Gyrodyne, LLC 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Statement Concerning Forward – Looking Statements The statements made in this Form 10-K and in other materials the Company has filed or may file with the Securities and Exchange Commission, in each case that are not historical facts, contain “forward-looking information” within the meaning of the Private Securities Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “anticipates,” “expects,” “projects,” “estimates,” “believes,” “seeks,” “could,” “should,” or “continue,” the negative thereof, and other variations or comparable terminology as well as statements regarding the evaluation of liquidation contingencies. These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements. Such risks and uncertainties include, but are not limited to, risks and uncertainties generally relating to our efforts to enhance the values of our remaining properties and seek the orderly, strategic sale of such properties as soon as reasonably practicable, risks associated with the Article 78 Proceeding against the Company and any other litigation that may develop in connection with our efforts to enhance the value of and sell our properties, risks relating to our national marketing campaign led by JLL for the sale of our Flowerfield and Cortlandt Manor properties, risks associated with our purchase and sale agreement with B2K (and future purchase and sale agreements for our remaining properties that may be contingent on years-long regulatory contingencies) in light of our financial condition, community activism risk, proxy contests and other actions of activist shareholders, regulatory enforcement risk, risks inherent in the real estate markets of Suffolk and Westchester Counties in New York, the potential residual effects of the COVID-19 pandemic, lingering risks relating to the 2023 banking crisis and closure of two major banks (including one with whom we indirectly had a mortgage loan which the FDIC transferred in December 2023 to a new holder following the banks closure), ongoing inflation risk, ongoing interest rate uncertainty, recession uncertainty and supply chain constraints or disruptions and other risks detailed from time to time in the Company’s SEC reports. These and other matters the Company discuss in this Report, or in the documents it incorporates by reference into this Report, may cause actual results to differ from those the Company describes. The Company assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. 34 New factors emerge from time to time, and it is not possible for us to predict which factors will affect future results. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results, including the timeline to complete the liquidation, to differ materially from those contained in any forward-looking statement. In particular, it is difficult to fully assess the risks of persistent inflation, high interest rates and possible recession at this time. The Company assumes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise. Overview When we use the terms “Gyrodyne,” the “Company,” “we,” “us,” and “our,” we mean Gyrodyne, LLC and all entities owned or controlled by us, including non-consolidated entities. References to “common shares” in this report refer to Gyrodyne, LLC’s common shares representing limited liability company interests. We operate as a fully integrated, self-administered and self-managed real estate company focused on pursuing entitlements, owning, leasing and managing medical, commercial and industrial real estate. Our tenants include unrelated diversified entities with a recent emphasis on medical office parks and industrial properties. Our properties are located in Suffolk and Westchester counties in New York, which are characterized by strong real estate markets. As of December 31, 2025, the consolidated portfolio includes two developed properties, consisting of 9 buildings with an aggregate of 161,430 rentable square feet. The Company also owns undeveloped land parcels adjacent to developed properties for which alternative entitlement plans are currently being considered in order to increase development flexibility of the relevant primary property. Leasing Operations Our operating focus is on maximizing cashflows and market value of our operating properties while we are securing entitlements with the objective of increasing development flexibility with respect to our remaining properties and maximizing distributions to our shareholders as soon as reasonably practicable. As of December 31, 2025, our properties were 82% leased to 31 tenants. As of December 31, 2024, our properties were 82% leased to 32 tenants. Our leasing strategy for 2026 includes focusing on leasing vacant space, negotiating early renewals for leases scheduled to expire through 2026 and identifying new tenants or existing tenants seeking additional space. Lease Expirations The following is a summary of lease expirations and related revenues of leases in place on December 31, 2025. This table assumes that none of the tenants’ exercise renewal options or early termination rights, if any, at or prior to the scheduled expirations: % of Gross Annual Number of Square Total Rental Revenues Leases Feet Annual Represented Fiscal Year End Expiring Expiring Rent By Such Leases 2026 15 45,000 $ 1,174,000 52.18 % 2027 12 17,000 224,000 9.94 % 2028 4 8,000 130,000 5.78 % 2029 1 2,000 35,000 1.53 % 2030 2 30,000 496,000 22.03 % Thereafter 1 17,000 192,000 8.54 % 35 The success of our leasing strategy will be dependent upon the general economic conditions and more specifically real estate market conditions and trends in the United States and in our target markets of Suffolk and Westchester Counties in New York. We cannot give any assurance that leases will be renewed or that available space will be re-leased at rental rates equal to or above the current contractual rental rates. We actively manage the renewal process. Historically, this has resulted in a very low turnover rate with our tenants. As a result, the Company continues to actively manage lease termination dates and often approaches tenants up to one year in advance to gauge renewal interest and negotiate related leases. Where a termination is likely, the Company begins marketing the property prior to termination to timely identify the market rent for the specific space, expected vacancy period and market demanded tenant concessions and incentives. The Company may offer tenant concessions in the form of rent abatements rather than tenant improvements to maximize its working capital position. However, tenant improvement incentives may be offered in certain cases where concessions are not effective in meeting the demands of the existing or prospective tenant. The Company has approximately 52% of its annual leasing revenue up for renewal in 2026, in 2025 it was 31%. General economic conditions, coupled with rental markets in which we operate, will dictate how rental rates on new leases and renewals will compare, favorably or unfavorably, to those leases that were signed in 2025. Critical Accounting Policies Gyrodyne intends to dissolve after we complete the disposition of all of our real property assets, apply the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then pay distributions to holders of Gyrodyne common shares. Therefore, effective September 1, 2015 Gyrodyne adopted the liquidation basis of accounting. This basis of accounting is considered appropriate when, among other things, liquidation of the entity is “imminent”, as defined in ASC 205-30, Presentation of Financial Statements Liquidation Basis of Accounting. Under the LLC Agreement, the Board may elect, in its sole discretion and without any separate approval by shareholders, to dissolve the Company at any time the value of the Company’s assets, as determined by the Board in good faith, is less than $1 million. The LLC Agreement also provides that the Company will dissolve, and its affairs wound up upon the sale, exchange or other disposition of all the real properties of the Company. As a result, liquidation is “imminent” in accordance with the guidance provided in ASC 205-30. Principles of consolidation - The consolidated financial statements include the accounts of Gyrodyne and all subsidiaries. All consolidated subsidiaries are wholly owned. All inter-company balances and transactions have been eliminated. Basis of Presentation - Liquidation Basis of Accounting – Under the liquidation basis of accounting the consolidated balance sheet and consolidated statements of operations, equity, comprehensive income and cash flows are no longer presented. The consolidated statements of net assets and changes in net assets are the principal financial statements presented under the liquidation basis of accounting. Under the liquidation basis of accounting, all the Company’s assets have been stated at their estimated net realizable value, or liquidation value, (which represents the estimated amount of cash that Gyrodyne will collect on the disposal of assets (prior to any credits for contribution amounts which are reflected in the costs in excess of receipts) as it carries out the plan of liquidation), which is based on independent third-party appraisals, estimates and other indications of sales value. All liabilities of the Company, including those estimated costs associated with implementing the plan of liquidation, have been stated at their estimated settlement amounts. These amounts are presented in the accompanying statements of net assets. These estimates are periodically reviewed and adjusted as appropriate. There can be no assurance that these estimated values will be realized. Such amounts should not be taken as an indication of the timing or amount of future distributions or our actual dissolution. The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the plan of liquidation. The actual values and costs associated with carrying out the plan of liquidation may differ from amounts reflected in the accompanying consolidated financial statements because of the plan’s inherent uncertainty. These differences may be material. In particular, the estimates of our costs will vary with the length of time necessary to complete the plan of liquidation, which is currently anticipated to be completed by December 31, 2028. The Company’s assumptions and estimates (including the sales proceeds of all its real estate holdings, selling costs, retention bonus payments, rental revenues, rental expenses, capital expenditures, land entitlement costs, litigation fees, general and administrative fees, director and officer liability and reimbursement, post liquidation insurance tail coverage policy and final liquidation costs) are based on completing the liquidation by December 31, 2028. As previously stated, on an ongoing basis, Gyrodyne evaluates the estimates and assumptions that can have a significant impact on the reported net assets in liquidation and will update relevant information accordingly for any costs and value associated with a change in the duration of the liquidation, as we cannot give any assurance on the timing of the ultimate sale of all the Company’s properties. 36 Management Estimates – In preparing the consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) and the liquidation basis of accounting, management is required to make estimates and assumptions that affect the reported amounts of assets, including net assets in liquidation, and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of receipts and expenditures for the reporting period. Actual results could differ from those estimates. The real estate market is cyclical in nature. Property values are affected by, among other things, the availability of capital, occupancy rates, rental rates, interest rates and inflation rates. As a result, determining real estate values involves many assumptions. Amounts ultimately realized may vary significantly from the net assets in liquidation values presented. The Company’s most significant accounting estimate relates to the determination of the value of net assets in liquidation. Fair Value of Real Estate - The Company also considers in its valuation estimates the receipt of any expressions of interest/letters from perspective buyers adjusted to reflect the Company’s best estimate of any contingent financial terms inclusive of approval density and related site plans. Cash equivalents - The Company considers all certificates of deposits, money market funds, treasury securities and other highly liquid debt instruments purchased with short-term maturities to be cash equivalents. Allowance for doubtful accounts – Rent receivable is carried at net realizable value. Management makes estimates of the collectability of rents receivable. Management specifically analyzes receivables and historical bad debts, tenant concentrations, tenant creditworthiness, current economic trends and changes in tenant payment patterns when evaluating the adequacy of the allowance for doubtful accounts. Fair Value Measurements – The Company believes the concepts for determining net realizable value are consistent with the guidance for measuring fair value. As a result, the Company follows the guidance of FASB Accounting Standards Codification, Fair Value Measurements and Disclosures to determine the fair value of financial and non-financial instruments. The guidance defines fair value, establishes a hierarchy framework for measuring fair value and expands disclosures related to the fair value. The guidance establishes a hierarchy breaking down observable and unobservable inputs into three levels: Level 1 – observable inputs in an active market on or around the measurement date, Level 2 – observable inputs that are based on prices not quoted on active markets but corroborated by market data and Level 3 – unobservable inputs utilized when no other data is available. Estimated Distributions per Share – Under the liquidation basis of accounting, the Company reports estimated distributions per share data by dividing net assets by the number of shares outstanding. Industry Segments - Gyrodyne’s corporate strategy is to enhance the value of Flowerfield and Cortlandt Manor by pursuing entitlement opportunities to provide purchasers increased development flexibility, and by enhancing the value of our leases, and then selling our properties in an orderly manner at higher values. The Company manages this strategy on an aggregated, single segment basis for purposes of assessing performance and making decisions (inclusive of capital allocation, leasing, entitlements and sales). Therefore, the Company has only one reporting segment. As reported in footnote two, the Company is on a liquidation basis of accounting. The detailed information regularly provided to the chief operating decision maker (“CODM”), President and CEO, is reported in footnote 4 in detail supporting the estimated liquidation and operating costs net of estimated receipts. This information allows the CODM to manage and forecast any impact the operations have on the estimated real estate value and in the aggregate allows the CODM to calculate estimated distributions. The net assets as of December 31, 2025 ($25,858,997) and December 31, 2024 ($30,596,313) results in estimated distributions of approximately $11.76 and $13.91 per common share, respectively, based on 2,199,308 shares outstanding. New accounting pronouncements - Management has evaluated the impact of newly issued accounting pronouncements, whether effective or not as of December 31, 2025, and has concluded that they will not have a material impact on the Company’s consolidated financial statements since the Company reports on a liquidation basis. Discussion of the Statement of Net Assets Net assets as of December 31, 2025 and December 31, 2024 would result in estimated liquidating distributions of $25,858,997 and $30,596,313, respectively, or approximately $11.76 and $13.91 per common share, respectively, based on 2,199,308 shares outstanding. The decrease of $4,737,316 in estimated liquidating distributions is mainly attributable to an increase in estimated liquidation and operating costs net of estimated receipts for the two year timeline extension of approximately $3,500,000 (to allow sufficient time for the B2K Agreement (dated July 30 th , 2025 inclusive of its latest amendment dated January 6, 2026) to close), the closing credit to B2K for certain sewer treatment plant and onsite infrastructure costs of approximately $4,000,000, increase in retention bonuses and selling costs due to the increased value of real estate of approximately $479,000, prepayment penalty and loan extension/new loan fees of approximately $140,000 and additional land development fees of $190,000 (excluding the adjustment attributable to the timeline extension) partially offset by the increase in real estate value of approximately $3,600,000. 37 The cash balance at the end of the liquidation period (currently estimated to be December 31, 2028, although the estimated completion of the liquidation period may change), excluding any interim distributions, is estimated based on adjustments for the following items which are estimated through December 31, 2028: 1. The estimated cash receipts from the operation of the Company’s properties net of rental property related expenditures as well as costs expected to be incurred to preserve or improve the net realizable value of the properties at their estimated gross sales proceeds. 2. Net proceeds from the sale of all the Company’s real estate holdings. 3. The general and administrative expenses and or liabilities associated with operations and the liquidation of the Company including severance, director and officer liability coverage including post liquidation tail policy coverage, and financial and legal fees (inclusive of the Article 78 Proceeding) to complete the liquidation. 4. Costs for the pursuit of entitlement of the Flowerfield and Cortlandt Manor properties. 5. Retention bonus amounts. 6. Debt service on the Company’s credit facilities. The Company estimates the net realizable value of its real estate assets by using income and market valuation techniques. The Company may estimate net realizable values using market information such as broker opinions of value, appraisals, and recent sales data for similar assets or discounted cash flow models, which primarily rely on Level 3 inputs, as defined under FASB ASC Topic No. 820, Fair Value Measurement. The Company also considers in its valuation estimates the receipt of any credible expressions of interest/letters from perspective buyers adjusted to reflect the Company’s best estimate of any contingent financial terms such as approved density and related site plans. The cash flow models include estimated cash inflows and outflows over a specified holding period. These cash flows may include contractual rental revenues, projected future rental revenues and expenses and forecasted capital improvements and lease commissions based upon market conditions determined through discussion with local real estate professionals and relevant Company experience with its current and previously owned properties. Capitalization rates and discount rates utilized in these models are estimated by management based upon rates that management believes to be within a reasonable range of current market rates for the respective properties based upon an analysis of factors such as property and tenant quality, geographical location, local supply and demand observations and no sewage treatment plant. To the extent the Company underestimates or overestimates forecasted cash outflows (capital improvements, lease commissions, operating costs and credit costs) or overestimates or underestimates forecasted cash inflows (rental revenue rates) or other unfavorable or favorable variances of the aforementioned assumptions, the estimated net realizable value of its real estate assets could be overstated or understated. The Company estimates that it will incur approximately $1.326 million (included in the consolidated statement of net assets as part of the estimated liquidation and operating costs net of receipts) in land entitlement costs from January 2026 through the end of the liquidation period, currently estimated to conclude on or about December 31, 2028, in an effort to obtain entitlements, including special permits. The Company believes the commitment of these resources will enable the Company to position the properties for sale with all entitlements necessary to maximize the aggregate Flowerfield and Cortlandt Manor property values and resulting distributions. During the year ended December 31, 2025, the Company incurred approximately $380,000 of land entitlement costs, consisting predominately of engineering fees, legal fees and real estate taxes. The Company believes the remaining balance of $1.326 million (inclusive of real estate taxes of $448,500 and regulatory fees of $408,000) will be incurred from January 2026 through the end of the liquidation period. The Company does not intend to develop the properties but rather positioning the properties for increased development flexibility in the shortest period of time with the least amount of risk to the Company. The costs and time frame to achieve the entitlements could change due to a range of factors including a shift in the value of certain entitlements making it more profitable to pursue a different mix of entitlements and the dynamics of the real estate market. As a result, the Company has focused and will continue to focus its land entitlement efforts on achieving the highest and best use while considering the time and direct and indirect costs necessary to achieve such entitlements. During the process of pursuing such entitlements, the Company may entertain offers from potential buyers who may be willing to pay premiums for the properties that the Company finds more acceptable from a timing or value perspective than completing the entitlement processes itself. There can be no assurance that our value enhancement efforts will result in property value increases that exceed the costs we incur in such efforts, or even any increase at all. Net assets as of December 31, 2025 and December 31, 2024 would result in estimated liquidating distributions of $25,858,997 and $30,596,313, or approximately $11.76 and $13.91 per common share, respectively, based on 2,199,308 and 1,574,308 shares outstanding, respectively, based on estimates and other indications of sales value. This estimate of distributions includes projections of costs and expenses to be incurred during the period required to complete the plan of liquidation. There is inherent uncertainty with these projections, and they could change materially based on the timing of the sales, change in values of the Cortlandt Manor and/or Flowerfield properties (whether market driven or resulting from the land entitlement efforts) net of any bonuses, favorable or unfavorable changes in the land entitlement costs, the performance of the underlying assets, the market for commercial real estate properties generally and any changes in the underlying assumptions of the projected cash flows. 38 The following table summarizes the estimates to arrive at the Net Assets in Liquidation as of December 31, 2025 (dollars are in millions). December 31, 2025 cash and cash equivalents balance $ 4.53 Principal payments on loan (10.87 ) Free cash flow from rental operations 2.23 (i) General and administrative expenses (5.94 ) (ii) Land entitlement costs in pursuit of the highest and best use (1.33 ) Gross real estate proceeds 53.99 (iii) B2K Closing Credit for certain infrastructure (4.02 ) (iv) Selling costs on real estate (3.06 ) Retention bonus plan for officers and employees (2.23 ) Final liquidation and dissolution costs (1.50 ) (v) Other (5.94 ) (vi) Net Assets $ 25.86 (i) The Company estimates the cash proceeds from rental operations net commissions and rental costs, inclusive of expenditures to preserve or improve the properties at its current estimated market value will total $2.23. (ii) The general and administrative expenses, excluding final liquidation costs, is estimated to be ($5.94) (iii) The incremental value, if any, associated with the pending STP amenity (see iv) is not included in gross real estate proceeds as such value is not estimable based on current factors. (iv) Under the terms of the B2K agreement (dated July 30 th , 2025 inclusive of its latest amendment dated January 6, 2026) B2K is funding its proportionate share, based on effluence, of the buildout of the sewer treatment plant and onsite infrastructure costs. This credit that will be given at closing is contributed to the Industrial Parks proportionate share. (v) The costs represent all anticipated costs to liquidate the Company including D&O tail, severance and professional fees. (vi) The Company estimates interest income will be offset by interest expense and the settlement of its working capital accounts resulting in a balance of ($5.94). Discussion of Changes in Net Assets Gyrodyne’s strategy is to enhance the value of Flowerfield and Cortlandt Manor, by pursuing various entitlement opportunities, which the Gyrodyne Board believes will improve the potential of obtaining better aggregate values for such properties as a whole. The pursuit of the highest and best use of Flowerfield and Cortlandt Manor may involve other strategies to manage risk and or enhance the net value of Flowerfield and Cortlandt Manor to maximize the returns for our shareholders. Gyrodyne intends to dissolve after we complete the disposition of all of our real property assets, apply the proceeds of such dispositions first to settle any debts and claims, pending or otherwise, against Gyrodyne, and then pays distributions to holders of Gyrodyne common shares. Therefore, the Company includes in its financial statements the Consolidated Statement of Changes in Net Assets for the years ended December 31, 2025 and 2024, respectively, all of which is discussed below: Net assets on January 1, 2024 $ 30,721,034 Changes in net assets from January 1 through December 31, 2024: Remeasurement of assets and liabilities (1,151,101 ) Issuance of common shares, net 4,418,380 Change in value of real estate (3,392,000 ) Total change in net assets (124,721 ) Net assets on December 31, 2024 30,596,313 Changes in net assets for the year ended December 31, 2025 Remeasurement of assets and liabilities (8,339,316 ) (a) Change in value of real estate 3,602,000 Total change in net assets (4,737,316 ) Net assets on December 31, 2025 $ 25,858,997 (a) The remeasurement of assets and liabilities during 2025 includes approximately $4 million in a closing credit to B2K for certain infrastructure costs and approximately $3.5 million in costs relating to the timeline extension. 39 Liquidity and Capital Resources Cash Flows : As we pursue our plan to sell our properties strategically, including certain enhancement efforts, we believe that a main focus of management is to effectively manage our net assets through cash flow management of our tenant leases, maintaining or improving occupancy, and enhance the value of the Flowerfield and Cortlandt Manor properties via the pursuit of the associated change in entitlements. As the Company executes on the liquidation plan, it will review its capital needs and make prudent distribution decisions regarding any excess cash. Upon completion of these activities, Gyrodyne will distribute the remaining cash to its shareholders and then proceed to complete the dissolution of the Company, delist its shares from Nasdaq or other exchange platform and terminate its registration and reporting obligations under the Securities Exchange Act of 1934, as Amended (the “Exchange Act”). Gyrodyne is required to make adequate provisions to satisfy its known and unknown liabilities which could substantially delay or limit its ability to make future distributions to shareholders. The process of accounting for liabilities, including those that are currently unknown or whose amounts are uncertain may involve difficult valuation decisions which could adversely impact the amount or timing of any future distributions. We generally finance our operations through cash on hand. On March 7, 2024, the Company closed a rights offering resulting in approximately $4.4 million of net proceeds to the Company, thereby ensuring we could operate from a position of strength through the duration of the liquidation estimated at the time of such offering to be the end of 2026 (but being extended to the end of 2028), to negotiate and enforce purchase agreements and defend our property rights in the Article 78 Proceeding and in any other such proceeding that may arise . Furthermore, certain of the Company’s major vendors have informally agreed to defer payment on 50% of their fees until the first subdivided lot is sold. While these same vendors remain committed to deferring a large portion of their deferred fees (as disclosed in footnote 8), the extended timeline to the end of 2028 is resulting in economic pressure to provide for a yet to be determined partial payment, albeit expected to be less than half of the outstanding liability). Additionally, on December 6, 2019, the Company’s Board of Directors approved the Gyrodyne, LLC Nonqualified Deferred Compensation Plan for Employees and Directors (the “DCP”) effective as of January 1, 2020. The plan is a nonqualified deferred compensation plan maintained for officers and directors of the Company. Under the DCP, officers and directors may elect to defer a portion of their compensation to the DCP and receive interest on such deferred payments at a fixed rate of 5% (per annum). All DCP benefits will be paid in a single lump sum cash payment on December 15, 2031, unless a Plan of Liquidation is established for Gyrodyne before the distribution date in which case all benefits will be paid in a single lump sum cash payment after execution of an amendment to terminate the DCP ( See Deferred Compensation Plan below) . As of December 31, 2025, the Company had cash and cash equivalents totaling approximately $4.5 million. The cash will be partially used to fund our efforts to generate the highest values for the Flowerfield and Cortlandt Manor properties while simultaneously pursuing the strategic sale of these properties. The pursuit of the highest values for Flowerfield and Cortlandt Manor may involve other investments and or other strategies to manage risk and or enhance the net value of Flowerfield and Cortlandt Manor to maximize the returns for our shareholders. The Company is estimating and reporting in the consolidated statements of net assets total gross cash proceeds from the sale of its assets of approximately $53.99 million. Based on the Company’s current cash balance and the above forecast, the Company estimates distributable cash stemming from the liquidation of the Company of approximately $25.86 million. The Company intends to seek to modify one or more of its existing loan facilities to strengthen its financial position through the end of 2028, the forecasted completion of the liquidation process. The Company’s goal with respect to any such modification is for its current cash and cash equivalent position post-loan modification to be adequate to fund our process of seeking entitlements and selling assets through such forecasted liquidation completion date. Management believes the Company will need additional capital to properly fund operations through the end of 2028 absent sufficient working capital raised through the combination of property sales or the modification of its existing credit facilities and or new credit facilities, or other alternative capital raising strategies. There can be no assurance, however, that the Company will be successful in securing any such loan modification/ and/or new credit facilities on terms that are satisfactory to the Company or on any terms at all or achieve a timely closing on the sale of a property to address its working capital needs. If such available cash and amounts received on the sale of assets are not adequate to provide for our obligations, liabilities, expenses and claims, distributions of cash and other assets to our shareholders would be eliminated. In the event our shareholders receive distributions from Gyrodyne and there are insufficient funds to pay any creditors who seek payment of claims against Gyrodyne, shareholders could be held liable for payments made to them and could be required to return all or a part of the distributions made to them. The Company’s primary sources of funds are as follows: ● current cash and cash equivalents; ● rents and tenant reimbursements received on our remaining real estate operating assets; ● sale of assets; and Excluding gross proceeds from the sale of assets, the Company’s gross rents and tenant reimbursements net of rental expenses is less than the combined total annual general and administrative costs, capital expenditures and land entitlement costs creating a net use of cash on an annual basis through the liquidation process. The Company believes the cash and cash equivalents plus the proceeds from the sale of assets will exceed the costs to complete the liquidation of the Company. In addition, the Company has and will continue to review operating activities for possible cost reductions and additional capital/credit needs throughout the liquidation process. 40 Major elements of the Company’s cashflows for the year ended December 31, 2025 were as follows: Operating Cashflows: ● $3,050,479 in rent and reimbursements. ● ($2,057,276) in operating costs. ● $993,203 in net operating income. Nonoperating Cashflows: ● ($79,085) of land entitlement costs incurred for the Cortlandt Manor property. ● ($301,351) of land entitlement costs incurred for the Flowerfield property. ● ($54,391) of capital expenditures on the real estate portfolio excluding those costs incurred for land entitlement. ● ($2,616,409) of corporate expenditures including interest expense. ● ($301,390) of principal payments on our loans. ● $989,788 in changes in working capital. Major elements of the Company’s cashflows for the year ended December 31, 2024 were as follows: Operating Cashflows: ● $3,105, 989 in rent and reimbursements. ● ($1,898,920) in operating costs. ● $1,207,069 in net operating income. Nonoperating Cashflows: ● $4,418,380 of net proceeds from the issuance of common shares. ● ($87,718) of land entitlement costs incurred for the Cortlandt Manor property. ● ($334,610) of land entitlement costs incurred for the Flowerfield property. ● ($172,506) of capital expenditures on the real estate portfolio excluding those costs incurred for land entitlement. ● ($1,987,749) of corporate expenditures including interest expense. ● ($288,976) of principal payments on our loans. ● ($347,349) in changes in working capital. Lingering Pandemic Effects and Macroeconomics: The COVID-19 pandemic may continue to impact adversely, the timeliness of local government in granting required approvals, as state and local staff charged with processing our subdivision applications all postponed activity due to work-from-home transitions. Accordingly, COVID-19 has caused, and may continue to cause, the completion of important stages in our efforts to secure entitlements to be delayed. The pandemic has also resulted in a significant shift toward commercial acceptance of remote working and telemedicine which may adversely impact our occupancy rate and average rate per square foot, although medical office has faced less of a challenge from work-from-home shifts. We are affected by the fiscal and monetary policies of the United States Government and its agencies, including the policies of the Federal Reserve, which regulates the supply of money and credit in the United States. The combination of elevated interest rates and persistent inflation (or the perception that any of these events may continue) have contributed to continued weakness in commercial real estate markets, including in those real estate markets in which we operate. Changes in fiscal and monetary policies are beyond our control and are difficult to predict. Although the Federal Reserve decreased the federal funds rate multiple times in 2024 and three times in 2025, the rate continues to be elevated and there can be no assurance that the rate will continue to decrease or that it will not be increased in 2026 and beyond. Regulated lending institutions are adjusting their business models to increase capital requirements for direct loans to real estate and thus continue to be constrained in providing capital for commercial real estate properties. Changes in the federal funds rate as well as the other policies of the Federal Reserve affect interest rates, which have a significant impact on our financial condition. The extent of the continuing impact of these public health and macroeconomic risks on the Company's operational and financial performance and ultimately its Net Asset Value, will depend on current and future developments, including the residual effects of the COVID-19 pandemic and the extent to which persistently high interest rates continue to have an adverse impact on the real estate industry or have a recessionary effect generally. As a result of the foregoing developments, we are unable to determine what the ultimate impact of general economic conditions will be on our timeline for seeking entitlements and selling properties, and ultimately on the amount proceeds and distributions from those sales. Healthcare: Our tenants in our Cortlandt Manor property are healthcare service providers. Furthermore, the Company previously expanded its leasing relationship with Stony Brook University, Stony Brook University Hospital and affiliates of Stony Brook University Hospital at our Flowerfield property which increased its exposure to the healthcare industry. The healthcare industry is subject to substantial regulation and faces increased regulation particularly relating to fraud, waste and abuse, cost control and healthcare management. The healthcare industry may experience a significant expansion of applicable federal, state or local laws and regulations, previously enacted or future healthcare reform, new interpretations of existing laws and regulations or changes in enforcement priorities, all of which could materially impact the business and operations of our tenants and therefore the marketability of our properties. 41 Our healthcare tenants are subject to extensive federal, state, and local licensure laws, regulations and industry standards governing business operations, the physical plant and structure, patient rights and privacy and security of health information. Our tenants’ failure to comply with any of these laws could result in loss of licensure, denial of reimbursement, imposition of fines or other penalties, suspension or exclusion from the government sponsored Medicare and Medicaid programs, loss of accreditation or certification, or closure of the facility. In addition, efforts by third-party payors, such as the Medicare and Medicaid programs and private insurance carriers, including health maintenance organizations and other health plans, impose greater discounts and more stringent cost controls upon healthcare provider operations (through changes in reimbursement rates and methodologies, discounted fee structures, the assumption by healthcare providers of all or a portion of the financial risk or otherwise). Our tenants may also face significant limits on the scope of services reimbursed and on reimbursement rates and fees, all of which could impact their ability to pay rent or other obligations to us. Referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. Competition and loss of referrals could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues. Any reduction in rental revenues resulting from the inability of our medical office buildings and our tenants to compete successfully may have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders. Property Value Enhancement See, “ Business — Property Value Enhancement — Cortlandt Manor ” and “— Flowerfield ”, above, for more detailed disclosure.