MacKenzie Realty Capital, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark one) ☑ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number 000-55006 MacKenzie Realty Capital, Inc. (Exact name of registrant as specified in its charter) Maryland 45-4355424 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 89 Davis Road, Suite 100 , Orinda , CA 94563 (Address of principal executive offices) ( 925 ) 631-9100 (Registrant’s telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: None Indicate by check mark whether the registrant (1) has 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 or 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 the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ The number of the shares of issuer’s Common Stock outstanding as of May 15, 2023 was 13,299,268.79 . TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of March 31, 2023 and June 30, 2022 (Unaudited) 1 Consolidated Statements of Operations for the three and nine months ended March 31, 2023 and 2022 (Unaudited) 2 Consolidated Statements of Changes in Equity for the three and nine months ended March 31, 2023 (Unaudited) 3 Consolidated Statements of Changes in Equity for the three and nine months ended March 31, 2022 (Unaudited) 4 Consolidated Statements of Cash Flows for the nine months ended March 31, 2023 and 2022 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Item 3. Quantitative and Qualitative Disclosures About Market Risk 51 Item 4. Controls and Procedures 51 PART II. OTHER INFORMATION Item 1. Legal Proceedings 52 Item 1A. Risk Factors 52 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 52 Item 3. Defaults Upon Senior Securities 52 Item 4. Mine Safety Disclosures 52 Item 5. Other Information 52 Item 6. Exhibits 53 SIGNATURES 54 Table of Contents Part I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements MacKenzie Realty Capital, Inc. Consolidated Balance Sheets (Unaudited) March 31, 2023 June 30, 2022 Assets Real estate assets Land $ 37,744,154 $ 32,117,072 Building, fixtures and improvements 131,216,280 64,182,548 Intangible lease assets 8,176,723 2,889,828 Less: accumulated depreciation and amortization ( 5,506,114 ) ( 1,768,130 ) Total real estate assets, net 171,631,043 97,421,318 Cash and cash equivalents 17,582,046 7,400,163 Restricted cash 906,312 1,092,816 Investments, at fair value 15,007,329 19,748,208 Unconsolidated investment (non-security), at fair value 9,711,664 37,845,036 Investments income, rents and other receivables 957,012 1,499,214 Prepaid expenses and other assets 1,195,286 67,625 Assets held for sale, net 10,336,259 17,490,581 Total assets $ 227,326,951 $ 182,564,961 Liabilities Mortgage notes payable, net $ 113,236,270 $ 68,370,415 Notes payable 1,658,075 - Deferred rent and other liabilities 1,190,732 443,014 Finance lease liabilities 642,483 - Dividend payable 1,918,140 1,419,913 Accounts payable and accrued liabilities 1,624,829 2,938,689 Stock redemption payable 434,656 348,051 Below-market lease liabilities, net 1,534,950 1,063,579 Due to related entities 193,423 214,094 Contingent liability 1,503,000 2,715,000 Capital pending acceptance 549,400 85,000 Liabilities held for sale 1,649,272 744,989 Total liabilities 126,135,230 78,342,744 Equity Common stock, $ 0.0001 par value, 80,000,000 shares authorized; 13,241,026.32 and 13,253,571.98 shares issued and outstanding as of March 31, 2023 and June 30, 2022, respectively. 1,324 1,325 Preferred stock, $ 0.0001 par value, 20,000,000 shares authorized, 588,577.64 and 119,416.91 shares issued and outstanding as of March 31, 2023 and June 30, 2022, respectively. 59 12 Capital in excess of par value 132,061,537 121,961,699 Accumulated deficit ( 42,874,199 ) ( 24,108,723 ) Total stockholders’ equity 89,188,721 97,854,313 Non-controlling interests 12,003,000 6,367,904 Total equity 101,191,721 104,222,217 Total liabilities and equity $ 227,326,951 $ 182,564,961 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. 1 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, Nine Months Ended March 31, 2023 2022 2023 2022 Revenue Rental and reimbursements $ 4,469,869 $ 2,518,643 $ 11,212,624 $ 7,811,439 Expenses Property operating and maintenance 2,536,750 1,473,136 6,655,721 4,709,611 Interest expense 1,907,854 572,490 5,171,262 1,417,992 Depreciation and amortization 1,662,359 1,146,495 3,737,983 3,225,189 Asset management fees to related party (Note 8) 767,299 680,678 2,225,085 2,034,852 Administrative cost reimbursements to related party (Note 8) 181,500 152,400 544,500 457,200 General and administrative 283,005 248,001 563,847 398,790 Professional fees 108,586 62,977 486,135 424,168 Directors’ fees 25,500 25,500 80,500 81,500 Transfer agent cost reimbursements to related party (Note 8) 23,000 26,600 69,000 79,801 Total operating expenses 7,495,853 4,388,277 19,534,033 12,829,103 Operating loss ( 3,025,984 ) ( 1,869,634 ) ( 8,321,409 ) ( 5,017,664 ) Other income (loss) Dividend and distribution income from equity securities at fair value 111,261 858,357 316,577 2,237,434 Net unrealized loss on equity securities at fair value ( 238,559 ) ( 3,838,217 ) ( 1,312,612 ) ( 876,882 ) Net income (loss) from equity method investments at fair value ( 877,592 ) 5,404,473 2,756,382 9,339,034 Net realized gain from investments - 5,109,713 830,964 9,462,904 Impairment loss on assets held for sale ( 6,207,743 ) - ( 8,121,089 ) - Net income (loss) ( 10,238,617 ) 5,664,692 ( 13,851,187 ) 15,144,826 Net (income) loss attributable to non-controlling interests ( 46,122 ) 60,261 ( 93,210 ) 90,523 Net (income) attributable to preferred stockholders ( 209,620 ) ( 18,507 ) ( 453,413 ) ( 18,947 ) Net income (loss) attributable to common stockholders $ ( 10,494,359 ) $ 5,706,446 $ ( 14,397,810 ) $ 15,216,402 Net income (loss) per share attributable to common stockholders $ ( 0.79 ) $ 0.43 $ ( 1.08 ) $ 1.14 Weighted average common shares outstanding 13,283,622 13,377,201 13,282,667 13,359,539 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. 2 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statements of Changes in Equity (Unaudited) Common Stock Preferred Stock Total Three Months Ended March 31, 2023 Number of Shares Par Value Number of Shares Par Value Additional Paid- in Capital Accumulated Deficit Stockholders’ Equity Non-controlling Interests Total Equity Balance, December 31, 2022 13,254,497.43 $ 1,325 505,115.06 $ 51 $ 130,274,766 $ ( 30,858,855 ) $ 99,417,287 $ 8,884,148 $ 108,301,435 Distributions to non-controlling interest holders - - - - - - - ( 187,520 ) ( 187,520 ) Operating Partnership Preferred Units issued - - - - - - - 3,242,557 3,242,557 Dividends to common stockholders - - - - - ( 1,520,985 ) ( 1,520,985 ) - ( 1,520,985 ) Dividends to preferred stockholders - - - - - ( 209,620 ) ( 209,620 ) - ( 209,620 ) Net income (loss) - - - - - ( 10,284,739 ) ( 10,284,739 ) 46,122 ( 10,238,617 ) Issuance of preferred stock - - 83,462.58 8 2,046,487 - 2,046,495 - 2,046,495 Issuance of common stock through reinvestment of dividends 45,425.34 5 - - 419,044 - 419,049 - 419,049 Issuance of preferred stock through reinvestment of dividends - - - - 23,436 - 23,436 - 23,436 Issuance Operating Partnership Preferred Units through reinvestment of dividends - - - - - - - 17,693 17,693 Payment of selling commissions and fees - - - - ( 267,546 ) - ( 267,546 ) - ( 267,546 ) Redemptions of common stock ( 58,896.45 ) ( 6 ) - - ( 434,650 ) - ( 434,656 ) - ( 434,656 ) Balance, March 31, 2023 13,241,026.32 $ 1,324 588,577.64 $ 59 $ 132,061,537 $ ( 42,874,199 ) $ 89,188,721 $ 12,003,000 $ 101,191,721 Common Stock Preferred Stock Total Nine Months Ended March 31, 2023 Number of Shares Par Value Number of Shares Par Value Additional Paid- in Capital Accumulated Deficit Stockholders’ Equity Non-controlling Interests Total Equity Balance, June 30, 2022 13,253,571.98 $ 1,325 119,416.91 $ 12 $ 121,961,699 $ ( 24,108,723 ) $ 97,854,313 $ 6,367,904 $ 104,222,217 Distributions to non-controlling interest holders - - - - - - - ( 439,668 ) ( 439,668 ) Operating Partnership Preferred Units issued - - - - - - - 5,953,935 5,953,935 Dividends to common stockholders - - - - - ( 4,367,666 ) ( 4,367,666 ) - ( 4,367,666 ) Dividends to preferred stockholders - - - - - ( 453,413 ) ( 453,413 ) - ( 453,413 ) Net income (loss) - - - - - ( 13,944,397 ) ( 13,944,397 ) 93,210 ( 13,851,187 ) Operating Partnership Class A conversion to common stock 169.67 - * - - 1,739 - 1,739 ( 1,739 ) - Issuance of preferred stock - - 468,425.07 47 11,449,448 - 11,449,495 - 11,449,495 Issuance of common stock through reinvestment of dividends 131,046.97 13 - - 1,208,896 - 1,208,909 - 1,208,909 Issuance of preferred stock through reinvestment of dividends - - 735.66 - * 39,988 - 39,988 - 39,988 Issuance Operating Partnership Preferred Units through reinvestment of dividends - - - - - - - 29,358 29,358 Payment of selling commissions and fees - - - - ( 1,363,238 ) - ( 1,363,238 ) - ( 1,363,238 ) Redemptions of common stock ( 143,762.30 ) ( 14 ) - - ( 1,236,995 ) - ( 1,237,009 ) - ( 1,237,009 ) Balance, March 31, 2023 13,241,026.32 $ 1,324 588,577.64 $ 59 $ 132,061,537 $ ( 42,874,199 ) $ 89,188,721 $ 12,003,000 $ 101,191,721 * Amount is less than $1. The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. 3 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statements of Changes in Equity (Unaudited) Common stock Preferred stock Total Number of Par Number of Par Additional Paid- Accumulated Stockholders’ Non-controlling Three Months Ended March 31, 2022 Shares Value Shares Value in Capital Deficit Equity Interests Total Equity Balance, December 31, 2021 13,367,871.16 $ 1,337 3,520.00 $ - * $ 120,536,198 $ ( 16,588,995 ) $ 103,948,540 $ 1,071,628 $ 105,020,168 Distributions to non-controlling interest holders - - - - - - - ( 2,832 ) ( 2,832 ) Dividends to common stockholders - - - - - ( 1,193,841 ) ( 1,193,841 ) - ( 1,193,841 ) Dividends to preferred stockholders - - - - - ( 18,507 ) ( 18,507 ) - ( 18,507 ) Net income (loss) - - - - - 5,724,953 5,724,953 ( 60,261 ) 5,664,692 Operating Partnership Class A conversion to common stock 212.19 - * - - 2,175 - 2,175 ( 2,175 ) - Issuance of common stock through reinvestment of dividends 33,961.70 3 - - 313,297 - 313,300 - 313,300 Issuance of preferred stock through reinvestment of dividends - - 3.33 - * 75 - 75 - 75 Issuance of preferred stock - - 76,494.57 8 1,896,492 - 1,896,500 - 1,896,500 Payment of selling commissions and fees - - - - ( 241,036 ) - ( 241,036 ) - ( 241,036 ) Redemptions of common stock ( 125,677.16 ) ( 12 ) - - ( 1,149,378 ) - ( 1,149,390 ) - ( 1,149,390 ) Balance, March 31, 2022 13,276,367.89 $ 1,328 80,017.90 $ 8 $ 121,357,823 $ ( 12,076,390 ) $ 109,282,769 $ 1,006,360 $ 110,289,129 Common stock Preferred stock Total Number of Par Number of Par Additional Paid- Accumulated Stockholders’ Non-controlling Nine Months Ended March 31, 2022 Shares Value Shares Value in Capital Deficit Equity Interests Total Equity Balance, June 30, 2021 13,316,426.79 $ 1,332 - $ - $ 120,408,505 $ ( 23,298,857 ) $ 97,110,980 $ 251,840 $ 97,362,820 Contributions by non-controlling interest holders - - - - - - - 856,364 856,364 Distributions to non-controlling interest holders - - - - - - - ( 9,146 ) ( 9,146 ) Dividends to common stockholders - - - - - ( 3,993,935 ) ( 3,993,935 ) - ( 3,993,935 ) Dividends to preferred stockholders - - - - - ( 18,947 ) ( 18,947 ) - ( 18,947 ) Net income (loss) - - - - - 15,235,349 15,235,349 ( 90,523 ) 15,144,826 Operating Partnership Class A conversion to common stock 212.19 - * - - 2,175 - 2,175 ( 2,175 ) - Issuance of common stock through reinvestment of dividends 91,013.94 9 - - 839,601 - 839,610 - 839,610 Issuance of preferred stock through reinvestment of dividends - - 3.33 - * 75 - 75 - 75 Issuance of preferred stock - - 80,014.57 8 1,984,492 - 1,984,500 - 1,984,500 Payment of selling commissions and fees - - - - ( 672,460 ) - ( 672,460 ) - ( 672,460 ) Redemptions of common stock ( 131,285.03 ) ( 13 ) - - ( 1,204,565 ) - ( 1,204,578 ) - ( 1,204,578 ) Balance, March 31, 2022 13,276,367.89 $ 1,328 80,017.90 $ 8 $ 121,357,823 $ ( 12,076,390 ) $ 109,282,769 $ 1,006,360 $ 110,289,129 *Amount is less than $1. The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. 4 Table of Contents MacKenzie Realty Capital, Inc. Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended March 31 , 2023 2022 Cash flows from operating activities: Net income (loss) $ ( 13,851,187 ) $ 15,144,826 Adjustments to reconcile net income (loss) to net cash from operating activities: Net unrealized loss on equity securities at fair value 1,312,612 876,882 Net income (loss) from equity method investments at fair value ( 1,478,779 ) ( 7,053,372 ) Net realized gain on investments ( 830,964 ) ( 9,462,904 ) Loss on disposal of fixed assets 3,604 - Impairment loss on assets held for sale 8,121,089 - Straight - line rent ( 41,920 ) ( 418,951 ) Depreciation and amortization 3,737,983 3,225,189 Amortization of deferred financing costs 451,433 14,320 Accretion of market lease and other intangibles, net ( 167,555 ) ( 121,881 ) Changes in assets and liabilities: Investments income, rent and other receivables 1,138,360 160,959 Due from related entities - ( 27,001 ) Prepaid expenses and other assets ( 1,287,821 ) ( 199,924 ) Deferred rent and other liabilities ( 318,917 ) 22,483 Accounts payable and accrued liabilities ( 1,323,635 ) 505,626 Due to related entities ( 377,581 ) 74,741 Net cash from operating activities ( 4,913,278 ) 2,740,993 Cash flows from investing activities: Proceeds from sale of and sales distribution from investments 13,225,365 30,333,194 Investment acquisition advance - ( 900,000 ) Investments in real estate assets ( 17,944,745 ) ( 22,851,479 ) Purchase of investments ( 303,884 ) ( 13,786,878 ) Return of capital distributions 12,282,338 22,250,314 Payment on contingent liability ( 1,154,125 ) - Net cash from investing activities 6,104,949 15,045,151 Cash flows from financing activities: Proceeds from mortgage notes payable 3,034,349 16,129,689 Payments on mortgage notes payable ( 455,400 ) ( 1,294,879 ) Proceeds on notes payable 9,632 - Payments on notes payable ( 12,388 ) - Payment of deferred financing cost - ( 784,327 ) Dividend to stockholders ( 3,203,432 ) ( 1,960,849 ) Proceeds from issuance of preferred stock 11,449,495 1,984,500 Payment of finance lease liabilities ( 16,213 ) - Payment of selling commissions and fees ( 1,005,925 ) ( 523,032 ) Contributions by non-controlling interests holders - 856,364 Distributions to non-controlling interests holders ( 280,835 ) ( 8,068 ) Redemption of common stock, net of redemptions payable ( 1,150,404 ) ( 162,884 ) Capital pending acceptance 464,400 10,000 Net cash from financing activities 8,833,279 14,246,514 Net increase in cash, cash equivalents and restricted cash 10,024,950 32,032,658 Cash, cash equivalents and restricted cash at beginning of the period 8,998,165 7,753,553 Cash, cash equivalents and restricted cash at end of the period $ 19,023,115 $ 39,786,211 Cash and cash equivalents at end of the period $ 17,582,046 $ 31,399,223 Restricted cash at end of the period 906,312 5,570,020 Cash and restricted cash at end of the period classified as assets held for sale 534,757 2,816,968 Total cash, cash equivalents, restricted cash and cash classified as held for sale at end of the period $ 19,023,115 $ 39,786,211 Supplemental disclosure of non-cash financing activities and other cash flow information Issuance of the Operating Partnership Preferred units for the purchase of First & Main, LP (Note 1) $ 2,711,378 $ - Issuance of the Operating Partnership Preferred units for the purchase of Main Street West, LP (Note 1) $ 3,242,557 $ - Fair value of assets acquired from consolidation of First & Main, LP $ 18,507,861 $ - Fair value of liabilities assumed from consolidation of First & Main, LP $ 13,559,483 $ - Fair value of assets acquired from consolidation of 1300 Main, LP $ 10,546,464 $ - Fair value of liabilities assumed from consolidation of 1300 Main, LP $ 8,753,242 $ - Fair value of assets acquired from consolidation of Main Street West, LP $ 20,699,145 $ - Fair value of liabilities assumed from consolidation of Main Street West, LP $ 16,119,679 $ - Fair value of assets acquired from consolidation of Woodland Corporate Center Two, LP $ 11,538,400 $ - Fair value of liabilities assumed from consolidation of Woodland Corporate Center Two, LP $ 8,295,843 $ - Issuance of common stock through reinvestment of dividends $ 1,208,909 $ 839,610 Issuance of preferred stock through reinvestment of dividends $ 39,988 $ 75 Written off contingent consideration $ 57,875 $ - Cash paid for interest $ 3,759,832 $ 1,174,261 The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements. 5 Table of Contents MacKenzie Realty Capital, Inc. Notes to Consolidated Financial Statements March 31, 2023 (Unaudited) NOTE 1 – PRINCIPAL BUSINESS AND ORGANIZATION MacKenzie Realty Capital, Inc. (the “Parent Company” together with its subsidiaries as discussed below, the “Company ,” “we,” “us,” or “our ” ) was incorporated under the general corporation laws of the State of Maryland on January 25, 2012. We were formerly a non-diversified, closed-end investment company that elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (“1940 Act”). We withdrew our election to be treated as a BDC on December 31, 2020. We have elected to be treated as a real estate investment trust (“REIT”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We are authorized to issue 100,000,000 shares, of which (i) 80,000,000 are designated as common stock, with a $ 0.0001 par value per share; and (ii) 20,000,000 are designated as preferred stock, with a $ 0.0001 par value per share. We commenced our operations on February 28, 2013, and our fiscal year-end is June 30. We filed our initial registration statement in June 2012 with the Securities and Exchange Commission (“SEC”) to register the initial public offering of 5,000,000 shares of our common stock. The initial public offering commenced in January 2014 and concluded in October 2016. We filed a second registration statement with the SEC to register a subsequent public offering of 15,000,000 shares of our common stock. The second offering commenced in December 2016 and concluded on October 28, 2019. We filed a third registration statement with the SEC to register a public offering of 15,000,000 shares of our common stock that was declared effective by the SEC on October 31, 2019. The third offering commenced shortly thereafter and expired on October 31, 2020. On October 23, 2020, holders of a majority of our outstanding common stock authorized our Board of Directors to withdraw our election to be regulated as a BDC under the 1940 Act. The withdrawal was effective with the SEC on December 31, 2020, when we filed the appropriate form with the SEC. The Parent Company’s wholly owned subsidiary, MRC TRS, Inc., (“TRS”) was incorporated under the general corporation laws of the State of California on February 22, 2016 and operates as a taxable REIT subsidiary. MacKenzie NY Real Estate 2 Corp. (“MacKenzie NY 2”), a wholly owned subsidiary of TRS, was formed for the purpose of making certain limited investments in New York companies. We terminated TRS effective December 31, 2022, after the sale of its sole investment and transferred the ownership of MacKenzie NY 2 to the Parent Company. The financial statements of MacKenzie NY 2 have been consolidated with the Parent Company. On May 20, 2020, we formed an operating partnership, MacKenzie Realty Operating Partnership, LP (the “Operating Partnership”) for the purpose of acquiring and operating real estate assets. As of March 31, 2023 , we own all limited partnership units of the Operating Partnership except for 89,552.61 Class A Limited Partnership units and 471,804.43 Series A Preferred Units, which would be entitled to receive, at liquidation of the Operating Partnership, 89,552.61 common shares of the Company (stated value of $ 10.25 per share) and $ 11,795,110.75 (stated value of $ 25 per unit) in liquidation preference, respectively. The Parent Company has contributed $ 71,671,717 in capital to the Operating Partnership since inception; thus the Class A and Series A Preferred Units represent approximately 15 % of all capital contributions. In March 2021, we, together with our joint venture partners, formed two operating companies: Madison-PVT Partners LLC (“Madison”) and PVT-Madison Partners LLC (“PVT”), to acquire and operate two residential apartment buildings located in Oakland, California. We own 98.45 % and 98.75 % of equity units of Madison and PVT, respectively. The joint venture partners own the remaining 1.55 % and 1.25 % equity units of Madison and PVT, respectively and also hold a carried interest in both companies. We are the controlling majority owner of both companies; therefore, effective March 31, 2021, we have consolidated the financial statements of these companies. On April 13, 2021, we filed a preliminary offering circular (the “Offering Circular”) pursuant to Regulation A with the SEC to sell up to $ 50,000,000 of shares of our Series A preferred stock at an initial offering price of $ 25.00 per share. The sale of shares pursuant to this offering began in November 2021 after the definitive version of the Offering Circular was qualified by the SEC on November 2, 2021. We filed a post-effective amendment to the Offering Circular on October 14, 2022, and increased the offering to sell up to $ 75 million of shares of our Series A preferred stock. The post-effective amendment to this Offering Circular was declared effective on November 13, 2022. 6 Table of Contents On October 4, 2021, through the Operating Partnership, we acquired a 90 % economic interest in Hollywood Hillview Owner, LLC (“Hollywood Hillview”), a Delaware limited liability company, to acquire and operate a multifamily building located in Los Angeles, California. The remaining 10 % economic interest in Hollywood Hillview is owned by an unaffiliated third party, True USA, LLC. Hollywood Hillview owns 100 % of the membership interests in PT Hillview GP, LLC (the “PT Hillview”). We are the controlling majority owner of Hollywood Hillview; therefore, effective December 31, 2021, we have consolidated the financial statements of Hollywood Hillview. On January 25, 2022, through the Operating Partnership, we acquired a 98 % limited liability company interest in MacKenzie BAA IG Shoreline LLC (“MacKenzie Shoreline”), formed to acquire, renovate, and own the 84-unit multifamily building located at 1841 Laguna Street, Concord, CA. The joint venture partners own the remaining 2 % of the limited liability company interest as well as a carried interest. We are the controlling majority owner of the MacKenzie Shoreline; therefore, effective June 30, 2022, we have consolidated the financial statements of MacKenzie Shoreline. On April 1, 2022, we, and our newly formed, wholly owned subsidiary, FSP Merger Sub, Inc. (“Merger Sub”) entered into a reverse triangular merger agreement with FSP Satellite Place Corp. (“FSP Satellite”), pursuant to which the Merger Sub would be merged with and into FSP Satellite with FSP Satellite as the surviving entity, but renamed MacKenzie Satellite Place Corp. (“MacKenzie Satellite”). On June 1, 2022, the merger closed, and MacKenzie Satellite became a wholly owned subsidiary of us, which in turn owns the Satellite Place Office Building, a six-story Class “A” suburban office building containing approximately 134,785 rentable square feet of space located on approximately 10 acres of land in Duluth, GA. The former shareholders of FSP Satellite received cash or shares of the Company, based upon their election. All former shareholders of FSP Satellite holders elected to be paid in cash with the exception of two shareholders who elected to receive common and preferred stocks in the amount of $ 27,503 and $ 13,752 , respectively. Subsequent to the completion of the merger, we have consolidated the financial statements of MacKenzie Satellite effective June 30, 2022. On May 6, 2022, the Operating Partnership purchased 100 % of the membership interests in eight limited liability companies (“Management Companies”) and one parcel of entitled land from The Wiseman Company, LLC (“Wiseman”) for $ 18,333,000 and $ 3,050,000 , respectively. The limited liability companies own the general partnership interests in eight limited partnerships, each of which own a Class A or B office property in Napa, Fairfield, or Woodland, California (the “Wiseman Properties”). Each Management Company is the sole general partner of each of the limited partnerships. The membership interest purchase price is subject to adjustments and holdbacks as provided in the membership interest purchase agreement. As part of the purchase agreement, $ 4,650,000 of the purchase price was paid through the issuance of 206,666.67 Preferred Units of the Operating Partnership and $ 750,000 of the land purchase price was paid through the issuance of 77,881.62 Class A units of the Operating Partnership. Further details of this acquisition are discussed in Note 5. We have consolidated the financial statements of the eight limited liability companies, which hold the general partnership interests in the limited partnerships, effective June 30, 2022. Wiseman is a full-service real estate syndicator, developer, broker, and property manager. It was founded in 1979 and served as the general partner for nine currently active partnerships owning the Wiseman Properties. Concurrently with acquiring the general partnership interests in the Wiseman Properties, the Operating Partnership also negotiated the right to acquire the limited partnership interest in each Wiseman Property at pre-determined prices over the following two years . Management believes this transaction is strategically important as it focuses the portfolio on our desired geographic area (Western United States) and creates a captive pipeline of properties which we can acquire when convenient over the next two years . On July 29, 2022, in addition to the general partnership interest in First & Main, LP (“First & Main”), the Operating Partnership completed the acquisition of 100 % of the limited partnership interest in First & Main for total purchase price of $ 3,376,322 , of which $ 2,711,378 was paid through issuance of 120,505.66 Preferred Units of the Operating Partnership. We consolidated the financial statements of First & Main during the quarter ended September 30, 2022. On October 1, 2022, in addition to the general partnership interest in 1300 Main, LP (“1300 Main”), the Operating Partnership completed the acquisition of 100 % of the limited partnership interest in 1300 Main for total purchase price of $ 6,480,582 . We consolidated the financial statements of 1300 Main during the quarter ended December 31, 2022. On January 3, 2023, the Operating Partnership completed the acquisition of 100 % of the limited partnership interest in Woodland Corporate Center Two, LP (“Woodland Corporate Center Two”) for total purchase price of $ 5,636,966 , of which $ 3,242,557 was paid through the issuance of 144,113.63 Preferred Units of the Operating Partnership. On February 1, 2023, the Operating Partnership completed the acquisition of 100 % of the limited partnership interest in Main Street West, LP (“Main Street West”) for total purchase price of $ 8,277,016 . We consolidated the financial statements of Woodland Corporate Center Two and Main Street West during the quarter ended March 31, 2023. 7 Table of Contents On February 6, 2023, we formed a new entity, MRC Aurora, LLC (the “MRC Aurora”) for the purpose of owning, developing, renovating, leasing, managing, renting, and potentially selling certain real property and building and improvements located at 5000 Wiseman Way, Fairfield, California (the “Project”). The Parent Company is the manager and the Operating Partnership is the sole common member of MRC Aurora. The Operating Partnership contributed the entitled land located at 5000 Wiseman Way, Fairfield, California in exchange for the common membership interest. MRC Aurora plans to raise $ 10 million in preferred capital and also obtain a construction loan to fund the development of the Project. As of March 31, 2023, MRC Aurora has not commenced selling the preferred units, making the Operating Partnership the sole equity holder of MRC Aurora. Therefore, we have consolidated the financial statements of MRC Aurora during the quarter ended March 31, 2023. W e are externally managed by MacKenzie Capital Management, LP (“MacKenzie”) under the administration agreement dated and effective as of February 28, 2013 (the “Administration Agreement”). MacKenzie manages all of our affairs except for providing investment advice. MCM Advisers, LP (the “Investment Adviser”) advises us in our assessment, acquisition, and divestiture of securities under the advisory agreement amended and restated effective January 1, 2021 (the “Amended and Restated Investment Advisory Agreement”). MacKenzie Real Estate Advisers, LP (the “Real Estate Adviser”; together, the “Investment Adviser” and the “Real Estate Adviser” may be referred to as “Adviser” or “Advisers” as appropriate) advises us in our assessment, acquisition, and divestiture of real estate assets. We pursue a strategy focused on investing primarily in real estate assets, and to a lesser extent (intended to be less than 20 % of our portfolio) in illiquid or non-traded debt and equity securities issued by U.S. companies generally owning commercial real estate. These companies are likely to be non-traded REITs, small-capitalization publicly traded REITs, public and private real estate limited partnerships, and limited liability companies. As of March 31, 2023, we have raised approximately $ 119.10 million from our three common stock public offerings and $ 14.41 million from our Series A preferred stock offering pursuant to the Offering Circular. As of March 31, 2023 , we have issued shares with gross proceeds of $ 13.80 million under our dividend reinvestment plan (“DRIP”). Of the total shares issued by us as of March 31, 2023 , approximately $ 12.88 million worth of common stock shares have been repurchased under our share repurchase program. On February 27, 2023, we have announced the updated net asset value (“NAV”) of our common shares as of December 31, 2022. As a result, our Board of Directors has lowered the price of the common shares issued under DRIP to $ 7.38 per share, the new NAV. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Consolidation Policy The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X. We follow the accounting principles generally accepted in the United States of America (“GAAP”) and includes the accounts of our wholly owned consolidated subsidiaries and majority-owned controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of our results for the interim periods presented. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2022, included in our annual report on Form 10-K filed with the SEC. Certain prior period information has been reclassified to conform to the prior year end presentation. The reclassification has no effect on our consolidated balance sheet or the consolidated statement of operations as previously reported. There have been no changes in the significant accounting policies from those disclosed in the audited financial statements for the year ended June 30, 2022, other than those expanded upon and described herein. Use of Estimates The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported asset values, liabilities, revenues, expenses and unrealized gains (losses) on investments during the reporting period. Material estimates that are susceptible to change, and actual results could differ from those estimates. 8 Table of Contents Cash, Cash Equivalents and Restricted Cash Our cash and cash equivalents represent current bank accounts and other bank deposits free of encumbrances and having maturity dates of three months or less from the respective dates of deposit. We limit cash investments to financial institutions with high credit standing; therefore, we believe our cash investments are not exposed to any significant credit risk. The restricted cash includes escrow accounts for real property taxes, insurance, capital expenditures and tenant improvements, and debt service and leasing costs held by lenders. These balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to certain limits. At times, the cash balances held in financial institutions by us may exceed these insured limits. Restricted cash is subject to legal or contractual restrictions as to withdrawal or use, including restrictions that require the funds to be used for a specified purpose and restrictions that limit the purpose for which the funds can be used. Investments Income Receivable Investment income represent dividends, distributions, and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the consolidated financial statements. The amounts are generally fully collectible as they are recognized based on completed transactions. We monitor and adjust our receivables, and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. We have determined that all investments income receivable balances outstanding as of March 31, 2023 and June 30, 2022, are collectible and do not require recording any uncollectible allowance. Rents and Other Receivables We will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. We exercise judgment in establishing these allowances and consider payment history and current credit status of tenants in developing these estimates. We have determined that all rent receivable balances outstanding as of March 31, 2023 and June 30, 2022, are collectible and do not require recording any uncollectible allowance. Capital Pending Acceptance We conduct closings for new purchases of our common stock twice per month and admits new stockholders effective beginning the first of each month. Subscriptions are effective only upon our acceptance. Any gross proceeds received from subscriptions which are not accepted as of the period-end are classified as capital pending acceptance in the consolidated balance sheets. As of March 31, 2023 and June 30, 2022, capital pending acceptance was $ 549,400 and $ 85,000 , respectively. Income Taxes and Deferred Tax Liability The Parent Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90 % of its REIT taxable income to the stockholders and meets certain other conditions. To the extent that it satisfies the annual distribution requirement but distributes less than 100 % of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4 % excise tax on catch-up distributions paid in the subsequent year. The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2021. Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2021. Similarly, for the tax year 2022, we believe the Parent Company paid the requisite amounts of dividends during the year and met other REIT requirements such that it will not owe any income taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2022. TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on their taxable income at regular statutory rates. As discussed in Note 1, TRS terminated effective December 31, 2022. As of December 31, 2022, they did not have material taxable income for tax year 2022. Therefore, TRS, and MacKenzie NY 2 did no t record any income tax provisions during any fiscal period within the tax year 2022. As of March 31, 2023, MacKenzie NY 2 , as a taxable corporate subsidiary of the Parent Company, did no t have any taxable income. Therefore, we did no t record any tax provisions for tax year 2023. MacKenzie Satellite is a qualified REIT subsidiary of the Parent Company. Therefore, it does not file a separate tax return. 9 Table of Contents The Operating Partnership is a limited partnership and its subsidiaries Addison Property Owner, LLC (the “Addison Property Owner”), Hollywood Hillview, MacKenzie Shoreline and MRC Aurora are limited liability companies. Madison and PVT are also limited liability companies. First & Main, 1300 Main, Main Street West and Woodland Corporate Center Two are limited partnerships. Accordingly, all income tax liabilities of these entities flow through to their partners, which ultimately is the Company. Therefore, no income tax provisions are recorded for these entities. We follow ASC 740, Income Taxes (“ASC 740”), to account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax liabilities attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax consequences, we consider all future events, other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period of enactment. In addition, ASC 740 provides guidance for recognizing, measuring, presenting, and disclosing uncertain tax positions in the financial statements. As of March 31, 2023 and June 30, 2022, there were no uncertain tax positions. Management’s determinations regarding ASC 740 are subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Subsequent Events Subsequent events are events or transactions that occur after the date of the consolidated balance sheets but before the date the consolidated financial statements are available to be issued. Subsequent events that provide additional evidence about conditions that existed at the date of the consolidated balance sheets are considered in the preparation of the consolidated financial statements presented herein. Subsequent events that occur after the date of the consolidated balance sheets that do not provide evidence about the conditions that existed as of the date of the consolidated statements of changes in equity are considered for disclosure based upon their significance in relation to our consolidated financial statements taken as a whole. Fair Value of Financial Instruments Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. We believe that the carrying amounts of our financial instruments, consisting of cash, restricted cash, investments income, rent and other receivables, prepaid expenses and other assets, mortgage notes payable, accounts payable and accrued liabilities, below-market lease liabilities, net, deferred rent and other liabilities and due to related entities, approximate the fair values of such items based on their nature, terms, and interest rates. Equity Securities We have minority and non-controlling equity investments in various limited partnerships and non-traded entities, which do not have readily determinable fair values. We do not have controlling interests in these entities. Thus, these investments have been recorded as investments in equity securities in accordance with ASC Topic 321, Investments – Equity Securities , and measured at fair value. The changes in the fair value of these investments are recorded in the consolidated statement of operations. 10 Table of Contents Equity Method Investments with Fair Value Option Election We elected the fair value option of accounting for the investments listed below that would have otherwise been recorded under the equity method of accounting. The primary purpose of electing the fair value option was to enhance the transparency of our financial condition. Changes in the fair value of these investments, which are inclusive of equity in income, are recorded in the consolidated statement of operations during the period such changes occur. The below list of investments would have been accounted for under the equity method if the fair value method had not been elected and have been included in investments in the consolidated balance sheets as of March 31, 2023 and June 30, 2022: Investee Legal Form Asset Type % Ownership Fair Value as of March 31, 2023 5210 Fountaingate, LP Limited Partnership LP Interest 9.92 % $ 6,820 Capitol Hill Partners, LLC Limited Liability Company LP Interest 23.33 % $ 1,455,400 Citrus Park Hotel Holdings, LLC Limited Liability Company LP Interest 35.27 % $ 4,100,000 Dimensions 28, LLP Limited Partnership LP Interest 90.00 % $ 389,664 Lakemont Partners, LLC Limited Liability Company LP Interest 17.10 % $ 837,860 Green Valley Medical Center, LP Limited Partnership GP Interest 1.00 % * $ 2,596,500 Martin Plaza Associates, LP Limited Partnership GP Interest 1.00 % * $ 640,000 One Harbor Center, LP Limited Partnership GP Interest 1.00 % * $ 4,236,500 Westside Professional Center I, LP Limited Partnership GP Interest 1.00 % * $ 1,849,000 Total $ 16,111,744 Investee Legal Form Asset Type % Ownership Fair Value as of June 30, 2022 5210 Fountaingate, LP Limited Partnership LP Interest 9.92 % $ 6,820 Capitol Hill Partners, LLC Limited Liability Company LP Interest 23.33 % $ 1,518,100 Citrus Park Hotel Holdings, LLC Limited Liability Company LP Interest 35.27 % $ 5,000,000 Dimensions 28, LLP Limited Partnership LP Interest 90.00 % $ 19,512,036 Lakemont Partners, LLC Limited Liability Company LP Interest 17.10 % $ 806,290 Secured Income L.P. Limited Partnership LP Interest 6.57 % $ 520,594 1300 Main, LP Limited Partnership GP Interest 1.00 % * $ 1,688,000 First & Main, LP Limited Partnership GP Interest 1.00 % * $ 2,237,000 Green Valley Medical Center, LP Limited Partnership GP Interest 1.00 % * $ 3,010,000 Main Street West, LP Limited Partnership GP Interest 1.00 % * $ 4,708,000 Martin Plaza Associates, LP Limited Partnership GP Interest 1.00 % * $ 725,000 One Harbor Center, LP Limited Partnership GP Interest 1.00 % * $ 4,162,000 Westside Professional Center I, LP Limited Partnership GP Interest 1.00 % * $ 1,803,000 Woodland Corporate Center Two, LP Limited Partnership GP Interest 1.00 % * $ - Total $ 45,696,840 * The general partner has a 1 % partnership interest but is also entitled to profit sharing distributions ranging from 25 % to 50 % after certain thresholds are met. In January 2023, Dimension 28, LLP sold its sole property and distributed the majority of the sales proceeds. We received approximately $ 21.11 million and expect to receive any remaining reserves later this year. 11 Table of Contents Unconsolidated Investments (Non-security) at Fair Value These are equity method investments that do not meet the consolidation requirements under ASC 810. Under the 1940 Act, these investments are considered “voting securities” as opposed to “investment securities”. Therefore, we listed these equity method investments separately from rest of the equity method investments at fair value in the consolidated balance sheets. As of March 31, 2023, our investments in Dimensions 28, LLP, Green Valley Medical Center, LP, Martin Plaza Associates, LP, One Harbor Center, LP and Westside Professional Center I, LP are considered to be voting securities under the 1940 Act. As of June 30, 2022, our investments in 1300 Main, LP, First & Main, LP, Dimensions 28, LLP, Green Valley Medical Center, LP, Main Street West, LP, Martin Plaza Associates, LP, One Harbor Center, LP, Westside Professional Center I, LP and Woodland Corporate Center Two, LP were considered to be voting securities under the 1940 Act. Therefore, these investments were shown as unconsolidated investments (non-security), at fair value in the consolidated balance sheets. For GAAP purposes, these investments have been recorded under the equity method investments, for which we have elected the fair value option as discussed above. Contingent Consideration in an Asset Acquisition Contingent consideration recognized is included in the initial cost of the assets acquired. Subsequent changes in the recorded amount of contingent consideration will generally be recognized as an adjustment to the cost basis of the acquired assets, in accordance with ASC 323-10-35-14a and ASC 360-10-30-1. The subsequent changes will be allocated to the acquired assets based on their relative fair value at the date of acquisition. Subsequent change in contingent consideration impacts the cost basis of acquired assets, which may also impact the statement of operations through subsequent accounting for the acquired asset. We are aware of diversity in practice regarding the subsequent treatment of the statement of operations effect of changes to the cost basis of the acquired assets. We generally believe the depreciation or amortization of these assets should be recognized as a cumulative “catch up” adjustment, as if the additional amount of consideration that is no longer contingent had been accrued from the outset of the arrangement. Leases The three partnerships that we acquired during the nine months ended March 31, 2023; 1300 Main, Main Street West and Woodland Corporate Center Two had solar equipment leases in place at the time of our acquisition. Therefore, these existing solar leases were reassessed at the acquisition date and were recorded as finance leases in accordance with ASC 842. We record leases on the consolidated balance sheet in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset. The discount rate used in determining the lease liability is based upon incremental borrowing rates that we could obtain for similar loans as of the date of commencement or renewal. We do not record leases on the consolidated balance sheets that are classified as short term (less than one year). At lease inception, we determine the lease term by considering the minimum lease term and all optional renewal periods that we are reasonably certain to renew. The lease term is also used to calculate straight-line rent expense. The depreciable life of leasehold improvements is limited by the estimated lease term, including renewals if they are reasonably certain to be renewed. Our leases do not contain residual value guarantees or material variable lease payments that will impact our ability to pay dividends or cause us to incur additional expenses. The amortization of the right-of-use asset arising from finance leases is expensed through depreciation and amortization expense and the interest on the related lease liability is expensed through interest expense on our consolidated statements of operations. Impairment of Real Estate Assets We continually monitor events and changes in circumstances that could indicate that the carrying value of our real estate and related intangible assets may not be recoverable. When indicators of potential impairment emerge, we assess whether we will recover the carrying value of the asset through our undiscounted future cash flows and our eventual disposition. Based on this assessment, if we do not believe that we will recover the carrying value of the real estate and related intangible assets, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets. We did no t record any impairment charges on our assets held for use during the nine months ended March 31, 2023. However, we recorded an impairment loss allowance of $ 8,121,089 on our assets held for sale during the nine months ended March 31, 2023, which is d iscussed in Note 5. 12 Table of Contents Reportable Segments ASC 280, Segment Reporting , establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. We have one reportable segment, income-producing real estate properties, which consists of activities related to investing in real estate. The real estate properties are geographically diversified throughout the United States, and we evaluate operating performance on an overall portfolio level. NOTE 3 – INVESTMENTS IN REAL ESTATE The following tables provide summary information regarding our operating properties which are owned through our subsidiaries. The ownership interest shown below is the percentage of the property owned by the subsidiary, not the percentage of the subsidiary owned by the Parent Company or the Operating Partnership. Consolidated Operating Properties Property Name: Addison Corporate Center Commodore Apartments Pon de Leo Apartments Hollywood Apartments Property Owner: Addison Property Owner, LLC Madison-PVT Partners LLC PVT-Madison Partners LLC PT Hillview GP, LLC Location: Windsor, CT Oakland, CA Oakland, CA Hollywood, CA Number of Tenants: 6 48 39 51 Year Built: 1980 1912 1929 1917 Ownership Interest: 100 % 100 % 100 % 100 % Property Name: Shoreline Apartments Satellite Place Office Building First & Main Office Building 1300 Main Office Building Property Owner: MacKenzie BAA IG Shoreline LLC MacKenzie Satellite Place Corp. First & Main, LP 1300 Main, LP Location: Concord, CA Duluth, GA Napa, CA Napa, CA Number of Tenants: 77 1 7 8 Year Built: 1968 2002 2001 2020 Ownership Interest: 100 % 100 % 100 % 100 % Property Name: Woodland Corporate Center Main Street West Office Building Property Owner: Woodland Corporate Center, Two, LP Main Street West, LP Location: Woodland, CA Napa, CA Number of Tenants: 14 7 Year Built: 2004 2007 Ownership Interest: 100 % 100 % The following table presents the allocation of real estate assets acquired during the nine months ended March 31, 2023 based on asset acquisition accounting. Property Name: First & Main Office Building Acquisition Date: July 23, 2022 Purchase Price Allocation Land $ 966,315 Building 15,597,370 Site Improvements 795,197 Tenant Improvements 524,399 Lease in Place 796,341 Leasing Commissions 347,204 Legal & Marketing Lease Up Costs 52,007 Total assets acquired 19,078,833 Net leasehold asset (liability) ( 220,100 ) Total assets acquired, net $ 18,858,733 13 Table of Contents Property Name: 1300 Main Office Building Acquisition Date: October 1, 2022 Purchase Price Allocation Land $ 805,575 Building 14,134,096 Tenant Improvements 323,882 Leaseholds 44,422 Lease In Place 682,140 Leasing Commissions 250,296 Legal & Marketing Lease Up Costs 57,849 Debt Mark-to-Market 338,000 Solar Finance Lease 76,715 Total assets acquired $ 16,712,975 Property Name: Woodland Corporate Center Acquisition Date: January 3, 2023 Purchase Price Allocation Land $ 1,840,468 Building 8,766,789 Site Improvements 564,014 Tenant Improvements 397,263 Lease In Place 790,382 Leasing Commissions 163,540 Legal & Marketing Lease Up Costs 77,264 Total assets acquired 12,599,720 Net leasehold asset (liability) ( 74,440 ) Total assets acquired, net $ 12,525,280 Property Name: Main Street West Office Building Acquisition Date: February 1, 2023 Purchase Price Allocation Land $ 1,433,698 Building 24,438,447 Site Improvements 9,956 Tenant Improvements 542,390 Lease In Place 926,521 Leasing Commissions 379,516 Legal & Marketing Lease Up Costs 41,152 Debt Mark-to-Market 717,000 Total assets acquired 28,488,681 Net leasehold asset (liability) ( 222,065 ) Total assets acquired, net $ 28,266,616 The total depreciation expense of our operating properties for the three and nine months ended March 31, 2023 were $ 1,047,603 and $ 2,606,536 , respectively. The total depreciation expense of our operating properties for the three and nine months ended March 31, 2022 were $ 713,955 and $ 2,001,524 , respectively. 14 Table of Contents Operating Leases: Our real estate assets are leased to tenants under operating leases that contain varying terms and expirations. The leases may have provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. We retain substantially all the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, we do not require a security deposit from tenants on our commercial real estate properties, depending upon the terms of the respective leases and the creditworthiness of the tenants. Even when required, security deposits generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of the security deposit. Security deposits received in cash related to tenant leases are included in other accrued liabilities in the accompanying consolidated balance sheets and were immaterial as of March 31, 2023 and June 30, 2022. The following table presents the components of income from real estate operations for the three and nine months ended March 31, 2023: Three Months Ended Nine Months Ended March 31, 2023 March 31, 2023 Lease Income - Operating leases $ 3,982,146 $ 9,979,740 Variable lease income (1) 487,723 1,232,884 $ 4,469,869 $ 11,212,624 (1) Primarily includes tenant reimbursements for utilities and common area maintenance. The following table presents the components of income from real estate operations for the three and nine months ended March 31, 2022: Three Months Ended Nine Months Ended March 31, 2022 March 31, 2022 Lease Income - Operating leases $ 2,137,406 $ 6,527,631 Variable lease income (1) 381,237 1,283,808 $ 2,518,643 $ 7,811,439 (1) Primarily includes tenant reimbursements for utilities and common area maintenance. As of March 31, 2023, the future minimum rental income from our real estate properties under non-cancelable operating leases are as follows: Year ended June 30, : Rental Income 2023 $ 2,262,297 2024 7,397,044 2025 5,939,945 2026 4,577,398 2027 3,615,567 Thereafter 12,352,580 Total $ 36,144,831 15 Table of Contents Lease Intangibles, Above-Market Lease Assets and Below-Market Lease Liabilities, Net As of March 31, 2023, our acquired lease intangibles, above-market lease assets, and below-market lease liabilities were as follows: Lease Intangibles Above-Market Lease Asset Below-Market Lease Liabilities Cost $ 7,757,557 $ 419,166 $ 2,346,666 Accumulated amortization ( 1,676,388 ) ( 41,227 ) ( 811,716 ) Total $ 6,081,169 $ 377,939 $ 1,534,950 Weighted average amortization period (years) 4.9 5.4 5.1 As of June 30, 2022, our acquired lease intangibles, above-market lease assets and below-market lease liabilities, were as follows: Lease Intangibles Above-Market Lease Asset Below-Market Lease Liabilities Cost $ 2,889,828 $ - $ 1,455,317 Accumulated amortization ( 586,168 ) - ( 391,738 ) Total $ 2,303,660 $ - $ 1,063,579 Weighted average amortization period (years) 5.2 - 4.9 Our amortization of lease intangibles, above-market lease assets and below-market lease liabilities for three and nine months ended March 31, 2023, were as follows: Three Months Ended March 31, 2023 Lease Intangibles Above-Market Lease Asset Below-Market Lease Liabilities Amortization $ 588,069 $ 26,687 $ ( 222,424 ) Nine Months Ended March 31, 2023 Lease Intangibles Above-Market Lease Asset Below-Market Lease Liabilities Amortization $ 1,090,220 $ 41,227 $ ( 419,978 ) 16 Table of Contents Our amortization of lease intangibles, above-market lease assets and below-market lease liabilities for three and nine months ended March 31, 2022, were as follows: Three Months Ended March 31, 2022 Lease Intangibles Above-Market Lease Asset Below-Market Lease Liabilities Amortization $ 432,540 $ 31,976 $ ( 69,099 ) Nine Months Ended March 31, 2022 Lease Intangibles Above-Market Lease Asset Below-Market Lease Liabilities Amortization $ 1,223,665 $ 95,928 $ ( 217,809 ) The following table provides the projected amortization expense and adjustments to revenue from tenants for intangible assets and liabilities for the next five years: Year Ended June 30, : 2023 (remainder) 2024 2025 2026 2027 Thereafter In-place leases, to be included in amortization $ 446,347 $ 1,603,609 $ 1,285,141 $ 897,073 $ 520,119 $ 1,328,880 Above-market lease intangibles 29,426 115,725 70,864 41,731 30,177 90,016 Below-market lease liabilities ( 124,859 ) ( 451,247 ) ( 286,084 ) ( 195,626 ) ( 158,666 ) ( 318,468 ) $ ( 95,433 ) $ ( 335,522 ) $ ( 215,220 ) $ ( 153,895 ) $ ( 128,489 ) $ ( 228,452 ) NOTE 4 – INVESTMENTS The following table summarizes the composition of our equity method investments with fair value option election and other equity securities at fair value as of March 31, 2023 and June 30, 2022: Fair Value Fair Value Asset Type March 31, 2023 June 30, 2022 Non Traded Companies $ 8,438,289 $ 11,517,226 GP Interests (Equity method investment with fair value option election) 9,322,000 18,333,000 LP Interest 168,960 330,000 LP Interests (Equity method investment with fair value option election) 6,789,744 27,363,840 Investment Trust - 49,178 Total $ 24,718,993 $ 57,593,244 Our above total investments at fair value are disclosed in two separate lines as investments and unconsolidated investments (non-securities) in the consolidated balance sheets as of March 31, 2023 and June 30, 2022. The following table presents fair value measurements of our investments as of March 31, 2023, according to the fair value hierarchy that is described in our annual report on Form 10-K: Asset Type Total Level I Level II Level III Non Traded Companies $ 8,438,289 $ - $ - $ 8,438,289 GP Interests 9,322,000 - - 9,322,000 LP Interests 6,958,704 - - 6,958,704 Total $ 24,718,993 $ - $ - $ 24,718,993 17 Table of Contents The following table presents fair value measurements of our investments as of June 30, 2022, according to the fair value hierarchy that is described in our annual report on Form 10-K: Asset Type Total Level I Level II Level III Non Traded Companies $ 11,517,226 $ - $ - $ 11,517,226 GP Interests 18,333,000 - - 18,333,000 LP Interests 27,693,840 - - 27,693,840 Investment Trust 49,178 - - 49,178 Total $ 57,593,244 $ - $ - $ 57,593,244 The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value hierarchy) for the nine months ended March 31, 2023: Balance at July 1, 2022 $ 57,593,244 Purchases of investments 303,884 Transfers to Level I ( 30,753 ) Transfer to Investments in Real Estate ( 8,488,467 ) Proceeds from sales, net ( 3,163,025 ) Return of capital distributions ( 12,298,337 ) Written off contingent consideration ( 57,875 ) Net realized gains 821,375 Net unrealized loss ( 9,961,053 ) Ending balance at March 31, 2023 $ 24,718,993 The transfer of $ 30,753 of investments from Level III to Level I category during the nine months ended March 31, 2023 resulted from one of our investments converting from a non-traded REIT to publicly traded REIT. Transfers are assumed to have occurred at the beginning of the period. For the nine months ended March 31, 2023, changes in unrealized gains, net included in earnings relating to Level III investments still held at March 31, 2023 were $ 9,577,691 . The following is a reconciliation of the beginning and ending balances for investments measured at fair value on a recurring basis using significant unobservable inputs (Level III of the fair value hierarchy) for the nine months ended March 31, 2022: Balance at July 1, 2021 $ 70,340,043 Purchases of investments 3,343,802 Transfers to Level I ( 230,160 ) Proceeds from sales, net ( 29,230,856 ) Return of capital distributions ( 11,807,238 ) Net realized gain 8,765,565 Net unrealized gains 6,170,851 Ending balance at March 31, 2022 $ 47,352,007 The transfers of $ 230,160 from Level III to Level I category during the nine months ended March 31, 2022 resulted from one of our investments converting from a non-traded REIT to publicly traded REIT. Transfers are assumed to have occurred at the beginning of the period. For the nine months ended March 31, 2022, changes in unrealized gains, net included in earnings relating to Level III investments still held at March 31, 2022 were $ 10,108,363 . 18 Table of Contents The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at March 31, 2023: Asset Type Fair Value Primary Valuation Techniques Unobservable Inputs Used Range Weighted Average Non Traded Company $ 955,737 Estimated Liquidation Value Sponsor provided value 20 % Non Traded Companies 7,482,552 Market Activity Secondary market industry publication GP Interests 9,322,000 Direct Capitalization Method Capitalization rate 6.3 % - 6.5 % 6.4 % Discount rate 6.8 % - 7.0 % 7.0 % LP Interests 6,393,260 Discounted Cash Flow Discount rate 6.3 % - 9.0 % 6.6 % LP Interests 396,484 Estimated Liquidation Value Sponsor provided value 0 % - 12.0 % 0.2 % LP Interest 168,960 Market Activity Contracted sale of property $ 24,718,993 The following table shows quantitative information about significant unobservable inputs related to the Level III fair value measurements used at June 30, 2022: Asset Type Fair Value Primary Valuation Techniques Unobservable Inputs Used Range Weighted Average Non Traded Companies $ 1,011,081 Estimated Liquidation Value Sponsor provided value Liquidity discount 25.0 % - 75.0 % 25.0 % Non Traded Companies 10,506,145 Market Activity Secondary market industry publication Contracted purchase of security GP Interests 18,333,000 Market Activity Contracted purchase price LP Interests 21,550,730 Direct Capitalization Method Capitalization rate 4.0 % - 5.0 % 4.2 % Liquidity discount 15 % LP Interests 5,806,290 Discounted Cash Flow Discount rate 6.3 % - 9.0 % 8.6 % LP Interest 6,820 Estimated Liquidation Value Sponsor provided value Liquidity discount 12 % LP Interest 330,000 Market Activity Secondary market industry publication Investment Trust 49,178 Direct Capitalization Method Capitalization rate 5 % Liquidity discount 15 % $ 57,593,244 Impact of COVID-19 Pandemic The COVID-19 pandemic and related changes in tenant behavior have adversely impacted the fair value of our investments as of March 31, 2023 and June 30, 2022, and the values assigned as of this date may differ materially from the values that we may ultimately realize with respect to our investments. The impact of the COVID-19 pandemic may not yet be fully reflected in the valuation of our investments as our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that is often from a time period earlier, generally two to three months, than the quarter for which we are reporting. Additionally, we may not have yet received information or certifications from our portfolio companies that indicate any or the full extent of declining performance or non-compliance with debt covenants, as applicable, as a result of the COVID-19 pandemic. As a result, our valuations at March 31, 2023 and June 30, 2022, may not show the complete or continuing impact of the COVID-19 pandemic and the resulting measures taken in response thereto. Accordingly, we may continue to incur additional net unrealized losses or may incur realized losses subsequent to March 31, 2023, which could have a material adverse effect on our business, financial condition and results of operations. 19 Table of Contents Summarized Financial Statements for Equity Method Investments (Fair Value Option) Our investments in securities are generally in small and mid-sized companies in a variety of industries. In accordance with the Rule 8-03(b)(3) of Regulation S-X applicable for smaller reporting companies, we must determine which of our equity method investments measured at fair value under the Fair Value Option are considered “significant”, if any. Regulation S-X mandates the use of three different tests to determine if any of our investments are considered significant investments: the investment test, the asset test, and the income test. The rule requires summarized financial statements for any significant equity method investments in an annual and interim report if any of the three tests exceed 20% . In addition to the SEC rules, ASC 323-10-50-3(c) requires summarized financial statements of our equity method investments, including those reported under the fair value option, if they are material individually or in aggregate. Our investment in Dimension 28, LLP was determined to be significant under the income test as of March 31, 2023. In addition, our equity method investments accounted under the fair value option were material in aggregate as of March 31, 2023. The summarized financial information of Dimension 28, LLP and aggregated summarized financial information of all equity method investees as of March 31, 2023 is as follows: Dimension 28, LP All Equity Method Investee Aggregated Total Assets $ 1,147,171 $ 94,267,563 Total Liabilities $ 10,125 $ 70,626,037 Total Equities $ 1,137,046 $ 23,641,526 Total Revenues $ 31,719,093 $ 42,450,387 Total Expenses $ 5,212,716 $ 14,114,665 Total Net Income $ 26,506,377 $ 28,335,722 Unconsolidated Significant Subsidiaries In accordance with SEC Rules 3-09 and 4-08(g) of Regulation S-X, we must determine which of our investments in securities are considered “significant subsidiaries”, if any. Regulation S-X mandates the use of three different tests to determine if any of our controlled investments are significant subsidiaries: the investment test, the asset test, and the income test. Rule 3-09 of Regulation S-X requires separate audited financial statements for any unconsolidated majority-owned subsidiary in an annual report if any of the three tests exceed 20%. Rule 4-08(g) of Regulation S-X requires summarized financial information in an annual report if any of the three tests exceeds 10%. As of March 31, 2023 and June 30, 2022, none of our investments in securities was considered an unconsolidated significant subsidiary under the SEC rules described above. 20 Table of Contents NOTE 5 – ACQUISITIONS AND HELD FOR SALE Acquisition of General Partnership Interests As discussed in Note 1, on May 6, 2022, the Operating Partnership purchased 100 % of the membership interests in the eight Management Companies that own the general partnership interests in eight limited partnerships, each of which own a Class A or B office property in Napa, Fairfield, Suisun City or Woodland, California. Each Management Company is the sole general partner of each of the limited partnerships as disclosed in the following table: General Partnership Interests Management Companies Total Purchase Price 1300 Main, LP 1300 Main, LLC $ 1,688,000 First & Main, LP First & Main, LLC 2,237,000 Green Valley Medical Center, LP Green Valley Medical Center, LLC 3,010,000 Main Street West, LP Main Street West, LLC 4,708,000 Martin Plaza Associates, LP Martin Plaza, LLC 725,000 One Harbor Center, LP One Harbor Center, LLC 4,162,000 Westside Professional Center I, LP Westside Professional Center, LLC 1,803,000 Woodland Corporate Center Two, LP Woodland Corporate Center, LLC - Total $ 18,333,000 The acquisition of general partnership interests was made in exchange for cash, preferred units in the Operating Partnership, and, in some cases, a contingent liability as shown below: General Partnership Interests Number of Preferred Units issued Amount of Preferred Units issued Cash Payments Contingent liability Total Purchase Price 1300 Main, LP - $ - $ 1,688,000 $ - $ 1,688,000 First & Main, LP 99,422.22 2,237,000 - - 2,237,000 Green Valley Medical Center, LP - - 2,410,000 600,000 3,010,000 Main Street West, LP - - 3,850,000 858,000 4,708,000 Martin Plaza Associates, LP 26,977.78 607,000 - 118,000 725,000 One Harbor Center, LP 80,266.67 1,806,000 1,571,000 785,000 4,162,000 Westside Professional Center I, LP - - 1,449,000 354,000 1,803,000 Woodland Corporate Center Two, LP - - - - - Total 206,666.67 $ 4,650,000 $ 10,968,000 $ 2,715,000 $ 18,333,000 The Operating Partnership’s preferred units are issued with a $ 25 liquidation preference, but because Wiseman agreed to a 4-year “lock-up” we agreed to a discounted issuance price of $ 22.50 per unit. As discussed in Note 1, in July 2022, in addition to the general partnership interest, the Operating Partnership completed the acquisition of 100 % of the limited partnership interest in First & Main for total purchase price of $ 3,376,322 , of which $ 2,711,378 was paid through issuance of 120,505.66 Preferred Units of the Operating Partnership. On October 1, 2022, the Operating Partnership completed the acquisition of 100 % of the limited partnership interest in 1300 Main for total purchase price of $ 6,480,582 , all of which was paid in cash. The Operating Partnership completed the acquisition of 100 % of the limited partnership interests in Woodland Corporate Center Two on January 3, 2023 for a total purchase price of $ 5,636,966 , of which $ 3,242,557 was paid through the issuance of 144,113.63 Preferred Units of the Operating Partnership. The Operating Partnership completed the acquisition of 100 % of the limited partnership interests in Main Street West on February 1, 2023 for a total purchase price of $ 8,277,016 , all of which were paid in cash. 21 Table of Contents Contingent Consideration As discussed in our June 30, 2022 consolidated financial statements, pursuant to the membership interest purchase agreement, the purchase price paid at closing for the general partnership interests was reduced by 20 % as of the closing date for the property companies that had not received fully executed and in force leases, the annualized scheduled rents of which are equal to or greater than the target scheduled rent as stated in the membership interest purchase agreement. This 20 % holdback will be paid upon a property company reaching the stabilization threshold, reduced by stabilization costs, as defined in the membership interest purchase agreement. Management believes that it is probable that the stabilization thresholds will be reached for each of the property companies that did not meet this threshold at the acquisition date. Hence, the 20 % holdback in the amount of $ 2,715,000 was recorded as a contingent liability as of the acquisition date. During the nine months ended March 31, 2023, we paid $ 1,154,125 of the total contingent liability. In addition, we reduced the contingent liability by $ 57,875 , which was deemed not payable as of March 31, 2023. As of March 31, 2023 and June 30, 2022, contingent liability amounted to $ 1,503,000 and $ 2,715,000 , respectively. Debt Guaranty The property companies have mortgage loans with various banks and the loans are guaranteed by Wiseman and its owner, Doyle Wiseman and his trust. The mortgage loans of 1300 Main, LP, One Harbor Center, LP, Martin Plaza Associates, LP, and Main Street West, LP are also guaranteed by the partnership’s general partner as the co-guarantor. On July 1, 2022, subsequent to Operating Partnership’s acquisition of the management companies, Wiseman’s owner, Doyle Wiseman and the Operating Partnership entered into an indemnity agreement whereby the Operating Partnership will indemnify Doyle Wiseman for any losses suffered by him through the default of a limited partnership on the mortgage secured by the property owned by the limited partnership. Historically, none of the limited partnerships has had any defaults on any mortgages and Doyle Wiseman has not had to satisfy any mortgage default through a guaranty. Furthermore, each of the limited partnerships is adequately capitalized, has sufficient cash flow from operations to service the mortgage notes and has not required Doyle Wiseman to provide any subordinated financial support to the limited partnerships. Therefore, we have no t recorded any liability related to the guaranty on the mortgage loans as of March 31, 2023. Assets and Liabilities Held for Sale On June 28, 2022, the Addison Property Owner entered into a forbearance agreement for the sale of Addison Corporate Center with the lender of the note payable discussed in Note 10. As a result, the Addison Property Owner’s operations met the criteria to be classified as held for sale, which requires us to present the related assets and liabilities as separate line items in our consolidated balance sheets. We recorded these assets and liabilities at fair value less any costs to sell. Therefore, we recorded an impairment loss allowance of $ 9,126,461 on assets held for sale as of June 30, 2022. Due to a decrease in estimated fair value of the property, which was based on the sale price less the estimated closing costs, we recorded an additional impairment loss allowance of $ 8,121,089 during the nine months ended March 31, 2023. 22 Table of Contents The following table presents information related to the major classes of assets and liabilities that were classified as held for sale in our consolidated balance sheets: March 31, 2023 June 30, 2022 Assets Real estate assets Land $ 6,456,615 $ 6,456,615 Building, fixtures and improvements 19,657,181 19,108,041 Intangible lease assets 5,225,719 5,154,568 Less: accumulated depreciation and amortization ( 5,112,309 ) ( 5,112,309 ) Total real estate assets, net 26,227,206 25,606,915 Cash 534,757 505,186 Investments income, rents and other receivables 505,835 490,239 Due from related entities - 401 Prepaid expenses and other assets 316,011 14,301 Allowance for impairment of assets held for sale ( 17,247,550 ) ( 9,126,461 ) Total assets $ 10,336,259 $ 17,490,581 Liabilities Deferred rent and other liabilities $ 445,243 $ 410,908 Accounts payable and accrued liabilities 1,204,029 334,081 Total liabilities $ 1,649,272 $ 744,989 We determined that the operations included in the table above did not meet the criteria to be classified as discontinued operations under the applicable guidance. NOTE 6 –LEASES Lessee Arrangements As discussed in Note 2, we acquired three partnerships which had solar equipment leases in place. We reassessed the leases as of the acquisition date and recorded them as finance leases in accordance with ASC 842. Our leases have remaining terms of 7.58 to 8 years. Right-of-use assets and lease liabilities by lease type, and the associated balance sheet classifications, are as follows: Balance Sheet Classification March 31, 2023 Right-of-use assets: Finance leases Real estate assets, net $ 651,121 Lease liabilities: Finance leases Finance lease liabilities $ 642,483 We have included these leases in real estate assets, net as follows: March 31, 2023 Building, fixtures and improvements $ 658,695 Accumulated depreciation ( 7,574 ) $ 651,121 23 Table of Contents Lease Expense The components of total lease cost were as follows for the nine months ended March 31, 2023: March 31, 2023 Finance lease cost Right-of-use asset amortization $ 7,574 Interest expense 11,238 Total lease cost $ 18,812 Lease Obligations Future undiscounted lease payments for finance leases with initial terms of one year or more are as follows: Fiscal Year Ending June 30, : Finance Leases 2023 (remainder) $ 21,271 2024 86,361 2025 89,813 2026 93,408 2027 97,079 Thereafter 387,042 Total undiscounted lease payments 774,974 Less: Imputed interest ( 132,491 ) Net lease liabilities $ 642,483 Supplemental Lease Information March 31, 2023 Finance lease weighted average remaining lease term (years) 7.78 years Finance lease weighted average discount rate 5.0 % Cash paid for amounts included in the measurement of lease liabilities Financing cash flows from finance leases $ 16,213 Right-of-use assets obtained in exchange for new finance lease liabilities $ 658,695 NOTE 7 – VARIABLE INTEREST ENTITIES A variable interest in a variable interest entity (VIE) is an investment or other interest that will absorb portions of the VIE’s expected losses and/or receive portions of the VIE’s expected residual returns. Our variable interests in VIEs include limited partnership interests. VIEs sometimes finance the purchase of assets by issuing limited partnership interests that are either collateralized by or indexed to the assets held by the VIE. The enterprise with a controlling financial interest in a VIE is known as the primary beneficiary and consolidates the VIE. We determine whether we are the primary beneficiary of a VIE by performing an analysis that principally considers: (a) which variable interest holder has the power to direct activities of the VIE that most significantly impact the VIE’s economic performance; (b) which variable interest holder has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE; (c) the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders; (d) the VIE’s capital structure; (e) the terms between the VIE and its variable interest holders and other parties involved with the VIE; and (f) related-party relationships. We reassess our evaluation of whether an entity is a VIE when certain reconsideration events occur. We reassess our determination of whether it is the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances. 24 Table of Contents Nonconsolidated VIEs As of March 31, 2023 and June 30, 2022, six and seven of our unconsolidated VIEs, respectively, include interests in limited partnerships and limited liability companies. We have determined that it is not the primary beneficiary of these entities because the managing partner or member of each of these entities has the power to direct the activities that most significantly affect the VIE’s economic performance. Accordingly, these VIEs have not been consolidated with us, and they have been reported as investments at fair value in the March 31, 2023 and June 30, 2022, consolidated balance sheets. The table below presents a summary of the nonconsolidated VIEs in which we hold variable interests: Total Nonconsolidated VIEs As of March 31, 2023 As of June 30, 2022 Fair value of investments in VIEs $ 6,958,704 $ 27,693,840 Carrying value of variable interests - assets $ 8,557,139 $ 19,304,856 Maximum Exposure to Loss: Limited Partnership Interest $ 8,557,139 $ 19,304,856 Our exposure to the obligations of VIEs is generally limited to the carrying value of the limited partnership interests in these entities. NOTE 8 – RELATED PARTY TRANSACTIONS Advisory Agreements Effective January 1, 2021: As discussed in Note 1, on January 26, 2021, our Board of Directors approved, effective January 1, 2021, two advisory agreements, an Advisory Management Agreement with the Real Estate Adviser and the Amended and Restated Investment Advisory Agreement with the Investment Adviser. The terms of the Advisory Management Agreement with the Real Estate Adviser provide that we will continue to pay an Asset Management Fee on essentially the same terms as we were paying the Investment Adviser prior to 2021, namely based upon a percentage of Invested Capital ( 3 % of the first $ 20 million, 2 % of the next $ 80 million, and 1.5 % over $ 100 million). Invested Capital is equal to the amount calculated by multiplying the total number of outstanding shares, preferred shares, and the partnership units (units in our operating partnership issued by us and held by persons other than us) issued by us by the price paid for each or the value ascribed to each in connection with their issuance. The Advisory Management Agreement also provides for a 2.5 % Acquisition Fee on new (non-security) purchases, subject to certain limitations designed to eliminate incentives to “churn” our assets. The new Advisory Management Agreement also provides for an incentive management fee that is equal to 15 % of all distributions once shareholders have received cumulative distributions equal to 6 % from the effective date of the Agreement. The Investment Adviser will receive an annual fee equal to $ 100 for providing the investment advice to us as to our securities portfolio under the Amended and Restated Investment Advisory Agreement. During the three and nine months ended March 31, 2023, we incurred asset management fees of $ 767,299 and $ 2,225,085 , respectively. During the three and nine months ended March 31, 2022, we incurred asset management fees of $ 680,678 and $ 2,034,852 , respectively. 25 Table of Contents The asset management fees mentioned above were based on the following quarter ended Invested Capital segregated in three columns based on the annual fee rate: Asset Management Fee Annual % 3.0% 2.0% 1.5% Total Invested Capital Quarter ended: September 30, 2022 $ 20,000,000 $ 80,000,000 $ 48,639,649 $ 148,639,649 December 31, 2022 $ 20,000,000 $ 80,000,000 $ 52,470,792 $ 152,470,792 March 31, 2023 $ 20,000,000 $ 80,000,000 $ 60,153,751 $ 160,153,751 Quarter ended: September 30, 2021 $ 20,000,000 $ 80,000,000 $ 33,927,634 $ 133,927,634 December 31, 2021 $ 20,000,000 $ 80,000,000 $ 34,242,127 $ 134,242,127 March 31, 2022 $ 20,000,000 $ 80,000,000 $ 35,848,952 $ 135,848,952 During the three and nine months ended March 31, 2023 and 2022, we did no t incur or accrue any incentive management fee under the new Advisory Management Agreement. Property Management and Leasing Services: On May 6, 2022, the Real Estate Adviser’s newly formed wholly owned subsidiary, Wiseman Company Management, LLC, purchased the property management and leasing services rights from Wiseman. Therefore, effective the acquisition date, Wiseman Company Management has been providing the property management and leasing services to the eight property limited partnerships in accordance with the pre-existing agreements. There have been no changes to any of the management services agreements terms with the property limited partnerships since the acquisition of the property management service rights. Organization and Offering Costs Reimbursement: As provided in the Offering Circular, offering costs incurred and paid by us in excess of $ 550,000 in connection with the offering will be reimbursed by the Adviser except to the extent that 10 % in broker fees are not incurred. In such case, the broker savings were available to be paid by us for marketing expenses or other non-cash compensation. As of June 30, 2022, we incurred $ 600,130 of offering costs on our Offering Circular to sell the preferred stock, of which $ 501,917 relates to syndication cost paid by Mackenzie on behalf of us in connection with the preferred stock offering. Total offering costs incurred as of June 30, 2022, were in an excess of the total offering cost reimbursement threshold including the broker savings by $ 21,841 . In our updated Offering Circular filed on October 14, 2022, we increased the offering costs reimbursement threshold from $ 550,000 to $ 825,000 . As of March 31, 2023, we incurred $ 1,009,714 of offering costs on our Offering Circular to sell the preferred stocks, of which $ 911,186 relates to syndication cost paid both by Mackenzie on behalf of us in connection with the preferred stock offering. Total offering costs incurred as of March 31, 2023 were below the offering cost reimbursement threshold including the broker savings. Administration Agreement: Under the Administration Agreement, we reimburse MacKenzie for its allocable portion of overhead and other expenses it incurs in performing its obligations under the Administration Agreement, including furnishing us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities, as well as providing us with other administrative services, subject to the independent directors’ approval. In addition, we reimburse MacKenzie for the fees and expenses associated with performing compliance functions, and its allocable portion of the compensation of our Chief Financial Officer, Chief Compliance Officer, Director of Accounting and Financial Reporting, and any administrative support staff. Effective November 1, 2018, transfer agent services are also provided by MacKenzie and the costs incurred by MacKenzie in providing the services are reimbursed by us. No fee (only cost reimbursement) is being paid by us to MacKenzie for this service. The administrative cost reimbursements for the three and nine months ended March 31, 2023 were $ 181,500 and $ 544,500 , respectively. The administrative cost reimbursements for the three and nine months ended March 31, 2022, were $ 152,400 and $ 457,200 , respectively. The transfer agent services cost reimbursement for the three and nine months ended March 31, 2023 were $ 23,000 and $ 69,000 , respectively. The transfer agent services cost reimbursement for the three and nine months ended March 31, 2022 were $ 26,600 and $ 79,801 , respectively. 26 Table of Contents The table below outlines the related party expenses incurred for the three and nine months ended March 31, 2023 and 2022, and unpaid as of March 31, 2023, and June 30, 2022. Nine Months Ended Unpaid as of Types and Recipient March 31, 2023 March 31, 2022 March 31, 2023 June 30, 2022 Asset management fees- the Real Estate Adviser $ 2,225,085 $ 2,034,852 $ - $ - Asset acquisition fees- the Real Estate Adviser (3) 1,878,356 - - - Administrative cost reimbursements- MacKenzie 544,500 457,200 - - Transfer agent cost reimbursements - MacKenzie 69,000 79,801 - - Organization & Offering Cost (2) - MacKenzie 410,214 391,546 186,273 141,397 Other expenses (1) - MacKenzie and Subsidiary’s GPs - - 7,150 72,697 Due to related entities $ 193,423 $ 214,094 (1) Expenses paid by MacKenzie and General Partner of a subsidiary on behalf of us and subsidiary. (2) Offering costs paid by MacKenzie - discussed in this Note under organization and offering costs reimbursements. (3) Asset acquisition fees paid to the Real Estate Adviser were capitalized as a part of the real estate basis in accordance with our policy. The acquisition fee paid during the nine months ended March 31, 2023 was for the acquisition of First & Main in July 2022, 1300 Main in October 2022, Woodland Corporate Center Two in January 2023 and Main Street West in February 2023 . Affiliated Investments : Coastal Realty Business Trust (“CRBT”): CRBT is a Nevada business trust whose trustee is MacKenzie. Each series of the trust has its own beneficiaries and own assets. We own the following series of CRBT and we are the only beneficiary of that series. Under the terms of the agreement, there are no redemption rights to any of the series participants. • CRBT, REEP, Inc.– A has an ownership interest in one of three general partners of a limited partnership which owns one multi-family property located in Frederick, Maryland. During the quarter ended December 31, 2022, the series sold the underlying investments, distributed the proceeds to us and dissolved the series. We received total proceeds of $ 81,627 and realized a gain of $ 47,637 . NOTE 9 – MARGIN LOANS We have a brokerage account through which we buy and sell publicly traded securities. The provisions of the account allow us to borrow on certain securities held in the account and to purchase additional securities based on the account equity (including cash). Amounts borrowed are collateralized by the securities held in the account and bear interest at a negotiated rate payable monthly. Securities pledged to secure margin balances cannot be specifically identified as a portion of all securities held in a brokerage account used as collateral. As of March 31, 2023 and June 30, 2022, we had no margin credit available for cash withdrawal or the ability to purchase in additional securities. Accordingly, as of March 31, 2023 and June 30, 2022, there was no amount outstanding under this short-term credit line. NOTE 10 – MORTGAGE NOTES PAYABLE AND DEBT GUARANTY Addison Property Owner Mortgage Notes Payable Addison Property Owner is the obligor under a note payable to Wells Fargo Bank, NA (the “Lender”) in the original loan amount of $ 32,000,000 at an interest rate of LIBOR plus 3.75 %. The loan originally matured on November 1, 2019 and is secured by the properties owned by Addison Property Owner. 27 Table of Contents On June 8, 2020, as part of the Contribution Agreement, we agreed to guarantee the loan and the maturity date of the loan was extended to April 30, 2021, with an option to further extend the maturity date to April 30, 2022. In April 2021, we exercised the option and extended the loan maturity date to April 30, 2022 . The principal balance of the loan immediately prior to the Loan Modification Agreement was $ 25,827,107 . The new loan principal amount due under the modified agreement was $ 24,404,257 , and the interest rate was modified to be equal to the Federal Funds Rate plus 3.75 %. The outstanding loan amounts as of March 31, 2023 and June 30, 2022, were $ 21,941,673 and $ 19,604,382 , respectively, which were disclosed as a part of the mortgage notes payable in the consolidated balance sheets. The loan requires payments only of interest through the maturity date; however, certain provisions of the loan agreement allow the lender to apply excess cash flow during a cash trap period to the principal balance. Under the Loan Modification Agreement and Replacement Guaranty, we guaranteed only the “Recourse Obligations” under the loan, which are triggered only if the guarantor of the loan engages in “Bad Boy Acts” (such as fraud, intentional misrepresentation, willful misconduct, waste, conversion, intentional failure to pay taxes or maintain insurance, filing for bankruptcy, etc.). As of March 31, 2023 and June 30, 2022, we have not recorded any debt guaranty obligation because we have not engaged in inappropriate actions that would give rise to a guaranty obligation. On April 30, 2022, the notes payable matured and Addison Property Owner was unable to extend the loan. On June 28, 2022, Addison Property Owner entered into a forbearance agreement with the Lender. The loan is currently accruing interest at the default rate as per the loan agreement. As of March 31, 2023, Addison Corporate Center is being marketed for sale in accordance with all the conditions set forth in the forbearance agreement. In addition, effective June 28, 2022, on monthly basis the lender will collect all cash revenues from Addison Corporate Center and deduct funds sufficient to satisfy monthly accrued interest at the default rate, any outstanding fees and costs incurred by the lender. The excess cash will be made available to the borrower for the payment of previously approved budgeted operating expenses. Any funds remaining thereafter will be applied towards the unpaid loan principal balance. In April 2023, we entered into a sale agreement with a third-party buyer for a sale price of $ 10.50 million which was approved by the lender. The sale is expected to close in May 2023. Madison and PVT Mortgage Notes Payable On February 26, 2021, Madison and PVT obtained mortgage loans from First Republic Bank in the amounts of $ 6,737,500 and $ 8,387,500 , respectively, both at a fixed interest rate of 3.0 % per annum through April 1, 2026. Effective May 1, 2026, interest rates will be the average of the twelve most recently published yields on US Treasury securities adjusted a constant maturity of one year as published by the Federal Reserve System in the Statistical Release H.15 plus 2.75 % per annum. The loans were obtained to finance the acquisition of the Commodore Apartments and The Park View (f/k/a as Pon De Leo Apartments), which are located in Oakland, California. The loans mature on April 1, 2031 and are cross-collateralized by both properties owned by Madison and PVT. The loan requires interest only monthly payments through April 1, 2026 and beginning May 1, 2026, monthly payments of principal and interests are due based on 360 months of amortization period. The remaining unpaid principal balance is due at maturity date. Accordingly, the outstanding loan balances as of March 31, 2023 and June 30, 2022, were $ 6,737,500 on Madison and $ 8,387,500 on PVT mortgage loans, respectively. The mortgage notes payable balances are disclosed as a part of the mortgage notes payable in the consolidated balance sheets. PT Hillview Mortgage Notes Payable On October 4, 2021, PT Hillview entered into a loan agreement with Ladder Capital Finance in the amount of $ 17,500,000 . The annual interest rate shall equal to the greater of (i) a floating rate of interest equal to 5.5 % plus LIBOR, and (ii) 5.75 %. The loan was obtained to finance the acquisition of Hollywood Apartments. The loan matures on October 6, 2023 and can be extended for two successive 12 month terms (the “Maturity Date”) and is secured by the Hollywood Apartments. The loan requires interest-only monthly payments with the principal balance due at maturity date. Interest is due based on a 360 -day amortization period. The outstanding balances as of March 31, 2023, and June 30, 2022, was $ 17,500,000 and $ 16,804,689 , respectively, which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets. PT Hillview also entered into an interest rate cap agreement on October 4, 2021, as required by the lender. We have not recorded the fair value and the changes in the fair value of the contract in our consolidated financial statements as the amounts were insignificant to our consolidated financial statements. 28 Table of Contents We (along with three other principals of True USA) guaranteed: (1) the “Recourse Obligations” as defined in the loan agreement, which are triggered only if the borrower of the loan engages in “Bad Boy Acts” (such as fraud, intentional misrepresentation, willful misconduct, waste, conversion, intentional failure to pay taxes or maintain insurance, filing for bankruptcy, ADA noncompliance, and environmental contamination, etc.), (2) a “Debt Service and Carry Guaranty” under the loan, which guarantees the payment of interest on the loan and other “Basic Carrying Costs”, and (3) a “Guaranty of Completion” guaranteeing that the redevelopment work contracted to be performed will be completed as agreed. We were comfortable issuing such guarantees because the loan provides for a substantial “Carrying Costs” reserve and for the full funding of the construction contract, which is subject to a guaranteed maximum price. MacKenzie Shoreline Mortgage Notes Payable On May 6, 2021, MacKenzie Shoreline entered into a loan agreement with Pacific Premier Bank, in the amount of $ 17,650,000 . The annual interest rate shall be 3.65 % for the first 60 months, and a variable interest rate based on a 6 -month CME Term Secured Overnight Financing Rate plus a margin of 3.00 percentage points, for months thereafter until maturity. The loan was obtained to finance the acquisition of Shoreline Apartments. The loan matures on June 1, 2032 and is secured by Shoreline Apartments. The loan requires interest only monthly payments through June 30, 2027, and beginning July 1, 2027, monthly payments of principal and interests are due based on 360 months of amortization period. Accordingly, the outstanding loan balance as of March 31, 2023 and June 30, 2022, was $ 17,650,000 , which is disclosed as a part of the mortgage notes payable in the consolidated balance sheets. First & Main Mortgage Notes Payable On January 4, 2021, First & Main entered into a loan agreement with Exchange Bank, in the amount of $ 12,000,000 at a fixed annual interest rate of 3.75 %. The loan was obtained to finance the acquisition of First & Main Office Building. The loan matures on February 1, 2026 and is secured by First & Main Office Building. The loan requires monthly payments of principal and interest based on 25 year amortization period with the remaining principal balance due at maturity. The loan is guaranteed by Wiseman, but Wiseman was subsequently indemnified by the Operating Partnership on July 1, 2022 as discussed in Note 5. The outstanding balance of the loan as of March 31, 2023 was $ 11,367,286 , which is disclosed as a part of the mortgage notes payable in the consolidated balance sheet. We consolidated First & Main with our consolidated financial statements during the quarter ended September 30, 2022, accordingly, this mortgage note payable is not included in our consolidated balance sheet as of June 30, 2022 The following table provides the projected principal and interest payments on the loan for the next four years: Fiscal Year Ending June 30, : Principal Interest 2023 (remainder) $ 79,373 $ 106,321 2024 324,747 417,753 2025 337,136 405,363 2026 10,626,030 230,553 Total $ 11,367,286 $ 1,159,990 First & Main Other Note Payables: Junior Debt In 2018, First & Main voted to issue $ 1,000,000 in interest-only junior promissory notes. The notes were issued in 2018 and 2019 with a maturity date of December 31, 2023 and include no prepayment penalty for early retirement. Interest on the notes is payable on the first day of each month at 7 % per annum. The promissory notes are disclosed as a part of the notes payable in the consolidated balance sheet as of March 31, 2023. We consolidated First & Main with our consolidated financial statements during the quarter ended September 30, 2022; accordingly, these notes are not included in our consolidated balance sheet as of June 30, 2022. 29 Table of Contents First & Main Other Notes Payables: Small Business Administration (“SBA”) Loan In June 2020, First & Main borrowed $ 151,000 from the SBA, under the Economic Injury Disaster Loan program. The loan will be paid back over 30 years at an annual interest rate of 3.75 % starting in December 2022. Monthly payments will be $ 731 . The loan is disclosed as a part of the notes payable in the consolidated balance sheet as of March 31, 2023. We consolidated First & Main with our consolidated financial statements during the quarter ended September 30, 2022; accordingly, this loan was not included in our consolidated balance sheet as of June 30, 2022. Solar System Loan (First & Main) In August 2020, First & Main borrowed $ 220,000 from The Wiseman Family Trust to fund the installation of the solar power system at First & Main Office Building. The loan will be paid back over a period of 10 years at an annual interest rate of 5 %. Monthly payments of principal and interest will be $ 1,486 . As of March 31, 2023, the outstanding balance of the loan amounted to $ 187,010 and is disclosed as a part of the notes payable in the consolidated balance sheet. We consolidated First & Main with our consolidated financial statements during the quarter ended September 30, 2022; accordingly, this loan is not included in our consolidated balance sheet as of June 30, 2022. 1300 Main Mortgage Notes Payable On April 12, 2019, 1300 Main entered into a loan agreement with Suncrest Bank, in the amount of $ 9,160,000 at a fixed annual interest rate of 4.55 % for the first 60 payments. Beginning May 25, 2024, the interest rate will be calculated on the unpaid principal balance at an interest rate based on the Prime Rate as published in the Western Edition Wall Street Journal, plus a margin of 1 %. The loan was obtained to consolidate the construction loans obtained during the development and construction of the building. The loan matures on April 25, 2029 , and is secured by 1300 Main Office Building. The loan requires monthly payments of principal and interest of $ 51,610 for 60 consecutive payments followed by 59 monthly payments of principal and interest of $ 60,674 with the remaining principal balance due at maturity. The loan is guaranteed by Wiseman, but Wiseman was subsequently indemnified by the Operating Partnership on July 1, 2022 as discussed in Note 5. The outstanding balance of the loan as of March 31, 2023 was $ 8,449,860 , which is disclosed as a part of the mortgage notes payable in the consolidated balance sheet as of March 31, 2023. We consolidated 1300 Main with our consolidated financial statements during the quarter ended December 31, 2022, accordingly, this mortgage note payable was not included in our consolidated balance sheet as of June 30, 2022. In accordance with the asset acquisition accounting, the debt assumed from the acquisition of 1300 Main was measured at fair value. The interest rate on the debt was below the current market rates, as a result, $ 338,000 of the acquisition cost was allocated to debt mark-to-market as disclosed in Note 2. The debt mark-to-market value is amortized over the remaining loan term. The debt mark to market value, net of accumulated amortization as of March 31, 2023 amounted to $ 231,263 and was netted against the total debt balance in the consolidated balance sheet. The following table provides the projected principal and interest payments on the loan for the next five years: Fiscal Year Ending June 30, : Principal Interest 2023 (remainder) $ 56,863 $ 98,033 2024 254,196 383,254 2025 360,159 367,933 2026 377,129 350,963 2027 394,900 333,192 Thereafter 7,006,613 562,666 Total $ 8,449,860 $ 2,096,041 30 Table of Contents 1300 Main Other Notes Payable: SBA Loan On January 13, 2021, 1300 Main borrowed $ 150,000 from the SBA, under the Economic Injury Disaster Loan program. The loan will be paid back over 30 years at an annual interest rate of 3.75 % starting in July 2023. Monthly payments will be $ 731 . The loan is disclosed as a part of the notes payable in the consolidated balance sheet as of March 31, 2023. We consolidated 1300 Main with our consolidated financial statements during the quarter ended December 31, 2022; accordingly, this loan was not included in our consolidated balance sheet as of June 30, 2022. Woodland Corporate Center Two Mortgage Notes Payable On October 2, 2019, Woodland Corporate Center Two entered into a loan agreement with Western Alliance Bank, in the amount of $ 7,500,000 at a fixed annual interest rate of 4.15 %. The loan was obtained to finance the acquisition of Woodland Corporate Center Two Office Building. The loan matures on October 7, 2024 and is secured by Woodland Corporate Center Two Office Building. The loan requires monthly payments of principal and interest based on a 5 year amortization period with the remaining principal balance due at maturity. The loan is guaranteed by Wiseman, but Wiseman was subsequently indemnified by the Operating Partnership on July 1, 2022 as discussed in Note 5. The outstanding balance of the loan as of March 31, 2023 was $ 6,876,582 , which is disclosed as a part of the mortgage notes payable in the consolidated balance sheet. We consolidated Woodland Corporate Center Two with our consolidated financial statements during the quarter ended March 31, 2023, accordingly, this mortgage note payable was not included in our consolidated balance sheet as of June 30, 2022 The following table provides the projected principal and interest payments on the loan for the next three years: Fiscal Year Ending June 30, : Principal Interest 2023 (remainder) $ 48,661 $ 72,758 2024 201,377 284,221 2025 6,626,544 92,832 Total $ 6,876,582 $ 449,811 Main Street West Mortgage Notes Payable On October 22, 2019, Main Street West entered into a loan agreement with First Northern Bank of Dixon, in the amount of $ 16,600,000 at a fixed annual interest rate of 4 %. The loan was obtained to finance the acquisition of Main Street West Office Building. The loan matures on November 1, 2024 and is secured by Main Street West Office Building. The loan requires monthly payments of principal and interest based on a 5 year amortization period with the remaining principal balance due at maturity. The loan is guaranteed by Wiseman, but Wiseman was subsequently indemnified by the Operating Partnership on July 1, 2022 as discussed in Note 5. The outstanding balance of the loan as of March 31, 2023 was $ 15,444,298 , which is disclosed as a part of the mortgage notes payable in the consolidated balance sheet. We consolidated Main Street West with our consolidated financial statements during the quarter ended March 31, 2023, accordingly, this mortgage note payable was not included in our consolidated balance sheet as of June 30, 2022. In accordance with the asset acquisition accounting, the debt assumed from the acquisition of Main Street West was measured at fair value. The interest rate on the debt was below the current market rates, as a result, $ 717,000 of the acquisition cost was allocated to debt mark-to-market as disclosed in Note 2. The debt mark-to-market value is amortized over the remaining loan term. The debt mark to market value, net of accumulated amortization as of March 31, 2023 amounted to $ 651,818 and was netted against the total debt balance in the consolidated balance sheet. 31 Table of Contents The following table provides the projected principal and interest payments on the loan for the next five years: Fiscal Year Ending June 30, : Principal Interest 2023 (remainder) $ 108,654 $ 156,101 2024 453,824 605,199 2025 472,314 586,709 2026 491,557 567,466 2027 511,584 547,440 Thereafter 13,406,365 266,679 Total $ 15,444,298 $ 2,729,594 Main Street West Other Notes Payable: SBA Loan On April 7, 2021, Main Street West borrowed $ 150,000 from the SBA, under the Economic Injury Disaster Loan program. The loan will be paid back over 30 years at an annual interest rate of 3.75 % starting in September 4, 2022. Monthly payments will be $ 731 . The loan is disclosed as a part of the notes payable in the consolidated balance sheet as of March 31, 2023. We consolidated Main Street West with our consolidated financial statements during the quarter ended March 31, 2023; accordingly, this loan was not included in our consolidated balance sheet as of June 30, 2022. NOTE 11 – EARNINGS PER SHARE Basic earnings per share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to potentially diluted securities. The following table sets forth the computation of basic and diluted earnings per share for nine months ended March 31, 2023 and 2022: Nine Months Ended March 31, 2023 Nine Months Ended March 31, 2022 Net income (loss) attributable to common stockholders $ ( 14,397,810 ) $ 15,216,402 Basic and diluted weighted average common shares outstanding 13,282,666.75 13,359,538.60 Basic and diluted earnings per share $ ( 1.08 ) $ 1.14 NOTE 12 – SHARE OFFERINGS AND FEES During the nine months ended March 31, 2023, we issued 131,046.97 common shares with total gross proceeds of $ 1,208,909 under the DRIP. In addition, in September 2022, we issued 169.67 common shares at $ 10.25 per share, to the Class A unit holders of the Operating Partnership who exercised their option to convert their Class A units to our common shares. During the nine months ended March 31, 2023, we issued 468,425.06 preferred shares with total gross proceeds of $ 11,449,495 under the Offering Circular and 735.66 preferred shares with total gross proceeds of $ 39,988 under the DRIP. For the nine months ended March 31, 2023, we incurred selling commissions and fees of $ 1,363,238 in relation to preferred shares offering. 32 Table of Contents During the nine months ended March 31, 2022, we issued 91,013.94 common shares with total gross proceeds of $ 839,610 under the DRIP. In addition to the common shares sold through our public offering, in March 2022, we issued 212.19 common shares at $ 10.25 per share, to the Class A unit holders of the Operating Partnership as discussed in Note 1. During the nine months ended March 31, 2022, we issued 80,014.57 preferred shares with gross proceeds of $ 1,984,500 . For the nine months ended March 31, 2022, we incurred syndication costs of $ 672,460 in relation to preferred shares offering. NOTE 13 – SHARE REPURCHASE PLAN During the nine months ended March 31, 2023, we repurchased our own shares through our Share Repurchase Program and through third-party auctions as noted in the below table: Period Total Number of Shares Repurchased Average Repurchase Price Per Share Total Repurchase Consideration During the nine months ended March 31, 2023 September 1, 2022 through September 30, 2022 40,817.06 $ 9.47 $ 386,385 December 1, 2022 through December 31, 2022 44,048.79 $ 9.44 415,968 March 1, 2023 through March 31, 2023 58,896.45 $ 7.38 434,656 143,762.30 $ 1,237,009 During the nine months ended March 31, 2022, we repurchased our own shares as noted in the below table: Period Total Number of Shares Repurchased Average Repurchase Price Per Share Total Repurchase Consideration During the nine months ended March 31, 2022 December 22, 2021 5,607.89 $ 9.84 $ 55,188 January 6, 2022 through March 31, 2022 125,677.16 $ 9.15 1,149,490 131,285.05 $ 1,204,678 NOTE 14 – STOCKHOLDER DIVIDENDS On March 31, 2020, after assessing the impacts of the COVID-19 pandemic, our Board of Directors unanimously approved the suspension of regular quarterly dividends to our stockholders. On May 10, 2021, the Board of Directors resumed the quarterly dividends after reassessing our cash flow. The following table reflects the dividends per share that we have declared on our common stock and preferred stock during the nine months ended March 31, 2023: Dividends Common Stock Preferred Stock During the Quarter Ended Per Share Amount Per Share Amount September 30, 2022 $ 0.105 $ 1,390,290 $ 0.375 $ 87,884 December 31, 2022 0.110 1,456,391 0.375 155,909 March 31, 2023 0.115 1,520,985 0.375 209,620 $ 0.330 $ 4,367,666 $ 1.125 $ 453,413 During the nine months ended March 31, 2023, we paid common dividends of $ 4,170,569 , of which $ 1,208,909 have been reinvested under our DRIP. During the nine months ended March 31, 2023, we paid preferred dividends of $ 281,760 , of which $ 39,988 have been reinvested under our DRIP. Preferred dividends and common dividends declared during the quarter ended March 31, 2023 , were paid in April 2023 . Total distributions declared by the Operating Partnership for the Class A unit holders during the nine months ended March 31, 2023, were $ 29,552 (which was $ 0.33 per unit). Total distributions declared by the Operating Partnership for the preferred unit holders the nine months ended March 31, 2023, were $ 407,732 (which was $ 0.86 per unit). Total distributions declared by the Operating Partnership for the preferred unit holders during year ended June 30, 2022 were $ 51,667 (which was $ 0.25 per unit). 33 Table of Contents On February 10, 2023 , we declared the Series A Preferred stock quarterly dividend of $ 0.375 per share payable at the rate of $ 0.125 per month for holders of record as of April 30, 2023 , May 31, 2023 , and June 30, 2023 . The following table reflects the dividends per share that we have declared on our common stock during the nine months ended March 31, 2022: Dividends Common stock Preferred stock During the Quarter Ended Per Share Amount Per Share Amount September 30, 2021 $ 0.130 * $ 1,731,482 $ - $ - December 31, 2021 0.080 1,068,612 0.125 440 March 31, 2022 0.090 1,193,841 0.375 18,507 $ 0.300 $ 3,993,935 $ 0.500 $ 18,947 * 0.06 per share dividend was declared for the quarter ended June 30, 2021. During the nine months ended March 31, 2022, we paid total dividends of $ 2,800,534 of which $ 839,685 has been reinvested under the Company’s DRIP. Total dividends declared by the Operating Partnership for the Class A unit holders during the nine months ended March 31, 2022, was $ 3,609 (which was $ 0.30 per unit), of which $ 723 ($ 0.06 per unit) was related to dividend declared for the quarter ended June 30, 2021. Holders of our preferred shares are entitled to receive, when and as authorized by our Board of Directors and declared out of legally available funds, cumulative cash dividends on each preferred share at an annual rate of 6 %. This is a preference, not a guarantee, but is a term contained in the preferred designation of our Charter; however, the board could suspend the dividend at any time, although it would continue to accrue. The dividend must be paid before the common shares can be paid a dividend, and before the Adviser can receive any incentive management fee. During the nine months ended March 31, 2022, we declared total dividends to preferred shares of $ 18,947 . 34 Table of Contents Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements by MacKenzie Realty Capital, Inc., together with its subsidiaries as discussed in Note 1 of the financial statements included in this report (collectively the “Company,” “we,” or “us”) contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, future events or our future performance or financial condition. In some cases, stockholders can identify forward-looking statements by terminology such as “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. An economic downturn could impair our ability to continue to operate, which could lead to the loss of some or all of our investments, a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities, and interest rate volatility could adversely affect our results, particularly if we elect to use leverage as a part of our investment strategy. For a discussion of factors that could cause our actual results to differ from forward-looking statements contained herein, please see the discussion under the heading “Risk Factors” in our Annual Report on Form 10-K. We may experience fluctuations in our operating results due to a number of factors, including the effect of the withdrawal of our BDC election, the return on our equity investments, the interest rates payable on our debt investments, the default rates on such investments, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods. Overview Historically, we were an externally managed non-diversified closed-end management investment company that elected to be treated as a BDC under the 1940 Act, but we withdrew our election to be treated as a BDC on December 31, 2020. Our objective remains to generate both current income and capital appreciation through real estate-related investments. We have elected to be treated as a REIT under the Code and as a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. To the extent that we satisfy the annual distribution requirement but distribute less than 100% of our taxable income, we will be subject to an excise tax on our undistributed taxable income. Our wholly owned subsidiary, MacKenzie NY Real Estate 2 Corp. (“MacKenzie NY 2”), is subject to corporate federal and state income tax on its taxable income at regular statutory rates. We are managed by the Advisers, and MacKenzie provides the non-investment management services and administrative services necessary for us to operate. Investment Plan Now that we are no longer a BDC, we generally seek to invest in real estate assets. We intend to invest at least 80% of our total assets in equity or debt in real estate assets. We can invest up to 20% of our total assets in investment securities of real estate companies. A real estate company is one that (i) derives at least 50% of its revenue from the ownership, construction, financing, management or sale of commercial, industrial or residential real estate and land; or (ii) has at least 50% of its assets invested in such real estate. We will not invest in general partnerships, joint ventures, or other entities that do not afford limited liability to their security holders. However, limited liability entities in which we invest may hold interests in general partnerships, joint ventures, or other non-limited liability entities. When purchasing securities, we generally favor purchasing securities issued by entities that have (i) completed the initial offering of their securities, (ii) operated for a period of at least two years, and typically more than five years, from the completion of their initial offering, and (iii) fully invested their capital in real properties or other real estate related investments. Our investment objective is to generate current income and capital appreciation through the acquisition of real estate assets and debt and equity real estate-related investments. Our independent directors review our investment policies periodically, at least annually, to confirm that our policies are in the best interests of our stockholders. Each such determination and the basis thereof are contained in the minutes of our Board of Directors meetings. 35 Table of Contents We seek to accomplish our objective by rigorously analyzing the value of and risks associated with potential acquisitions, and, for up to 20% of our total assets, by acquiring real estate securities at significant discounts to their net asset value. We intend to expand our investment strategy to include acquisition of distressed real properties. Like our other investments, we would expect to hold distressed properties and infuse funds as necessary to extract unrealized value. We will engage in various investment strategies to achieve our overall investment objectives. The strategy we select depends upon, among other things, market opportunities, the skills and experience of the Adviser’s investment team and our overall portfolio composition. We generally seek to acquire assets that produce ongoing distributable income for investors, yet with a primary focus on purchasing such assets at a discount from what the Adviser estimates to be the actual or potential value of the real estate. Our investment strategies include making loans to or investments in previously syndicated projects that had encountered difficulties with occupancy, financing, tenant improvements or encounter other cash needs. Since entering the recent recession, certain of our portfolio companies have encountered additional cash shortfalls, and, in some cases, we have provided additional capital to the extent that we now own the majority of the project. In such cases, we intend to consolidate the portfolio company into our financial statements, which is a key reason for dropping our BDC status. We intend to continue our historical activities related to tender offers for shares of non-traded REITs in order to boost our short-term cash flow and to support our distributions, subject to the constraint that such securities will not exceed 20% of our portfolio. We believe this niche strategy will allow us to pay distributions that are supported by cash flow rather than paying back investors’ capital, although there can be no assurance that some portion of any distribution is not a return of capital. Rental and Reimbursement We generate rental revenue by leasing office space and apartment units to the building’s tenants. These tenant leases fall under the scope of ASC 842 and are classified as operating leases. Revenues from such leases are recognized on a straight-line basis over the terms of the lease agreements. Investment income We generate revenues in the form operating income, capital gains and dividends on dividend-paying equity securities or other equity interests that we acquire, in addition to interest on any debt investments that we hold. Further, we may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance and possibly consulting fees and performance-based fees. Any such fees are generated in connection with our investments and recognized as earned. Expenses Our primary operating expenses include the payment of: (i) advisory fees to our Advisers; (ii) our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement; and (iii) other operating expenses as detailed below. Our investment advisory fees compensate our Investment and Real Estate Adviser for their work in identifying, evaluating, negotiating, closing, monitoring and servicing our investments. Our expenses must be billed to and paid by us, except that MacKenzie may be reimbursed for actual cost of goods and services used by us and certain necessary administrative expenses. We will bear all other expenses of our operations and transactions, including: • the cost of operating and maintaining real estate properties; • the cost of calculating our net asset value, including the cost of any third-party valuation services; • the cost of effecting sales and repurchases of our shares and other securities; • interest payable on debt, if any, to finance our investments; • fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and third-party advisory fees; • transfer agent and safekeeping fees; • fees and expenses associated with marketing efforts; • federal and state registration fees, any stock exchange listing fees in the future; • federal, state and local taxes; • independent directors’ fees and expenses; 36 Table of Contents • brokerage commissions; • fidelity bond, directors and officers errors and omissions liability insurance, and other insurance premiums; • direct costs and expenses of administration and sub-administration, including printing, mailing, long distance telephone and staff; • fees and expenses associated with independent audits and outside legal costs; • costs associated with our reporting and compliance obligations under the 1934 Act, the 1940 Act and applicable federal and state securities laws; and • all other expenses incurred by either MacKenzie or us in connection with administering our business, including payments under the Administration Agreement that are based upon our allocable portion of overhead and other expenses incurred by MacKenzie in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and any administrative support staff. Portfolio Investment Composition Beginning with the withdrawal of our election to be treated as a BDC on December 31, 2020, we began transforming our portfolio of investments in an orderly fashion into one comprised of controlled real estate investments (either wholly owned or controlled through voting securities). As of March 31, 2023, we still owned various real estate limited partnerships and REITs that are listed in the “Investments, at fair value” in the table below. We also owned various investments in entities that own real estate which gave us enough control such that the investments are not securities for 1940 Act purposes, but not enough to consolidate the financials of such entities with our own; these are listed below as “Unconsolidated investments (non-securities), at fair value.” As a result of the change in our status and applying the new basis of accounting, on the effective date of the termination of our status as a BDC, we recorded the fair value of the investments as the new carrying value of the investments. The following table summarizes the composition of our investments at fair value as of March 31, 2023, and June 30, 2022: Fair Value Investments, at fair value March 31, 2023 June 30, 2022 3100 Airport Way South LP $ 168,960 $ 330,000 5210 Fountaingate 6,820 6,820 American Healthcare REIT, Inc. – Class I - 416,115 Capitol Hill Partners, LLC 1,455,400 1,518,100 Citrus Park Hotel Holdings, LLC 4,100,000 5,000,000 Coastal Realty Business Trust, REEP, Inc. - A - 49,178 Corporate Property Associates 18 Global A Inc. - 42,256 Healthcare Trust, Inc. 2,112,341 3,866,394 HGR Liquidating Trust - 732 Highlands REIT Inc. 3,888,556 3,750,385 KBS Real Estate Investment Trust II, Inc. 955,737 1,010,350 Lakemont Partners, LLC 837,860 806,290 Moody National REIT II, Inc. 14,911 15,969 Secured Income, LP - 520,594 SmartStop Self Storage REIT, Inc Class A 100,916 120,922 SmartStop Self Storage REIT, Inc Class T - 9,885 Strategic Realty Trust, Inc. 248,806 311,007 Summit Healthcare REIT, Inc. 1,117,022 1,973,211 Total $ 15,007,329 $ 19,748,208 37 Table of Contents Fair Value Unconsolidated investments (non-security), at fair value March 31, 2023 June 30, 2022 1300 Main, LP - $ 1,688,000 Dimensions28 LLP 389,664 19,512,036 First & Main, LP - 2,237,000 Green Valley Medical Center, LP 2,596,500 3,010,000 Main Street West, LP - 4,708,000 Martin Plaza Associates, LP 640,000 725,000 One Harbor Center, LP 4,236,500 4,162,000 Westside Professional Center I, LP 1,849,000 1,803,000 Woodland Corporate Center Two, LP - - Total $ 9,711,664 $ 37,845,036 Properties In addition to our investment securities, we currently own and manage six commercial real estate properties: Addison Corporate Center located in Windsor, CT, Satellite Place in Duluth, GA, 1300 Main in Napa, CA, First & Main in Napa, CA, Main Street West in Napa, CA, and Woodland Corporate Center in Woodland, CA and four residential apartments: Commodore Apartments and The Park View (f/k/a as the Pon De Leo Apartments), located in Oakland, CA, the Hollywood Property located in Los Angeles, CA, and the Shoreline Apartments in Concord, CA. The Addison Corporate Center, 1300 Main, First & Main, Main Street West, Woodland Corporate Center, and the Hollywood Property are owned through our subsidiary, the Operating Partnership, the Commodore Apartments are owned through our subsidiary Madison, The Park View (f/k/a as the Pon De Leo Apartments) are owned through our subsidiary PVT, and the Shoreline Apartments are owned through our subsidiary BAA-Shoreline. The remaining properties are owned directly. Property: Property Owners Addison Corporate Center Addison Property Owner, LLC Commodore Apartments Madison-PVT Partners LLC The Park View (fka as Pon De Leo Apartments) PVT-Madison Partners LLC Hollywood Apartments PT Hillview GP, LLC Shoreline Apartments MacKenzie BAA IG Shoreline LLC Satellite Place Office Building MacKenzie Satellite Place Corp. First & Main Office Building First & Main, LP 1300 Main Office Building 1300 Main, LP Woodland Corporate Center Office Building Woodland Corporate Center Two, LP Main Street West Office Building Main Street West, LP Addison Corporate Center contains 605,502 square feet, of which approximately 185,000 square feet is office space and the remainder is designated as flex office/warehouse space. Addison Corporate Center serves as collateral to a loan which matured on April 30, 2022. After the maturity, Addison Property Owner was unable to extend the loan and entered into a forbearance agreement with the lender on June 28, 2022. Pursuant to the forbearance agreement, the property is currently being marketed for sale. Accordingly, Addison Corporate Center is classified as an asset held for sale as of March 31, 2023. In April 2023, we entered into a sale agreement with a third-party buyer at a sale price of $10.50 million which was approved by the lender. The sale is expected to close in May 2023. As of March 31, 2023, the property is approximately 42% occupied by 6 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Rent per annum Lease Expiration Renewal options Triumph Aircraft Design, Manufacturing, and Engineering 88,255 $ 361,254 5/31/2027 No Belcan Global Engineering and Consulting 66,072 $ 1,209,857 9/30/2029 No Quest Diagnostics Laboratory Services 65,459 $ 1,290,088 10/31/2025 1, 3 years 38 Table of Contents The following information pertains to lease expirations at the Addison Corporate Center: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2023 1 4,705 $ 89,844 3% 2025 1 65,459 $ 1,290,088 40% 2027 3 104,032 $ 639,667 20% 2029 1 66,072 $ 1,209,857 37% First & Main Office Building contains 27,396 square feet, of which approximately 19,000 square feet is office space and the remainder is designated as retail space. As of March 31, 2023, the property is 93.0% occupied by 7 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Rent pera nnum Lease Expiration Renewal options GVM Law Legal Services 9,470 $ 483,635 9/20/2026 2, 5 years Brotlemarkle Accounting Services 4,366 $ 234,374 7/31/2030 2, 5 years Napa Palisades Restaurant 3,462 $ 185,470 8/31/2040 No Moss Adams Accounting Services 3,428 $ 166,812 6/30/2023 No The following information pertains to lease expirations at First & Main Office Building: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2024 1 1,135 $ 69,781 4% 2025 2 5,648 $ 305,884 23% 2026 1 9,470 $ 483,635 36% Thereafter 3 9,243 $ 497,215 37% 1300 Main Office Building contains 20,145 square feet, of which approximately 13,900 square feet is office space and the remainder is designated as retail space. As of March 31, 2023, the property is 100% occupied by 8 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Rent per annum Lease Expiration Renewal options Wilson Daniels Wine Wholesaler 6,712 $ 417,902 3/15/2025 1, 5 years Hal Yamashita Restaurant 3,212 $ 186,852 7/31/2026 No Norcal Gold Real Estate 2,896 $ 170,889 3/31/2026 1, 5 years Shackford’s Kitchen Retail 2,409 $ 134,028 6/30/2032 No The following information pertains to lease expirations at 1300 Main Office Building: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2024 1 1,088 $ 74,193 6% 2025 2 8,898 $ 549,786 45% 2026 2 6,108 $ 357,741 30% Thereafter 3 4,051 $ 231,742 19% 39 Table of Contents Woodland Corporate Center contains 37,034 square feet, all of which is office space. As of March 31, 2023, the property is 94% occupied by 14 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Rent per annum Lease Expiration Renewal options Agtech Innovation Research and Development 12,940 $ 411,300 8/31/2032 No Burger Rehab Physical Therapy 4,013 $ 124,053 9/22/2023 No Johnston, Martin & Montgomery Accounting 3,388 $ 129,276 11/2/2024 2, 5 years Children’s Home Society Non-Profit Education 2,992 $ 104,391 10/31/2024 No The following information pertains to lease expirations at Woodland Corporate Center: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2023 1 4,013 $ 124,053 11% 2024 6 10,295 $ 368,657 32% 2025 3 4,106 $ 128,726 11% 2027 2 3,178 $ 101,087 9% Thereafter 2 13,324 $ 425,400 37% Main Street West contains 38,136 square feet, of which approximately 32,500 square feet is office space and the remainder is designated as retail space. As of March 31, 2023, the property is 84% occupied by 7 tenants. The following table shows the largest tenants and square footage occupied: Largest Tenants Business Business Square Ft. Occupied Rent per annum Lease Expiration Renewal options AUL Corporation Insurance 13,806 $ 482,439 2/3/2026 No Strategies To Empower Medical 4,875 $ 232,735 12/31/2027 No State Of California Medical 4,697 $ 184,103 8/31/2040 No Azzurro Pizzeria Restaurant 2,935 $ 173,616 7/31/2024 No The following information pertains to lease expirations at Main Street West Office Building: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2024 3 6,613 $ 374,880 21% 2026 1 13,806 $ 797,841 45% 2027 2 7,010 $ 329,117 19% Thereafter 1 4,697 $ 259,721 15% Satellite Place is a six-story office building contains 143,785 square feet of rentable office area located in Duluth, Georgia. As of March 31, 2023, the property is approximately 53% occupied by 1 tenant as listed in below table. Largest Tenants Business Business Square Ft. Occupied Rent per annum Lease Expiration Renewal options OS National, LLC Title Services 71,085 $ 1,348,305 12/31/2029 2, 5 years 40 Table of Contents The following information pertains to lease expirations at Satellite Place Office Building: Year Number of Leases Expiring Total Area Annual Rent Percentage of Gross Rent 2029 1 71,085 $ 1,348,305 100% Commodore Apartments is a mid-rise apartment building built in 1912 and has 48 units. As of March 31, 2023, Commodore Apartment building is approximately 97.9% occupied. The Park View (f/k/a as Pon De Leo Apartments) is also a mid-rise apartment building built in 1929 and has 39 units. As of March 31, 2023, The Park View building is approximately 100% occupied. Hollywood Hillview Apartments (“Hollywood Property”), located in Los Angeles, CA, is a mid-rise apartment building built in 1917 and has 53 units. The property contains approximately 37,000 square feet of net rentable apartment area and 8,560 square feet of retail space. All of the retail space is currently occupied by restaurants and nightclubs. The apartment units are 96.2% occupied as of March 31, 2023. Shoreline Apartments is a mid-rise apartment building built in 1967 and renovated in 2015 which has 84 units. As of March 31, 2023, Shoreline Apartments building is approximately 92.9% occupied. The following table provides information regarding each of the residential properties: Property Name Sector Location Square Feet Units Percentage Leased Annual Base Rent Monthly Base Rent/Occupied Unit The Park View (f/k/a Pon De Leo Apartments) Multi-Family Residential Oakland, CA 36,654 39 100.0% $ 1,072,683 $ 2,361 Commodore Multi-Family Residential Oakland, CA 31,156 48 97.9% $ 886,663 $ 1,572 Hollywood Property Multi-Family Residential Los Angeles, CA 36,991 53 96.2% $ 1,491,287 $ 2,436 Shoreline Apartments Multi-Family Residential Concord, CA 67,925 84 92.9% $ 1,972,620 $ 2,108 Property Name Sector Location Square Feet Units Percentage Leased Annual Base Rent Monthly Base Rent/Occupied Unit Hollywood Property Retail Los Angeles, CA 8,560 1 100.0% $ 314,220 $ 26,185 Aurora Land Development We also own a parcel of land totaling approximately 3 acres located at the corner of Business Center Drive and Healthcare Drive in Fairfield, California. We plan to build a multi-family residential community o n this land which will include 72 units and a club house. The City is currently reviewing our development application and we hope for the approval and commencement of the construction in the fall of this year. There are no present plans for the improvement or development of any property other than the Aurora property. Each property is being held for income production and increased occupancy and/or rental rates. We have property and liability insurance policies on all properties which we believe are adequate. The markets in which our properties (those consolidated and those that are not yet consolidated) operate are highly competitive, and each property faces unique competitive challenges based upon local economic, political, and legal factors. Our West coast multi-family properties, Commodore Apartments and The Park View (f/k/a as Pon De Leo Apartments), are generally restricted from raising rents by local rent control laws. Two of our unconsolidated investments in apartment properties, Lakemont Partners and Capitol Hill, are also subject to rent control. Rent control can result in average rents that are significantly below market, and this provides some buffer against declining rents in a recession. However, in order to encourage development, rent control usually does not apply to newer properties. Since older properties may be unable to raise rents as needed, they may be unable to make improvements that could allow them to compete with newer properties. 41 Table of Contents Our consolidated office properties, Addison Corporate Center, 1300 Main, First and Main, Main Street West, Satellite Place, and Woodland Corporate Center, are Class B, Class A, Class A, Class A, Class A, and Class A suburban office properties located in Windsor, Connecticut, Napa, California, Napa, California, Napa, California, Duluth, Georgia, and Napa, California, respectively. All properties must compete with every other office property in the market, as well as facing the uncertainty of workers returning to the office after COVID-19. Our unconsolidated investment in a hotel property, Citrus Park Hotel, is a Courtyard by Marriott located in the Tampa/St. Petersburg market that competes for business and leisure travel. Citrus Park suffered a significant decline during 2020 as a result of a drastic reduction in business and leisure travel but is now near pre COVID-19 levels in revenue. Results of Operations COVID-19 pandemic Considerable uncertainty still surrounds the COVID-19 pandemic and its potential effects, and the extent of and effectiveness of any responses taken on a national and local level. However, measures taken to limit the impact of the COVID-19 pandemic, including social distancing and other restrictions on travel, congregation, and business operations have already resulted in significant negative economic impacts. In addition, some of the companies in which we have invested have cancelled their quarterly dividends and distributions for the current and future quarters. The long-term impact of the COVID-19 pandemic and any future outbreaks or variants on the United States and world economies remains uncertain, but may result in a world-wide economic downturn, the duration and scope of which cannot currently be predicted . MacKenzie and our Advisers have taken numerous steps, and will continue to take further actions, to address the COVID-19 pandemic. They implemented business continuity plans and the management team is in place to respond to changes in the global environment quickly and effectively. The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response and assessing potential impacts to our financial position and operating results. We are focusing on maintaining a strong balance sheet and liquidity position and searching for opportunistic investments. In anticipation of reduced revenues and uncertain future economic conditions, the Board of Directors had discontinued distributions starting March 2020 and share redemptions starting May 2020. However, after reassessing our cash flow, the Board of Directors resumed the share redemptions in March of 2021 and reinstated the quarterly distributions in May 2021. The Board intends to continue quarterly distributions so long as it is supported by the previous quarter’s income, but retains discretion to increase or decrease the distributions. Three Months Ended March 31, 2023 and 2022 Rental and reimbursements revenues: Rental and reimbursement revenues are generated from our commercial and residential real estate properties. During the three months ended March 31, 2023, we generated $4.47 million in rental and reimbursements revenues, of which $2.87 million was generated from our six commercial properties (Addison Corporate Center, Satellite Place Office Building, First & Main Office Building, 1300 Main Office Building, Main Street West Office Building and Woodland Corporate Center Office Building), and $1.60 million was generated from our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments). During the three months ended March 31, 2022, we generated $2.52 million in rental and reimbursements revenues, of which $1.85 million was generated from the Addison Corporate Center tenants, and $0.67 million was generated from the three residential apartments (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), and Hollywood Apartments). 42 Table of Contents Investment income: Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income. Total investment income for the three months ended March 31, 2023 and 2022 was $10.23 million and $1.17 million, respectively. During the three months ended March 31, 2023, we received $10.15 million of distributions from operations, sales, and liquidations as compared to $0.72 million during the three months ended March 31, 2022. During the three months ended March 31, 2023, we received dividends, interest, and other investment income of $0.08 million as compared to $0.45 million received during the three months ended March 31, 2022. The majority of the sales distributions received during the three months ended March 31, 2023 was from Dimension 28, LLP. Dimension 28 sold the underlying property and distributed the majority of the proceeds from the sale in February 2023. We received $21.12 million from Dimension 28, of which $11.09 million was a return of capital and the remaining $10.02 million was recorded as distribution income from sales transactions. Expenses: Our asset management and incentive management fees are based on the advisory agreement that was effective January 1, 2021. Asset management fee: The asset management fees for the three months ended March 31, 2023 and 2022 were $0.77 million and $0.68 million, respectively. The slight increase was due to an increase in the Invested Capital since March 31, 2022. Incentive management fee: Under the Advisory Management Agreement, we pay an incentive management fee that is equal to 15% of all distributions once shareholders have received cumulative distributions equal to 6% from the effective date of the Agreement. We did not incur any incentive management fee for the three months ended March 31, 2023 and 2022. Administrative cost reimbursements and Transfer agent reimbursements: Costs reimbursed to MacKenzie for the three months ended March 31, 2023, were $0.18 million as compared to $0.15 million for the three months ended March 31, 2022. The slight increase was due to an increase in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to March 31, 2022, as a result of the increase in the number of real estate assets owned by us since March 2022. Transfer agent cost reimbursement paid to MacKenzie for three months ended March 31, 2023 and 2022 were $0.02 million and $0.03 million, respectively. Property operating and maintenance expenses: Operating and maintenance expenses mainly consists of real estate taxes, utilities, repair and maintenance, cleaning, landscape, security, property management fees, insurance, and various other administrative expenses incurred in the operation of our commercial and residential real estate assets. During the three months ended March 31, 2023, we incurred operating and maintenance expenses of $2.54 million, of which $1.87 million were incurred in the operation of our six commercial properties (Addison Corporate Center, Satellite Place Office Building, First & Main Office Building, 1300 Main Office Building, Woodland Corporate Center Office Building and Main Street West Office Building ) and $0.67 million were incurred in the operation of our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments) , Hollywood Apartments, and Shoreline Apartments). During the three months ended March 31, 2022, we incurred operating and maintenance expenses of $1.47 million, of which $1.18 million mainly incurred in the operation of Addison Corporate Center. Operating and maintenance expenses incurred in the operation of three residential apartments (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), and Hollywood Property) were $0.29 million. 43 Table of Contents Depreciation and amortization: During the three months ended March 31, 2023, we recorded depreciation and amortization of $1.66 million, of which $1.09 million was attributable to the depreciation and amortization of real estate and intangible assets of our five commercial properties (Satellite Place Office Building, First & Main Office Building, 1300 Main Office Building, Woodland Corporate Center Office Building and Main Street West Office Building ) and $0.57 million was attributable to our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments). During the three months ended March 31, 2022, we recorded depreciation and amortization of $1.15 million, of which $0.83 million was attributable to the depreciation and amortization of real estate and intangible assets of Addison Corporate Center and $0.32 million was attributable to the three residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments) and Hollywood Apartments). Interest expense: Interest expense for the three months ended March 31, 2023 was $1.91 million, of which $1.23 million was incurred on the mortgage notes payable associated with our five commercial properties (Addison Corporate Center, First & Main Office Building, 1300 Main Office Building, Woodland Corporate Center Office Building and Main Street West Office Building ) and $0.68 million was incurred on the mortgage notes payable associated with our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments). Interest expense for the three months ended March 31, 2022 was $0.57 million, of which $0.23 million was incurred on the notes payable associated with the Addison Corporate Center and $0.34 million was incurred on the two mortgage notes payable associated with the three residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments) and Hollywood Apartments). Other operating expenses: Other operating expenses include professional fees, directors’ fees, printing and mailing expenses, and other general and administrative expenses. Other operating expenses for the three months ended March 31, 2023 and 2022, were $0.42 million and $0.34 million, respectively. The increase in other operating expenses is due to the acquisition of new properties: Shoreline Apartments in May 2022, Satellite Place Office Building in June 2022, First & Main Office Building in July 2022, 1300 Main Office Building in October 2022, Woodland Corporate Center Office Building in January 2023 and Main Street West Office Building in February 2023, resulting in higher amounts of general and administrative operating expenses during the three months ended March 31, 2023. Net realized gain/loss on investments: During the three months ended March 31, 2023, we had no realized gain as compared to $5.11 million during the three months ended March 31, 2022. Total realized gains for the three months ended March 31, 2022, were realized from sale of a publicly traded REIT securities, three non-traded REIT securities, and a limited partnership interest with total realized gains of $5.11 million. Net unrealized gain/loss on investments: During the three months ended March 31, 2023, we recorded net unrealized loss of $11.23 million, which includes of $7.76 million of unrealized gain reclassification adjustments. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, net unrealized loss excluding the reclassification adjustment for the three months ended March 31, 2022 were $3.47 million, which resulted from fair value depreciations of $3.11 million from limited partnership interests, $0.20 million from general partnership interests, and $0.16 million from non-traded REIT securities. During the three months ended March 31, 2022, we recorded net unrealized gains of $1.26 million, which were net of $0.42 million of unrealized loss reclassification adjustment. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, the net unrealized gains excluding the reclassification adjustment for the three months ended March 31, 2022 were $1.68 million, resulted from fair value appreciations of $4.60 million from limited partnership interests and fair value depreciations of $2.91 million from non-traded REIT securities and $0.01 million from investment trust. 44 Table of Contents Income tax provision (benefit): The Parent Company has elected to be treated as a REIT for tax purposes under the Code and, as a REIT, is not subject to federal income taxes on amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable income to the stockholders and meets certain other conditions. To the extent that it satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2021. Therefore, it did not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2021. Similarly, for the tax year 2022, we believe the Parent Company paid the requisite amounts of dividends during the year and met other REIT requirements such that it will not owe any income taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2022. TRS and MacKenzie NY 2 are subject to corporate federal and state income tax on their taxable income at regular statutory rates. As discussed in Note 1 of our financial statements, TRS terminated effective December 31, 2022. As of December 31, 2022, they did not have material taxable income for tax year 2022. Therefore, TRS and MacKenzie NY 2 did not record any income tax provisions during any fiscal period within the tax year 2022. As of March 31, 2023, MacKenzie NY 2, as a taxable corporate subsidiary of the Parent Company, did not have any taxable income. Therefore, we did not record any tax provisions for tax year 2023. MacKenzie Satellite is a qualified REIT subsidiary of the Parent Company. Therefore, it does not file a separate tax return. The Operating Partnership is a limited partnership and its subsidiaries; Addison Property Owner, Hollywood Hillview and MacKenzie Shoreline are limited liability companies. Madison and PVT are also limited liability companies. First & Main, 1300 Main, Woodland Corporate Center Two, and Main Street West are limited partnerships. Accordingly, all income tax liabilities of these entities flow through to their partners, which ultimately is the Company. Therefore, no income tax provisions are recorded for these entities. Nine Months Ended March 31, 2023 and 2022 Rental and reimbursements revenues: Rental and reimbursement revenues are generated from our commercial and residential real estate properties. During the nine months ended March 31, 2023, we generated $11.21 million in rental and reimbursements revenues, of which $6.78 million was generated from our commercial properties (Addison Corporate Center, Satellite Place Office Building, First & Main Office Building, 1300 Main Office Building, Main Street West Office Building and Woodland Corporate Center Two), and $4.43 million was generated from our four residential apartments (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments). During the nine months ended March 31, 2022, we generated $7.81 million in rental and reimbursements revenues, of which $5.91 million was generated from the Addison Corporate Center tenants and $1.90 million was generated from the three residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments) and Hollywood Apartments). Investment income: Investment income was made up of dividends, distributions from operations, distributions from sales/capital transactions, interest, and other investment income. Total investment income for the nine months ended March 31, 2023 and 2022 was $10.99 million and $4.52 million, respectively. During the nine months ended March 31, 2023, we received $10.71 million of distributions from operations, sales, and liquidations as compared to $3.40 million during the nine months ended March 31, 2022. During the nine months ended March 31, 2023, we received dividends, interest, and other investment income of $0.28 million as compared to $1.12 million received during the nine months ended March 31, 2022. The majority of the sales distributions received during the nine months ended March 31, 2023, was from Dimension 28, LLP. Dimension 28 sold the underlying property and distributed the majority of the proceeds from the sale in February 2023. We received $21.12 million from Dimension 28, of which $11.09 million was a return of capital and the remaining $10.02 million was recorded as distribution income from sales transactions. Expenses: Our asset management and incentive management fees are based on the advisory agreement that was effective January 1, 2021. 45 Table of Contents Asset management fee: The asset management fees for the nine months ended March 31, 2023 and 2022 were $2.23 million and $2.03 million, respectively. The slight increase was due to an increase in the Invested Capital since March 31, 2022. Incentive management fee: Under the Advisory Management Agreement, we pay an incentive management fee that is equal to 15% of all distributions once shareholders have received cumulative distributions equal to 6% from the effective date of the Agreement. We did not incur any incentive management fee for the nine months ended March 31, 2023 and 2022. Administrative cost reimbursements and Transfer agent reimbursements: Costs reimbursed to MacKenzie for the nine months ended March 31, 2023, were $0.54 million as compared to $0.46 million for the nine months ended March 31, 2022. The slight increase was due to an increase in the allocable portion of overhead and other expenses incurred by MacKenzie in comparison to March 31, 2022, as a result of the increase in the number of real estate assets owned by us since March 2022. Transfer agent cost reimbursement paid to MacKenzie for nine months ended March 31, 2023 and 2022 were $0.07 million and $0.08 million, respectively. Property operating and maintenance expenses: Operating and maintenance expenses mainly consists of real estate taxes, utilities, repair and maintenance, cleaning, landscape, security, property management fees, insurance, and various other administrative expenses incurred in the operation of our commercial and residential real estate assets. During the nine months ended March 31, 2023, we incurred operating and maintenance expenses of $6.66 million, of which $4.75 million mainly were incurred in the operation of our six commercial properties (Addison Corporate Center, Satellite Place, First & Main, 1300 Main, Main Street West and Woodland Corporate Center Two office buildings) and $1.91 million were incurred in the operation of our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments) During the nine months ended March 31, 2022, we incurred operating and maintenance expenses of $4.71 million, of which $3.62 million mainly incurred in the operation of Addison Corporate Center. Operating and maintenance expenses incurred in the operation of three residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments) and Hollywood Apartments) were $1.09 million. Depreciation and amortization: During the nine months ended March 31, 2023, we recorded depreciation and amortization of $3.74 million, of which $2.02 million was attributable to the depreciation and amortization of real estate and intangible assets of our five commercial properties (Satellite Place Office Building, First & Main Office Building, 1300 Main Office Building, Main Street West Office Building and Woodland Corporate Center Office Building) and $1.72 million was attributable to our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments). During the nine months ended March 31, 2022, we recorded depreciation and amortization of $3.23 million, of which $2.5 million was attributable to the depreciation and amortization of real estate and intangible assets of Addison Corporate Center and $0.73 million was attributable to the three residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments) and Hollywood Apartments). Interest expense: Interest expense for the nine months ended March 31, 2023 was $5.17 million, of which $2.90 million was incurred on the notes payable associated with our five commercial properties (Addison Corporate Center, First & Main Office Building,1300 Main Office Building, Main Street West Office Building and Woodland Corporate Center Office Building) and $2.27 million was incurred on the mortgage notes payable associated our four residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments), Hollywood Apartments, and Shoreline Apartments). Interest expense for the nine months ended March 31, 2022 was $1.42 million, of which $0.69 million was incurred on the notes payable associated with the Addison Corporate Center and $0.73 million was incurred on the mortgage notes payable associated with the three residential properties (Commodore Apartments, The Park View (f/k/a as Pon De Leo Apartments) and Hollywood Apartments). 46 Table of Contents Other operating expenses: Other operating expenses include professional fees, directors’ fees, printing and mailing expenses, and other general and administrative expenses. Other operating expenses for the nine months ended March 31, 2023 and 2022, were $1.13 million and $0.90 million, respectively. The increase in other operating expenses is due to the acquisition of new properties: Shoreline Apartments in May 2022, Satellite Place Office Building in June 2022, First & Main Office Building in July 2022, 1300 Main Office Building in October 2022, Woodland Corporate Center Office Building in January 2023 and Main Street West Office Building in February 2023, resulting in higher amounts of general and administrative operating expenses during the nine months ended March 31, 2023. Net realized gain/loss on investments: During the nine months ended March 31, 2023, we had a realized gain of $0.83 million as compared to $9.46 million during the nine months ended March 31, 2022. Total realized gains for the nine months ended March 31, 2023, were realized from sale of a publicly traded REIT securities with realized gain of $0.01 million, six non-traded REIT securities with total realized gain of $0.44 million, a limited partnership interest with realized gains of $0.33 million and investment trust of $0.05. Total realized gains for the nine months ended March 31, 2022, were realized from sale of three publicly traded REIT securities with total realized gains of $4.26 million, thirteen non-traded REIT securities with net realized gain of $4.28 million, and two limited partnership interest with total realized gains of $0.92 million. Net unrealized gain/loss on investments: During the nine months ended March 31, 2023, we recorded net unrealized loss of $9.22 million, which were net of $ 8.44 million of unrealized gains reclassification adjustments. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly , the net unrealized gains excluding the reclassification adjustment for the nine months ended March 31, 2023 were $0.78 million, which resulted from fair value appreciations of $0.42 million from general partnership interests and fair value depreciations of $0.90 million from non-traded REIT securities and $0.30 million from limited partnership interests. During the nine months ended March 31, 2022, we recorded net unrealized gains of $6.18 million, which were net of $2.14 million of unrealized gains reclassification adjustment. The reclassification adjustments are the accumulated unrealized gains or losses as of the end of prior period that are realized during the current period. Accordingly, the net unrealized gains excluding the reclassification adjustment for the nine months ended March 31, 2022, were $8.32 million, which resulted from fair value appreciation of $7.68 million from limited partnership interests, $0.62 million from non-traded REIT securities, $0.01 million from investment trust and $0.01 million from publicly traded REIT securities. Income tax provision (benefit): Income tax provision for nine months ended March 31, 2023, and 2022 are discussed above under the three months ended section. 47 Table of Contents Liquidity and Capital Resources Capital Resources: We offered to sell up to 5 million shares under our first public offering and up to 15 million shares each under our second and third public offerings. We have raised total gross proceeds of $119.10 million from the issuance of shares under the three public offerings, $42.46 million from our first public offering, which concluded in October 2016, $67.99 million from the second public offering, which concluded in October 2019, and $8.65 million from our third public offering, which concluded in October 2020. In addition, we have raised $13.36 million from the issuance of shares under the DRIP. Of the total capital raised from the public offerings as of March 31, 2023, we have used $12.88 million to repurchase shares under our share repurchase program. In November 2021, the SEC qualified our offering statement pursuant to Regulation A to sell up to $50,000,000 of shares of our Series A preferred stock at an initial offering price of $25.00 per share. On October 14, 2022, we increased the offering to sell up to $75 million of shares of our Series A preferred stock. We raised $14.41 million pursuant to the Offering Circular as of March 31, 2023. We plan to fund future investments with the net proceeds raised from our preferred equity offering and any future offerings of securities and cash flows from operations, as well as interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. We may also fund a portion of our investments through borrowings from banks and issuances of senior securities. While we were a BDC, we did not borrow money on a long-term basis or issue debt securities at the Company level; however, now that our BDC status is withdrawn, we may borrow money within the underlying companies in which we have majority ownership. In addition, from time to time we may draw on the margin line of credit on a temporary basis to bridge our investment purchases and sales or capital raising. We intend to utilize leverage to enhance the total returns of our portfolio, and we expect to have greater flexibility in raising debt capital, following the withdrawal of our BDC election. Historically, we have only been able to access leverage at attractive costs through a credit facility. We also expect to have greater flexibility in issuing securities with common equity participation features (such as warrants and convertible notes) and/or additional classes of stock (such as preferred) in order to facilitate capital formation now that we are no longer subject to the restrictions of the 1940 Act. Our aggregate borrowings (if any), secured and unsecured, are expected to be reasonable in relation to our net assets and will be reviewed by the Board of Directors at least quarterly. The maximum amount of such borrowing will no longer be limited by the 1940 Act. We used the funds raised from our public offerings to invest in portfolio companies, paying cash distributions to holders of our common stock (from investment income and realized capital gains), and paying operating expenses. We finished the three months ended March 31, 2023 with cash and cash equivalents, restricted cash, and receivables of $19.45 million, and approximately $4.17 million of current liabilities. Because of our strong liquidity and the liquidity preservation measures taken by the board, we are currently capable of meeting all of our obligations and continue our operations for the foreseeable future. We intend to continue to qualify as a REIT and to meet the associated testing requirements, including paying out at least 90% of our taxable income. Cash Flows: Nine months ended March 31, 2023: For the nine months ended March 31, 2023, we experienced a net increase in cash of $10.02 million. During this period , we generated cash of $8.83 million from our financing activities and $6.10 million from our investing activities and used $4.91 million in our operating activities. The net cash outflow of $4.91 million from operating activities resulted from $18.5 million of cash used in operating expenses offset by cash inflows of $11.99 million of rental revenues and $1.60 million of investment income. The net cash inflow of $6.10 million from investing activities resulted from cash inflows of $13.22 million from sale of and sales distribution from investments, and $12.28 million from distributions received from our investments that are considered return of capital offset by real estate acquisitions through our subsidiaries of $17.95 million, payment of $1.15 million on the contingent liability and purchases of equity investments of $0.30 million. 48 Table of Contents The net cash inflow of $8.83 million from financing activities resulted from payment of dividends of $3.20 million, $1.15 million redemption of common stocks, payments of syndication cost amounting to $1.01 million, capital distributions to non-controlling interests holders amounting to $0.28 million, $0.01 million payment of notes payables, $0.02 million repayment of finance lease liabilities and $0.45 million payment of mortgage payables offset by $11.45 million proceeds from the issuance of preferred stock, $0.01 million proceeds from notes payables, $3.03 million proceeds from mortgage payables and $0.46 million from capital pending acceptance. Nine months ended March 31, 2022: For the nine months ended March 31, 2022, we experienced a net increase in cash of $32.03 million. During this period, we generated cash of $2.74 million from our operating activities, $15.04 million from our investing activities and $14.25 million in our financing activities. The net cash inflow of $2.74 million from operating activities resulted from $7.58 million of rental revenues and $4.52 million of investment income offset by $9.36 million of cash used in operating expenses and $0.04 million of other expenses. The net cash inflow of $15.04 million from investing activities resulted from real estate acquisitions through our subsidiaries of $22.85 million, investment acquisition deposit of $0.90 million and purchases of equity investments of $13.79 million offset by cash inflows of $30.33 million from sale of investments and $22.25 million from distributions received from our investments that are considered return of capital. The net cash inflow of $14.25 million from financing activities resulted from payment of dividends of $1.96 million, $0.16 million redemption of common stocks, payment of deferred finance cost amounting to $0.78 million, payment of syndication cost amounting $0.52 million, capital distributions to non-controlling interests holders amounting to $0.01 million and payment on existing note payables of $1.29 million offset by cash inflows of contributions by non-controlling interests holders amounting to $0.86 million, $1.98 million proceeds from the issuance of preferred stock, $0.01 million change in capital pending acceptance, and $16.12 million proceeds from note payables. Material Cash Obligations We have entered into two contracts under which we have material future commitments: (i) the Advisory Management Agreement, under which the Real Estate Adviser serves as our adviser, and (ii) the Administration Agreement, under which MacKenzie furnishes us with certain non-investment management services and administrative services necessary to conduct our day-to-day operations. Each of these agreements is terminable by either party upon proper notice. Payments under the Advisory Management Agreement in future periods will be (i) a percentage of the value of our Invested Capital; (ii) Acquisition Fees, and (iii) incentive fees based on our performance above specified hurdles. Payments under the Administration Agreement will occur on an ongoing basis as expenses are incurred on our behalf by MacKenzie. However, if MacKenzie withdraws as our administrator, it will be liable for any expenses we incur as a result of such withdrawal. Borrowings We do not have any current plans to borrow money at the Parent Company level. In the event that we do so borrow, we would expect to be subject to various customary covenants and restrictions on our operations, such as covenants which would (i) require us to maintain certain financial ratios, including asset coverage, debt to equity and interest coverage, and a minimum net worth, and/or (ii) restrict our ability to incur liens, additional debt, merge or sell assets, make certain investments and/or distributions or engage in transactions with affiliates. While we do not have any plans to borrow money at the Parent Company level, we borrow money within the underlying companies in which we have majority ownership. As of March 31, 2023, total loan outstanding at the underlying companies amounted to $113,284,153, of which $21,941,673 was the loan associated with Addison Corporate Center that was being held for sale as of March 31, 2023. Distributions to Stockholders We pay quarterly distributions to stockholders to the extent that we have income from operations available. Our quarterly distributions, if any, will be determined by our Board of Directors after a review and distributed pro-rata to holders of our shares; we declare distributions on a monthly basis, but pay each quarter. Any distributions to our stockholders will be declared out of assets legally available for distribution. In no event are we permitted to borrow money to make distributions if the amount of such distributions would exceed our annual accrued and received revenues, less operating costs. Distributions in kind are not permitted, except as provided in our Charter. 49 Table of Contents We have elected to be treated as a REIT under the Code. As a REIT, we are not subject to federal income taxes on amounts that we distribute to the stockholders, provided that, on an annual basis, we distribute at least 90% of our REIT taxable income to the stockholders and meet certain other conditions. To the extent that we satisfy the annual distribution requirement but distribute less than 100% of the taxable income, we will either be subject to U.S. federal corporate income tax on our undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year. We are also subject to tax on built-in gains we realize during the first five years following REIT election. Our DRIP provides for reinvestment of our dividends and other distributions on behalf of stockholders for any individual stockholder who elects to participate in the DRIP, provided that the DRIP is permitted by the state in which the stockholders resides. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions. On March 31, 2020, after assessing the impacts of the COVID-19 pandemic, our Board of Directors suspended regular quarterly distributions to our stockholders. However, on May 10, 2021, the Board of Directors reinstated the quarterly distributions after reassessing our cash flow and intends to continue such distribution so long as it is supported by the previous quarter’s income, but may increase or decrease the distribution accordingly . During the nine months ended March 31, 2023, the Board approved the following quarterly dividends: Dividends Common Stock Preferred Stock During the Quarter Ended Per Share Amount Per Share Amount September 30, 2022 $ 0.105 $ 1,390,290 $ 0.375 $ 87,884 December 31, 2022 0.110 1,456,391 0.375 155,909 March 31, 2023 0.115 1,520,985 0.375 209,620 $ 0.330 $ 4,367,666 $ 1.125 $ 453,413 50 Table of Contents Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Our portfolio primarily consists of equity and debt investments in smaller U.S. companies that primarily own commercial real estate that are either illiquid or not listed on any exchange, and our investments are considered speculative in nature. As a result, we are subject to risk of loss which may prevent our stockholders from achieving price appreciation, dividend distributions and a return of their capital. At March 31, 2023, financial instruments that subjected us to concentrations of market risk consisted principally of equity investments, which represented approximately 25% of our total assets as of that date. As discussed in Note 4 – Investments, to our consolidated financial statements, these investments primarily consist of securities in companies with no readily determinable market values and as such are valued in accordance with our fair value policies and procedures. Our investment portfolio also includes shares of publicly traded REITs, which are valued at recently quoted trading prices. Our investment strategy represents a high degree of business and financial risk due primarily to the general illiquidity of our investments. We may make short-term investments in cash equivalents, U.S. government securities and other high-quality investments that mature in one year or less, pending investments in portfolio companies made according to our principal investment strategy. Item 4. CONTROLS AND PROCEDURES Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the 1934 Act) as of the end of the period covered by this report as required by paragraph (b) of Rule 13a-15 or 15d-15 of the 1934 Act. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There have been no changes in our internal control over financial reporting (identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the 1934 Act) during the fiscal quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 51 Table of Contents PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None. Item 1A. RISK FACTORS There have been no material changes to our risk factors discussed in “Risk Factors” in our annual report on Form 10-K for the fiscal year ended June 30, 2022. Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. Issuer Purchases of Equity Securities The following table presents information with respect to our purchases of our common stock during the period covered by this report: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Maximum Dollar Value of Shares That May Yet Be Purchased Under Publicly Announced Plans During the quarter ended September 30, 2022 September 1, 2022 through September 30, 2022 40,817.06 $ 9.47 40,817.06 - During the quarter ended December 31, 2022 December 1, 2022 through December 31, 2022 44,048.79 $ 9.44 44,048.79 - During the quarter ended March 31, 2023 March 1, 2023 through March 31, 2023 58,896.00 $ 7.38 58,896.00 - 143,761.85 143,761.85 - Item 3. DEFAULTS UPON SENIOR SECURITIES None. Item 4. MINE SAFETY DISCLOSURES Not applicable. Item 5. OTHER INFORMATION None. 52 Table of Contents Item 6. EXHIBITS Exhibit Description 31.1 Section 302 Certification of Robert Dixon (President and Chief Executive Officer) 31.2 Section 302 Certification of Angche Sherpa (Treasurer and Chief Financial Officer) 32.1 Section 1350 Certification of Robert Dixon (President and Chief Executive Officer) 32.2 Section 1350 Certification of Angche Sherpa (Treasurer and Chief Financial Officer) 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)* 101.SCH Inline XBRL Taxonomy Extension Schema Documents* 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) 53 Table of Contents SIGNATURES Pursuant to the requirements 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. MACKENZIE REALTY CAPITAL, INC. Date: May 15, 2023 By: /s/ Robert Dixon President and Chief Executive Officer Date: May 15, 2023 By: /s/ Angche Sherpa Treasurer and Chief Financial Officer 54