings, Mr. Johnston holds 45.7% of the voting power of the Company.
(3) Shares are held by McLaren
Family LLLP. Dr. McLaren is the general partner of McLaren Family LLLP and has voting and dispositive power over
such shares.
(4) Combined with Dr. McLaren’s
common stockholdings, Dr. McLaren holds 46.1% of the voting power of the Company.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We
do not have a written policy for the review, approval or ratification of transactions with related parties or conflicted transactions.
When such
transactions arise, they are referred to the audit committee for consideration for referral to our board of directors for its
consideration.
Director
Independence
Five
of our seven board members are independent. The Board has determined that each of Messrs. Friedman, Honaman, Kane, Dr. Overstreet, and
Stevens
is an independent director pursuant to the NASDAQ listing standards. Under the NASDAQ rules, no director qualifies as independent
unless the Board
affirmatively determines that the director has no material relationship with us (directly, or as a partner, stockholder
or officer of an organization that has a
relationship with us).
In
assessing the independence of our directors, the Board considers all of the business relationships between the Company and our directors
and their
respective affiliated companies. This review is based primarily on the Company’s review of its own records and on responses
of the directors to questions
in a questionnaire regarding employment, business, familial, compensation and other relationships with
the Company and our management. Where
relationships exist, the Board determines whether the relationship between the Company and the
directors or the directors’ affiliated companies impairs the
directors’ independence. After consideration of the directors’
relationships with the Company, the Board has affirmatively determined that none of the
individuals serving as non-employee directors
during the fiscal year ended December 31, 2022 had a material relationship with us and that each of such
non-employee directors is independent.
Bryan
McLaren was not considered an independent director during his service on the Board during the fiscal year ended December 31, 2022 because
of his
employment as our Chairman of the Board, CEO, CFO, and Treasurer. Alex McLaren, MD was not considered an independent director
during his service
on the Board during the fiscal year ended December 31, 2022 because Dr. McLaren is the father of Bryan.
51
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table sets forth the fees that were billed or that will be billed to our company for professional services rendered by Salberg
& Company, P.A.
for the years ended December 31, 2024 and 2023:
Fees
2024
2023
Audit Fees
$
72,500 $
63,900
Audit-Related Fees
0
0
Tax Fees
0
0
Other Fees
0
0
Total Fees
$
72,500 $
63,900
Audit
Fees
Audit
fees were for professional services rendered for the audits of our financial statements and for review of our quarterly financial statements.
Audit-Related
Fees
During
2024 and 2023, our independent registered public accountants did not provide any assurance and related services that are reasonably related
to the
performance of the audit or review or our financial statements that are not reported under the caption “Audit Fees”
above.
Tax
Fees
As
our independent registered public accountants did not provide any services to us for tax compliance, tax advice and tax planning during
2024 and 2023,
no tax fees were billed or paid during those fiscal years.
All
Other Fees
Our
independent registered public accountants did not provide any products and services not disclosed in the table above during 2024 and
2023. As a
result, there were no other fees billed or paid during 2024 and 2023.
Pre-Approval
Policies and Procedures
Our
Audit Committee pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and
approved by
our Audit Committee before the respective services were rendered.
Our
board of directors has considered the nature and amount of fees billed by our independent registered public accounting firm and believe
that the
provision of services for activities unrelated to the audit is compatible with maintaining their respective independence.
52
PART
IV
ITEM
15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
Exhibits
required by Item 601 of Regulation S-K:
EXHIBIT
INDEX
Exhibit
Number
Description of Exhibit
3.1
Articles of Incorporation, as amended, of Zoned Properties, Inc. (incorporated by reference to exhibit to Registration Statement on Form S-
1 (File No. 333-208226) filed by the Company on November 25, 2015).
3.2
Bylaws of Zoned Properties, Inc. (incorporated by reference to exhibit to Registration Statement on Form S-1 (File No. 333-208226) filed
by the Company on November 25, 2015).
4.1*
Description of registrant’s securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
10.1+
Board Member Agreement dated as of October 1, 2014 by and between the registrant and Alex McLaren (incorporated by reference to
exhibit to Registration Statement on Form S-1 (File No. 333-208226) filed by the Company on November 25, 2015).
10.2+
Board Member Agreement dated as of October 1, 2014 by and between the registrant and Art Friedman (incorporated by reference to
exhibit to Registration Statement on Form S-1 (File No. 333-208226) filed by the Company on November 25, 2015).
10.3+
Board Member Agreement dated as of September 26, 2016 by and between the registrant and David G, Honaman (incorporated by
reference to exhibit to Annual Report on Form 10-K filed with the SEC by the Company on March 27, 2017).
10.4+
Board Member Agreement effective April 1, 2017 by and between Zoned Properties, Inc. and Derek Overstreet (incorporated by reference
to exhibit to Current Report on Form 8-K filed with the SEC by the Company on April 4, 2017).
10.5+
Stock Option Grant Notice and Agreement between registrant and Newbridge Financial, Inc. (incorporated by reference to exhibit to
Registration Statement on Form S-1 (File No. 333-208226) filed by the Company on November 25, 2015).
10.6
Deed of Trust dated March 7, 2015 in favor of Investment Property Exchange Services, Inc. covering Tempe, AZ property (incorporated by
reference to exhibit to Registration Statement on Form S-1 (File No. 333-208226) filed by the Company on November 25, 2015).
10.7+
Stock Option Grant Notice and Agreement dated December 20, 2015 between Zoned Properties, Inc. and Bryan McLaren (incorporated by
reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on January 7, 2016).
10.8
Second Amendment to Commercial Lease by and between Zoned Properties, Inc., C3C3 Group, LLC and Alan Abrams (incorporated by
reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on August 25, 2016).
10.9
Third Amendment to Commercial Lease by and between Chino Valley Properties, LLC, C3C3 Group, LLC and Alan Abrams (incorporated
by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on October 13, 2016).
10.10
Convertible Debenture dated January 9, 2017 Issued by Zoned Properties, Inc. in Favor of Alan Abrams (incorporated by reference to
exhibit to Current Report on Form 8-K filed with the SEC by the Company on January 12, 2017).
10.11
Fourth Amendment to Commercial Lease by and between Chino Valley Properties, LLC, C3C3 Group, LLC and Alan Abrams
(incorporated by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on April 4, 2017).
10.12
Third Amendment to Commercial Lease by and between Zoned Properties, Inc., C3C3 Group, LLC and Alan Abrams, and Zoned Arizona
Properties, LLC, dated as of October 1, 2017 (incorporated by reference to exhibit to Current Report on Form 8-K filed with the SEC by
the Company on October 3, 2017).
10.13
Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Chino Valley Properties, LLC
and Broken Arrow Herbal Center, Inc. (incorporated by reference to exhibit to Current Report on Form 8-K filed with the SEC by the
Company on May 3, 2018).
10.14
Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Green Valley Group, LLC
and Broken Arrow Herbal Center, Inc. (incorporated by reference to exhibit to Current Report on Form 8-K filed with the SEC by the
Company on May 3, 2018).
10.15
Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Zoned Arizona Properties,
LLC and CJK, Inc. (incorporated by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on May 3,
2018).
10.16
Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Kingman Property Group,
LLC and CJK, Inc. (incorporated by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on May 3,
2018).
10.17+
Employment Agreement by and between the registrant and Bryan McLaren dated May 23, 2018 (incorporated by reference to exhibit to
Current Report on Form 8-K filed with the SEC by the Company on May 24, 2018).
10.18+
Golden Parachute Agreement by and between the registrant and Bryan McLaren dated May 23, 2018 (incorporated by reference to exhibit
to Current Report on Form 8-K filed with the SEC by the Company on May 24, 2018).
10.19
Amendment to Convertible Debenture entered into as of January 2, 2019 by and between Zoned Properties, Inc. and Alan Abrams
(incorporated by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on January 3, 2019).
10.20
First Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated January 1, 2019 by and between
Chino Valley Properties, LLC and Broken Arrow Herbal Center, Inc. (incorporated by reference to exhibit to Current Report on Form 8-K
filed with the SEC by the Company on January 3, 2019).
53
10.21
Convertible Debenture issued March 19, 2020 from KCB Jade Holdings, LLC (incorporated by reference to exhibit to Current Report on
Form 8-K filed with the SEC by the Company on March 23, 2020).
10.22
First Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated as of May 31, 2020, by and between
Zoned Arizona Properties, LLC and CJK, Inc. (incorporated by reference to exhibit to Current Report on Form 8-K filed with the SEC by
the Company on June 4, 2020).
10.23
Second Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated as of May 31, 2020, by and
between Chino Valley Properties, LLC and Broken Arrow Herbal Center, Inc. (incorporated by reference to exhibit to Current Report on
Form 8-K filed with the SEC by the Company on June 4, 2020).
10.24
First Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated as of May 31, 2020, by and between
Green Valley Properties, LLC and Broken Arrow Herbal Center, Inc. (incorporated by reference to exhibit to Current Report on Form 8-K
filed with the SEC by the Company on June 4, 2020).
10.25
First Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated as of May 31, 2020, by and between
Kingman Property Group, LLC and CJK, Inc. (incorporated by reference to exhibit to Current Report on Form 8-K filed with the SEC by
the Company on June 4, 2020).
10.26
Amended and Restated Convertible Debenture issued February 19, 2021 from KCB Jade Holdings, LLC (incorporated by reference to
exhibit to Current Report on Form 8-K filed with the SEC by the Company on February 19, 2021).
10.27
Second Amended and Restated Convertible Debenture issued by KCB Jade Holdings, LLC in favor of the registrant (Incorporated by
reference to exhibit 10.1 to Current Report on Form 8-K filed with the SEC by the Company on August 4, 2021).
10.28
Third Amendment to the Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018, between Chino
Valley and CJK, Inc. (“CJK”), as amended, entered into on August 23, 2021 and effective September 1, 2021 (Incorporated by reference to
exhibit 10.1 to Current Report on Form 8-K filed with the SEC by the Company on August 24, 2021).
10.29
Form of Indemnification Agreement (Incorporated by reference to exhibit 10.2 to Current Report on Form 8-K filed with the SEC by the
Company on August 24, 2021).
10.30
Fourth Amendment to Regulated Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018, between Chino
Valley and CJK, Inc., as amended, entered into on January 24, 2022 (Incorporated by reference to exhibit 10.1 to Current Report on Form
8-K filed with the SEC by the Company on January 25, 2022).
10.31
Second Amendment to the Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated November 30, 2022 between
Zoned Arizona Properties, LLC and VSM AZ LLC (Incorporated by reference to exhibit 10.1 to Current Report on Form 8-K filed with the
SEC by the Company on December 2, 2022).
10.32
Guaranty of Payment and Performance, dated November 30, 2022, by GDL Inc. in favor of Zoned Arizona Properties, LLC (incorporated
by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the SEC by the Company on December 2, 2022).
10.33
Second Amendment to the Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated November 30, 2022 between
Kingman Property Group, LLC and CJK, Inc. (Incorporated by reference to exhibit 10.3 to Current Report on Form 8-K filed with the SEC
by the Company on December 2, 2022).
10.34
Option Agreement, dated as of December 1, 2022, by and between ZP RE MI Woodward, LLC and FL MI RE 22, LLC. (Incorporated by
reference to exhibit 10.1 to Current Report on Form 8-K filed with the SEC by the Company on December 5, 2022).
10.35
Master Agreement for Purchase and Sale, dated as of November 29, 2022, by and among ZP RE MI Woodward, LLC, FL MI RE 22, LLC,
Thomas Nafso and Ammar Kattoula (Incorporated by reference to exhibit 10.2 to Current Report on Form 8-K filed with the SEC by the
Company on December 5, 2022).
10.36
Licensed Cannabis Facility Absolute Net Lease Agreement, dated as of November 29, 2022, by and between ZP RE MI Woodward, LLC
and Rapid Fish 2 LLC. (Incorporated by reference to exhibit 10.3 to Current Report on Form 8-K filed with the SEC by the Company on
December 5, 2022).
10.37
Real Estate Repurchase Agreement, dated as of November 29, 2022, by and among ZP RE MI Woodward, LLC, FL MI RE 22, LLC,
Thomas Nafso and Ammar Kattoula (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed with the SEC by the
Company on December 5, 2022).
10.38
Loan Agreement, dated as of July 11, 2022, by and between Zoned Arizona Properties, LLC and East West Bank. (Incorporated by
reference to exhibit 10.1 to Current Report on Form 8-K filed with the SEC by the Company on July 12, 2022).
10.39
Variable Rate Note, dated as of July 11, 2022, issued by Zoned Arizona Properties, LLC in favor of East West Bank. (Incorporated by
reference to exhibit 10.2 to Current Report on Form 8-K filed with the SEC by the Company on July 12, 2022).
10.40
Guaranty, dated as of July 11, 2022, executed by Zoned Arizona Properties, LLC in favor of East West Bank. (Incorporated by reference to
exhibit 10.3 to Current Report on Form 8-K filed with the SEC by the Company on July 12, 2022).
10.41+
Employment Agreement, entered into on July 26, 2022 and effective as of July 1, 2022, by and between the registrant and Berekk
Blackwell (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC by the Company on July 27, 2022).
10.42
Purchase and Sale Agreement and Joint Escrow Instructions, dated October 5, 2022, by and between ZP RE Holdings, LLC a wholly
owned subsidiary of the registrant, and Neal Bradley Starr (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed
with the SEC by the Company on October 12, 2022).
54
10.43+
Employment Agreement, entered into on May 27, 2022 and dated as of June 1, 2022, by and between the registrant and Daniel Gauthier
(incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC by the Company on May 31, 2022).
10.44+
Stock Option Agreement, entered into on May 27, 2022 and dated as of July 1, 2022, by and between the registrant and Mr. Gauthier
(incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the SEC by the Company on May 31, 2022).
10.45
First Amendment Loan Agreement, dated as of December 7, 2022, by and between Zoned Arizona Properties, LLC and East West Bank
(Incorporated by reference to exhibit 10.1 to Current Report on Form 8-K filed with the SEC by the Company on December 9, 2022).
10.46
Amended and Restated Promissory Note, dated as of December 7, 2022, issued by Zoned Arizona Properties, LLC in favor of East West
Bank (Incorporated by reference to exhibit 10.2 to Current Report on Form 8-K filed with the SEC by the Company on December 9, 2022).
10.47
Acknowledgement of Amendment and Reaffirmation of Guaranty, dated as of December 7, 2022, executed by Zoned Arizona Properties,
LLC in favor of East West Bank (Incorporated by reference to exhibit 10.3 to Current Report on Form 8-K filed with the SEC by the
Company on December 9, 2022).
10.48
Interest Rate Swap Transaction Confirmation, dated as of December 7, 2022, by and between Zoned Arizona Properties, LLC and East
West Bank (Incorporated by reference to exhibit 10.4 to Current Report on Form 8-K filed with the SEC by the Company on December 9,
2022).
10.49
Assignment and Assumption Agreement dated as of December 2, 2022, by and between FL MI RE 22, LLC and ZP RE MI Woodward,
LLC. (Incorporated by reference to exhibit 10.1 to Current Report on Form 8-K filed with the SEC by the Company on March 2, 2023).
10.50
Land Contract, dated as of November 30, 2022, by and between The Thomas A. Pearlman Revocable Trust U/A/D 6/13/2005 and FL MI
RE 22, LLC. (Incorporated by reference to exhibit 10.2 to Current Report on Form 8-K filed with the SEC by the Company on March 2,
2023).
10.51
Land Contract, dated as of February 24, 2023, by and between Gangnier Investments LLC and ZP RE MI Woodward, LLC. (Incorporated
by reference to exhibit 10.3 to Current Report on Form 8-K filed with the SEC by the Company on March 2, 2023).
10.52
Agreement Regarding Purchase and Sale Contract, dated as of December 15, 2023, by and between Keystone Ventures, LLC and ZP RE
Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC by the Company on
January 22, 2024).
10.53
Purchase and Sale Agreement, dated as of May 5, 2022, by and between Lakeside Bank, as Trustee under Trust Agreement dated October
7, 2004 and known as Trust Number 10-2749 and Daniel Kravetz and Keystone Ventures, LLC as assignee, as amended through January
12, 2024 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC by the Company on January 22,
2024).
10.54
Assignment and Assumption Agreement, dated as of January 19, 2024, by and between Keystone Ventures, LLC and ZP RE Holdings,
LLC (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC by the Company on January 22,
2024).
10.55
Licensed Cannabis Facility Absolute Net Lease Agreement dated as of January 18, 2024, by and between ZP RE Holdings, LLC and JG IL
LLC (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the SEC by the Company on January 22,
2024).
10.56
Guaranty of Payment and Performance, dated as of January 18, 2024, by JG Holdco LLC in favor of ZP RE Holdings, LLC (incorporated
by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the SEC by the Company on January 22, 2024).
10.57
Security Agreement, dated as of January 18, 2024, made by and among JG IL LLC in favor of ZP RE Holdings, LLC (incorporated by
reference to Exhibit 10.6 to the Current Report on Form 8-K filed with the SEC by the Company on January 22, 2024).
10.58
Purchase and Sale Agreement and Joint Escrow Instructions, dated as of January 23, 2023, by and between NWC Dysart & Bell, LLC and
ZP RE Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC by the Company
on February 29, 2024).
10.59
Licensed Cannabis Facility Absolute Net Lease Agreement dated as of January 2, 2024, by and between ZP RE Holdings, LLC and The
Pharm, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC by the Company on February
29, 2024).
10.60
Guaranty of Payment and Performance, dated as of February 27, 2024, by The Pharm, LLC in favor of ZP RE Holdings, LLC (incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC by the Company on February 29, 2024).
10.61
First Amendment to Licensed Cannabis Facility Absolute Net Lease Agreement, dated as of May 3, 2024, by and between ZP RE MI
Woodward, LLC and Rapid Fish LLC (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with
the SEC on May 6, 2024).
10.62
Construction Loan Agreement, dated as of July 8, 2024, by and between ZP RE AZ DYSART, LLC and Private Money Funding, LLC
(incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2024).
55
10.63
Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing made as of July 8, 2024, by and among ZP RE AZ
DYSART, LLC to Premier Title Agency, for the benefit of Private Money Funding, LLC (incorporated by reference to Exhibit 10.2 to the
registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2024).
10.64
Promissory Note, dated July 8, 2024, issued by ZP RE AZ DYSART, LLC in favor of Private Money Funding, LLC (incorporated by
reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2024).
10.65
Unconditional Repayment Guaranty, dated as of July 8, 2024, by the registrant in favor of Private Money Funding, LLC (incorporated by
reference to Exhibit 10.4 to the registrant’s Current Report on Form 8-K filed with the SEC on July 10, 2024).
10.66+
Stock Option Agreement, dated November 25, 2024, by and between the registrant and Cole Stevens
(incorporated by reference to Exhibit
10.1 to the registrant’s Current Report on Form 8-K filed with the
SEC on November 27, 2024).
17.1*
Insider Trading Policy.
21.1*
List of Subsidiaries.
23.1*
Consent of Independent Registered Public Accounting Firm – Salberg & Company PA
31.1*
Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.
31.2*
Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.
32.1**
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
101.INS*
INLINE XBRL INSTANCE DOCUMENT
101.SCH*
INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
101.CAL*
INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT
101.DEF*
INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT
101.LAB*
INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT
101.PRE*
INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
+
Management contract or compensatory
plan or arrangement.
*
Filed herewith
**
Furnished herewith
ITEM
16. 10-K SUMMARY
As
permitted, the registrant has elected not to supply a summary of information required by Form 10-K.
56
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on
its behalf by the undersigned, thereunto duly authorized.
Zoned Properties, Inc.
Date: March 25, 2025
By: /s/ Bryan
McLaren
Bryan McLaren
Chief
Executive Officer and
Chief
Financial Officer
POWER
OF ATTORNEY
Each
person whose signature appears below hereby appoints Bryan McLaren as attorney-in-fact with full power of substitution to execute in
the name
and on behalf of the registrant and each such person, individually and in each capacity stated below, one or more amendments
to the annual report on Form
10-K, which amendments may make such changes in the report as the attorney-in-fact acting deems appropriate
and to file any such amendment to the
annual report on Form 10-K with the Securities and Exchange Commission. Pursuant to the requirements
of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature
Title
Date
/s/
Bryan McLaren
Chairman, Chief Executive
Officer, Chief Financial Officer, And Treasurer
March
25, 2025
Bryan McLaren
(principal executive officer,
principal financial officer and principal accounting officer)
/s/
Derek Overstreet
Director
March
25, 2025
Derek Overstreet
/s/
Art Friedman
Director
March
25, 2025
Art Friedman
/s/
Alex McLaren
Director
March
25, 2025
Alex McLaren
/s/
David G. Honaman
Director
March
25, 2025
David G. Honaman
/s/
Jody Kane
Director
March
25, 2025
Jody Kane
/s/
Cole Stevens
Director
March
25, 2025
Cole Stevens
57
ZONED PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2024 and 2023
ZONED PROPERTIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 and 2023
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 106)
F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2024 and 2023
F-3
Consolidated Statements of Operations – For the Years Ended December 31, 2024 and 2023
F-4
Consolidated Statements of Changes in Stockholders’ Equity - For the Years Ended December 31, 2024 and 2023
F-5
Consolidated Statements of Cash Flows – For the Years Ended December 31, 2024 and 2023
F-6
Notes to Consolidated Financial Statements
F-7 to F-34
F-1
Report of Independent Registered Public Accounting
Firm
To the Stockholders and the Board of Directors
of:
Zoned Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Zoned Properties, Inc. and Subsidiaries (the “Company”) as of December 31, 2024 and
2023, the related consolidated
statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended
December
31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial
statements present fairly, in all material respects, the consolidated financial position of the Company as of December
31, 2024 and 2023, and the
consolidated results of its operations and its cash flows for each of the two years in the period ended December
31, 2024, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United
States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we
engaged to perform, an audit of internal control over financial reporting. As part of our audits, we are required to obtain an
understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess
the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide
a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters are matters arising
from the current period audit of the financial statements that were communicated or required to be
communicated to the audit committee
and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2)
involved our especially
challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Salberg &
Company, P.A.
SALBERG & COMPANY,
P.A.
We have served as the
Company’s auditor since 2023.
Boca Raton, Florida
March 25, 2025
2295 NW Corporate Blvd., Suite 240 ● Boca
Raton, FL 33431-7326
Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500
● Fax: (561) 995-1920
www.salbergco.com ● info@salbergco.com
Member National Association of Certified Valuation
Analysts ● Registered with the PCAOB
Member CPAConnect with Affiliated Offices Worldwide ● Member AICPA
Center for Audit Quality
F-2
ZONED PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2024
2023
ASSETS
Cash
$
1,019,980 $
3,099,795
Accounts receivable
370,110
136,572
Deferred rent
747,504
371,472
Lease incentive receivable
422,018
449,541
Rental properties, net
13,024,936
10,040,524
Prepaid expenses and other assets
32,101
27,476
Escrow deposits
169,875
177,048
Capitalized project costs
207,000
38,016
Property and equipment, net
8,584
7,699
Operating lease right of use asset, net
78,255
32,213
Investment in unconsolidated joint ventures
4,923
4,923
Investment in equity securities
50,000
50,000
Interest rate swap asset
44,581
-
Security deposits
2,272
2,272
Total Assets
$
16,182,139 $
14,437,551
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Convertible note payable
$
2,000,000 $
2,000,000
Notes payable, net
7,011,674
6,111,702
Accounts payable
117,225
116,947
Accrued expenses
433,788
176,837
Lease liability
78,310
32,867
Contract liabilities
318,951
346,176
Derivative liability - interest rate swap, at fair value
-
122,879
Security deposits payable
361,677
290,460
Total Liabilities
10,321,625
9,197,868
Commitments and Contingencies (Note 10)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; 2,000,000 shares issued and outstanding on
December 31, 2024 and 2023 ($1.00 per share liquidation preference or $2,000,000)
2,000
2,000
Common stock: $0.001 par value, 100,000,000 shares authorized; 12,201,516 and 12,201,548 shares issued on
December 31, 2024 and 2023, respectively, and 12,087,829 and 12,101,548 shares outstanding on December 31,
2024 and 2023, respectively
12,202
12,202
Additional paid-in capital
21,508,844
21,453,961
Treasury stock, at cost (113,687 and 100,000 shares on December 31, 2024 and 2023, respectively)
(23,010)
(15,000)
Accumulated deficit
(15,639,522)
(16,213,480)
Total Stockholders’ Equity
5,860,514
5,239,683
Total Liabilities and Stockholders’ Equity
$
16,182,139 $
14,437,551
See accompanying notes to
consolidated financial statements.
F-3
ZONED PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
December 31,
2024
2023
REVENUES:
Property investment portfolio revenues
$
2,884,286 $
2,481,892
Real estate services revenues
909,003
405,099
Total revenues
3,793,289
2,886,991
OPERATING EXPENSES:
Compensation and benefits
1,287,744
1,326,485
Professional fees
351,426
388,807
Brokerage fees
158,871
64,680
General and administrative expenses
331,495
367,175
Depreciation and amortization
357,946
380,761
Real estate taxes
148,762
163,896
Property portfolio business development costs
53,875
26,000
Total operating expenses, net
2,690,119
2,717,804
INCOME FROM OPERATIONS
1,103,170
169,187
OTHER INCOME (EXPENSES):
Interest expenses
(696,672)
(624,693)
Income (loss) from derivative - interest rate swap
167,460
(32,642)
Total other income (expenses), net
(529,212)
(657,335)
INCOME (LOSS) BEFORE EQUITY METHOD LOSSES
573,958
(488,148)
EQUITY METHOD LOSS:
Impairment of investment in unconsolidated joint ventures
-
(45,000)
Equity method loss from unconsolidated joint ventures
-
(7,110)
Total equity method loss
-
(52,110)
NET INCOME (LOSS)
$
573,958 $
(540,258)
NET INCOME (LOSS) PER COMMON SHARE:
Basic
$
0.05 $
(0.04)
Diluted
$
0.06 $
(0.04)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic
12,098,429
12,179,356
Diluted
12,498,429
12,179,356
See accompanying notes to consolidated financial
statements.
F-4
ZONED PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023
Preferred Stock
Common Stock
Additional
Paid-in
Treasury Stock
Accumulated
Total
Stockholders’
Shares
Amount
Shares
Amount
Capital
Shares Amount
Deficit
Equity
Balance, December 31,
2022
2,000,000 $
2,000 12,201,548 $
12,202 $21,337,318
- $
- $ (15,673,222) $
5,678,298
Purchase of treasury
stock
-
-
-
-
- 100,000
(15,000)
-
(15,000)
Accretion of stock
based compensation
related to stock
options issued
-
-
-
-
116,643
-
-
-
116,643
Net loss
-
-
-
-
-
-
-
(540,258)
(540,258)
Balance, December 31,
2023
2,000,000
2,000 12,201,548
12,202 21,453,961 100,000
(15,000) (16,213,480)
5,239,683
Purchase of treasury
stock
-
-
-
-
-
13,687
(8,010)
-
(8,010)
Accretion of stock
based compensation
related to stock
options issued
-
-
-
-
54,883
-
-
-
54,883
Rounding
-
-
(32)
-
-
-
-
-
-
Net income
-
-
-
-
-
-
-
573,958
573,958
Balance, December 31,
2024
2,000,000 $
2,000 12,201,516 $
12,202 $21,508,844 113,687 $ (23,010) $ (15,639,522) $
5,860,514
See accompanying notes to consolidated financial statements.
F-5
ZONED PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
$
573,958 $
(540,258)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense
357,946
380,761
Amortization of debt discount
22,066
18,460
Stock option expense
54,883
116,643
Loss on forfeited escrow deposit
22,875
15,000
Bad debt expense
20,000
-
Lease costs
(599)
94
Impairment of investment in unconsolidated joint ventures
-
45,000
Loss from unconsolidated joint ventures
-
8,370
(Income) loss from interest rate swap
(167,460)
32,642
Change in operating assets and liabilities:
Accounts receivable
(253,538)
2,253
Deferred rent receivable
(376,032)
(167,393)
Lease incentive receivable
27,523
27,523
Prepaid expenses and other assets
(4,625)
31,653
Accounts payable
278
9,576
Accrued expenses
256,951
(11,698)
Contract liabilities
(27,225)
42,861
Security deposits payable
71,217
71,060
NET CASH PROVIDED BY OPERATING ACTIVITIES
578,218
82,547
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental properties and improvements
(3,336,763) (1,007,941)
Purchases of property and equipment
(6,480)
(1,079)
Increase in capitalized project costs
(168,984)
(38,016)
Decrease (increase) in escrow deposits
(15,702)
(192,048)
NET CASH USED IN INVESTING ACTIVITIES
(3,527,929) (1,239,084)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock
(8,010)
(15,000)
Net proceeds from note payable
983,940
-
Repayment of notes payable
(106,034)
(64,508)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
869,896
(79,508)
NET DECREASE IN CASH
(2,079,815) (1,236,045)
CASH, beginning of year
3,099,795 4,335,840
CASH, end of year
$ 1,019,980 $ 3,099,795
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid
$
705,990 $
636,384
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of rental properties financed through note payable
$
- $
430,000
Reclassification of escrow deposits for acquisition of rental properties
$
- $
590,000
Increase in operating lease right of use asset and lease liability
$
81,974 $
-
See accompanying notes to consolidated financial
statements.
F-6
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Zoned Properties, Inc. (“Zoned Properties”
or the “Company”) was incorporated in the State of Nevada on August 25, 2003. In October 2013, the
Company changed its name
to Zoned Properties, Inc. and in April 2014, the Company shifted its business model to address commercial real estate in the
regulated
cannabis industry. Zoned Properties is a technology-driven property investment company focused on acquiring value-add real estate within
the
regulated cannabis industry in the United States. The Company aspires to innovate within the real estate development sector, focusing
on direct-to-
consumer real estate that is leased to the best-in-class cannabis retailers. Headquartered in Scottsdale, Arizona, Zoned
Properties is redefining the approach
to commercial real estate investment through its standardized investment model backed by its proprietary
property technology. Zoned Properties has
developed a national ecosystem of real estate services to support its real estate development
model, including a commercial real estate brokerage and a real
estate advisory practice. The Company operates in two organized segments;
(1) the operations, leasing and management of its commercial properties,
herein known as the “Property Investment Portfolio”
segment, and (2) the advisory, brokerage and technology services related to commercial properties,
herein known as the “Real Estate
Services” segment. The Company targets commercial properties that face unique zoning or development challenges,
identifies solutions
that can potentially have a major impact on their commercial value, and then works to acquire the properties while securing long-term,
absolute-net leases. The Company does not grow, harvest, sell or distribute cannabis or any substances regulated under United States law
such as the
Controlled Substance Act of 1970, as amended (the “CSA”).
The Company has the following wholly owned subsidiaries:
●
Chino Valley Properties, LLC (“Chino Valley”) was organized in the State of Arizona on April 15, 2014.
●
Kingman Property Group, LLC (“Kingman”) was organized in the State of Arizona on April 15, 2014.
●
Green Valley Group, LLC (“Green Valley”) organized in the State of Arizona on April 15, 2014.
●
Zoned Arizona Properties, LLC (“Zoned Arizona”) was organized in the State of Arizona on June 2, 2017.
●
Zoned Advisory Services, LLC (“Zoned Advisory”) was organized in the State of Arizona on July 27, 2018.
●
Zoned Properties Brokerage, LLC (“Arizona Brokerage”) was organized in the State of Arizona on March 17, 2021.
●
ZP Data Platform 1, LLC (“ZP Data 1”) was organized in the State of Arizona on April 14, 2021 (inactive).
●
ZP Data Platform 2, LLC (“ZP Data 2”) was organized in the State of Arizona on June 21, 2022.
●
ZP RE Holdings, LLC (“ZPRE Holdings”) was organized in the State of Arizona on September 20, 2022.
●
ZP Brokerage MS, LLC (“Mississippi Brokerage”) was organized in the State of Mississippi on October 4, 2022 (inactive and dissolved on
January 13, 2025)
●
ZP Brokerage FL, LLC (“Florida Brokerage”) was organized in the State of Florida on October 20, 2022.
●
ZP Brokerage AL, LLC (“Alabama Brokerage”) was organized in the State of Alabama on October 20, 2022 (inactive and dissolved on January 9,
2025).
●
ZP RE MI Woodward, LLC (“ZP Woodward”) was organized in the State of Michigan on November 22, 2022
●
ZP Brokerage MO, LLC (“Missouri Brokerage”) was organized in the State of Missouri on November 30, 2022 (inactive and dissolved on January
13, 2025.)
●
ZP RE IL Ashland, LLC (“ZP Ashland”) was organized in the State of Illinois on February 14, 2024.
●
ZP RE AZ DYSART. LLC (“ZP Dysart”) was organized in the State of Arizona on May 24, 2024.
The Company also maintains a 50% equity interest in two joint ventures
(see Note 5).
F-7
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of presentation and principles of consolidation
The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”) and
include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated
upon consolidation.
Liquidity
As reflected in the accompanying consolidated
financial statements, the Company generated net income of $573,958 and cash provided by operations of
$578,218 during the year ended December
31, 2024. Additionally, as of December 31, 2024, the Company had cash of $1,019,980 and stockholders’ equity
of $5,860,514.
The cash balance and positive net cash provided
by operating activities serves to mitigate the conditions that historically raised substantial doubt about the
Company’s ability
to continue as a going concern. The Company believes that the Company has sufficient cash and positive cash flows to meet its
obligations
for a minimum of twelve months from the date of this filing.
Use of estimates
The preparation of the consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates for
the years
ended December 31, 2024 and 2023 include the collectability of accounts receivable, valuation of investment in equity securities,
the useful life of rental
properties and property and equipment, assumptions used in assessing impairment of long-term assets including
rental property and investment in
unconsolidated joint ventures, valuation allowances for deferred tax assets, the fair value of derivative
asset or liability related to interest rate swap, and the
fair value of non-cash equity transactions, including options and stock-based
compensation.
Risks and uncertainties
The Company’s operations are subject to
risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of
business failure.
The Company conducts a significant portion of its business in states that have legalized and regulated cannabis. Additionally, the
Company’s
tenants operate in the state-legalized and state-regulated cannabis industry. Consequently, any significant economic downturn in the state
markets in which the Company operates or any changes in the federal government’s enforcement of current federal laws or changes
in state laws could
potentially have a negative effect on the Company’s business, results of operations and financial condition.
Additionally, substantially all of the Company’s
real estate properties are leased under triple-net or absolute-net leases to tenants
(each, a “Significant Tenant” and collectively, the “Significant Tenants”).
For the years ended December 31, 2024
and 2023, revenues associated with Significant Tenants amounted to $2,366,645 and $2,394,029, respectively,
which represents 62.4% and
82.9% of the Company’s total revenues, respectively (see Note 3).
Fair value of financial instruments
The carrying amounts reported in the consolidated
balance sheets for cash, accounts receivable, prepaid expenses and other assets, capitalized project costs,
escrow deposits, accounts
payable, accrued expenses, and other payables approximate their fair market value based on the short-term maturity of these
instruments.
The Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”),
requires companies
to determine fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.
ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.
The guidance requires that assets and liabilities
carried at fair value be classified and disclosed in one of the following categories:
●
Level 1: Quoted market prices in active markets for identical assets or liabilities.
●
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
●
Level 3: Unobservable inputs that are not corroborated by market data.
Other than the interest rate swap, the Company
did not identify any other assets or liabilities that are required to be presented on the balance sheets at fair
value, on a recurring
basis, in accordance with ASC Topic 820.
F-8
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
The following table represents the Company’s
fair value hierarchy of its financial assets and liabilities measured at fair value on a recurring basis as of
December 31, 2024 and
2023.
December 31, 2024
December 31, 2023
Description
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Interest rate swap asset
$
— $
44,581 $
— $
— $
— $
—
Interest rate swap liability
$
— $
— $
— $
— $
122,879 $
—
Interest rate swap
In connection with a bank loan executed in 2022,
the Company entered into an interest rate swap agreement to manage interest rate risk related to debt that
accrues interest at variable
rates. The Company accounts for its interest rate swap agreement in accordance with the guidance related to derivatives and
hedging activities.
The Company is exposed to market risk from changes in interest rates. The Company agrees to exchange, at specified intervals, the
difference
between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. Interest payments receivable
and payable under the terms of the interest rate swap agreement are accrued over the period to which the payment relates and the net difference
is treated as
an adjustment of interest expense related to the underlying liability. Because the variable interest rates used to calculate
payments under the terms of the
swap agreement are calculated using different benchmarks than those included in the Company’s variable
rate debt agreement, the swap agreement is not
considered an effective cash flow hedge.
Accordingly, changes in the underlying market
value of the remaining swap payments are recognized into income as an increase or decrease to other
income (expense) each reporting period.
In accordance with ASC 820, Fair Value Measurements and Disclosures, the Company believes values provided
by East West Bank (the
“Counterparty”) represent the fair value of its swap agreement. The Company believes that the quality of the Counterparty
to its
swap agreement mitigates the Counterparty credit risk.
The estimated fair value of the interest rate
swap agreement is determined by the Counterparty based on market data used by Counterparty and is reflected
as a derivative asset or liability
on the accompanying consolidated balance sheet with changes in the fair value reflected in change in fair value of interest
rate swap
on the accompanying consolidated statements of operations. The Company uses derivative financial instruments only to manage interest rate
risks and not as investment vehicles.
Information regarding the interest rate swap is
as follows:
Description
Notional
Amount on
December 31,
2024
Interest
Rate
Maturity
Fair Value of
Asset on
December 31,
2024
Fair Value of
Liability on
December 31,
2023
December 10, 2022 interest rate swap
$
—
7.65% December 10, 2032 $
44,581 $
122,879
Cash
Cash is carried at cost and represents cash on
hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with
an original maturity of
three months or less as of the purchase date of such investments. The Company had no cash equivalents on December 31, 2024 and
2023. The
Company’s cash is held at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation (“FDIC”)
limit. To
date, the Company has not experienced any losses on its invested cash. On December 31, 2024 and 2023, the Company had approximately
$510,000 and
$2,555,000, respectively, of cash in excess of FDIC limits of $250,000. Any loss incurred or a lack of access to such funds
above the FDIC limit could have
a significant adverse impact on the Company’s financial condition, results of operations and cash
flows.
Accounts receivable
The Company recognizes an allowance for losses
on accounts receivable in an amount equal to the estimated probable losses net of recoveries under the
current expected credit loss method.
The allowance is based on an analysis of historical bad debt experience, current receivables aging and expected future
write-offs, as
well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. On January 1, 2023, the Company
adopted ASC 326, “Financial Instruments - Credit Losses”. In accordance with ASC 326, an allowance is maintained for estimated
forward-looking losses
resulting from the possible inability of customers to make required payments (current expected losses). The amount
of the allowance is determined
principally on the basis of past collection experience and known financial factors regarding specific customers.
The expense associated with the allowance
for doubtful accounts on accounts receivable is recognized in general and administrative expenses.
F-9
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Investment in unconsolidated joint ventures
The Company has equity investments in various
privately held entities. The Company accounts for these investments either under the equity method or cost
method of accounting depending
on the Company’s ownership interest and level of influence. Investments accounted for under the equity method are
recorded based
upon the amount of the Company’s investment and adjusted each period for its share of the investee’s income or loss. Investments
are
reviewed for changes in circumstance or the occurrence of events that suggest an other than temporary event where our investment may
not be recoverable.
The Company evaluates its investments in these entities for consolidation. It considers its percentage interest in
the joint venture, evaluation of control and
whether a variable interest entity exists when determining whether or not the investment
qualifies for consolidation or if it should be accounted for as an
unconsolidated investment under the equity method of accounting.
If an investment qualifies for the equity method
of accounting, the Company’s investment is recorded initially at cost, and subsequently adjusted for equity
in net income (loss)
and cash contributions and distributions. The net income or loss of an unconsolidated investment is allocated to its investors in
accordance
with the provisions of the operating agreement of the entity. The allocation provisions in these agreements may differ from the ownership
interest held by each investor. Differences, if any, between the carrying amount of our investment in the respective joint venture and
the Company’s share
of the underlying equity of such unconsolidated entity are amortized over the respective lives of the underlying
assets as applicable. These items are
reported as a single line item in the statements of operations as income or loss from investments
in unconsolidated affiliated entities.
Long-term investments
Long-term investments include investments in equity
securities of entities over which the Company does not have a controlling financial interest or
significant influence and are accounted
for at fair value. Equity investments without readily determinable fair values are measured at cost with adjustments
for observable changes
in price or impairments (referred to as the “measurement alternative”). In applying the measurement alternative, the Company
performs a qualitative assessment on a quarterly basis and recognizes an impairment if there are sufficient indicators that the fair value
of the equity
investments is less than carrying values. Changes in value are recorded in non-operating income (loss). On December 31,
2024 and 2023, long-term
investments consisted of an investment in convertible preferred stock that does not have a readily determinable
fair value (see Note 5).
Rental properties
Rental properties are carried at cost, less accumulated
depreciation and amortization. Betterments, major renovations and certain costs directly related to
the improvement of rental properties
are capitalized. Maintenance and repair expenses are charged to expense as incurred. Depreciation is recognized on a
straight-line basis
over estimated useful lives of the assets, which range from 5 to 39 years. Tenant improvements paid for by the Company are amortized
on
a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets.
Upon the acquisition of real estate, the Company
assesses the fair value of acquired assets (including land, buildings and improvements, identified
intangibles, such as acquired above-market
leases and acquired in-place leases) and acquired liabilities (such as acquired below-market leases) and
allocates the purchase price
based on these assessments. The Company assesses fair value based on estimated cash flow projections that utilize appropriate
discount
and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical
operating results, known trends, and market/economic conditions.
The Company’s rental properties are individually
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable.
An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the
anticipated holding
period on an undiscounted basis. An impairment loss is measured based on the excess of the property’s carrying amount over its
estimated
fair value. Impairment analyses are based on our current plans, intended holding periods and available market information at the time
the
analyses are prepared.
If the Company’s estimates of the projected
future cash flows, anticipated holding periods, or market conditions change, the Company’s evaluation of
impairment losses may be
different and such differences could be material to its consolidated financial statements. The evaluation of anticipated cash flows
is
subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially
from actual
results. For the years ended December 31, 2024 and 2023, the Company did not record any impairment losses.
The Company has land which is not subject to depreciation.
Escrow deposits
The Company is in the business of pursuing real
estate acquisitions and investments that may include various contractual instruments to secure a property,
such as an Option Agreement
or a Purchase and Sale Agreement. These agreements often include the requirement to make escrow deposits. Escrow
deposits include cash
deposits made by the Company for the future acquisition of properties or for the option to acquire a property. In most cases, upon
closing
of the acquisition of a property, the escrow deposit will be applied to the purchase price. In some cases, the Company may discontinue
pursuit of an
acquisition of a property and therefore terminate an existing agreement, which can cause forfeiture of escrow deposits if
those deposits are non-refundable.
During the years ended December 31, 2024 and 2023, the Company forfeited escrow deposits of $53,875
and $26,000, respectively, which is reflected in
operating expenses as part of property portfolio business development costs on the accompanying
consolidated statements of operations. On December 31,
2024 and 2023, escrow deposits amounted to $169,875 and $177,048, respectively.
F-10
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Property and equipment
Property and equipment is stated at cost, less
accumulated depreciation. Depreciation of property and equipment is provided utilizing the straight-line
method over the estimated useful
lives. The Company uses a five-year life for office equipment, seven years for furniture and fixtures, and five to ten years
for vehicles.
Expenditures for maintenance and repairs are charged to expense as incurred. Upon sale or retirement of property and equipment, the related
cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.
The Company examines the possibility of decreases
in the value of these assets when events or changes in circumstances reflect the fact that their recorded
value may not be recoverable.
Revenue recognition
Property Investment Portfolio Revenues
Rental income is accounted for pursuant to ASC
Topic 842 “Leases” and includes base rents that each tenant pays in accordance with the terms of its
respective lease and
is reported on a straight-line basis over the non-cancellable term of the lease, which includes the effects of rent abatements under the
leases. The Company commences rental revenue recognition when the tenant takes possession of the leased space or controls the physical
use of the leased
space and the leased space is substantially ready for its intended use. If the lease provides for tenant improvements,
the Company determines whether the
tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company
is the owner of the tenant improvements, the
tenant is not considered to have taken physical possession or have control of the physical
use of the leased asset until the tenant improvements are
substantially completed. When the tenant is the owner of the tenant improvements,
any tenant improvement allowance (including amounts that can be taken
in the form of cash or a credit against the tenant’s rent)
that is funded by the Company is treated as a lease incentive receivable and amortized as a reduction
of revenue over the lease term.
Currently, the Company’s leases provide
for payments with fixed monthly base rents over the term of the leases or annual percentage increases in base rent
over the term of the
lease. The leases also require the tenant to remit estimated monthly payments to the Company for property taxes and common area
maintenance.
These payments are recorded as rental income and the related property tax expense is reflected separately on the accompanying consolidated
statements of operations.
Real Estate Services Revenues
The Company follows ASC Topic 606, Revenue
from Contracts with Customers (“ASC 606”), except for revenues from lease contracts within the scope of
ASC 842, which
are excluded from ASC 606. This standard establishes a single comprehensive model for entities to use in accounting for revenue arising
from contracts with customers and supersedes most of the existing revenue recognition guidance. ASC 606 requires an entity to recognize
revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange
for those goods or services and requires certain additional disclosures.
Revenues from advisory services is recognized
when the Company performs services pursuant to its agreements with clients and collectability is probable.
Brokerage revenues primarily consist of real
estate sales commissions and are recognized upon the successful completion of all required services which is
likely to occur upon a lease
commencement, when escrow closes on the sale of a property, or as otherwise negotiated between the Brokerage and its clients.
In accordance
with the guidelines established for reporting revenue gross as a principal versus net as an agent in ASC Topic 606, the Company records
commission revenues and expenses on a gross basis. Of the criteria listed in ASC Topic 606, the Company is the primary obligor in the
transaction, does
not have inventory risk, performs all or part of the service, has credit risk, and has wide latitude in establishing
the price of services rendered and discretion
in selection of agents and determination of service specifications. Brokerage revenues
that are payable upon payment of rent or other events beyond the
Company’s control are recognized upon the occurrence of such events.
Contract liabilities
Contract liabilities include advisory fees received
in advance that are deferred and recognized when the services are complete or over the actual or expected
contract term, rental revenue
received in advance, and other deferred revenue for when the Company receives consideration from an agreement before
certain criteria
have been met for revenue to be recognized in conformity with GAAP. During the years ended December 31, 2024 and 2023, contract
liabilities
activities were as follows:
Year Ended
December 31,
2024
Year Ended
December 31,
2023
Balance at beginning of period
$
346,176 $
303,315
Rental payments received in advance
54,836
64,836
Accretion of contract liabilities to revenue
(82,061)
(19,475)
Customer refund
-
(2,500)
Balance at end of period
$
318,951 $
346,176
F-11
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Lease accounting
The FASB’s ASC Topic 842, “Leases”
sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a
contract (i.e.,
lessees and lessors). The standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases
based on
the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine
whether lease expense is
recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee
is also required to recognize a right-of-use
asset and a lease liability for all leases with a term of greater than 12 months regardless
of their classification. Leases with a term of 12 months or less will
be accounted for similar to existing guidance for operating leases
today. The new standard requires lessors to account for leases using an approach that is
substantially equivalent to previous guidance
for sales-type leases, direct financing leases and operating leases.
For leases entered into on or after the effective
date, where the Company is the lessor, at the inception of the contract, the Company assesses whether the
contract is a sales-type, direct
financing or operating lease by reviewing the terms of the lease and determining if the lessee obtains control of the
underlying asset
implicitly or explicitly. If a change to a pre-existing lease occurs, the Company evaluates if the modification results in a separate
new lease
or a modified lease. A new lease results when a modification provides additional right of use. The new lease or modified lease
is then reassessed to
determine its classification based on the modified terms. As disclosed in Note 3, on January 24, 2022 and effective
on March 1, 2022, the Chino Valley
lease was amended and the monthly rent was increased to $87,581 due to additional space of 30,000 square
feet being leased to the lessee, increasing the
premises to a total of 97,312 square feet of operational space. In connection with this
lease amendment, the Company paid $500,000 to the tenant as a
tenant improvement allowance or lease incentive for investment into the
premises, which was capitalized as a lease incentive receivable and is recognized
on a straight-line basis over the remaining lease term
as a reduction to the lease income. The increase in monthly rent was commensurate with the
additional space being leased; therefore, this
modification qualifies as a separate contract under ASC 842 which does not require lease classification
reassessment. The Company excludes
short-term leases having initial terms of 12-months or less as an accounting policy election and recognizes rent
expense on a straight-lines
basis over the lease term.
The Company records revenues from rental properties
for its operating leases where it is the lessor on a straight-line basis. Any revenue on the straight-line
basis exceeding the monthly
payment amount required on the operating lease is reflected as deferred rent. In prior years, the Company has amended certain
leases
which resulted in the abatement of rent. Additionally, in connection with operating leases on various properties, the Company abated
certain lease
payments. These rent abatements and the effect of recording rent on a straight-line basis resulted in aggregate deferred
rent as of December 31, 2024 and
2023 of $747,504 and $371,472, respectively (see Note 3). Additionally, if the lease provides for tenant
improvements, the Company determines whether
the tenant improvements, for accounting purposes, are owned by the tenant or the Company.
When the Company is the owner of the tenant improvements,
the tenant is not considered to have taken physical possession or have control
of the physical use of the leased asset until the tenant improvements are
substantially completed. When the tenant is the owner of the
tenant improvements, any tenant improvement allowance (including amounts that can be taken
in the form of cash or a credit against the
tenant’s rent) that is funded is treated as a lease incentive receivable and amortized as a reduction of revenue over
the lease
term.
For contracts entered into on or after the effective
date, where the Company is the lessee, at the inception of a contract, the Company assesses whether the
contract is, or contains, a lease.
The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether
we obtain
the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right
to direct the
use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative
stand-alone price to determine the
lease payments. For leases where the Company is a lessee, primarily for the Company’s administrative
office lease, the Company analyzed if it would be
required to record a lease liability and a right of use asset on its consolidated balance
sheets at fair value upon adoption of ASC 842.
Operating lease right of use asset represents
the right to use the leased asset for the lease term and operating lease liability is recognized based on the
present value of the future
minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the
Company used its
incremental borrowing rate of 6% based on the information available at the adoption date or execution of a lease agreement in
determining
the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term
and
is included in general and administrative expenses in the consolidated statements of operations.
Basic and diluted loss per share
Basic loss per share is computed by dividing net
loss available to common shareholders by the weighted average number of shares of common stock
outstanding during each period. Diluted
loss per share is computed by dividing net loss available to common shareholders by the weighted average number
of shares of common stock,
common stock equivalents and potentially dilutive securities outstanding during the period using the treasury stock method and
as-if converted
method. Potentially dilutive common shares and participating securities are excluded from the computation of diluted shares outstanding
if
they would have an anti-dilutive impact on the Company’s net losses. The Company’s preferred stock is considered a participating
security since the
preferred shares are entitled to dividends equal to common share dividends and accordingly, are included in the computation
of earnings per share pursuant
to the two-class method. The two-class method of computing (loss) income per share is an earnings allocation
formula that determines (loss) income per
share for common stock and any participating securities according to dividends declared (whether
paid or unpaid) and participation rights in undistributed
earnings.
F-12
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
The following table presents a reconciliation
of basic and diluted net income (loss) per common share:
Years Ended
December 31,
2024
2023
Net income (loss) per common share - basic:
Net income (loss)
$
573,958 $
(488,148)
Less: undistributed (earnings) loss allocated to participating securities
-
(52,110)
Net income (loss) allocated to common stockholders
$
573,958 $
(540,258)
Weighted average common shares outstanding – basic
12,098,429 12,179,356
Net income (loss) per common share – basic
$
0.05 $
(0.04)
Net income (loss) per common share - diluted:
Net income (loss) allocated to common shareholders – basic
$
573,958 $
(540,258)
Add: interest of convertible debt
120,000
-
Numerator for income (loss) per common share – basic
$
693,958 $
(540,258)
Weighted average common shares outstanding – basic
12,098,429 12,179,356
Add: dilutive shares related to:
Stock options
-
-
Convertible debt
400,000
-
Weighted average common shares outstanding – diluted
12,498,429 12,179,356
Net income (loss) per common share – diluted
$
0.06 $
(0.04)
The following potentially dilutive shares have
been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive for the
years ended December 31,
2024 and 2023.
December 31,
2024
2023
Convertible debt
-
400,000
Stock options
2,367,500 2,262,500
2,367,500 2,662,500
Segment reporting
The Company operates in two reportable segments
which consist of (1) the operations, leasing and management of its leased commercial properties, herein
known as the “Property Investment
Portfolio” segment, and (2) advisory and brokerage services related to commercial properties, herein known as the
“Real Estate
Services” segment. The Company has determined that these reportable segments were strategic business units that offered different
products.
Currently, these reportable segments are being managed separately based on the fundamental differences in their operations.
In November 2023, the FASB issued ASU 2023-07,
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires
entities to report incremental information
about significant segment expenses included in a segment’s profit or loss measure as well as the title and position
of the chief operating
decision maker (“CODM”). The new standard also requires interim disclosures related to reportable segment profit or loss and
assets
that had previously only been disclosed annually. The Company adopted ASU 2023-07 effective December 31, 2024 on a retrospective
basis. As a result,
the Company has enhanced its segment disclosures in this report to include the presentation of depreciation and amortization,
interest and joint venture
expenses by segment and the disclosure of its CODM. The adoption of this ASU only affects the Company’s disclosures
with no impact to its financial
condition or results of operations
F-13
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Income tax
Deferred income tax assets and liabilities arise
from temporary differences between the financial statements and tax basis of assets and liabilities, as
measured by the enacted tax rates,
which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities are classified as
current or non-current,
depending upon the classification of the asset or liabilities to which they relate. Deferred tax assets and liabilities not related to
an
asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected
to reverse. Valuation
allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The Company follows the provisions of FASB ASC
740-10, “Uncertainty in Income Taxes”. Certain recognition thresholds must be met before a tax
position is recognized in the
financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not”
threshold. The Company does not believe it has any uncertain tax positions as of December 31, 2024 and 2023 that would require either
recognition or
disclosure in the accompanying consolidated financial statements.
Stock-based compensation
Stock-based compensation is accounted for based
on the requirements of ASC 718 – “Compensation – Stock Compensation”, which requires recognition in
the
financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments
over the
period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively,
the vesting period). The ASC
also requires measurement of the cost of employee, director, and non-employee services received in exchange
for an award based on the grant-date fair
value of the award. The Company has elected to recognize forfeitures as they occur as permitted
under ASU 2016-09 Improvements to Employee Share-
Based Payment Accounting.
Recently issued accounting pronouncements
In December 2023, the FASB issued ASU 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which focuses on the rate
reconciliation and income taxes paid. ASU
No. 2023-09 requires a public business entity (PBE) to disclose, on an annual basis, a tabular rate reconciliation
using both percentages
and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and
jurisdiction
to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds
received
disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments,
net of refunds received. This
pronouncement is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.
The Company does not expect the adoption
of this new guidance to have a material impact on the consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03,
Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures
(Subtopic 220-40), which requires entities
to provide more detailed disaggregation of expenses in the income statement, focusing on the nature of the
expenses rather than their
function. The new disclosures will require entities to separately present expenses for significant line items, including but not
limited
to, depreciation, amortization, and employee compensation. Entities will also be required to provide a qualitative description of the
amounts
remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling
expenses and, in annual
reporting periods, provide a definition of what constitutes selling expenses. This pronouncement is effective
for fiscal years beginning after December 15,
2026, and interim periods within fiscal years beginning after December 15, 2027, with early
adoption permitted. The Company does not expect the
adoption of this new guidance to have a material impact on the consolidated financial
statements.
NOTE 3 – CONCENTRATIONS AND RISKS
Lease Agreements with Significant Tenants
Our properties located in Chino Valley and Green
Valley are leased by Broken Arrow Herbal Center, Inc. (“Broken Arrow”), doing business as Hana
Dispensaries.
Our property located in Kingman is leased by CJK,
Inc. (“CJK”).
Our property located in Tempe is leased by VSM,
LLC (“VSM”), doing business as Green Dot Labs.
Our property located in Pleasant Ridge is leased
by Rapid Fish, LLC (“Rapid Fish”), doing business as NOXX Cannabis.
Our property located in Chicago is leased by JG
IL LLC (“Justice Grown”), doing business as Justice Cannabis Co.
Our land located in Surprise, AZ is leased by
The Pharma, LLC (“Sunday Goods”), doing business as Sunday Goods.
The Company considers a tenant whose annual base
rent exceeds over 10% of the Company’s annual rental income to be a significant tenant. The Tempe
Lease (leased by VSM), the Chino
Valley Lease and Green Valley Lease (leased by Broken Arrow), and the Woodward Lease (leased by Rapid Fish) are
considered significant
and the tenants are referred to as the Significant Tenants.
F-14
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Chino Valley, AZ
On May 1, 2018, Chino Valley and Broken Arrow
entered into a Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1,
2018 between Chino Valley and Broken
Arrow (the “2018 Chino Valley Lease”), with a term of 22 years, expiring April 30, 2040. The 2018 Chino Valley
Lease provided
for payment by Broken Arrow of a fixed monthly base rent of $35,000, as well as real property taxes, personal property taxes, privilege,
sales, rental, excise, use and/or other taxes (excluding income or estate taxes) levied upon or assessed against Chino Valley. In addition,
pursuant to the
terms of the 2018 Chino Valley Lease, Broken Arrow agreed to maintain insurance in full force during the term of the 2018
Chino Valley Lease and any
other period of occupancy of the premises by Broken Arrow. On January 1, 2019, Chino Valley and Broken Arrow
entered into that the First Amendment to
the 2018 Chino Valley Lease, pursuant to which the monthly base rent was increased from $35,000
to $40,000. Except for the increase in base rent, the
terms of the 2018 Chino Valley Lease remain in full force and effect.
On May 29, 2020, Chino Valley and Broken Arrow
entered into a Second Amendment to the 2018 Chino Valley Lease, as amended (the “2020 Chino
Valley Amendment”), effective
May 31, 2020 (“Effective Date”). Pursuant to the terms of the 2020 Chino Valley Amendment, among other things, the base
rent
was adjusted to $32,800 per month, and the base rent was abated from June 1, 2020 to July 31, 2020. Any increase in the rentable area
of the leased
premises will result in an increase in all amounts calculated based on the same, including, without limitation, base rent.
Pursuant to the terms of the 2020
Chino Valley Amendment, the parties agreed that if there is any change in laws such that the dispensing,
sale or cultivation of marijuana upon the premises
is prohibited or materially and adversely affected as mutually and reasonably determined
by Chino Valley and Broken Arrow, Broken Arrow may terminate
the 2018 Chino Valley Lease, as amended, by delivering written notice to
Chino Valley, together with a termination payment which shall be the sum of (i)
any unpaid rent and interest, plus (ii) 5% of the base
rent which would have been earned after termination for the balance of the term. In addition, the
parties agreed that from the period
from the Effective Date to June 30, 2022 (the “Improvement Period”), Broken Arrow or its affiliate, CJK, will invest a
combined
total of at least $8,000,000 of improvements (“Investment by Tenants”) in and to the property that is the subject of the Chino
Valley Lease and
the property that is the subject of the Tempe Lease (discussed below, and collectively referred to as the “Facilities”).
The Company’s Significant Tenants
completed the Investment by Tenants to the Facilities totaling in excess of $8,000,000 and have
satisfied the contractual obligations related to the same.
On August 23, 2021, Chino Valley and Broken Arrow
entered into the Third Amendment (the “Third Chino Valley Amendment”) to the 2018 Chino Valley
Lease, as amended (the “Chino
Valley Lease”), effective September 1, 2021. The parties previously agreed that the base rental payments under the Chino
Valley
Lease would increase commensurate to any and all expanded and operational square footage on the premises by calculating the fixed rate
of $0.82
per square foot per month by the new operational square footage. Accordingly, in the Third Chino Valley Amendment, the parties
agreed that, as of
September 1, 2021, the rental payment is increased to $55,195 per month base rental payment, plus additional rental
payments, as a result of the increase in
the square footage to 67,312 square feet of operational space. This lease modification qualified
as a separate contract as the modification grants the tenant
additional right of use not included in the original lease, as amended, and
the increase in monthly rent payments is commensurate with the standalone price
for the additional square footage being leased.
On January 24, 2022 and effective on March 1,
2022, Chino Valley and Broken Arrow entered into the Fourth Amendment (the “Fourth Chino Valley
Amendment”) to the Chino Valley
Lease, as amended. Pursuant to the terms of the Fourth Chino Valley Amendment, the parties acknowledge that an
additional 30,000 square
feet have become operational, increasing the premises to a total of 97,312 square feet of operational space. In connection with the
Fourth
Chino Valley Amendment, the Company paid $500,000 to Tenant as a tenant improvement allowance or lease incentive for investment into the
premises, which was capitalized as a lease incentive receivable and is recognized on a straight-line basis over the remaining lease term
as a reduction to the
lease revenue. Pursuant to the terms of the Fourth Chino Valley Amendment, effective March 1, 2022, the monthly
base rent was increased to $87,581,
representing an increase from $0.82 per square foot to $0.90 per square foot, for all current and
future operational square footage that may be developed as
the premises continues to expand.
Green Valley, AZ
On May 1, 2018, Green Valley and Broken Arrow
entered into a Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1,
2018 between Green Valley and Broken
Arrow (the “Green Valley Lease”), with a term of 22 years, expiring April 30, 2040. The Green Valley Lease
provided for payment
by Broken Arrow of a fixed monthly base rent of $3,500, as well as real property taxes, personal property taxes, privilege, sales,
rental,
excise, use and/or other taxes (excluding income or estate taxes) levied upon or assessed against Chino Valley. In addition, pursuant
to the terms of
the Green Valley Lease, Broken Arrow agreed to maintain insurance in full force during the term of the Green Valley Lease
and any other period of
occupancy of the premises by Broken Arrow.
On May 29, 2020, Green Valley and Broken Arrow
entered into the First Amendment (the “Green Valley Amendment”) to the Green Valley Lease,
effective May 31, 2020. The Green
Valley Amendment provides that any increase in the rentable area of the leases premises will result in an increase in all
amounts calculated
based on the same, including, without limitation, base rent. The parties also agreed that if there is any change in laws such that the
dispensing, sale or cultivation of marijuana upon the premises is prohibited or materially and adversely affected as mutually and reasonably
determined by
Green Valley and Broken Arrow, Broken Arrow may terminate the Green Valley Lease by delivering written notice to Green Valley,
together with a
termination payment which shall be the sum of (i) any unpaid rent and interest, plus (ii) 5% of the base rent which would
have been earned after
termination for the balance of the term.
F-15
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Tempe, AZ
On May 1, 2018, and amended on May 29, 2020, Zoned
Arizona and CJK entered into that certain Licensed Medical Marijuana Facility Triple Net (NNN)
Lease Agreement dated May 1, 2018 between
Zoned Arizona and CJK (the “Tempe Lease”), with a term of 22 years, expiring April 30, 2040. The Tempe
Lease provided for
payment by CJK of a fixed monthly base rent of $33,500, as well as real property taxes, personal property taxes, privilege, sales, rental,
excise, use and/or other taxes (excluding income or estate taxes) levied upon or assessed against Zoned Arizona. In addition, pursuant
to the terms of the
Tempe Lease, CJK agreed to maintain insurance in full force during the term of the Tempe Lease and any other period
of occupancy of the premises by
CJK.
On May 29, 2020, Zoned Arizona and CJK entered
into the First Amendment (the “Tempe Amendment”) to the Tempe Lease, effective May 31, 2020.
Pursuant to the terms of the
Tempe Amendment, among other things, the base rent was increased to $49,200 per month. Any increase in the rentable area of
the leased
premises will result in an increase in all amounts calculated based on the same, including, without limitation, base rent. Pursuant to
the terms of
the Tempe Amendment, the parties agreed that if there is any change in laws such that the dispensing, sale or cultivation
of marijuana upon the premises is
prohibited or materially and adversely affected as mutually and reasonably determined by Zoned Arizona
and CJK, CJK may terminate the Tempe Lease by
delivering written notice to Zoned Arizona, together with a termination payment which shall
be the sum of (i) any unpaid rent and interest, plus (ii) 5% of
the base rent which would have been earned after termination for the
balance of the term.
In addition, under the Tempe Amendment the parties
agreed to an Investment by Tenant (as defined above in the subheading Chino Valley) to the property
that is the subject of the
Chino Valley Lease and the property that is the subject of the Tempe Lease. The Company’s Significant Tenants have completed
the
Investment by Tenants to the Facilities totaling in excess of $8,000,000 and have satisfied the contractual obligations related to the
same.
In connection with a promissory note (See Note
8), on July 11, 2022 and reaffirmed on December 7, 2022, the Company entered into a Deed of Trust
Agreement that secures the Company’s
performance under the promissory note. The Deed of Trust Agreement transfers and assigns to the lender the right
to sell the assets of
Tempe and rights to rental income in case of default under the promissory note.
On November 30, 2022, Zoned Arizona, CJK, and
VSM entered into that Second Amendment (the “Tempe Second Amendment”) to the Tempe Lease, as
amended. Concurrently with the
execution of the Tempe Second Amendment: (i) CJK assigned all its interest in the Tempe Lease to VSM (the
“Assignment”), and
(ii) VSM subleased a portion of the Premises (as defined in the Tempe Lease), pursuant to that certain Sublease dated November 30,
2022
between VSM, as sublessor, and CJK, as sublessee.
Pursuant to the terms of the Tempe Second Amendment,
among other things, and in consideration of Zoned Arizona’s agreement to enter into the Tempe
Second Amendment: (i) VSM paid Zoned
Arizona $300,000 (the “Assignment Fee”), (ii) VSM agreed to commit at least $3,000,000 to be spent toward
capital improvements
to the Premises within two years after the effective date of the Tempe Second Amendment (the “Capital Commitment”), (iii)
VSM
agreed to deposit an additional security deposit (the “Additional Security Deposit”) of $147,600 to be held by Zoned Arizona
per the terms of the Tempe
Lease, and (iv) VSM agreed to cause its affiliate, GDL Inc. (doing business as Green Dot Labs) (“GDL”)
to execute and deliver to Zoned Arizona that
Guaranty of Payment and Performance dated on the same date as the Tempe Amendment, which
Guaranty of Payment and Performance requires GDL to
guarantee and be liable for VSM’s compliance with and performance under the
Tempe Lease. The Guaranty of Payment and Performance was entered into
on November 30, 2022. If VSM fails to deliver to Zoned Arizona invoices
or other documentation acceptable to Zoned Arizona showing the Capital
Commitment has been satisfied in a timely manner, VSM will be in
default under the Tempe Lease. No other terms of the Tempe Lease were modified.
Therefore, the Company’s accounting for the lease
remained unchanged subsequent to the Tempe Second Amendment and Assignment.
Pursuant to ASC 842-10-25, the lease modification
was not accounted for as a separate contract and the Company accounted for the modification as if it
were a termination of the existing
lease and the creation of a new lease that commenced on the effective date of the modification. Accordingly, the
Company recorded the
$300,000 as a contract liability and will amortize the $300,000 Assignment Fees into rental revenue on a straight-line basis over the
remaining term of the lease through April 2040. On December 31, 2024 and 2023, contract liability related to this lease modification amounted
to $264,115
and $281,340, respectively, which has been included in contract liabilities on the accompanying consolidated balance sheets.
As of March 01, 2025, the Company’s new
tenant, VSM, has completed more than $10,000,000 worth of improvements to the Tempe property.
Additionally, on the Tempe property, the Company
leases parking lot space for an antenna location to a third party.
F-16
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Kingman, AZ
On May 1, 2018, Kingman and CJK entered into a
Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 between
Kingman and CJK (the “Kingman Lease”),
with a term of 22 years, expiring April 30, 2040. The Kingman Lease provides for payment by CJK of a fixed
monthly base rent of $4,000,
as well as real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or other taxes (excluding income
or
estate taxes) levied upon or assessed against Kingman. In addition, pursuant to the terms of the Kingman Lease, CJK agreed to maintain
insurance in full
force during the term of the Kingman Lease and any other period of occupancy of the premises by CJK.
On May 29, 2020, Kingman and CJK entered into
the First Amendment (the “Kingman Amendment”) to the Kingman Lease, effective May 31, 2020. The
Kingman Amendment provides
that any increase in the rentable area of the leases premises will result in an increase in all amounts calculated based on the
same,
including, without limitation, base rent. The parties also agreed that if there is any change in laws such that the dispensing, sale or
cultivation of
marijuana upon the premises is prohibited or materially and adversely affected as mutually and reasonably determined by
Kingman and CJK, CJK may
terminate the Kingman Lease by delivering written notice to Kingman, together with a termination payment which
shall be the sum of (i) any unpaid rent
and interest, plus (ii) 5% of the base rent which would have been earned after termination for
the balance of the term.
On November 30, 2022, Kingman and CJK entered
into the Second Amendment (the “Kingman Second Amendment”) to the Licensed Medical Marijuana
Facility Triple Net (NNN) Lease
Agreement dated May 1, 2018 between Kingman and CJK. Pursuant to the terms of the Kingman Second Amendment,
CJK agreed to grant Kingman
a right to terminate the Kingman Lease upon 15 days’ prior written notice in Kingman’s sole discretion, without any
obligation
to do so, provided that Kingman may not exercise this right to terminate if CJK is operating its business as a going concern at the premises
which is the subject of the Kingman Lease.
On August 2, 2023, the Company entered into a
Sublease Agreement (the “Sublease”) with CJK and a subtenant in connection with the Company’s
Kingman property. Pursuant
to the Sublease, the Sublease shall be effective on August 2, 2023 and end on the one year anniversary, or (ii) the last day of
the Term
of the Master Lease (whether due to expiration or termination thereof by the Company, whichever is earlier (the “Sublease Expiration
Date”),
such period being referred to herein as the “Sublease Term”, unless terminated earlier pursuant to the terms
of this Sublease or otherwise by consent of the
Company, CJK and Subtenant. The subtenant had two options to extend the Sublease Term
by one-year periods each (each a “Sublease Term Extension”
and collectively the “Sublease Term Extensions”), which
were exercisable by Subtenant no later than 90 days prior to the expiration of the Sublease Term,
as may be extended. In August 2024,
the Sublease was not renewed and the Sublease expired.
Pursuant to the Kingman Lease, if pursuant to
any assignment or sublease, CJK receives rent, either initially or over the Term of the assignment or
sublease, in excess of the Rent
called for hereunder, or in the case of this sublease of a portion of the Premises in excess of such Rent fairly allocable to
such portion,
after appropriate adjustments to assure that all other payments called for hereunder are appropriately taken into account, CJK shall pay
to the
Company, as Additional Rent hereunder, 50% of the excess of each such payment of rent received by CJK. Accordingly, the Company
receives additional
rent of $3,500 per month during the term of the sublease.
Additionally, the subtenant paid a security deposit
of $22,000 per the terms of the sublease. The Company and CJK have agreed to split the Security
Deposit at 68% (the Company received $14,960
of the $22,000 Security Deposit, which $14,960 was included in security deposits payable on the
accompanying consolidated balance sheet
as of December 31, 2023. Upon expiration of the Sublease, the Security Deposit of $14,960 was refunded to the
subtenant.
F-17
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Pleasant Ridge, MI
On November 29, 2022, ZP Woodward, as landlord,
entered into a Licensed Cannabis Facility Absolute Net Lease Agreement (the “Woodward Lease”)
with Rapid Fish 2 LLC, as tenant
(“Woodward Tenant”), whereby ZP Woodward leased the Woodward Property located in Pleasant Ridge, Michigan to the
Woodward
Tenant. The Woodward Lease commenced on December 1, 2022 and had a term of 14 years and 4 months through March 1, 2037, with two 5-
year
options to extend the term, exercisable by the Woodward Tenant by written notice to ZP Woodward given not later than 180 days prior to
the
expiration of the then current term on the same terms and conditions as provided in this Lease. The Woodward Lease contains customary
obligations of the
Woodward Tenant consistent with an absolute triple net lease agreement, including (i) the payment of real property
taxes, personal property taxes, privilege,
sales, rental, excise, use and/or other taxes (excluding income or estate taxes), (ii) payment
of insurance premiums and operating costs of ZP Woodward
related to the operation of the Woodward Property, and (iii) maintenance and
repair obligations to maintain the Woodward Property in first-class retail
condition. The Woodward Lease includes a Guaranty of Payment
and Performance by Ammar Kattoula and Thomas Nafso. The Woodward Lease contains
an abatement of the full or partial rent that would otherwise
have been due for the months from December 2022 to March 2023. Subsequent to the
abatement period, the Woodward Lease provided for payment
by the tenant of monthly base rent beginning at $40,319 per month and increasing by 3% per
year over the term of the lease, as well as
real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or other taxes (excluding
income or estate taxes)
levied upon or assessed against the Company. In addition, pursuant to the terms of the Woodward Lease, the Woodward Tenant
agreed to
maintain insurance in full force during the term of the Woodward Lease and any other period of occupancy of the premises by the tenant.
On May 14, 2023, ZP Woodward entered into an Assignment
and Assumption of Lease (“Assignment”) whereby the Woodward Lease was assigned from
Rapid Fish 2 LLC (“Old Tenant”)
to Rapid Fish LLC (“New Tenant”). Old Tenant and New Tenant share common ownership. The assignment of the
Woodward Lease is
conditioned upon issuance by the City of Pleasant Ridge, Michigan of a final cannabis business license to New Tenant and ZP
Woodward’s
receipt of a fully executed Reaffirmation of Guaranty from the guarantors of the Woodward Lease. The Assignment contains other terms as
are customary for a document of this type.
On May 1, 2024, ZP Woodward and Rapid Fish, LLC
(the “Parties”), with individual Guarantors, Thomas Nafso and Ammar Kattoula (the “Guarantors”),
entered into
a First Amendment to the Absolute Net Lease Agreement (the “First Amendment”) pertaining to premises located at 23600-23634
Woodward
Ave, Pleasant Ridge MI 48069. The Parties also agreed to a fully executed Reaffirmation of Guaranty from the Guarantors.
According to the terms of the First Amendment,
the following changes have been agreed to by the Parties:
Amended Rental Payment
Schedule
The First Amendment provides that as long as the
Company’s Conditions, as outlined in this First Amendment, are satisfied including a Renovation
Completion Commitment, the Rental
Payment Schedule of the Lease will be amended to the schedule set forth in the First Amendment.
Capital Commitment
The First Amendment provides for the inclusion
of the Capital Commitment as follows: Tenant shall cause a total of at least $850,000 to be spent toward
capital improvements to the Premises
(the “Commitment Improvements” and/or the “Capital Commitment”). Any such Commitment Improvements shall
be made
in accordance with the Lease as amended. Commitment Improvements to be counted toward satisfying the Capital Commitment shall include
capital improvements to the Premises and any part thereof, as well as other improvements approved in advance in writing by the Company,
and shall
exclude soft costs, permit, design, architectural and engineering fees, and legal fees. Tenant acknowledges that the Capital
Commitment is material to the
Company and the Company would not have agreed to enter into this First Amendment but for Tenant’s
obligations in this paragraph. If the Capital
Commitment is not completed in the prescribed time period, as evidenced by invoices or similar
documentation reasonably acceptable to the Company,
Tenant’s failure shall constitute an Event of Default under the Lease.
F-18
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Renovation Completion Commitment
The First Amendment provides for the inclusion
of the Renovation Completion Commitment as follows: Tenant shall cause its Capital Commitment at the
Premises (the “Renovation Completion
Commitment”) to be completed within three (3) months after the First Amendment Effective Date (the “Renovation
Completion
Commitment Date”). In order to satisfy the Renovation Completion Commitment, Tenant must satisfy the following prior to the Renovation
Completion Commitment Date (i) deliver to the Company the appropriate deliverables evidencing renovation completion (the “Renovation
Completion
Deliverables”) (as defined below) (ii) open for business to the public for its intended Use of the Premises (the “Store
Opening”), (iii) and complete its first
bona fide sale to the public. The Renovation Completion Deliverables include the following:
(x) Tenant has furnished to the Company a copy of a
commercially reasonably detailed final cost breakdown for Tenant’s Work and
the Company has inspected the Premises to confirm that Tenant’s Work has
been completed in a good and workmanlike manner according
to the Tenant’s Approved Plans; (y) Tenant has furnished to the Company commercially
reasonable final affidavits and final lien
releases from Tenant’s general contractor, if any, all subcontractors and all material suppliers for all labor and
materials performed
or supplied as part of Tenant’s Work (whether or not the Allowance is applicable thereto); (z) a copy of the certificate of occupancy
from the governmental authority having jurisdiction has been delivered to the Company. Tenant acknowledges that the Renovation Completion
Commitment is material to the Company and the Company would not have agreed to enter into this First Amendment but for Tenant’s
obligations in this
paragraph. If the Renovation Completion Commitment is not completed in the prescribed time period, Tenant’s
failure shall constitute an Event of Default
under the Lease. the Company shall grant Tenant up to two (2) additional 30-day extension
upon request, so long as at the time of the extension the site is
conducting inspections toward certificate of occupancy.
North Lot
The First Amendment also provides that if within
18 months of the date of this First Amendment, Tenant is able to complete all of the following related to
23634 Woodward Ave, Pleasant
Ridge MI 48069 with an APN of 25-27-181-003 (the “North Lot”): (i) obtain authorization from all required jurisdictions
(including
the City of Pleasant Ridge) that the use of the North Lot parking spaces is no longer required and releases the Company from all obligations
related to the North Lot under the Declaration of Restrictions and Parking Easement (the “Parking Agreement”), and (ii) confirm
that the Tenant is able to
continue to use the lot for purposes of ingress and egress, and (iii) Tenant is able to arrange a deal with
the seller of the North Lot, which is currently under
a Land Contract with outstanding installment payments, that (x) provides the Company
with indemnity from Tenant that completely releases the Company
of any operational obligations or liabilities related to the North Lot,
(y) provides the Company with indemnity from Tenant that completely release the
Company of any financial obligations or liabilities related
to the North Lot, and (z) does not cause any encumbrance or legal liability to the remaining
properties at the Premises; then within 30
days of the Company’s receipt of written confirmation from all appropriate parties that all requirements noted
above have been satisfied,
at the Company sole discretion, the Company agrees that the parties shall enter into a Lease Amendment acknowledging the
same and modifying
Tenant’s lease base rental rate to be reduced by $3,846 for the Lease.
Reaffirmation of Guarantee
In consideration of the First Amendment, the Guarantors
executed and delivered a Reaffirmation of Guaranty (the “Reaffirmation of Guaranty”) effective
as of the First Amendment Effective
Date, May 3, 2024. Related to the Guaranty and the Original Guarantors, the Company agreed, that so long as there
are no uncured Events
of Default and Tenant remains in good standing under the Lease, then the Original Guarantors shall be released of their guarantees
following
the original lease term of fourteen and a half (14.5) years. The Company also agreed that, provided the Company has given written approval,
at
its discretion, which shall not be unreasonably withheld, then the Original Guarantors may be permitted to transfer the obligations
under their Guarantees in
the event of a Permitted Transfer, on to a new Guarantor(s) that are of at least equal or greater credit than
the Original Guarantors, to be determined by the
Company in its discretion, which shall not be unreasonably withheld.
Chicago, IL
On December 15, 2023, ZPRE Holdings entered into
an Agreement Regarding Purchase and Sale Contract (the “Agreement”), effective as of December
15, 2023, by and between Keystone,
as assignor, and ZPRE Holdings as assignee. Pursuant to the terms of the Agreement, Keystone agreed to assign to
ZPRE Holdings its right,
title and interest in that certain Purchase and Sale Agreement dated May 5, 2022, by and between the Seller and Keystone, as
amended (the
“Original PSA”). Pursuant to the terms of the Original PSA, the Seller agreed to sell to Keystone certain real property located
at 3499, 3451,
and 3455 South Ashland Avenue, Chicago, Illinois, 60608 (the “Ashland Avenue Property”) in exchange for a purchase
price of $1,250,000, to be paid by
Keystone (the “Purchase Price”). Pursuant to the terms of the Agreement, ZPRE Holdings
agreed to deposit the following amounts into escrow: (i)
$40,000, representing reimbursement to Keystone or its designee for the earnest
money deposit paid under the terms of the Original PSA, (ii) assignment
fees of $185,000, and (iii) $1,210,000, representing the Purchase
Price less the $40,000 earnest money payment. On January 19, 2024, the Company paid
these funds in the aggregate amount $1,435,000.
On January 19, 2024, ZPRE Holdings and Keystone
entered into that certain Assignment and Assumption Agreement, dated as of January 19, 2024, by and
between Keystone and ZP Holdings (the
“Assignment Agreement”). Pursuant to the terms of the Assignment Agreement, Keystone assigned to ZP
Holdings all of Keystone’s
right, title and interest in and to the Original PSA to purchase the Ashland Avenue Property. On January 19, 2024, the
transactions contemplated
by the Agreement and Assignment and Assumption Agreement closed and ZPE Holdings completed the acquisition of the
Ashland Avenue Property
under the Original PSA, as assigned. The completed transactions were subject to closing costs, commissions, and fees customary
to the
acquisition of real estate, including a $65,000 commission payable and a $79,634 sponsor fee payable.
On January 18, 2024, ZPRE Holdings entered into
a Licensed Cannabis Facility Absolute Net Lease Agreement (the “Justice Grown Lease”), with a
commencement date of January
19, 2024, by and between ZPRE Holdings, as landlord, and JG IL LLC (“Justice Grown”), as tenant. Pursuant to the terms
of
the Lease, ZPRE Holdings agreed to lease the Ashland Avenue Property located in Chicago, IL to Justice Grown for use as a licensed recreational
adult-
use (and, if permitted, medical) cannabis dispensary in accordance with Illinois law. The Justice Grown Lease has a term of 15 years,
with four five-year
renewal terms.
F-19
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Surprise, AZ
On January 2, 2024, ZPRE Holdings entered into
a contingent Licensed Cannabis Facility Absolute Net Ground Lease Agreement (the “Sunday Goods
Lease”), with a commencement
date contingent upon the satisfaction of various contingencies to the Sunday Goods Lease, by and between ZPRE
Holdings, as landlord, and
Sunday Goods, as tenant. Pursuant to the terms of the Sunday Goods Lease, ZPRE Holdings agreed to lease the Surprise
Property to Sunday
Goods for use as a licensed medical and adult use marijuana retail dispensary in accordance with the laws of Arizona. The Sunday
Goods
Lease has a term of 15 years, with four five-year renewal terms. Pursuant to the Sunday Goods Lease, ZPRE Holdings has agreed to provide
a
tenant improvement allowance for up to $1,000,000 to Sunday Goods to be reimbursed in tranches following completion of tenant’s
work. Pursuant to the
terms of the Contingent Lease, on February 27, 2024, Sunday Goods executed a guaranty (the “Guaranty”)
in favor of ZP Holdings, guaranteeing the
prompt and complete payment and performance of all of Sunday Goods’ obligations to ZPRE
Holdings arising under the Contingent Lease. As of July 8,
2024, all contingencies were satisfied and the Contingent Lease commenced on
July 13, 2024. Pursuant to the Sunday Goods Lease, beginning in July
2025, Sunday Goods shall pay monthly base rent of $25,000 through
June 2026, with an annual increase of 3% per annum through June 2040.
Summary
As of December 31, 2024 and 2023, security deposits
payable to the Company’s tenants amounted to $361,677 and $290,460, respectively. Future
minimum lease payments primarily consist
of minimum base rent payments from the Company’s tenants.
Future minimum lease payments to be received,
on all leased properties, for each of the five succeeding calendar years and thereafter as of December 31,
2024, consists of the following:
Future annual base rent:
Amount
2025
$
2,563,226
2026
2,725,617
2027
2,746,432
2028
2,776,883
2029
2,808,247
Thereafter
31,338,074
Total
$
44,958,479
Revenues – Significant Tenants
For the years ended December 31, 2024 and 2023,
revenues associated with Significant Tenant leases described above are summarized as follows:
For the Year
Ended
December 31,
2024
% of
Total
Revenues
For the Year
Ended
December 31,
2023
% of
Total
Revenues
Broken Arrow
$
1,120,431
29.5% $
1,120,431
38.8%
VSM *
656,736
17.3%
659,736
22.7%
Woodward lease *
589,478
15.6%
616,862
21.4%
Total
$
2,366,645
62.4% $
2,394,029
82.9%
Further, as of December 31, 2024 and 2023, deferred
rent of $747,504 and $371,472 is due collectively from the tenants due to the abatement of rent under
the lease agreements discussed above,
respectively, and as of December 31, 2024 and 2023, a lease incentive receivable of $422,018 and $449,541 is due
from one of the Significant
Tenants, respectively, in connection with the $500,000 tenant improvement allowance provided to tenant pursuant to the Chino
Valley amendment
executed during the year ended December 31, 2022 (see above). Additionally, as discussed above, VSM paid Zoned Arizona the
$300,000 Assignment
Price. The Company considers the assignment fee paid as a part of the lease payments for the modified lease and shall amortize the
$300,000
assignment fees into rental revenue on a straight-line basis over the remaining term of the modified lease through April 2040. On December
31,
2024 and 2023, deferred revenue related to this lease modification amounted to $264,115 and $281,340, respectively, and is included
in contract liabilities
on the accompanying consolidated balance sheets.
Asset concentration
The Company’s real estate properties are
leased to the Company’s tenants under absolute-net and triple-net leases that terminate through March 2037 and
April 2040, respectively.
The Company monitors the credit of all tenants to stay abreast of any material changes in credit quality. The Company monitors
tenant
credit by (1) reviewing financial statements and related metrics and information that are publicly available or that are provided to us
upon request,
and (2) monitoring the timeliness of rent collections.
As of December 31, 2024 and 2023, the Company
had an asset concentration related to its Significant Tenants. As of December 31, 2024 and 2023, the
Significant Tenants collectively
leased approximately 55.4% and 69.4% of the Company’s total assets, respectively. Additionally, the Company had an
asset concentration
related its Surprise, AZ property, which leased approximately 10.6% of the Company’s total assets of the Company. Through December
31, 2024, all rental payments have been made on a timely basis.
F-20
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Industry risk
Downturns relating to certain industries or business
sectors or the financial stability of the Company’s significant tenants may have a significant adverse
impact on the Company’s
assets and its ability to pay its operating expenses or pay dividends than if the Company had a diversified property portfolio and
service
offerings. The Company’s total assets are concentrated into a limited number of tenants who were considered significant tenants.
To the extent that
the Company’s total assets are concentrated in a limited number of tenants that are in the regulated cannabis
industry, downturns relating generally to such
industry or business sector, or a decline in the financial stability of the Company’s
Significant Tenants may result in defaults on all of the Company’s leases
within a short time period, which may reduce the Company’s
net income and the value of the Company’s common stock and accordingly, limit the
Company’s ability to pay our operating expenses
or pay dividends to its stockholders. If the Company’s tenants are prohibited from operating or cannot pay
their rent, the Company
may not have enough working capital to support its operations and the Company would need to consider seeking out new tenants at
rental
rates per square foot that may be less than its current rate per square foot.
NOTE 4 – RENTAL PROPERTIES
On December 31, 2024 and 2023, rental properties,
net consisted of the following:
Description
Useful Life
(Years)
December 31,
2024
December 31,
2023
Building and building improvements
5-39
$
10,332,213 $
9,258,431
Construction in progress
-
57,319
18,976
Land
-
5,578,015
3,353,378
Rental properties, at cost
15,967,547
12,630,785
Less: accumulated depreciation
(2,942,611)
(2,590,261)
Rental properties, net
$
13,024,936 $
10,040,524
Property Acquisitions
2024
Pursuant to the terms of the Agreement Regarding
Purchase and Sale Contract and an Assignment and Assumption Agreement, on January 19, 2024, ZPRE
Holdings completed the acquisition of
its Ashland Avenue Property located in Chicago, Illinois for an aggregate cash purchase price of $1,585,878,
including (i) $1,250,000,
representing the Purchase Price, (ii) an assignment fees of $185,000, and (iii) closing costs, commissions, and fees customary to
the
acquisition of real estate of $150,878, which includes a $65,000 commission expense, a $79,634 sponsor fee, and other costs of $6,244.
On July 8, 2024 (the “Closing”), ZP
Dysart acquired a property in Surprise AZ (the “Surprise Property”) from NWC Dysart & Bell LLC (“NWC”).
Surprise
Property is a tract or parcel of land containing approximately 1.114 acres, together with all improvements, buildings, leases, rights,
easements, and
appurtenances pertaining thereto. The Surprise Property was acquired for an aggregate purchase price of $1,712,541, which
included (i) $1,100,000,
representing the Purchase Price, (ii) reimbursement to NWC for onsite and offsite improvements of $492,022, and
(iii) closing costs, commissions, and fees
customary to the acquisition of real estate of $120,519.
For the years ended December 31, 2024 and 2023,
depreciation of rental properties amounted to $352,351 and $375,553, respectively.
F-21
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
NOTE 5 – INVESTMENT IN UNCONSOLIDATED
JOINT VENTURE AND EQUITY SECURITIES
Investment in unconsolidated joint venture
On December 31, 2024 and 2023, the Company held
an investment with carrying values of $4,923 and $4,923, respectively, in Zoneomics Green, LLC
(“Zoneomics Green”), a Delaware
limited liability company formed on May 1, 2021 and owned 50% by the Company. The Company accounts for this
investment under the equity
method of accounting as the Company exercises significant influence but does not exercise financial and operating control over
this entity.
Investments are reviewed for changes in circumstance or the occurrence of events that suggest an other than temporary event where the
Company’s investment may not be recoverable. Currently, the Zoneomics Green team has completed the creation of the foundational
design, technology
platform, and market positioning for Zoneomics Green to launch in the cannabis industry. However, in order to successfully
launch, the technology
platform relies upon a required merchant banking component. While Company management knew this risk was a major
factor going into the investment, it
was not foreseen exactly when an appropriate merchant banking solution would be available given the
federal status of regulated cannabis and specifically
the federal banking status as it relates to regulated cannabis, even for ancillary
services such as Zoneomics Green. The regulatory status related to cannabis
banking reform and regulation at the federal level, which
the Zoneomics platform relies upon, is uncertain and the Company believes it is appropriate to
cause an impairment of the Zoneomics Green
investment at this time, while also understanding that Company believes Zoneomics Green may still create
material value for the Company
in the future. Additionally, the Company is using the Zoneomics Green technology within its own business to generate
leads for new projects.
The Company has no further financial or investment obligations at this time. Accordingly, on December 31, 2023, the Company
recorded an
other-than-temporary impairment loss of $45,000 because it was determined that the fair value of its equity method investment in Zoneomics
was less than its carrying value. Based on management’s evaluation, it was determined that due to market and regulatory conditions,
implementing the
Company’s business model was at risk and that the Company’s ability to recover the carrying amount of the
investment in Zoneomics was impaired.
The following represents summarized financial
information derived from the financial statements of the Zoneomics Green Joint Venture and Beakon, LLC
(inactive), as of December 31,
2024 and 2023 and for the years ended December 31, 2024 and 2023.
Balance sheets:
December 31,
2024
December 31,
2023
Current assets:
Cash
$
9,847 $
9,847
Total assets
$
9,847 $
9,847
Liabilities
$
- $
-
Equity
9,847
9,847
Total liabilities and equity
$
9,847 $
9,847
Statement of operations
Year Ended
December 31,
2024
Year Ended
December 31,
2023
Net sales
$
- $
-
Operating expenses, net
-
(15,480)
Net loss
$
- $
(15,480)
Company’s share of loss from unconsolidated joint ventures
$
- $
(7,110)
During the years ended December 31, 2024 and 2023,
the Company recorded a loss from unconsolidated joint ventures of $0 and $7,110, respectively,
which represents the Company’s proportionate
share of losses from its joint venture, respectively.
Investment in equity securities
On June 24, 2022, the Company’s wholly-owned
subsidiary, ZP Data Platform 2 LLC, purchased 875 shares of Series A convertible preferred stock of
Anami Technology, Inc., a California
corporation, for $50,000, or $57.14 per share. The Company’s ownership percentage is less than 20% and it does not
have the ability
to exercise significant influence as described in ASC 323-10-15-6. This equity instrument does not have a readily determinable fair value.
Accordingly, the Company elected to measure this equity security at its cost minus impairment, if any. If the Company identifies observable
price changes
in orderly transactions for the identical or a similar investment of the same issuer, the Company shall measure the equity
security at fair value as of the date
that the observable transaction occurred. If the Company subsequently elects to measure this equity
security at fair value, the Company shall measure all
identical or similar investments of the same issuer, including future purchases
of identical or similar investments of the same issuer, at fair value. The
election to measure this equity security at fair value shall
be irrevocable. Any resulting gains or losses on the securities for which that election is made shall
be recorded in earnings at the time
of the election. On December 31, 2024 and 2023, investment in equity securities amounted to $50,000.
F-22
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
NOTE 6 – NOTES PAYABLE
On September 30, 2024 and 2023, notes payable
consisted of the following:
December 31,
2024
December 31,
2023
Note payable - East West Bank
$
4,404,279 $
4,447,068
Notes payable - 23616 Land Contract
1,367,262
1,408,962
Note payable – 23634 Land Contract
398,726
420,270
Note payable - Surprise, AZ property
1,020,000
-
Total principal due on notes payable
7,190,267
6,276,300
Less: debt discount
(178,593)
(164,598)
Notes payable, net
$
7,011,674 $
6,111,702
East West Bank Swap Note
On July 11, 2022, Zoned Arizona entered into a
Loan Agreement (the “Loan Agreement”), dated as of July 11, 2022, by and between Zoned Arizona and
East West Bank (the “Bank”).
Pursuant to the terms of the Loan Agreement, subject to and upon the satisfaction of the terms and conditions of the Loan
Agreement, Zoned
Arizona could request advances under a multiple access loan (“MAL”) during the term of the MAL. On July 11, 2022, in connection
with the Loan Agreement, Zoned Arizona paid loan and other fees of $176,472, and in connection with the First Amendment to the Loan Agreement
discussed below, paid additional fees of $8,124. These loan and other fees aggregating $184,596 are reflected as a debt discount and are
being amortized
ratably and charged to interest expense over the term of the related debt.
At any time before July 11, 2023, Zoned Arizona
could elect to commence paying principal together with interest on the MAL (the “Early Amortization
Election”) in accordance
with the repayment terms set forth in the variable rate note initially evidencing the MAL, executed by Zoned Arizona in favor of
the Bank
(the “Note”). When Zoned Arizona made the Early Amortization Election, (i) Zoned Arizona will not be entitled to any further
advances under
the MAL, and (ii) the 25-year amortization schedule referenced in the Note will be from the date Zoned Arizona made the
Early Amortization Election.
The Loan Agreement contains representations, warranties
and covenants customary for a transaction of this type. Among other things, the Loan Agreement
provides as follows: (a) upon the occurrence
of an event of default, the outstanding principal balance of the MAL will not at any time exceed 65% of the
Property’s most recent
appraised value; (b) upon the occurrence of an event of default, Zoned Arizona will maintain a minimum Non-Cannabis Debt
Service Coverage
Ratio (as hereinafter defined) of 1.40 to 1.00; (c) Zoned Arizona will at all times maintain a minimum debt service coverage ratio of
1.50
to 1.0; and (d) Zoned Arizona and the Company, collectively, will maintain at all times, liquid assets of at least the sum of all
tenant securities deposits
under leases, plus $350,000 in operating reserves.
On December 7, 2022, Zoned Arizona and the Bank
entered into a First Amendment to Loan Agreement (the “First Amendment”). Pursuant to the terms of
the First Amendment, Zoned
Arizona has elected to make its Early Amortization Election (defined in the First Amendment and Loan Agreement), which
election requires
Zoned Arizona to commence paying principal and interest on the MAL as set forth in the Amended Note (defined below). Except as
provided
in the First Amendment, the terms of the Loan Agreement remain in full force and effect. Pursuant to the terms of the Loan Agreement and
First
Amendment, on December 7, 2022, Zoned Arizona issued an Amended and Restated Promissory Note (the “Amended Note”) to
the Bank. The Amended
Note has an original principal amount of $4,500,000, a 50% loan-to-value as determined by the bank-ordered appraisal
completed on the Tempe Property.
The Amended Note requires Zoned Arizona to pay monthly principal and interest payments to the Bank at
an interest rate equal to the prime rate plus
0.75% (8.25% as of December 31, 2024 and 9.25% as of December 31, 2023). The Amended Note
matures 10 years after its effective date and payments
are calculated based on a 30-year amortization schedule. In connection with the
Amended Note, in 2022, Zoned Arizona received gross proceeds of
$4,500,000 and paid fees of $184,596.
F-23
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Zoned Arizona may prepay the outstanding principal
under the Swap Note, at any time, subject to the provisions of the Swap Note.
Also as previously disclosed, on July 11, 2022
and pursuant to the terms of the Loan Agreement, the Company executed a Guaranty (the “Guaranty”) in
favor of the Bank, pursuant
to which the Company agreed to guarantee all indebtedness of Zoned Arizona to the Bank arising under or in connection with
the MAL or
any of the loan documents. On December 7, 2022, the Company executed an Acknowledgement of Amendment and Reaffirmation of
Guaranty (the
“Reaffirmation”) in favor of the Bank. The Reaffirmation reaffirms the Guaranty and provides the Company’s consent to
the First
Amendment and Swap Note.
On December 7, 2022, Zoned Arizona and the Bank
entered into an Interest Rate Swap Transaction Confirmation (the “Confirmation”). The Confirmation
incorporates by reference
the 2002 ISDA Master Agreement as published by the International Swaps and Derivatives Association, Inc. as if the parties to
the Confirmation
executed such agreement in such form. The Confirmation provides the terms and conditions governing the interest rate swap transaction
afforded to Zoned Arizona, including a fixed interest rate of 7.65%. The Company recorded the swap at fair value in the consolidated balance
sheets with
changes in fair value recorded contemporaneously in earnings. The Company has entered into an interest rate swap to mitigate
variability in interest
payments on its variable-rate debt.
On December 31, 2024, principal and interest due
on the East West Bank Swap Note amounted to $4,404,279 and $1,896, respectively. On December 31,
2023, principal and interest due on the
East West Bank Swap Note amounted to $4,447,068 and $8,861, respectively.
23616 Land Contract Note Payable
On December 5, 2022, in connection with the acquisition
of the Woodward Property located in Pleasant Ridge, Michigan, the Company entered into a land
contract note in the amount of $1,425,000
(the “23616 Land Contract Note Payable”). The 23616 Land Contract Note Payable bears interest at 9% per
annum and is due in
full as follows:
1)
60
monthly payments of principal and interest of $12,821 beginning on January 1, 2023, and
2)
A
balloon payment of $1,274,117 including the remaining principal and interest on or before December 1, 2028.
On December 31, 2024, principal and interest due
on the 23616 Land Contract Note Payable amounted to $1,367,262 and $0, On December 31, 2023,
principal and interest due on the 23616 Land
Contract Note Payable amounted to $1,408,962 and $0, respectively.
23634 Land Contract Note Payable
On February 24, 2023, in connection with the 23634
Land Contract dated February 24, 2023, the Company entered into a land contract note payable of
$430,000 (the “23634 Land Contract
Note Payable”). The 23634 Land Contract Note Payable accrues interest at the rate of 7% and is payable in 48
monthly installments
of $3,865, beginning April 1, 2023, until the purchase price and interest are fully paid, provided that such purchase price and all
interest
will be fully paid on or before March 31, 2027. On December 31, 2024, principal and interest due on the 23634 Land Contract Note Payable
amounted to $398,726 and $0, respectively. On December 31, 2023, principal and interest due on the 23634 Land Contract Note Payable amounted
to
$420,270 and $0, respectively.
F-24
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
Surprise, AZ Construction Loan Agreement
In connection with the Surprise Property Closing,
ZP Dysart entered into the Construction Loan Agreement (the “PMF Loan Agreement”), dated as of July
8, 2024, by and between
ZP Dysart and Private Money Funding, LLC (“PMF”). Pursuant to the terms of the PMF Loan Agreement, PMF agreed to loan up
to
$1,620,000 to ZP Dysart, which loan is evidenced by a promissory note (the “PMF Note”). ZP Dysart’s obligations under
the PMF Note and the PMF
Loan Agreement are secured by a Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
Filing (the “PMF Deed”). The PMF
Loan Agreement, the PMF Note, any guaranties, and all other related documents executed and
delivered concurrently with the PMF Loan Agreement are
referred to herein as the “PMF Loan Documents.” Pursuant to the terms
of the PMF Loan Agreement, on July 8, 2024, ZP Dysart issued the PMF Note
with the maximum principal amount of $1,620,000 to PMF (the
“Maximum Amount”). Interest accrues at the rate of 12% per annum, with ZP Dysart
paying interest only in arrears, in monthly
installment payments, beginning on August 1, 2024 through July 1, 2029 (the “Maturity Date”). ZP Dysart may
prepay the PMF
Loan in full or in part at any time. However, during the first 48 months of the term of the loan, if ZP Dysart pays any principal payment,
ZP Dysart will pay to PMF a prepayment premium equal to (i) 5% of the amount of principal prepaid in months 1-24; (ii) 2% of the amount
of principal
prepaid in months 25-36; and (iii) 1% of the amount of principal prepaid in months 36-48, which amount will be due and payable
at the time ZP Dysart
pays the principal payment. During the year ended December 31, 2024, the Company borrowed $1,020,000 of the Maximum
Amount and received net
proceeds of $983,940, net of origination fees and costs of $36,060. As of December 31, 2024, the principal amount
of the loan is $1,020,000 and accrued
interest payable amounted to $0.
During the existence of any event of default,
PMF may, at its option, exercise any one or more of the remedies described in the PMF Loan Documents or
otherwise available, including
declaring all unpaid indebtedness then evidenced by the Note (including any late charges that are then due and payable, any
advances thereafter
made from the loan and any accruing costs and reasonable attorneys’ fees which are the obligation of ZP Dysart under the PMF Loan
Documents) to become immediately due and payable. Unless PMF otherwise elects, such acceleration will occur automatically upon the occurrence
of any
event of default described in PMF Loan Agreement or PMF Deed.
After maturity or during the existence of any
event of default, or at any time that ZP Dysart is more than 10 days delinquent in the payment of money as
required by the Note or the
other Loan Documents (whether or not Holder has given any notice of default or any cure period has expired), then all amounts
outstanding
thereunder will thereafter bear interest at the default rate of 18% per annum from the date such payment became due until paid, but in
no event
to exceed the highest rate lawfully collectible under applicable law.
Pursuant to the terms of the PMF Loan Agreement,
following ZP Dysart’s satisfaction of the conditions to funding the PMF Loan and recordation of the
PMF Deed, the loan proceeds
will be disbursed in multiple advances through escrow, first in the form of an initial advance in the amount of $1,020,000 for
the purpose
of contributing funding towards acquiring the Surprise Property (the “Acquisition Advance”). The remaining loan proceeds will
be used for the
purpose of financing for the completion of Sunday Goods’ Work (as hereinafter defined) (the “Construction
Advances”). Following the Acquisition
Advance, subject to satisfying the conditions set forth in the PMF Loan Agreement, ZP Dysart
will be entitled to request the Construction Advances from
the remaining loan proceeds at the following stages of completion of the construction
of Sunday Goods’ Work: (i) first advance in the amount of $300,000
at 50% completion, and (ii) final advance in the amount of $300,000
at 100% completion and issuance of certificate of occupancy.
The PMF Loan Agreement contains representations,
warranties and covenants customary for a transaction of this type.
Pursuant to the terms of the Unconditional Repayment
Guaranty (the “PMF Guaranty”), dated as of July 8, 2024, by Zoned Properties, Inc. in favor of
PMF, the Company guaranteed
to PMF the full and prompt payment of the principal sum of the PMF Note or so much thereof that may be outstanding at
any one time or
from time to time in accordance with its terms when due, by acceleration or otherwise, together with all interest accrued thereon, and
the
full and prompt payment of all other sums, together with all interest accrued thereon, when due under the terms of the PMF Loan Agreement,
the PMF
Note, and in any deed of trust, security agreement, lease assignment and other assignment or agreement referred to in the PMF
Loan Agreement or the PMF
Note and/or now or hereafter securing the PMF Note or setting forth any obligations of ZP Dysart in connection
with the loan.
F-25
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
During the years ended December 31, 2024 and 2023,
amortization of debt discount related to notes payable amounted to $22,066 and $18,460,
respectively, which is included in interest expense
on the accompanying consolidated statements of operations.
On December 31, 2024, future annual principal
payments under the above notes payable are as follows:
Years ending December 31,
Amount
2025
$
48,154
2026
71,257
2027
1,693,789
2028
19,126
2029
1,040,973
Thereafter
4,316,968
Total principal payments due on December 31, 2024
$
7,190,267
NOTE 7 – CONVERTIBLE NOTE PAYABLE
On January 9, 2017, the Company issued a convertible
debenture (the “Abrams Debenture”) in the aggregate principal amount of $2,000,000 in favor of
Mr. Alan Abrams. The Abrams
Debenture accrues interest at the rate of 6% per annum payable quarterly by the 1st of each quarter and was originally due
on January 9, 2022. On January 2, 2019, as part of a Stock Redemption Agreement, the Company and Mr. Abrams entered into an amendment
of the
Abrams Debenture (the “Debenture Amendment”), pursuant to which the parties agreed to extend the maturity date of the
Abrams Debenture from January
9, 2022 to January 9, 2030. Except as set forth herein, the terms of the Abrams Debenture remain in full
force and effect.
The Company may prepay the Abrams Debenture at
any point after nine months, in whole or in part. Pursuant to the terms of the Abrams Debenture, Mr.
Abrams is entitled to convert all
or a portion of the principal balance and all accrued and unpaid interest due under the Abrams Debenture into shares of the
Company’s
common stock at a conversion price of $5.00 per share.
If the Company defaults on payment, Mr. Abrams
may, at his option, extend all conversion rights, through and including the date the Company tenders or
attempts to tender payment in
full of all amounts due under the Abrams Debenture. Any amount of principal or interest, which is not paid when due shall
bear interest
at the rate of 12% per annum. Upon an Event of Default (as defined in the Abrams Debenture), Mr. Abrams may (i) declare the entire principal
amount and all accrued and unpaid interest under the Abrams Debenture immediately due and payable, and (ii) exercise any and all rights,
powers and
remedies available to Mr. Abrams at law or in equity or other appropriate proceeding, whether for the specific performance
of any covenant or agreement
contained in the Abrams Debenture and proceed to enforce the payment thereof or any other legal or equitable
right of Mr. Abrams.
As of December 31, 2024 and 2023, the principal
balance due under the Abrams Debenture is $2,000,000. As of December 31, 2024 and 2023, accrued
interest payable due under the Abrams
Debenture amounted to $0 and $30,000, respectively, which is included in accrued expenses on the accompanying
consolidated balance sheets.
For the years ended December 31, 2024 and 2023, interest expense related to the Abrams Debenture amounted to $120,000.
NOTE 8 – RELATED PARTY TRANSACTION
Indemnification agreements
On August 23, 2021, the Company entered into indemnification
agreements with each of its directors and executive officers. In general, these
indemnification agreements require the Company to indemnify
a director and officer to the fullest extent permitted by law against liabilities that may arise
in connection with that director’s
service as a director and officer for the Company. Additionally, the Company shall advance expenses incurred as a result
of any proceeding
against them as to which they could be indemnified. In August 2021, the Company did not renew its officers and directors insurance.
F-26
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
NOTE 9 – STOCKHOLDERS’ EQUITY
(A) Preferred Stock
On December 13, 2013, the Board of Directors of
the Company authorized and approved the creation of a new class of Preferred Stock consisting of
5,000,000 shares authorized, $.001 par
value. The preferred stock is not convertible into any other class or series of stock. The holders of the preferred
stock are entitled
to fifty (50) votes for each share held. Voting rights are not subject to adjustment for splits that increase or decrease the common shares
outstanding. Upon liquidation, the holders of the shares will be entitled to receive $1.00 per share plus redemption provision before
assets distributed to
other shareholders. The holders of the shares are entitled to dividends equal to common share dividends. As of December
31, 2024 and 2023, there were
2,000,000 shares of preferred stock outstanding. Once any shares of Preferred Stock are outstanding, at
least 51% of the total number of shares of Preferred
Stock outstanding must approve the following transactions:
a.
Alter or change the rights, preferences or privileges of the Preferred Stock.
b.
Create any new class of stock having preferences over the Preferred Stock.
c.
Repurchase any of our common stock.
d.
Merge or consolidate with any other company, except our wholly owned subsidiaries.
e.
Sell, convey or otherwise dispose of, or create or incur any mortgage, lien, or charge or encumbrance or security interest in or pledge of, or sell
and leaseback, in all or substantially all our property or business.
f.
Incur, assume or guarantee any indebtedness maturing more than 18 months after the date on which it is incurred, assumed or guaranteed by us,
except for operating leases and obligations assumed as part of the purchase price of property.
(B) Common stock redemption
On October 10, 2023, the Company entered into
a Stock Redemption Agreement, whereby the Company purchased 100,000 shares of its common stock
from a shareholder for $15,000, or $0.15
per share, which as of December 31, 2024 and 2023, is reflected as treasury stock on the consolidated balance
sheet until such time as
the shares are cancelled.
On April 23, 2024, following approval by the Company’s
Board of Directors, stockholders holding all of the Company’s outstanding preferred stock
approved a stock repurchase program (the
“Repurchase Program”), pursuant to which the Company is authorized to purchase up to $1 million of its
common stock over an
unlimited time period.
During the year ended December 31, 2024, the Company
purchased a total of 13,687 shares of its common stock for $8,010 or an average of $0.59 per
share, which as of December 31, 2024, is
reflected as treasury stock on the consolidated balance sheet until such time as the shares are cancelled.
(C) Equity incentive plans
On August 9, 2016, the Company’s Board of
Directors authorized the 2016 Equity Incentive Plan (the “2016 Plan”) and reserved 10,000,000 shares of
common stock for issuance
thereunder. The 2016 Plan was approved by shareholders on November 21, 2016. The 2016 Plan’s purpose is to encourage
ownership in
the Company by employees, officers, directors and consultants whose long-term service the Company considers essential to its continued
progress and, thereby, encourage recipients to act in the stockholders’ interest and share in the Company’s success. The 2016
Plan authorizes the grant of
awards in the form of options intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, options
that do not qualify (non-statutory stock options) and grants of restricted shares of common
stock. Restricted shares granted pursuant to the 2016 Plan are
amortized to expense over the vesting period. Options vest and expire over
a period not to exceed seven years. If any share of common stock underlying a
stock option that has been granted ceases to be subject
to a stock option, or if any shares of common stock that are subject to any other stock-based award
granted are forfeited or terminate,
such shares shall again be available for distribution in connection with future grants and awards under the 2016 Plan. As
of December
31, 2024, 1,117,500 stock option awards are outstanding and 826,250 options are exercisable under the 2016 Plan. As of December 31, 2023,
1,012,500 stock option awards are outstanding and 585,000 options are exercisable under the 2016 Plan. As of December 31, 2024 and 2023,
8,882,500
and 8,987,500 shares, respectively, were available for future issuance.
F-27
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
The Company also continues to maintain its 2014
Equity Compensation Plan (the “2014 Plan”), pursuant to which 1,250,000 previously awarded stock
options are outstanding.
The 2014 Plan has been superseded by the 2016 Plan. Accordingly, no additional shares subject to the existing 2014 Plan will be
issued
and the 1,250,000 shares issuable upon exercise of stock options will be issued pursuant to the 2014 Plan, if exercised. As of December
31, 2024,
options to purchase 1,250,000 shares of common stock are outstanding and 1,250,000 options are exercisable pursuant to the 2014
Plan. As of December
31, 2023, options to purchase 1,250,000 shares of common stock are outstanding and 1,225,000 options are exercisable
pursuant to the 2014 Plan.
(D) Stock options
On November 25, 2024, the Company granted a stock
option to purchase 105,000 of the Company’s common stock at an exercise price of $0.49 per share
to a board of director pursuant
to the 2016 Plan. The grant date of the stock option was November 25, 2024 and the option expires on November 25, 2034.
The option shall
vest evenly on a quarterly basis over 36 months (8,750 options quarterly), beginning immediately. The fair value of this option grant
was
estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend
yield of 0%;
expected volatility of 86.0%; risk-free interest rate of 4.17%; and an estimated holding period of 6.5 years. The Company
valued this stock option at a fair
value of $35,506 and will record stock-based compensation expense over the vesting period.
For the year ended December 31, 2024 and 2023,
in connection with the accretion of stock-based option expense, the Company recorded stock option
expense over the vesting period of $54,883
and $116,643, respectively. As of December 31, 2024, there were 2,367,500 options outstanding and 2,051,250
options vested and exercisable.
As of December 31, 2024, there was $80,805 of unvested stock-based compensation expense to be recognized through
September 2031. The aggregate
intrinsic value on December 31, 2024 was $0 and was calculated based on the difference between the quoted share price on
December 31,
2024 of $0.54 and the exercise price of the underlying options.
On October 1, 2023, the Company cancelled 90,000
non-vested stock options that were forfeited due to the resignation of an executive officer of the
Company
Stock option activities for the year ended December
31, 2024 and 2023 are summarized as follows:
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(Years)
Aggregate
Intrinsic
Value
Balance Outstanding December 31, 2022
2,352,500 $
0.95
5.46 $
1,400
Forfeited
(90,000)
1.00
-
-
Balance Outstanding December 31, 2023
2,262,500
0.94
5.46
Granted
105,000
0.49
9.91
-
Balance Outstanding December 31, 2024
2,367,500 $
0.92
3.63 $
-
Exercisable, December 31, 2024
2,051,250 $
0.92
3.02 $
-
Balance non-vested on December 31, 2023
452,500 $
0.91
7.47 $
-
Granted
105,000
0.49
9.91
-
Vested during the period
(241,250)
0.82
-
-
Balance non-vested on December 31, 2024
316,250 $
0.84
7.54 $
-
F-28
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Legal matters
From time to time, the Company may be
involved in litigation related to claims arising out of its operations in the normal course of business. As of
December 31, 2024,
the Company is not involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a
material adverse effect on its financial condition, results of operations, or cash flows.
Employment and Related Golden Parachute
Agreement
Bryan McLaren
On May 23, 2018, the Company and Bryan McLaren
(“Mr. McLaren”), the Company’s Chief Executive Officer, Chief Financial Officer and Chairman of
the Board of Directors,
entered into an employment agreement (the “2018 Employment Agreement”). Pursuant to the terms of the 2018 Employment
Agreement,
the Company agreed to continue to pay Mr. McLaren his then-current base annual salary of $215,000, and to award Mr. McLaren with an
annual
and/or quarterly bonus payable in either cash and/or equity of no less than 2% of the Company’s net income for the associated period.
The 2018 Employment Agreement has a term of 10
years. The term and Mr. McLaren’s employment will terminate (a “Termination”) in any of the
following circumstances:
(i)
immediately, if Mr. McLaren dies;
(ii) immediately, if Mr. McLaren receives benefits under the long-term disability insurance coverage then provided by the Company or, if no such
insurance is in effect, upon Mr. McLaren’s disability;
(iii) on the expiration date, as the same may be extended by the parties by written amendment to the 2018 Employment Agreement prior to the
occasion thereof;
(iv) at the option of the Company for Cause (as defined in the 2018 Employment Agreement) upon the Company’s provision of written notice to Mr.
McLaren of the basis for such Termination;
(v) at the option of the Company, without Cause;
(vi) by Mr. McLaren at any time with Good Reason (as defined in the 2018 Employment Agreement), upon 30 days’ prior written notice to the
Company delivered not later than within 90 days of the existence of the condition therefor; or
(vii) by Mr. McLaren at any time without Good Reason, upon not less than three months’ prior written notice to the Company.
In the event of a Termination for any reason or
for no reason whatsoever, or upon the expiration date of the 2018 Employment Agreement, whichever
comes first, all rights and obligations
under the 2018 Employment Agreement shall cease (i) as to the Company, except for the Company’s obligations for
the payment of applicable
severance benefits thereunder, and for indemnification thereunder, and (ii) as to Mr. McLaren, except for his obligation under the
restrictive
covenants in the 2018 Employment Agreement.
The Company and Mr. McLaren also entered into
a Golden Parachute Agreement (the “Golden Parachute Agreement”) on May 23, 2018. No benefits shall
be payable under the Golden
Parachute Agreement unless there shall have been a change in control of the Company, as set forth below. For purposes of the
Golden Parachute
Agreement, amongst other terms in the Golden Parachute Agreement, a “change in control of the Company” shall mean a change
of
control of a nature that would be required to be reported in response to Item 6 of Schedule 14A of Regulation 14A promulgated under
the Securities
Exchange Act of 1934, as amended.
F-29
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
For purposes of the Golden Parachute Agreement,
“Cause” means termination upon (a) the willful and continued failure to substantially perform duties
with the Company after
a written demand for substantial performance is delivered by the Board, which demand specifically identifies the manner in which
the Board
believes that duties have not substantially been performed, or (b) the willful engaging in conduct, which is demonstrably and materially
injurious
to the Company, monetarily or otherwise.
For purposes of the Golden Parachute Agreement,
“Good Reason” means, without express written consent, the occurrence after a change in control of the
Company of any of the
following circumstances unless, such circumstances are fully corrected prior to the date of Termination specified in the notice of
Termination:
(a) a material diminution in Mr. McLaren’s authority, duties or responsibility from those in effect immediately prior to the change in control of the
Company;
(b) a material diminution in Mr. McLaren’s base compensation;
(c) a material change in the geographic location at which Mr. McLaren performs his duties;
(d) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Mr. McLaren is required to report, including a
requirement that Mr. McLaren report to a corporate officer or employee instead of reporting directly to the Board;
(e) a material diminution in the budget over which Mr. McLaren retains authority;
(f)
a material breach under any agreement with the Company to continue in effect any bonus to which Mr. McLaren was entitled, or any
compensation plan in which Mr. McLaren participates immediately prior to the change in control of the Company which is material to Mr.
McLaren’s total compensation;
(g) a material breach under any agreement with the Company to provide Mr. McLaren benefits substantially similar to those enjoyed by him under
any of the Company’s life insurance, medical, health and accident, or disability plans in which he was participating at the time of the change in
control of the Company, the failure to continue to provide Mr. McLaren with a Company automobile or allowance in lieu of it, if Mr. McLaren
was provided with such an automobile or allowance in lieu of it at the time of the change of control of the Company, the taking of any action by
the Company which would directly or indirectly materially reduce any of such benefits or deprive him of any material fringe benefit enjoyed by
him at the time of the change in control of the Company, or the failure by the Company to provide him with the number of paid vacation days to
which he is entitled on the basis of years of service with the Company in accordance with the Company’s normal vacation policy in effect at the
time of the change in control of the Company;
Following a change in control of the Company,
upon termination of Mr. McLaren’s employment or during a period of disability, Mr. McLaren will be
entitled to the following benefits:
(i)
During any period that he fails to perform his full-time duties with the Company as a result of incapacity due to physical or mental illness, Mr.
McLaren will continue to receive his base salary at the rate in effect at the commencement of any such period, together with all amounts payable
to him under any compensation plan of the Company during such period, until the Golden Parachute Agreement is terminated.
(ii) If Mr. McLaren’s employment is terminated by the Company for Cause or by Mr. McLaren other than for Good Reason, disability, death or
retirement, the Company will pay Mr. McLaren his full base salary through the date of Termination at the rate in effect at the time notice of
Termination is given, plus all other amounts and benefits to which he is entitled under any compensation plan of the Company at the time such
payments are due.
(iii) If employment by the Company shall be terminated (a) by the Company other than for Cause, death or disability or (b) by Mr. McLaren for Good
Reason, Mr. McLaren will be entitled to benefits provided below:
a.
The
Company will pay Mr. McLaren his full base salary through the date of Termination at the rate in effect at the time notice of Termination
is given, plus all other amounts and benefits to which he is entitled under any compensation plan of the Company.
b.
In
lieu of any further salary payments to Mr. McLaren for periods subsequent to the date of Termination, the Company will pay as severance
pay to Mr. McLaren a lump sum severance payment (together with the payments provided in clause I(c) and (d) below) equal to five times
the
sum of his annual base salary in effect immediately prior to the occurrence of the circumstance giving rise to the notice of Termination
given
in respect of them.
c.
The
Company will pay to Mr. McLaren any deferred compensation allocated or credited to him or his account as of the date of Termination.
F-30
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
d.
In
lieu of shares of common stock of the Company issuable upon exercise of outstanding options, if any, granted to Mr. McLaren under the
Company’s stock option plans (which options shall be cancelled upon the making of the payment referred to below), Mr. McLaren will
receive an amount in cash equal to the product of (i) the excess of the closing price of the Company’s common stock as reported
on or nearest
the date of Termination (or, if not so reported, on the basis of the average of the lowest asked and highest bid prices
on or nearest the date of
Termination), over the per share exercise price of each option held by Mr. McLaren (whether or not then fully
exercisable) plus the amount of
any applicable cash appreciation rights, times (ii) the number of the Company’s common stock covered
by each such option.
e.
The
Company will also pay to Mr. McLaren all legal fees and expenses incurred by him as a result of such Termination.
Additionally, on August 16, 2024, the Company’s
Compensation Committee approved a Compensation Memo whereby project team members may receive
up to 80% bonus splits of project fees generated
by transactions. Project fees may include Acquisition Fees, Management Fees, Disposition Fees, or
Promote Fees. Each transaction may vary
significantly in the types of fees generated and the amount of fees generated depending on project terms and
conditions. In connection
with such a bonus, in 2024, the Company paid Mr. McLaren a bonus of $56,473.
Berekk Blackwell
On July 23, 2022, the Board of Directors of the
Company appointed Berekk Blackwell, the Company’s Chief Operating Officer, as President of the
Company, effective immediately. On
July 26, 2022, the Company entered into an employment agreement, effective July 1, 2022, with Mr. Blackwell (the
“Blackwell Employment
Agreement”). Pursuant to the terms of the Blackwell Employment Agreement, the Company agreed to pay Mr. Blackwell a base
annual
salary of $150,000 for his services as President and Chief Operating Officer. The Company may also award Mr. Blackwell discretionary cash
and/or
equity bonuses. The Blackwell Employment Agreement had a term of one year, expiring on July 1, 2023. During the initial term, neither
party may
terminate the Blackwell Employment Agreement except for Cause (as defined in the Blackwell Employment Agreement). After the
initial term that expired
July 1, 2023, the Blackwell Employment Agreement continued to be in full force and effect, unaffected by the
expiration, except that either party may
terminate the Blackwell Employment Agreement for any reason upon 30 days’ written notice
to the other party.
Additionally, on August 16, 2024, the Company’s
Compensation Committee approved a Compensation Memo whereby project team members may receive
up to 80% bonus splits of project fees generated
by transactions. Project fees may include Acquisition Fees, Management Fees, Disposition Fees, or
Promote Fees. Each transaction may
vary significantly in the types of fees generated and the amount of fees generated depending on project terms and
conditions. In connection
with such a bonus, in 2024, the Company paid Mr. Blackwell a bonus of $57,473.
401(k) Plan
On September 29, 2021, the Company’s board
of directors adopted the Zoned Properties 401(k) Plan (the “Plan”) effective January 1, 2021. The Company
contributes a matching
contribution to the Plan for each employee in an amount equal to 100% of the matched employee contributions that are not in excess
of
4% of the employee’s plan compensation. For the years ended December 31, 2024 and 2023, the Company contributed $28,109 and $27,016
to the Plan,
respectively.
NOTE 11 – SEGMENT REPORTING
The Company operates in two operating and reportable
segments which consist of (1) the operations, leasing and management of its leased commercial
properties, herein known as the “Property
Investment Portfolio” segment, and (2) advisory and brokerage services related to commercial properties, herein
known as the “Real
Estate Services” segment. The Company has determined that these reportable segments were strategic business units that offer different
products. Currently, these reportable segments are being managed separately based on the fundamental differences in their operations.
The Company’s Property Investment Portfolio
segment generates revenues from its operating leases with its tenants. Rental income is accounted for
pursuant to ASC Topic 842 “Leases”
and includes base rents that each tenant pays in accordance with the terms of its respective lease and is reported on a
straight-line
basis over the non-cancellable term of the lease, which includes the effects of rent abatements under the leases.
The Company’s Real Estate Services segment
generates revenues which includes brokerage revenues consisting of real estate sales commissions and
assignment fees, and revenues from
advisory services for services performed pursuant to its consulting agreements with clients.
Corporate and unallocated amounts that do not
relate to a reportable segment have been allocated to “Corporate & Unallocated.”
F-31
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
The Company’s chief operating decision maker (“CODM”)
is its Chief Executive Officer. The decisions concerning the allocation of the Company’s
resources are made by the CODM with oversight
by the Board of Directors. The CODM evaluates the performance of each segment and makes decisions
concerning the allocation of resources
based upon segment operating profit (loss), generally defined as income or loss before interest expense and income
taxes. The CODM assesses
segment performance by using each segments’ operating income (loss) and considers budget-to-actual variances on a periodic
basis
(at least quarterly) when making decisions about operational planning, including whether to invest resources into the segments or into
other parts of
the Company. Segment assets are reviewed by the Company’s CODM and are disclosed below. The accounting policies of the
Property investment
portfolio and Real estate services segment are the same as those described in Note 2 of the Notes to Consolidated
Financial Statements.
Information with respect to these reportable business
segments for the years ended December 31, 2024 and 2023 was as follows:
Year Ended 2024
Property
Investment
Portfolio
Real Estate
Services
Corporate
and
Unallocated Consolidated
Net revenues
$
2,884,286 $
909,003 $
- $
3,793,289
Operating expenses (excluding depreciation and amortization)
1,053,287
369,792
909,094
2,332,173
Depreciation and amortization
352,351
-
5,595
357,946
Income (loss) from operations
1,478,648
539,211
(914,689)
1,103,170
Interest expense
(576,745)
-
(120,000)
(696,672)
Other income
167,460
-
73
167,533
Loss from unconsolidated joint ventures:
-
-
-
-
Income (loss) before provision for income taxes
1,069,363
539,211
(1,034,616)
573,958
Provision for income taxes
-
-
-
-
Net income (loss)
$
1,069,363 $
539,211 $
(1,034,616) $
573,958
Year Ended 2023
Property
Investment
Portfolio
Real Estate
Services
Corporate
and
Unallocated Consolidated
Net revenues
$
2,481,892 $
405,099 $
- $
2,886,991
Operating expenses (excluding depreciation and amortization)
291,556
876,364
1,169,123
2,337,043
Depreciation and amortization
375,553
-
5,208
380,761
Income (loss) from operations
1,814,783
(471,265)
(1,174,331)
169,187
Interest expense
(504,693)
-
(120,000)
(624,693)
Other expenses
(32,642)
-
-
(32,642)
Loss from unconsolidated joint ventures:
-
-
(52,110)
(52,110)
Income (loss) before provision for income taxes
1,277,448
(471,265)
(1,346,441)
(540,258)
Provision for income taxes
-
-
-
-
Net income (loss)
$
1,277,448 $
(471,265) $
(1,346,441) $
(540,258)
December 31,
2024
December 31,
2023
Total assets by segment on December 31, 2024 and 2023 was as follows:
Property investment portfolio
$
15,546,075 $
13,331,668
Real estate services
121,139
140,055
Corporate and unallocated
514,925
965,828
$
16,182,139 $
14,437,551
All assets are located in the United States.
F-32
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
NOTE 12 – OPERATING LEASE RIGHT-OF-USE
(“ROU”) ASSETS AND OPERATING LEASE LIABILITY
On March 15, 2022, the Company entered to an Assumption
of Lease and Consent Agreement with a landlord, whereby the landlord consented to the
assignment of an office lease, as amended, from
the original tenant to the Company. The lease term began on March 15, 2022 and expired on November 30,
2024, provided the Company has
the option to extend the lease for an additional five years. On June 3, 2024 the Company extended the lease for an
additional 24 months
through November 30, 2026. Effective December 1, 2024, the monthly base rent shall be $3,665 per month through November 30,
2025, $3,775
from December 1, 2025 through November 30, 2026, $3,887 from December 1, 2026 through November 30, 2027, and $4,004 from
December 1, 2027
through November 30, 2028.
In adopting ASC Topic 842, Leases (Topic 842)
on January 1, 2019, the Company had elected the ‘package of practical expedients’ which permitted it not
to reassess under
the new standard its prior conclusions about lease identification, lease classification and initial direct costs (see Note 2). In addition,
the
Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less. Since the terms of the Company’s
operating lease for
its office space prior to March 15, 2022 was 12 months or less on the date of adoption, pursuant to ASC 842, the Company
determined that the lease met
the definition of a short-term lease, and the Company did not recognize the right-of use asset and lease
liability arising from this lease. Upon signing of the
Assumption of Lease and Consent Agreement on March 15, 2022, the Company analyzed
the new lease and determined it is required to record a lease
liability and a right of use asset on its consolidated balance sheet, at
fair value. In connection with June 3, 2024 Lease, in December 2024, the Company
increased its right of use assets and lease liabilities
by $81,974 and removed all remaining right of use assets and lease liabilities associated with the March
2022 lease, which amounted to
$90,710.
For the years ended December 31, 2024 and 2023, in connection with
its operating leases, the Company recorded rent expense of $37,771 and $37,039,
respectively, which is included in operating expenses
on the accompanying consolidated statements of operations.
The significant assumption used to determine the
present value of the lease liability in March 2022 was a discount rate of 6% which was based on the
Company’s incremental borrowing
rate.
On December 31, 2024 and 2023, right-of-use asset
(“ROU”) is summarized as follows:
December 31,
2024
December 31,
2023
Office lease right of use asset
$
81,974 $
90,710
Less: accumulated amortization
(3,719)
(58,497)
Balance of ROU assets
$
78,255 $
32,213
On December 31, 2024, future minimum base lease
payments due under a non-cancelable operating lease are as follows:
Year ending December 31,
Amount
2025
$
50,242
2026
41,520
Total minimum non-cancelable operating lease payments
91,762
Less: discount to fair value
(13,452)
Total lease liability on December 31, 2024
$
78,310
NOTE 13 - INCOME TAXES
The Company maintains deferred tax assets and
liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The deferred tax assets on December 31, 2024 and 2023
consist of net
operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of
the
attainment of future taxable income.
F-33
ZONED PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
The items accounting for the difference between
income taxes at the effective Federal statutory rate and the provision for income taxes for the years ended
December 31, 2024 and 2023
were as follows:
Years Ended
December 31,
2024
2023
Income tax expense (benefit) at U.S. statutory rate
$
120,531 $
(113,454)
Income tax expense (benefit) – state
37,307
(35,117)
Permanent differences
(30,847)
41,665
Change in valuation allowance
(126,991)
106,906
Total provision for income tax
$
- $
-
The Company’s approximate net deferred tax
asset as of December 31, 2024 and 2023 was as follows:
Deferred Tax Asset:
December 31,
2024
December 31,
2023
Net operating loss carryforward
$
559,109 $
686,100
Net deferred tax assets before valuation allowance
559,109
686,100
Valuation allowance
(559,109)
(686,100)
Net deferred tax asset
$
- $
-
The net operating loss carryforward was approximately
$2,033,000 on December 31, 2024. The Company provided a valuation allowance equal to the net
deferred income tax asset as of December
31, 2024 and 2023 because it was not known whether future taxable income will be sufficient to utilize the loss
carryforward. Additionally,
the future utilization of the net operating loss carryforward to offset future taxable income is subject to an annual limitation as a
result of ownership changes that may occur in the future. The 2017 estimated loss carry forward of approximately $1,026,401 expires on
December 31,
2037. Subsequent to 2017, all estimated loss carry forwards may be carried forward indefinitely subject to annual usage limitations.
Based on the
Company’s analysis to determine the limitation on the utilization of its net operating loss carryforward amounts, in
2018, the deferred tax asset was reduced
by any carryforward that cannot be utilized or expires prior to utilization as a result of such
limitations, with a corresponding reduction of the valuation
allowance. In 2024, the valuation allowance decreased by $126,991. The potential
tax benefit arising from certain loss carryforwards will expire in 2038.
The Company does not have any uncertain tax positions
or events leading to uncertainty in a tax position. The Company’s 2024, 2023, 2022 and 2021
Corporate Income Tax Returns are subject
to Internal Revenue Service examination.
NOTE 14 – SUBSEQUENT EVENTS
On January 21, 2025, the Company granted an aggregate
of 525,000 stock options to purchase 525,000 of the Company’s common stock at an exercise
price of $0.44 per share to certain members
of the board of directors pursuant to the 2016 Plan (105,000 stock options each). The grant date of the stock
options was January 21,
2025 and the options expire on January 21, 2035. The options shall vest evenly on a quarterly basis over 36 months (8,750 options
quarterly),
beginning immediately. The fair value of these options grants was estimated on the date of grant using the Black-Scholes option-pricing
model
with the following weighted-average assumptions: dividend yield of 0%; expected volatility of 82.1%; risk-free interest rate of
4.30%; and an estimated
holding period of 6.5 years. The Company valued these stock options at a fair value of $176,504 and will record
stock-based compensation expense over
the vesting period.
F-34
On March 03, 2025, ZP Dysart entered into a First
Amendment with its tenant related to the Sunday Goods Lease at the Surprise Property. The First
Amendment clarifies and defines the process
by which the tenant improvement Allowance for the Tenant Work at the Surprise Property would be
completed. Subject to the terms and conditions
of the Sunday Goods Lease, and so long as there is no default ongoing beyond any notice and/or cure
period, partial payments of the Allowance
(the “Allowance Payments”) provided by Landlord shall be made to Tenant as follows: (#1) $300,000 to be paid
upon the full
execution of the First Amendment to the Lease; (#2) $150,000 to be paid on April 01, 2025 (#3) $150,000 to be paid on May 01, 2025, and
(#4) the remaining $400,000 of the Allowance shall be withheld by Landlord until completion of the Tenant’s Work on the Property;
provided however,
Landlord’s obligation to disburse the final $400,000 (Payment #4 of the Allowance Payments) is expressly conditioned
upon Landlord’s receipt of the
following “Allowance Deliverables”: (i) Tenant has furnished to Landlord a copy
of a commercially reasonably detailed final cost breakdown for Tenant’s
Work and Landlord has inspected the Premises to confirm that Tenant’s
Work has been completed in a good and workmanlike manner according to the
Tenant’s Approved Plans; (ii) Tenant has furnished to
Landlord commercially reasonable final affidavits and final lien releases from Tenant’s general
contractor, and if any, all subcontractors
and all material suppliers for all labor and materials performed or supplied as part of Tenant’s Work (whether or
not the Allowance is
applicable thereto); and (iii) a copy of the certificate of occupancy from the governmental authority having jurisdiction has been
delivered
to Landlord. Throughout the project, Tenant shall be required to provide Landlord with ongoing accounting reflecting a commercially reasonable
breakdown of the Tenant’s Work paid for with the Allowance Payments, and also a current Form W-9, Request for Taxpayer Identification
Number and
Certification, executed by Tenant.
On March 12, 2025, ZP OH Antwerp, LLC (“ZP
Antwerp”), an affiliated entity of the Company, and Jonestown Bank & Trust Co. (“Jonestown”) entered
into a Loan
Agreement (the “Loan Agreement”) pursuant to which Jonestown agreed to lend to ZP Antwerp $300,000 (the “Loan”)
for purchase of
commercial real estate located at 503 W. River Street, Antwerp, OH (the “Antwerp Property”), to be evidenced
by the Mortgage Note, dated as of March
12, 2025, in the principal amount of $300,000, issued by ZP Antwerp in favor of Jonestown (the
“Note”). Pursuant to the terms of the Loan Agreement, ZP
Antwerp agreed to pay to Jonestown a $7,500 loan origination fee
and a $1,500 loan enhancement fee. The Antwerp Property will be used as collateral for
the Loan. The Company and ZP RE Holdings, LLC,
a wholly owned subsidiary of the Company, guaranteed the Loan Agreement pursuant to that certain
Guaranty dated March 12, 2025, by ZP
RE Holdings, LLC, and that certain Guaranty dated March 12, 2025, by the Company, respectively. The Company
believes that the fair value of the guarantee is nominal since
the fair value of the property exceeds the loan amount,
On March 12, 2025, ZP Antwerp entered into an
Assignment of Rents and Leases (“Assignment”) with Jonestown. Pursuant to the terms of the
Assignment, ZP Antwerp agreed to
grant to Jonestown all of ZP Antwerp’s right, title and interest in and to all of the rents, revenues, issues, profits,
proceeds,
royalties, bonuses, rights, benefits, receipts, income accounts and other receivables arising out of or from the Antwerp Property to secure
the
payment by ZP Antwerp when due of indebtedness evidenced by the Note, and any and all other indebtedness and obligations that may
be due and owing
to Jonestown by ZP Antwerp under or with respect to the Loan Agreement, the Guaranty and certain other transaction documents.
The Loan Agreement, Note and Assignment contain
customary representations, warranties, covenants and events of defaults for a transaction of this type.
F-35
Exhibit 4.1
DESCRIPTION OF SECURITIES
The following discussion summarizes the material
terms of our common stock and preferred stock. This discussion does not purport to be complete and is
qualified in its entirety by reference
to our articles of incorporation, as amended, and our bylaws.
General
Authorized Capital Stock
As of March 25, 2025, our authorized capital stock
consists of 100,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of
preferred stock, $0.001 par value
per share.
Common Stock
Holders of the Company’s common stock are
entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock
do not have cumulative voting
rights. Holders of the Company’s common stock are entitled to share in all dividends that our board of directors, in its
discretion,
declares from legally available funds. In the event of a liquidation, dissolution or winding up, each outstanding share entitles its holder
to
participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having
preference over the
common stock. The Company’s common stock has no pre-emptive rights, no conversion rights and there are no redemption
provisions applicable to the
Company’s common stock.
Preferred Stock
Our articles of incorporation, as amended, authorizes
our board of directors, subject to any limitations prescribed by law, without further stockholder
approval, to establish and to issue
from time to time one or more classes or series of preferred stock. Each class or series of preferred stock will cover the
number of shares
and will have the powers, preferences, rights, qualifications, limitations and restrictions determined by the board of directors, which
may
include, among others, dividend rights, liquidation preferences, voting rights, conversion rights, preemptive rights and redemption
rights. Except as
provided by law or in a preferred stock designation, the holders of preferred stock will not be entitled to vote at
or receive notice of any meeting of
stockholders.
The certificate of designation for the preferred
stock provides that the shares are not convertible into any other class or series of stock. Holders of preferred
shares are entitled to
50 votes for each share held. Voting rights are not subject to adjustment for splits that increase or decrease the common shares
outstanding.
Upon liquidation, holders of preferred stock will be entitled to receive $1.00 per share plus redemption provision before assets are distributed
to other stockholders. Holders of preferred shares are entitled to dividends equal to common share dividends. Once any shares of preferred
stock are
outstanding, at least 51% of the total number of shares of preferred stock outstanding must approve the following transactions:
●
alteration of the rights, preferences of privileges of the preferred stock,
●
creation of any new class of stock having preferences over the preferred stock,
●
repurchase of any of our common stock,
●
merger of consolidation with any other company, other than one of our wholly owned subsidiaries,
●
sale, conveyance or other disposal of, or creation or incurrence of any mortgage, lien, or charge or encumbrance or security interest in or pledge
of, or sale and leaseback of, all or substantially all of our property or business, or
●
incurrence, assumption or guarantee of any indebtedness maturing more than 18 months after the date on which it is incurred, assumed or
guaranteed by us, except for operating leases and obligations assumed as part of the purchase price of property.
Holders of a majority of the voting power of our
capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to
constitute a quorum at any
meeting of stockholders. A vote by the holders of a majority of our outstanding voting shares is required to effectuate certain
fundamental
corporate changes such as liquidation, merger or an amendment to our articles of incorporation.
Holders of preferred shares vote along with common
stockholders on each matter submitted to a vote of security holders. As a result of the multiple votes
accorded to holders of the preferred
stock, Greg Johnston and Alex McLaren have the ability to control the outcome of all matters submitted to a vote of
stockholders, including
the election of directors. On those matters that require the approval of at least 51% of the preferred stock, both Mr. Johnston and
Mr.
McLaren must provide their approval inasmuch as each of them owns 50% of the outstanding preferred stock.
Dividends
Historically, we have not paid any cash dividends
on our common stock. It is our present intention not to pay any cash dividends in the foreseeable future,
but rather to reinvest cash
flow and earnings, if any, in our business operations. However, in the future, our board of directors may declare dividends on our
common
stock. Payment of future dividends on our common stock, if any, will be at the discretion of our board of directors and will depend on,
among
other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other
factors that our board of
directors may deem relevant. In addition, the agreements into which we may enter in the future, including indebtedness,
may impose limitations on our
ability to pay dividends or make other distributions on our capital stock. We cannot guarantee that we will
pay dividends to our stockholders in the future.
Holders of preferred shares are entitled to dividends
equal to common share dividends.
Anti-Takeover Effects of Certain Provisions
of Our Articles of Incorporation, as Amended, and Our Bylaws
These provisions, summarized below, are expected
to discourage coercive takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the benefits of increased protection and our
potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging
these proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Preferred Stock. Our articles of incorporation,
as amended, authorize our board of directors to issue from time to time any series of preferred stock and fix
the voting powers, designation,
powers, preferences and rights of the shares of such series of preferred stock.
Calling of Special Meetings of Stockholders.
Our bylaws provide that special meetings of the stockholders may be called only by the chairman of the board
or the chief executive officer,
and shall be called by the chairman of the board or the secretary (i) when so directed by the board, or (ii) at the written
request of
stockholders owning shares representing at least 25% of voting power in the election of directors.
Advance Notice Requirements for Stockholder
Proposals and Director Nominations. Our bylaws establish an advance notice procedure for stockholder
proposals to be brought before
a meeting of our stockholders, including proposed nominations of persons for election to the board of directors.
Removal of Directors; Vacancies. Our bylaws
provide that a director may be removed from office by stockholders for cause, or without cause by a majority
vote of the stockholders.
A vacancy on the board of directors may be filled only by a majority of the directors then in office.
Exhibit 21.1
SUBSIDIARIES
Subsidiary Name
Jurisdiction of Incorporation
Green Valley Group, LLC
Arizona
Kingman Property Group, LLC
Arizona
Chino Valley Properties, LLC
Arizona
Zoned Arizona Properties, LLC
Arizona
Zoned Advisory Services, LLC
Arizona
Zoned Properties Brokerage, LLC
Arizona
ZP Data Platform 1, LLC
Arizona
ZP Data Platform 2, LLC
Arizona
ZP RE Holdings, LLC
Arizona
ZP Brokerage FL, LLC
Florida
ZP RE MI Woodward, LLC
Michigan
ZP RE AZ Dysart, LLC
Arizona
ZP RE IL Ashland, LLC
Illinois
Exhibit 23.1
Consent of Independent Registered Public Accounting
Firm
We hereby consent to the incorporation by reference
in the Registration Statement on Form S-8 of Zoned Properties, Inc. (File No. 333-213150) filed on
August 16, 2016, of our report dated
March 25, 2025 on the consolidated financial statements of Zoned Properties, Inc., as of December 31, 2024 and 2023
and for each of the
two years in the period ended December 31, 2024.
/s/ Salberg & Company, P.A.
SALBERG & COMPANY, P.A.
Boca Raton, Florida
March 25, 2025
Exhibit 31.1
Certifications
I, Bryan McLaren, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2024 of Zoned Properties, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 25, 2025
/s/ Bryan McLaren
Bryan McLaren
(Chief Executive Officer)
(principal executive officer)
Exhibit 31.2
Certifications
I, Bryan McLaren, certify that:
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2024 of Zoned Properties, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 25, 2025
/s/ Bryan McLaren
Bryan McLaren
Chief Financial Officer
(principal financial officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual
report of Zoned Properties, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2024 as filed with
the Securities
and Exchange Commission on the date hereof (the “Report”), I, Bryan McLaren, Chief Executive Officer, President and Chief
Financial
Officer of the Company, certify to the best of my knowledge:
1.
The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Date: March 25, 2025
/s/ Bryan McLaren
Bryan McLaren
Chief Executive Officer and
Chief Financial Officer
(principal executive officer and
principal financial officer)