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Item 9A. Controls and Procedures

2024-04-16 compared with 2023-03-28 · 916 added, 893 removed, 578 unchanged (76% of the section changed)

CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures”

in Rule 13a-14(c).

In designing and evaluating the disclosure controls and procedures, Management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and Management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

In connection with the preparation and audit of the financial statements as of and for the fiscal year ended December 31, 2023, a material weakness was identified in our internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

This material weakness primarily relates to a non-recuring significant transaction for income tax provision under ASC 740, Income Taxes , and comprises the following:

We lack a formal review and approval process in connection with the annual income tax provision, specifically related to REIT and non-REIT subsidiaries and the ownership of Conduit shares received by the Company in the de-SPAC transaction on September 22, 2023.

We did not design adequate internal controls under an appropriate financial reporting framework, including monitoring controls and certain entity level controls with regards to the income tax provision.

If this material weakness is not remediated, it could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

We are implementing measures designed to improve our internal control over financial reporting to remediate this material weakness, although they have not been fully remediated as of the date of this filing.

The material weakness will not be considered remediated until our remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively.

We commenced the remediation plan and will be documenting and implementing such plan, followed with testing such controls over time.

We cannot predict the success of such efforts or the outcome of its assessment of the remediation efforts.

Our efforts may not remediate this material weakness in our internal control over financial reporting, or additional material weaknesses may be identified in the future.

A failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements and could cause us to fail to meet our reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of our common stock.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are adding controls around the calculation and preparation of income tax provisions and expenses, we are engaging with third party experts, and will continually identify and monitor the taxable status of each subsidiary for annual reporting.

There were no additional changes in our internal control over financial reporting that occurred during the fiscal year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Furthermore, we do not believe that these controls have been impacted by COVID-19 related circumstances, including remote work arrangements with our employees.

Management’s Report on Internal Control over Financial Reporting

Management ’ s Report on Internal Control over Financial Reporting

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).

Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework).

Based on our evaluation under the framework in Internal Control —

Integrated Framework, our Management concluded that our internal control over financial reporting was effective as of December 31, 2022.

This annual report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding our internal control over financial reporting as such report is not required for the Company.

Based on our evaluation under the framework in Internal Control — Integrated Framework, our Management concluded that our internal controls over financial reporting were not effective as of December 31, 2023.

OTHER INFORMATION

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is set forth under the captions “Board of Directors”

and “Executive Officers of the Company”

and “Section 16(a) Beneficial Ownership Reporting Compliance”

in our definitive Proxy Statement for the 2022 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A, and is incorporated herein by reference.

The Annual Meeting of Stockholders is estimated to be held on June 1, 2023.

The information required by this item is set forth under the captions “Board of Directors” and “Executive Officers of the Company” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 pursuant to Regulation 14A, and is incorporated herein by reference.

EXECUTIVE COMPENSATION

The information required by this item is set forth under the caption “Executive Compensation”

in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A, and is incorporated herein by reference.

The information required by this item is set forth under the caption “Executive Compensation” in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 pursuant to Regulation 14A, and is incorporated herein by reference.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item will be set forth under the caption “Security Ownership of Certain Beneficial Owners and Management”

in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A, and is incorporated herein by reference.

The information required by this item will be set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 pursuant to Regulation 14A, and is incorporated herein by reference.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by this item is set forth under the caption “Related Party Transactions”

in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A, and is incorporated herein by reference.

The information required by this item is set forth under the caption “Related Party Transactions” in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 pursuant to Regulation 14A, and is incorporated herein by reference.

PRINCIPAL ACCOUNT ING FEES AND SERVICES

The information required by this item is set forth under the caption “Independent Registered Public Accounting Firm Fees and Services”

in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A, and is incorporated herein by reference.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The information required by this item is set forth under the caption “Independent Registered Public Accounting Firm Fees and Services” in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 pursuant to Regulation 14A, and is incorporated herein by reference.

EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

(1) Financial Statements - the following documents are filed as part of this report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the years ended December 31, 2022 and 2021

Consolidated Statements of Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Operations for the years ended December 31, 2023 and 2022

Consolidated Statements of Equity for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

Notes to Consolidated Financial Statements

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(3) Exhibits - an index to the Exhibits as filed as part of this Form 10-K is set forth below.

Articles of Merger filed with the Maryland State Department of Assessments and Taxation and the California Secretary of State on August 4, 2010 (incorporated by reference to Exhibit 3.03 of the Company’s Current Report on Form 8-K filed on August 10, 2010).

Articles of Amendment and Restatement of the Articles of Incorporation, dated as of July 30, 2010 (incorporated by reference to Exhibit 3.01 of the Company’s Current Report on Form 8-K filed on August 10, 2010).

Articles Supplementary filed on August 4, 2014 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on August 8, 2014).

Articles of Amendment of Presidio Property Trust, Inc.

(incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on October 19, 2017).

Articles Supplementary classifying and designating the Series C Common Stock (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on July 31, 2020).

Articles of Amendment effecting the reverse stock split (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on July 31, 2020).

Articles Supplementary classifying and designating 805,000 shares of the Series D Preferred Stock (incorporated by reference to the Company’s Form 8-A12B filed on June 9, 2021).

Articles Supplementary classifying and designating an additional 115,000 shares of the Series D Preferred Stock (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on June 15, 2021).

(incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on October 19, 2017).

Articles Supplementary classifying and designating the Series C Common Stock (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on July 31, 2020).

Articles of Amendment effecting the reverse stock split (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on July 31, 2020).

Articles Supplementary classifying and designating 805,000 shares of the Series D Preferred Stock (incorporated by reference to the Company’s Form 8-A12B filed on June 9, 2021).

Second Amended and Restated Bylaws of Presidio Property Trust, Inc.

(incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on October 19, 2017).

Form of Series A Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form 10-12B filed on May 6, 2008).

Description of Securities 

(incorporated by reference to Exhibit 4.2 of the Company ’

s Annual Report on Form 10-K filed on March 30, 2022).

Form of Common Stock Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on July 14, 2021).

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on July 14, 2021).

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K filed on July 14, 2021).

Form of Warrant (incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-11 filed on November 9, 2021).

Form of Warrant Agent Agreement (incorporated by reference to Exhibit 4.6 of the Company’s Registration Statement on Form S-11 filed on November 9, 2021).

1999 Flexible Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form 10-12B filed on May 6, 2008).

Dividend Reinvestment Plan (incorporated by reference to Exhibit 10.2 of the Company ’

s Registration Statement on Form 10-12B filed on May 6, 2008).

Promissory Note, dated as of September 17, 2019, by and between Presidio Property Trust, Inc.

and Polar Multi-Strategy Master Fund (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on September 23, 2019).

Agreement, dated as of September 17, 2019, by and between Presidio Property Trust, Inc.

and Polar Multi-Strategy Master Fund (incorporated by reference to Exhibit 1.2 of the Company’s Current Report on Form 8-K filed on September 23, 2019).

Employment Agreement for Mr.

Heilbron, effective as of October 18, 2017 (incorporated by reference to Exhibit 10.2 of the Company’s Annual Report on Form 10-K filed on March 30, 2021).

(incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on October 19, 2017).

Articles Supplementary relating to election to be subject to Section 3-803 of the Maryland General Corporation Law (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on March 22, 2024).

Form of Series A Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form 10-12B filed on May 6, 2008).

Description of Securities (incorporated by reference to Exhibit 4.2 of the Company ’ s Annual Report on Form 10-K filed on March 30, 2022).

Form of Common Stock Warrant (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on July 14, 2021).

Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on July 14, 2021).

Form of Warrant (incorporated by reference to Exhibit 4.5 of the Company’s Registration Statement on Form S-11 filed on November 9, 2021).

Form of Warrant Agent Agreement (incorporated by reference to Exhibit 4.6 of the Company’s Registration Statement on Form S-11 filed on November 9, 2021).

Dividend Reinvestment Plan (incorporated by reference to Exhibit 10.2 of the Company ’ s Registration Statement on Form 10-12B filed on May 6, 2008).

Purchase and Sale Agreement and Joint Escrow Instructions among NetREIT Highland, LLC, NetREIT Joshua, LLC, NetREIT Casa Grande, LP, NetREIT Sunrise, LLC, NetREIT, Inc.

and Sparky’s Storage 18 (CA) LP, dated as of February 6, 2015;

as amended by the First Amendment dated February 25, 2015, and the Second Amendment dated April 2, 2015 (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed on April 15, 2015).

Form of Restricted Stock Agreement under 1999 Flexible Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form 10-12B filed on May 6, 2008).

Presidio Property Trust, Inc.

2017 Incentive Award Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 19, 2017).

Form of Restricted Stock Agreement under 2017 Incentive Award Plan (incorporated by reference to Exhibit 10.25 of the Company’s Registration Statement on Form S-11/A filed on January 17, 2018).

Form of Placement Agency Agreement, dated as of July 12, 2021, by and between the Company and the Placement Agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on July 14, 2021).

Form of Securities Purchase Agreement, dated as of July 12, 2021, by and between the Company and the Purchaser (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on July 14, 2021).

and Sparky’s Storage 18 (CA) LP, dated as of February 6, 2015;

Amended and Restated Presidio Property Trust, Inc.

2017 Incentive Award Plan (incorporated by reference to Exhibit B of the Company’s Proxy Statement filed on April 17, 2023).

Form of Restricted Stock Agreement under 2017 Incentive Award Plan (incorporated by reference to Exhibit 10.25 of the Company’s Registration Statement on Form S-11/A filed on January 17, 2018).

At-The-Market Offering Agreement dated November 8, 2021, by and between Presidio Property Trust, Inc.

and The Benchmark Company, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 9, 2021).

Ninth Amendment to Loan Agreement signed August 19, 2021 (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on August 25, 2021).

Loan Agreement dated February 26, 2016, together with Second Amendment to Loan Agreement dated as of June 29, 2016, Third Amendment to Loan Agreement dated as of April 11, 2017, Joinder and Fourth Amendment to Loan Agreement dated as of February 20, 2018, Fifth Amendment to Loan Agreement dated as of April 11, 2018, Joinder and Sixth Amendment to Loan Agreement dated as of April 11, 2019, Joinder and Seventh Amendment to Loan Agreement dated as May 22, 2020 and Eighth Amendment to Loan Agreement dated as of June 26, 2020 (incorporated by reference to Exhibit 1.2 of the Company’s Current Report on Form 8-K filed on August 25, 2021).

Form of Indemnification Agreement entered into between the Company and each of its directors and executive officers (incorporated by reference to Exhibit 10.10 of the Company’s Registration Statement on Form S-11 filed on September 18, 2017).

Tenth Amendment to Loan Agreement signed October 12, 2022  

(incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 14, 2022).

Tenth Amendment to Guaranty Agreement signed October 12, 2022 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on October 14, 2022).

Code of Ethics (incorporated by reference to Exhibit 14 of the Company’s Annual Report on Form 10-K filed on March 30, 2021).

Subsidiaries of the Registrant  (incorporated by reference to Exhibit 21.1 of the Company’s Annual Report on Form 10-K filed on March 30, 2022).

and The Benchmark Company, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 9, 2021).

Ninth Amendment to Loan Agreement signed August 19, 2021 (incorporated by reference to Exhibit 1.1 of the Company’s Current Report on Form 8-K filed on August 25, 2021).

Tenth Amendment to Loan Agreement signed October 12, 2022 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 14, 2022).

Tenth Amendment to Guaranty Agreement signed October 12, 2022 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on October 14, 2022).

Employment agreement with Jack Heilbron (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 5, 2024)

Employment agreement with Ed Bentzen (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on February 9, 2024)

Employment agreement with Gary Katz (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on February 9, 2024)

Employment agreement with Steven Hightower (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on February 9, 2024)

Code of Ethics (incorporated by reference to Exhibit 14 of the Company’s Annual Report on Form 10-K filed on March 30, 2021).

Subsidiaries of the Registrant .*

Consent of Independent Registered Public Accounting Firm *

Certificate of the Company’s Chief Executive Officer (Principal Executive Officer) pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of the Company’s Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of the Company’s Principal Accounting Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer pursuant to 18 U.S.C.

Certification of the Company’s Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Executive Officer, Chief Financial Officer pursuant to 18 U.S.C.

1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document (the I nstance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

Inline XBRL Taxonomy Extension Schema Document 

Inline XBRL Taxonomy Extension Calculation Linkbase Document 

Inline XBRL Taxonomy Extension Definition Linkbase Document 

Inline XBRL Taxonomy Extension Label Linkbase Document 

Inline XBRL Taxonomy Extension Presentation Linkbase Document 

Clawback Policy of the Company *

Inline XBRL Instance Document (the I nstance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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Director, Chairman of the Board and Chief Executive Officer

March 28, 2023

April 15, 2024

(Principal Executive Officer)

/s/ Adam Sragovicz

Chief Financial Officer

March 28, 2023

Adam Sragovicz

/s/ Ed Bentzen

Chief Accounting Officer

March 28, 2023

(Principal Accounting Officer)

Chief Financial Officer

April 15, 2024

/s/ Steven Hightower

April 15, 2024

Steven Hightower

/s/ Jennifer A.

March 28, 2023

/s/ Sumner J.

March 28, 2023

April 15, 2024

/s/ Tracie Hager

April 15, 2024

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  (PCAOB ID 23 )

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 23 )

FINANCIAL STATEMENTS:

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Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of

Presidio Property Trust, Inc.

To the shareholders and the board of directors of Presidio Property Trust, Inc.

and Subsidiaries:

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We have audited the accompanying consolidated balance sheets of Presidio Property Trust, Inc.

and Subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, equity and cash flows, for the years then ended, and the related notes to the consolidated financial statements and schedule in Item 15 (2), Schedule III –

Real Estate and Accumulated Depreciation and Amortization (collectively referred to as the "consolidated financial statements").

and Subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, equity and cash flows, for the years then ended, and the related notes to the consolidated financial statements and schedule in Item 15 (2), Schedule III – Real Estate and Accumulated Depreciation and Amortization (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Real Estate Asset and Lease Intangible Impairment Assessment

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Real Estate Asset Impairment Assessment

Critical Audit Matter Description

As described in Notes 4 and 12, to the consolidated financial statements, the Company’s consolidated real estate assets balance (including real estate properties and lease intangibles) was approximately $131 million at December 31, 2022.

Real estate asset are tested for impairment at least annually at the individual real estate property level.

Management continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable or realized.

When indicators of potential impairment suggest that the carrying value of real estate assets may not be recoverable, management assesses the recoverability by estimating whether the Company will recover the carrying value of its real estate assets through the undiscounted future cash flows and the eventual disposition of the investment.

In some instances, there may be various potential outcomes for an investment and its potential future cash flows.

In these instances, the undiscounted future cash flows used to assess recoverability are based on several assumptions and are probability‐weighted based on management’s best estimates as of the date of evaluation.

These assumptions include, among others, cash flow projections, discount rates, and market capitalization rates.

The assumptions are generally based on management’s experience and assessment of market participants in its local real estate markets, and the effects of current market conditions, which are subject to economic and market uncertainties.

Changes in these assumptions could have a significant impact on either the cash flows or fair value of the real estate assets, the amount of any impairment charge, or both.

We identified the real estate asset impairment assessment as a critical audit matter.

The Company experienced fluctuations in tenant occupancy and related cash flows from the real estate properties based on rental demand, completion of tenant improvements, and other economic factors.

In turn, auditing management’s judgments regarding forecasts of future revenue and cash flows, and the resulting fair value of real estate assets compared to their carrying value involved a high degree of judgement and subjectivity.

At December 31, 2023, the Company’s net investment in real estate assets was approximately $144 million.

As more fully described in note 4, the Company periodically evaluates its long-lived assets, including its investment in real estate, for impairment.

The judgments and assumptions regarding the existence of impairment indicators are based on factors such as operational performance, market conditions, legal and environmental concerns, and the Company’s intent and ability to hold the related asset.

If the expected future undiscounted cash flows are less than the carrying amount of the long-lived asset, an impairment loss is recognized for the difference between the estimated fair value and the carrying amount.

Auditing the Company's process to evaluate indicators of impairment was complex due to a high degree of subjectivity in the identification of events or changes in circumstances that may indicate impairment was present.

Changes in these judgments could have a material impact on the Company’s analysis.

How We Addressed the Matter in Our Audit

The primary procedures we performed to address this critical audit matter included:

Obtaining an understanding of management’s process and related controls for estimating the undiscounted cash flows of real estate assets, including management’s identification of significant assumptions and sensitivity analysis.

Testing the completeness, accuracy, relevance, and reliability of underlying data used in management’s undiscounted cash flow model.

Evaluating the reasonableness of management’s assessment of events and changes in circumstances that are indicators of impairment related to performance of the investment and general market conditions indicating that the carrying amounts of its real estate investments may not be recoverable by considering the consistency with the current and past performance of the real estate investment and the consistency with external market and industry data.

Evaluating the reasonableness of management’s significant assumptions used in the undiscounted future cash flows of real estate investments with potential impairment by considering the consistency of the significant assumptions with the current and past performance of the real estate investments, the consistency with external market and industry data, and whether these significant assumptions were consistent with evidence obtained in other areas of the audit.

Baker Tilly US, LLP   

● Evaluated the judgements used by management to identify whether indicators of impairment were present and tested the significant assumptions and completeness and accuracy of market and operating data used by the Company in its analysis.

● We compared the significant assumptions used by management to current market data and performed sensitivity analysis of certain significant assumptions, such as capitalization rates and future cash flows.

● We also held discussions with management and read minutes of meetings of the Board of Directors and related committees to understand whether there were any changes in management’s operating and development plans that would result in the disposal of a property significantly before the end of its useful life.

/s/ Baker Tilly US, LLP

We have served as the Company's auditor since 2009.

Irvine, California

March 28, 2023

April 15, 2024

Presidio Property Trust, Inc.

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Real estate assets and lease intangibles:

$ 19,189,386  

$ 21,136,379  

$ 21,660,644 $ 19,189,386

Buildings and improvements

125,979,374  

119,224,375  

133,829,416 125,979,374

Tenant improvements

13,861,839  

12,752,518  

17,820,948 13,861,839

Lease intangibles

4,110,139  

4,110,139 4,110,139

Real estate assets and lease intangibles held for investment, cost

163,140,738  

157,223,411  

177,421,147 163,140,738

Accumulated depreciation and amortization

( 34,644,511 )  

( 38,725,356 ) ( 34,644,511 )

Real estate assets and lease intangibles held for investment, net

128,496,227  

126,633,442  

138,695,791 128,496,227

Real estate assets held for sale, net

2,016,003  

11,431,494  

5,459,993 2,016,003

Real estate assets, net

130,512,230  

138,064,936  

144,155,784 130,512,230

Other assets:

Cash, cash equivalents and restricted cash

16,516,725  

14,702,089  

6,510,428 16,516,725

Deferred leasing costs, net

1,516,835  

1,348,234  

2,423,000  

1,657,055 1,516,835

1,574,000 2,423,000

Investment in Conduit Pharmaceuticals marketable securities (see Notes 2 & 9)

Deferred tax asset

Other assets, net (see Note 6)

3,511,681  

4,658,504  

3,400,088 3,511,681

Total other assets

23,968,241  

23,131,827  

31,806,854 23,968,241

Investments held in Trust (see Notes 2 & 9)

136,871,183  

$ 291,351,654  

$ 161,196,763  

$ 175,962,638 $ 291,351,654

LIABILITIES AND EQUITY

Mortgage notes payable, net

$ 95,899,176  

$ 87,324,319  

$ 103,685,444 $ 95,899,176

Mortgage notes payable related to properties held for sale, net

999,523  

1,535,513  

4,027,829 999,523

Mortgage notes payable, total net

96,898,699  

88,859,832  

107,713,273 96,898,699

Accounts payable and accrued liabilities

4,028,564  

4,569,537  

4,792,034 4,028,564

Accounts payable and accrued liabilities of SPAC (see Notes 2 & 9)

5,046,725  

15,499  

Accrued real estate taxes

1,879,875  

1,940,913  

Dividends payable preferred stock

178,511  

179,685  

1,953,087 1,879,875

Dividends payable

174,011 178,511

Lease liability, net

46,833  

75,547  

16,086 46,833

Below-market leases, net

18,240  

73,130  

13,266 18,240

Total liabilities

108,097,447  

95,714,143  

114,661,757 108,097,447

Commitments and contingencies (Note 2 & 9):

SPAC Class A common stock subject to possible redemption;

13,225,000 shares (at $ 10.34 per share), net of issuance cost of approximately $ 6,400,000

130,411,135  

none as of December 31, 2023 and 13,225,000 shares as of December 31, 2022 (at $ 10.45 per share), net of issuance cost of approximately $ 6,400,000

— 130,411,135

Series D Preferred Stock, $ 0.01 par value per share;

1,000,000 shares authorized;

916,061 shares issued and outstanding (liquidation preference $ 25.00 per share) as of December 31, 2022 and December 31, 2021, respectively

898,940 shares issued and outstanding (liquidation preference $ 25.00 per share) as of December 31, 2023 and 913,987 shares issued and outstanding as of December 31, 2022

Series A Common Stock, $ 0.01 par value per share, shares authorized:

1 unchanged sentence

11,859,726 shares and 11,807,893 shares were issued and outstanding at December 31, 2023 and December 31, 2022, respectively

118,079  

115,997  

122,651 118,079

Additional paid-in capital

182,044,157  

186,492,012  

182,310,219 182,044,157

Dividends and accumulated losses

( 138,341,750 )  

( 131,508,785 ) ( 138,341,750 )

Total stockholders' equity before noncontrolling interest

43,829,626  

55,669,775  

50,932,994 43,829,626

Noncontrolling interest

9,013,446  

9,812,845  

52,843,072  

65,482,620  

10,367,887 9,013,446

61,300,881 52,843,072

TOTAL LIABILITIES AND EQUITY

$ 291,351,654  

$ 161,196,763  

$ 175,962,638 $ 291,351,654

See Notes to Consolidated Financial Statements

4 unchanged sentences

Rental income

$ 17,203,310  

$ 18,420,257  

$ 16,743,231 $ 17,203,310

Fees and other income

560,971  

810,852  

892,383 560,971

Total revenue

17,764,281  

19,231,109  

17,635,614 17,764,281

Costs and expenses:

Rental operating costs

5,841,396  

6,183,189  

5,962,918 5,841,396

General and administrative

6,163,816  

6,225,510  

6,790,432 6,163,816

Depreciation and amortization

5,465,015  

5,397,498  

Impairment of real estate assets

608,000  

5,425,739 5,465,015

Impairment of goodwill and real estate assets

Total costs and expenses

17,470,227  

18,414,197  

21,426,186 17,470,227

Other income (expense):

Interest expense - mortgage notes

( 4,712,487 )  

( 5,004,889 ) ( 4,712,487 )

Interest expense - note payable

Gain on sale of marketable securities, net

2,018,847  

39,428  

Interest and other (expense), net

21,075  

Gain on sale of marketable securities, net (excluding Conduit marketable securities)

1,414,420 2,018,847

Interest and other income, net

20,878 21,075

Gain on sales of real estate, net

5,079,912  

2,487,528  

Gain on extinguishment of government debt

10,000  

Income tax (expense) credit

( 1,215,873 )  

47,620  

Total other income (expense), net

1,191,474  

3,240,200 5,079,912

Net income (loss)

1,485,528  

Loss on Conduit marketable securities (see footnote 9)

( 23,359,774 ) —

Gain on deconsolidation of SPAC (see footnote 9)

Income tax (expense) benefit

335,780 ( 1,215,873 )

Total other income, net

16,968,098 1,191,474

13,177,526 1,485,528

Income attributable to noncontrolling interests

( 3,612,647 )  

( 3,031,080 ) ( 3,612,647 )

Net loss attributable to Presidio Property Trust, Inc.

$ ( 2,127,119 )  

Net income (loss) attributable to Presidio Property Trust, Inc.

$ 10,146,446 $ ( 2,127,119 )

Preferred Stock Series D dividends

( 2,152,740 )  

( 2,118,846 ) ( 2,152,740 )

Series A Warrant dividend

( 2,456,512 )  

Net loss attributable to Presidio Property Trust, Inc.

— ( 2,456,512 )

Net income (loss) attributable to Presidio Property Trust, Inc.

common stockholders

$ ( 6,736,371 )  

$ 8,027,600 $ ( 6,736,371 )

Net loss per share attributable to Presidio Property Trust, Inc.

Net income (loss) per share attributable to Presidio Property Trust, Inc.

common stockholders:

Basic & Diluted

$ ( 0.57 )  

Weighted average number of common shares outstanding - basic & diluted

11,753,041  

10,340,975  

$ 0.68 $ ( 0.57 )

Weighted average number of common shares outstanding - basic & dilutive

11,847,814 11,753,041

See Notes to Consolidated Financial Statements

4 unchanged sentences

Preferred Stock Series D

Stockholders ’

Stockholders’

Balance, December 31, 2021

9,508,363  

$ 95,038  

$ 156,463,146  

$ ( 121,674,505 )  

$ 34,883,679  

$ 15,238,902  

$ 50,122,581  

( 3,625,582 )  

2,162,140  

920,000 $ 9,200 11,599,720 $ 115,997 $ 186,492,012 $ ( 130,947,434 ) $ 55,669,775 $ 9,812,845 $ 65,482,620

Net (loss) income

— — — — — ( 2,127,119 ) ( 2,127,119 ) 3,612,647 1,485,528

Vesting of restricted stock

— — 404,804 4,048 1,884,945 — 1,888,993 — 1,888,993

Dividends paid to Series A Common Stockholders

( 4,473,399 )  

— — — — — ( 3,114,456 ) ( 3,114,456 ) — ( 3,114,456 )

Dividends to Series D Preferred Stockholders

( 1,173,948 )  

— — — — — ( 2,152,741 ) ( 2,152,741 ) — ( 2,152,741 )

Issuance of Common Stock, net of issuance costs, including warrants exercised with offering *

2,000,000  

20,000  

8,851,879  

8,871,879  

Issuance of Series D Preferred Stock, net of issuance costs

920,000  

20,480,603  

20,489,803  

Remeasurement of SPAC common stock subject to possible redemption upon IPO, Public Warrants and Private Placement Units, net of offering costs

— — — — ( 4,023,113 ) — ( 4,023,113 ) — ( 4,023,113 )

Remeasurement of SPAC shares to redemption value

— — — — ( 1,876,183 ) — ( 1,876,183 ) — ( 1,876,183 )

Distributions in excess of contributions received

( 7,588,197 )  

— — — — — — — ( 4,412,046 ) ( 4,412,046 )

Repurchase of Common Stock, at cost

( 29,721 )  

( 252 )  

( 110,379 )  

( 110,631 )  

Vesting of restricted Series A Common Stock

121,078  

806,763  

807,974  

Repurchase of Series A Common Stock, at cost

— — ( 196,631 ) ( 1,966 ) ( 311,423 ) — ( 313,389 ) — ( 313,389 )

Repurchase of Series D Preferred Stock, at cost

( 6,013 ) ( 60 ) — — ( 122,081 ) — ( 122,141 ) — ( 122,141 )

Balance, December 31, 2022

920,000  

$ 9,200  

11,599,720  

$ 115,997  

$ 186,492,012  

$ ( 130,947,434 )  

$ 55,669,775  

$ 9,812,845  

$ 65,482,620  

( 2,127,119 )  

3,612,647  

1,485,528  

913,987 $ 9,140 11,807,893 $ 118,079 $ 182,044,157 $ ( 138,341,750 ) $ 43,829,626 $ 9,013,446 $ 52,843,072

— — — — — 10,146,446 10,146,446 3,031,080 13,177,526

Vesting of restricted stock

404,804  

1,884,945  

1,888,993  

— — 457,168 4,572 1,041,811 — 1,046,383 — 1,046,383

Dividends paid to Series A common stockholders

( 3,114,456 )  

— — — — — ( 1,194,635 ) ( 1,194,635 ) — ( 1,194,635 )

Dividends to Series D preferred stockholders

( 2,152,741 )  

— — — — — ( 2,118,846 ) ( 2,118,846 ) — ( 2,118,846 )

Remeasurement of SPAC common stock subject to possible redemption upon IPO, Public Warrants and Private Placement Units, net of offering costs

( 4,023,113 )  

Distributions in excess of contributions received

— — — — — — — ( 1,676,639 ) ( 1,676,639 )

Remeasurement of SPAC shares to redemption value

( 1,876,183 )  

— — — — ( 405,994 ) — ( 405,994 ) — ( 405,994 )

Distributions in excess of contributions received

( 4,412,046 )  

Repurchase of Series A Common Stock, at cost

( 196,631 )  

( 1,966 )  

( 311,423 )  

( 313,389 )  

Repurchase of Series D preferred stock, at cost

( 6,013 )  

( 60 )  

( 122,081 )  

( 122,141 )  

( 23,041 ) ( 231 ) — — ( 369,755 ) — ( 369,986 ) — ( 369,986 )

Balance, December 31, 2023

913,987  

$ 9,140  

11,807,893  

$ 118,079  

$ 182,044,157  

$ ( 138,341,750 )  

$ 43,829,626  

$ 9,013,446  

$ 52,843,072  

* See Additional Offerings & Warrants 

in Note 1.

ORGANIZATION AND BASIS OF PRESENTATION

890,946 $ 8,909 12,265,061 $ 122,651 $ 182,310,219 $ ( 131,508,785 ) $ 50,932,994 $ 10,367,887 $ 61,300,881

See Notes to Consolidated Financial Statements.

4 unchanged sentences

Cash flows from operating activities:

Net income (loss)

$ 1,485,528  

$ 13,177,526 $ 1,485,528

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

5,465,015  

5,397,498  

5,425,739 5,465,015

Stock compensation

1,204,106  

1,614,228  

989,515 1,204,106

Bad debt expense

73,055  

164,623  

28,880 73,055

Gain on sale of real estate assets, net

( 5,079,912 )  

( 3,240,200 ) ( 5,079,912 )

Gain on extinguishment of government debt

Gain on deconsolidation of SPAC investment

( 40,321,483 ) —

Net change in Conduit fair value marketable securities

Net change in fair value marketable securities

( 42,664 )  

Net change in fair value SPAC Trust Account

( 1,976,183 )  

Impairment of real estate assets

608,000  

( 1,414,420 ) ( 1,976,183 )

Impairment of goodwill and real estate assets

Amortization of financing costs

240,090  

479,853  

Amortization of above-market leases

42,064  

345,880 240,090

Amortization of below-market leases

( 54,890 )  

( 4,974 ) ( 54,890 )

Straight-line rent adjustment

( 252,759 )  

( 332,055 ) ( 252,759 )

Changes in operating assets and liabilities:

1,050,221  

190,354  

( 211,023 ) 1,050,221

Deferred tax asset

( 346,762 ) —

Accounts payable and accrued liabilities

( 1,121,752 )  

60,556 ( 1,539,727 )

Accounts payable and accrued liabilities for the SPAC

652,577 417,975

Accrued real estate taxes

( 61,038 )  

Net cash provided operating activities

928,817  

2,374,943  

73,212 ( 61,038 )

Net cash provided by operating activities

1,489,839 928,817

Cash flows from investing activities:

Real estate acquisitions

( 15,673,575 )  

( 21,909,963 ) ( 15,673,575 )

Additions to buildings and tenant improvements

( 2,107,505 )  

( 6,663,116 ) ( 2,107,505 )

Investment in marketable securities

( 1,762,095 )  

( 2,161,724 ) ( 1,762,095 )

Proceeds from sale of marketable securities

2,363,063  

2,380,476  

2,974,910 2,363,063

Investment of SPAC IPO proceeds into Trust Account

( 134,895,000 )  

Additions to deferred leasing costs

( 70,889 )  

( 624,998 ) ( 134,895,000 )

Withdrawals from Trust Account for SPAC taxes

Withdrawals from Trust Account for Redemption of SPAC Shares

137,157,011 —

Deletions / (additions) to deferred leasing costs

7,744 ( 70,889 )

Proceeds from sales of real estate, net

25,768,334  

49,583,445  

Net cash (used in) provided by investing activities

( 126,377,667 )  

24,204,965  

10,698,386 25,768,334

Net cash provided by (used in) investing activities

120,310,730 ( 126,377,667 )

Cash flows from financing activities:

Proceeds from mortgage notes payable, net of issuance costs

20,288,093  

11,703,440  

Repayment of mortgage notes payable

( 11,958,568 )  

20,804,277 20,288,093

Repayment of note payable

Repayment of mortgage notes payable

( 10,089,026 ) ( 11,958,568 )

Payment of deferred offering costs

( 3,201,266 )  

( 5,000 ) ( 3,201,266 )

Distributions to noncontrolling interests, net

( 4,412,046 )  

( 1,676,639 ) ( 4,412,046 )

Proceeds from initial public offering of SPAC

134,024,416  

— 134,024,416

SPAC offering non-controlling interest adjustment

( 1,774,416 )  

Issuance of Series A Common Stock, net of offering costs

8,871,879  

Issuance of Series D Preferred Stock, net of offering costs

20,489,803  

— ( 1,774,416 )

Redemption of SPAC shares

( 137,157,011 ) —

Repurchase of Series A Common Stock, at cost

( 313,389 )  

— ( 313,389 )

Repurchase of Series D Preferred Stock, at cost

( 122,141 )  

( 369,986 ) ( 122,141 )

Dividends paid to Series D Preferred Stockholders

( 2,152,741 )  

( 2,118,846 ) ( 2,152,741 )

Dividends paid to Series A Common Stockholders

( 3,114,456 )  

( 1,194,635 ) ( 3,114,456 )

Net cash provided by (used in) financing activities

127,263,486  

Net cash (used in) provided by financing activities

( 131,806,866 ) 127,263,486

Net increase in cash, cash equivalents and restricted cash

1,814,636  

3,161,172  

Net (decrease) increase in cash equivalents and restricted cash

( 10,006,297 ) 1,814,636

Cash, cash equivalents and restricted cash - beginning of period

14,702,089  

11,540,917  

16,516,725 14,702,089

Cash, cash equivalents and restricted cash - end of period

$ 16,516,725  

$ 14,702,089  

$ 6,510,428 $ 16,516,725

Supplemental disclosure of cash flow information:

Interest paid-mortgage notes payable

$ 4,110,288  

$ 4,320,174  

Interest paid-notes payable

$ 103,861  

$ 4,962,458 $ 4,110,288

Income taxes paid

$ 533,340 $ 517,902

Non-cash financing activities:

Unpaid deferred financing costs

$ 15,449  

Potentially convertible common stock for SPAC

$ — $ 134,895,000

Dividends payable - Preferred Stock Series D

$ 178,511  

$ 179,685  

$ 174,011 $ 178,511

See Notes to Consolidated Financial Statements

5 unchanged sentences

Presidio Property Trust, Inc.

(“we”, “our”, “us”

or the “Company”) is an internally-managed real estate investment trust (“REIT”), with holdings in office, industrial, retail and model home properties.

We were incorporated in the State of California on September 

28, 1999, and in August 2010, we reincorporated as a Maryland corporation.

In October 2017, we changed our name from “NetREIT, Inc.”

to “Presidio Property Trust, Inc.”

Through Presidio Property Trust, Inc., its subsidiaries, and its partnerships, we own 

12  commercial properties in fee interest, two  of which we own as a partial interest in various affiliates, in which we serve as general partner, member and/or manager, and a special purpose acquisition company as noted below.

(“we”, “our”, “us” or the “Company”) is an internally-managed real estate investment trust (“REIT”), with holdings in office, industrial, retail and model home properties.

We were incorporated in the State of California on September 28, 1999, and in August 2010, we reincorporated as a Maryland corporation.

In October 2017, we changed our name from “NetREIT, Inc.” to “Presidio Property Trust, Inc.” Through Presidio Property Trust, Inc., its subsidiaries, and its partnerships, we own 12 commercial properties in fee interest, two of which we own as a partial interest in various affiliates, in which we serve as general partner, member and/or manager, and a special purpose acquisition company (until deconsolidation in September 2023) as noted below.

The Company or one of its affiliates operates the following partnerships during the periods covered by these consolidated financial statements:

The Company is the sole general partner and limited partner in two limited partnerships (NetREIT Palm Self-Storage LP and NetREIT Casa Grande LP), both of which, at 

December 31, 2022 , had ownership interests in an entity that owns income producing real estate.

The Company is the sole general partner and limited partner in two limited partnerships (NetREIT Palm Self-Storage LP and NetREIT Casa Grande LP), both of which, at December 31, 2023 , had ownership interests in an entity that owns income producing real estate.

The Company refers to these entities collectively as the "NetREIT Partnerships".

The Company is the general and limited partner in five limited partnerships that purchase model homes and lease them back to homebuilders (Dubose Model Home Investors #202, LP, Dubose Model Home Investors #203, LP, Dubose Model Home Investors #204, LP, Dubose Model Home Investors #205, LP, and Dubose Model Home Investors #206, LP).

The Company refers to these entities collectively as the “Model Home Partnerships”.

The Company has determined that the limited partnerships in which it owns less than 100% should be included in the Company’s consolidated financial statements as the Company directs their activities and has control of such limited partnerships.

The Company is the general and limited partner in six limited partnerships that purchase model homes and lease them back to homebuilders (Dubose Model Home Investors #202, LP, Dubose Model Home Investors #203, LP, Dubose Model Home Investors #204, LP, Dubose Model Home Investors #205, LP, Dubose Model Home Investors #206, LP, and Dubose Model Home Investors #207, LP).

The Company refers to these entities collectively as the “Model Home Partnerships”.

Unit-based information used herein (such as references to square footage or property occupancy rates) is unaudited.

We have elected to be taxed as a REIT under Sections

860 of the Internal Revenue Code (the "Code"), for federal income tax purposes.

860 of the Internal Revenue Code of

1986, as amended (the “Code”), for federal income tax purposes.

To maintain our qualification as a REIT, we are required to distribute at least

1 unchanged sentence

Provided we maintain our qualification for taxation as a REIT, we are generally

not subject to corporate-level income tax on the earnings distributed currently to our stockholders that we derive from our REIT qualifying activities.

not subject to corporate-level income tax on the earnings distributed currently to our stockholders that we derive from our REIT qualifying activities.

If we fail to maintain our qualification as a REIT in any taxable year and are unable to avail ourselves of certain savings provisions set forth in the Code, all our taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax.

We are subject to certain state and local income taxes.

We, together with one of our entities, have elected to treat our subsidiaries as a taxable REIT subsidiary (a “TRS”) for federal income tax purposes.

We, together with one of our entities, have elected to treat certain subsidiaries as a taxable REIT subsidiary (a “TRS”) for federal income tax purposes.

Certain activities that we undertake must be conducted by a TRS, such as non-customary services for our tenants, and holding assets that we cannot hold directly.

1 unchanged sentence

The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

Neither the Company nor its subsidiaries have been assessed any significant interest or penalties for tax positions by any tax jurisdictions.

Additional Offerings & Warrants . Our Form S- 3 Registration Statement was declared effective by the SEC on April 27, 2021. 

Under this registration statement, we may offer and sell from time to time, in one or more series, subject to limitation that may apply (such as under Rule 415 of the Securities Act of 1933 ) various securities of the Company for total gross proceeds of up to $ 200,000,000 .

On July 12, 2021, we entered into a securities purchase agreement with a single U.S.

institutional investor for the purchase and sale of 1,000,000 shares of our Series A Common Stock, warrants (“Common Stock Warrants”) to purchase up to 2,000,000 shares of Series A Common Stock and pre-funded warrants (“Pre-Funded Warrants”) to purchase up to 1,000,000 shares of Series A Common Stock.

The shares of Series A Common Stock, Pre-Funded Warrants and shares of Series A Common Stock issuable upon exercise of the Pre-Funded Warrants were issued pursuant to a prospectus supplement to the Form S- 3 Registration Statement, with the Common Stock Warrants issued in a concurrent private placement. 

Each share of Series A Common Stock and accompanying Series A Common Stock Warrants were sold together at a combined offering price of $ 5.00 , and each share of Common Stock and accompanying Pre-Funded Warrants were sold together at a combined offering price of $ 4.99 .

The Pre-Funded Warrants were exercised in full during August 2021 at a nominal exercise price of $ 0.01 per share.

The Common Stock Warrants have an exercise price of $ 5.50 per share, were exercisable upon issuance, and will expire five years from the date of issuance. 

In connection with this additional offering, we agreed to issue the Placement Agent Warrants to purchase up to 80,000 shares (the “Placement Agent Warrants”) of Series A Common Stock, representing 4.0 % of the Series A Common Stock and shares of Series A Common Stock issuable upon exercise of the Pre-Funded Warrants. 

The Placement Agent Warrants were issued in August 2021, post exercise of the Pre-Funded Warrants with an exercise price of $ 6.25 and will expire five years from the date of issuance. 

The Company registered for resale Series A Common Stock issuable upon exercise of Common Stock Warrants and Placement Agent Warrants issued in the July 2021 offering pursuant to a registration statement on Form S- 11 that was declared effective by the SEC on September 14, 2021. 

The Company evaluated the accounting guidance in ASC 480 - Distinguishing Liabilities from Equity and ASC 815 - Derivatives and Hedging  regarding the classification of the Pre-Funded Warrant, Common Stock Warrants, and Placement Agent Warrants as equity or a liability and ultimately determined that it should be classified as permanent equity.  As of December 31, 2022 , none of the Common Stock Warrants and Placement Agent Warrants have been exercised.

Preferred Stock Series D .  On June 15, 2021, the Company completed its secondary offering of 800,000 shares of our 

9.375 % Series D Cumulative Redeemable Perpetual Preferred Stock ("Series D Preferred Stock") for cash consideration of $ 25.00 per share to a syndicate of underwriters led by The Benchmark Company, LLC, as representative, resulting in approximately $ 18.1  million in net proceeds, after deducting the underwriting discounts and commissions and the offering expenses paid by the Company.

The Company granted the underwriters a 45 -day option to purchase up to an additional 120,000 shares of Series D Preferred Stock to cover over-allotments, which they exercised on June 17, 2021, resulting in approximately $ 2.7 million in net proceeds, after deducting the underwriting discounts and commissions and the offering expenses paid by the Company. 

In total, the Company issued 920,000 shares of Series D Preferred Stock with net proceeds of approximately $ 20.5 million, after deducting the underwriting discounts and commissions and the offering expenses paid by the Company and deferred offering costs.

The Company has used these proceeds for general corporate and working capital purposes, including acquiring additional properties.  

Warrant Dividend.

  In January 2022, we distributed 

five -year listed warrants (the “Series A Warrants”) to holders of our Series A Common Stock. 

The Series A Warrants and the shares of Series A Common Stock issuable upon the exercise of the Series A Warrants were registered on a registration statement that was filed with the SEC and was declared effective January 21, 2022.

The Series A Warrants commenced trading on the Nasdaq Capital Market under the symbol “SQFTW”

on January 24, 2022 and were distributed on that date to persons who held Series A Common Stock and existing outstanding warrants as of the January 14, 2022 record date, or who acquired Series A Common Stock in the market following the record date, and who continued to hold such shares at the close of trading on January 21, 2022. 

The Series A Warrants give the holder the right to purchase one share of common stock at $ 7.00 per share, for a period of five years.

Should warrantholders not exercise the Series A Warrants during that holding period, the Series A Warrants will automatically convert to 1/10 of a common share at expiration, rounded down to the nearest number of whole shares. 

On the first day of trading SFQTW closed at $ 0.17 per warrant with 14,450,069 warrants in the public market.

The Company's anticipated future sources of liquidity may include existing cash and cash equivalents, cash flows from operations, refinancing of existing mortgages, future real estate sales, new borrowings, and the sale of equity or debt securities.  Future capital needs include paying down existing borrowings, maintaining our existing properties, funding tenant improvements, paying lease commissions (to the extent they are not covered by lender-held reserve deposits), and the payment of dividends to our stockholders.

The Company is also seeking investments that are likely to produce income and achieve long-term gains in order to pay dividends to our stockholders and may seek a revolving line of credit to provide short-term liquidity.

Neither the Company nor its subsidiaries have been assessed any significant interest or penalties for tax positions by any tax jurisdictions.

Future capital needs include paying down existing borrowings, maintaining our existing properties, funding tenant improvements, paying lease commissions (to the extent they are not covered by lender-held reserve deposits), and the payment of dividends to our stockholders.

The Company is also seeking investments that are likely to produce income and achieve long-term gains in order to pay dividends to our stockholders.

To ensure that we can effectively execute these objectives, we routinely review our liquidity requirements and continually evaluate all potential sources of liquidity.

Short-term liquidity needs include paying our current operating costs, satisfying the debt service requirements of existing mortgages , completing tenant improvements, paying leasing commissions, and funding dividends to stockholders. 

Future principal payments due on mortgage notes payables, during the year ended December 31, 2023, total approximately $ 8.3 million , of which 

$ 6.8 million  is related to model home properties. 

Management expects certain model home properties can be sold, and that the underlying mortgage notes will be paid off with sales proceeds while other mortgage notes can be refinanced, as the Company has historically been able to do in the past.

Additional principal payments will be made with cash flows from ongoing operations.  The mortgage note payable for 300 N.P.

was an amortizing loan with a balloon payment of $ 2.2 million due at maturity, on June 11, 2022.  

The Company paid this note in full on May 11, 2022 with available cash on hand. 

Additionally, the Company has committed to provide additional funds, or obtain financing, if needed to a special purpose acquisition company, or "SPAC", for which we serve as the financial sponsor (as described below in Note 2.

Significant Account Policies).

As the Company continues its operations, it may 

re-finance or seek additional financing. 

However, there can be no assurance that any such re-financing or additional financing will be available to the Company on acceptable terms, if at all.

If events or circumstances occur such that the Company does not obtain additional funding, it will most likely be required to reduce its plans and/or certain discretionary spending, which could have a material adverse effect on the Company’s ability to achieve its intended business objectives.

If necessary, the Company may seek other short-term liquidity alternatives, such as bridge loans, refinancing an unencumbered property or a bank line of credit depending on the credit environment.

Future principal payments due on mortgage notes payables, during the year ended December 31, 2024, total approximately $ 23.5 million , of which $ 13.1 million is related to model home properties.

Additional principal payments will be made with cash flows from ongoing operations.

As the Company continues its operations, it may re-finance, seek additional financing or restructure.

However, there can be no assurance that any such re-financing or additional financing will be available to the Company on acceptable terms, if at all.

Management believes that the combination of working capital on hand and the ability to refinance commercial and model home mortgages will fund operations through at least the next twelve months from the date of the issuance of these audited financial statements.

The Company acquires and o perates income producing properties in three business segments including Office/Industrial Properties, Model Home Properties and Retail Properties.

“Segments”.

Customer Concentration.

Concentration of credit risk with respect to tenant receivables is limited due to the large number of tenants comprising the Company’s rental revenue.

We had one tenant, Halliburton Energy Services, Inc, that account for 

8.57 % of total rental income for the year ended December 31, 2022  and approx imately 

8.0 % of total rental income for the year ended December 31, 2021 .  On December 31, 2022, the lease for our largest tenant, Halliburton Energy Services, Inc., expired. 

Halliburton Energy Services, Inc.

was located in our Shea Center II property in Colorado and did 

not  renew the lease. 

We placed approximately $ 1.1 million in a reserve account with our lender to cover future mortgage payments, if necessary, in connection with Halliburton's vacant space.

This reserve amount is included in "C ash, cash equivalents and restricted cash" on the balance sheet.

Our management team is working to fill the 45,535 square foot space as quickly as possible, and has leased approximately 20% of the space to a tenant during 

January 2023.

Concentration of credit risk with respect to tenant receivables is limited due to the large number of tenants comprising the Company’s rental revenue.

We had one tenant account for 6.43 % of total rental income for the year ended December 31, 2023 and one tenant accounted for 8.57 % of total rental income for the year ended December 31, 2022 .

On December 31, 2022, the lease for our largest tenant at that time, Halliburton Energy Services, Inc.

("Halliburton"), expired.

Halliburton was located in our Shea Center II property in Colorado and did not renew the lease.

We placed approximately $ 1.1 million in a reserve account with our lender to cover future mortgage payments, if necessary, in connection with Halliburton's vacant space, none of which has been used as of December 31, 2023.

This reserve amount is included in "Cash, cash equivalents and restricted cash" on the balance sheet.

Our management team is working to fill the 45,535 square foot space and has leased approximately 20% of the space to a tenant during 2023 and has reviewed various proposals for the remaining 80%.

As of December 31, 2023, none of the third party proposals have fit into our long-term plans.

We will continue to work on filling the space during 2024.

SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation.

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”).

Principles of Consolidation . The accompanying consolidated financial statements include the accounts of Presidio Property Trust and its subsidiaries, NetREIT Advisors, LLC and Dubose Advisors LLC (collectively, the “Advisors”), and NetREIT Dubose Model Home REIT, Inc.

The consolidated financial statements also include the results of the NetREIT Partnerships, and the Model Home Partnerships. 

As used herein, references to the “Company”

include references to Presidio Property Trust, its subsidiaries, and the partnerships.

Principles of Consolidation .

The accompanying consolidated financial statements include the accounts of Presidio Property Trust, Inc.

and its subsidiaries, NetREIT Advisors, LLC and Dubose Advisors LLC (collectively, the “Advisors”), and NetREIT Dubose Model Home REIT, Inc.

The consolidated financial statements also include the results of the NetREIT Partnerships and the Model Home Partnerships.

As used herein, references to the “Company” include references to Presidio Property Trust, Inc., its subsidiaries, and the partnerships.

All significant intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated financial statements also include the accounts of (a) Murphy Canyon Acquisition Corp.

("Murphy Canyon"), which is a SPAC, for which we serve as the financial sponsor (as described below), and which is deemed to be controlled by us as a result of our 

23.5 % equity ownership stake, the overlap of three of our executive officers as executive officers of Murphy Canyon, and significant influence and operati onal control that we currently exercise over the funding and acquisition of new operations for an initial business combination ("IBC").

(see Note 2,  Variable Interest Entity).

All intercompany balances have been eliminated in consolidation.

The Company classifies the noncontrolling interests in the NetREIT Partnerships as part of consolidated net income (loss) in 

2022  and 

2021  and has included the accumulated amount of noncontrolling interests as part of equity since inception in

February 2010.

If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interest will be remeasured, with the gain or loss reported in the statement of operations.

Management has evaluated the noncontrolling interests and determined that they do

not contain any redemption features.

The consolidated financial statements also include the accounts of (a) Murphy Canyon up until September 22, 2023, when they completed their business combination.

Murphy Canyon was a SPAC for which we served as the financial sponsor (as described herein), and which was deemed to be controlled by us as a result of our 65 % equity ownership stake, the overlap of three of our executive officers as executive officers of Murphy Canyon, and significant influence that we could exercise over the funding and acquisition of new operations for an initial business combination ("IBC") (see Note 2, Variable Interest Entity).

All intercompany balances, prior to deconsolidation and loss of control on September 22, 2023, have been eliminated in consolidation.

The Company classifies the noncontrolling interests in the NetREIT Partnerships as part of consolidated net (loss) income in 2023 and 2022 and has included the accumulated amount of noncontrolling interests as part of equity since inception in February 2010.

Management has evaluated the noncontrolling interests and determined that they do not contain any redemption features.

Use of Estimates .

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods.

The financial statements were prepared in conformity with U.S.

GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

Significant estimates include the allocation of purchase price paid for property acquisitions between land, building and intangible assets acquired including their useful lives;

valuation of long-lived assets, and the allowance for doubtful accounts, which is based on an evaluation of the tenants’

ability to pay.

Actual results may differ from those estimates.

valuation of long-lived assets, and the allowance for doubtful accounts, which is based on an evaluation of the tenants’ ability to pay.

Actual results could differ from those estimates.

Real Estate Assets and Lease Intangibles.

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Estimates of fair value for land, building and building improvements are based on many factors, including, but not limited to, comparisons to other properties sold in the same geographic area and independent third -party valuations.

In estimating the fair values of the tangible assets, intangible assets, and liabilities acquired, the Company also considers information obtained about each property as a result of its pre‑acquisition due diligence, marketing and leasing activities.

The value allocated to acquired lease intangibles is based on management’s evaluation of the specific characteristics of each tenant’s lease.

Characteristics considered by management in allocating these values include, but are not limited, to the nature and extent of the existing business relationships with the tenant, growth prospects for developing new business with the tenant, the remaining term of the lease, the tenant’s credit quality, and other factors.

The value allocable to the above-market or below-market component of an acquired in-place lease is determined based upon the present value (using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of rents that would be paid using fair market rates over the remaining term of the lease.

The value allocated to acquired lease intangibles is based on management’s evaluation of the specific characteristics of each tenant’s lease.

The value attributable to the above-market or below-market component of an acquired in-place lease is determined based upon the present value (using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of rents that would be paid using fair market rates over the remaining term of the lease.

The amounts allocated to above or below-market leases are amortized on a straight-line basis as an increase or reduction of rental income over the remaining non-cancelable term of the respective leases.

Amortization of above and below-market rents resulted in a net increase in rental income of approximately $ 55,000 and $ 18,000 for the years ended December 31, 2022  and 2021 , respectively.

Amortization of above and below-market rents resulted in a net increase in rental income of appr oximately $ 5,000 and $ 55,000 for the years ended December 31, 2023 and 2022 , respectively.

The value of in-place leases and unamortized lease origination costs are amortized to expenses over the remaining term of the respective leases, which range from less than a year to ten years.

The amount allocated to acquired in-place leases is determined based on management’s assessment of lost revenue and costs incurred for the period required to lease the “assumed vacant”

property to the occupancy level when purchased.

The amount allocated to acquired in-place leases is determined based on management’s assessment of lost revenue and costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased.

The amount allocated to unamortized lease origination costs is determined by what the Company would have paid to a third -party to secure a new tenant reduced by the expired term of the respective lease.

The amount allocated to tenant relationships is the benefit resulting from the likelihood of a tenant renewing its lease.

Amortization expense related to these assets was approximately $ 0.2  million and $ 0.3  million for years ended December 31, 2022  and 2021 , respectively.

Amortization expense related to these assets was approximately $ 18,000 and $ 0.2 million for years ended December 31, 2023 and 2022 , respectively.

Real Estate Held for Sale and Discontinued Operations.

 We generally reclassify assets to held for sale when the disposition has been approved, it is available for immediate sale in its present condition, we are activity seeing a buyer, and the disposition is considered probable within one year. 

Additionally, real estate sold during the current period is classified as “real estate held for sale”

for all prior periods presented in the accompanying condensed consolidated financial statements.

Mortgage notes payable related to the real estate sold during the current period is classified as “notes payable related to real estate held for sale”

for all prior periods presented in the accompanying condensed consolidated financial statements. Additionally, we record the operating results related to real estate that has been disposed of as discontinued operations for all periods presented if the operations have been eliminated and represent a strategic shift and we will not have any significant continuing involvement in the operations of the property following the sale.

We generally reclassify assets to "held for sale" when the disposition has been approved, it is available for immediate sale in its present condition, we are actively seeking a buyer, and the disposition is considered probable within one year.

Additionally, real estate sold during the current period is classified as “real estate held for sale” for all prior periods presented in the accompanying consolidated financial statements.

Mortgage notes payable related to the real estate sold during the current period are classified as “notes payable related to real estate held for sale” for all prior periods presented in the accompanying consolidated financial statements.

Additionally, we record the operating results related to real estate that has been disposed of as discontinued operations for all periods presented if the operations have been eliminated and represent a strategic shift and we will not have any significant continuing involvement in the operations of the property following the sale.

As of December 31, 2023 , no commercial property met the criteria to be classified as "held for sale" and 15 model homes were classified as held for sale.

Impairments of Real Estate Assets.

We regularly review for impairment on a property-by-property basis.

Impairment is recognized on a property held for use when the expected undiscounted cash flows for a property are less than the carrying amount at which time the property is written-down to fair value.

Impairment is recognized on a property held for use when the expected undiscounted cash flows for a property are less than the carrying amount at which time the property is written-down to fair value.

The calculation of both discounted and undiscounted cash flows requires management to make estimates of future cash flows including but not limited to revenues, operating expenses, required maintenance and development expenditures, market conditions, demand for space by tenants and rental rates over long periods.

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These estimates have a direct impact on net income because recording an impairment charge results in a negative adjustment to net income.

The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods.  Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell.

Properties held for sale are recorded at the lower of the carrying amount or the expected sales price less costs to sell.

Although our strategy is to hold our properties over the long-term, if our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized to reduce the property to fair value and such loss could be material.

During the fourth quarter of 2020, the Company recorded its Highland Court property (“Highland Court”) as held for sale and subsequently entered into a purchase and sale agreement (“PSA”) with an unrelated third -party. 

Highland Court had a book value of approximately $ 10.5 million prior to entering into the PSA. The final selling price as agreed upon in the PSA was approximately $ 10.2 million.

As such, the Company recorded a $ 0.3 million non-cash impairment in the accompanying condensed consolidated statement of operations at 

March 31, 

The sale was completed in May 2021. 

During the year ended December 31, 2021, the Company recorded an impairment of 300 N.P.

totaling approximately $ 0.3 million in connection with an updated appraisal. 

There were no impairments recorded during the year ended December 31, 2022 .

Intangible Assets . 

We review the carrying value of each of our real estate properties annually to determine if circumstances indicate an impairment in the carrying value of these investments exists.

During the year ended December 31, 2023 , we recognized a non-cash impairment charge of approximately $ 2.0 million on One Park Center and approximately $ 0.4 million was related to eight model homes.

The impairment charges for One Park Center reflects management’s revised estimate of the fair market value based on sales comparable of like property in the same geographical area as well as an evaluation of future cash flows or an executed purchase sale agreement.

The impairment charge for the eight model homes reflects the estimated sales prices for these specific model homes in 2024 as a result of an abnormally short hold period, less than two years, on model homes purchased in 2022, where the builder changed their product type in these neighborhoods after we had purchased the homes.

We do not believe these losses are indicative of our overall model home portfolio.

As noted above in the Overview section, during the year ended December 31, 2023 , we sold 22 model homes for approximately $ 11.7 million and the Company recognized a gain of approximately $ 3.2 million.

We expect to record a net gain on model home sales in the first quarter of 2024 as well.

The Company did not recognize a non-cash impairment during the year ended December 31, 2022 to our real estate assets.

Intangible Assets .

Intangible assets, including goodwill and lease intangibles, are comprised of finite-lived and indefinite-lived assets.

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Indefinite-lived assets are not amortized.

Amortization expense of intangible assets that are not deemed to have an indefinite useful life was approximately $ 0.1 million and $ 0.2  million, respectively, for the years ended December 31, 2022  and 2021  and is included in depreciation and amortization in the accompanying consolidated statements of operation.

Amortization expense of intangible assets that are not deemed to have an indefinite useful life was approximately $ 10,000 and $ 0.1 million, respectively, for the years ended December 31, 2023 and 2022 and is included in depreciation and amortization in the accompanying consolidated statements of operation.

The Company is required to perform a test for impairment of goodwill and other definite and indefinite lived assets at least annually, and more frequently as circumstances warrant.

Impairment is recognized only if the carrying amount of the intangible asset is considered to be unrecoverable from its undiscounted cash flows and is measured as the difference between the carrying amount and the estimated fair value of the asset.

No impairment was deemed to exist at December 31, 2022  and 2021 .

As of December 31, 2023, prior to any adjustment, the carrying value of the goodwill for NTR Property Management was $ 1.3 million.

As par to the annual testing for goodwill impairment the fair value of NTR Property Management using the Capitalized Cash Flow method and Merger and Acquisition method show an indication of impairment to the goodwill.

Management expects to hold this business for the foreseeable future;

however, in 2023 we experienced increasing payroll costs, and increasing operating expenses along with increased interest rates.

The current market outlook for the Office sector of commercial real estate has been depressed.

All of these factors have led to lower than historical expected future cash flows, resulting in the impairment indication and concluded an enterprise value of NTR Property Management at $ 451,000 .

With an assumed fair market value of $ 451,000 for NTR Property Management, in accordance with ASC 350 and ASC 820, we have recorded an impairment to goodwill for approximately $ 0.8 millionas of December 31, 2023 .

No other impairment was deemed to exist to goodwill at December 31, 2023 and 2022 .

See Fair Value Measurements below for additional information.

Depreciation and Amortization.

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The costs of buildings are depreciated over estimated useful lives of 39 years, the costs of improvements are amortized over the shorter of the estimated life of the asset or term of the tenant lease (which range from 1 to 10 years), the costs associated with acquired tenant intangibles over the remaining lease term and the cost of furniture, fixtures and equipment are depreciated over 4 to 5 years.

Depreciation and amortization expense for the years ended December 31, 2022  and 2021  was approximately $ 5.5 million and $ 5.4 million, respectively, and is included in depreciation and amortization in the accompanying consolidated statements of operations.

Cash, Cash Equivalents and Restricted Cash.  

At December 31, 2022 and December 31, 2021 , we had approximately $ 16.5 million and $ 14.7 million in cash, cash equivalents and restricted cash, respectively. 

Depreciation and amortization expense for the years ended December 31, 2023 and 2022 was approximately $ 5.4 million and $ 5.5 million, respectively, and is included in depreciation and amortization in the accompanying consolidated statements of operations.

Cash, Cash Equivalents and Restricted Cash.

At December 31, 2023 and December 31, 2022 , we had approximately $ 6.5 million and $ 16.5 million in cash, cash equivalents and restricted cash, respectively.

The Company considers all short-term, highly liquid investments that are both readily convertible to cash and have an original maturity of three months or less at the date of purchase to be cash equivalents.

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No losses have been experienced related to such accounts.

At December 31, 2022 , the Company had approximately $ 8.8 million in deposits in financial institutions that exceeded the federally insurable limits.

At December 31, 2023 , the Company had approximately $ 0.7 million in deposits in financial institutions that exceeded the federally insurable limits.

Restricted cash consists of funds held in escrow for Company lenders for properties held as collateral by the lenders.

The funds in escrow are for payment of property taxes, insurance, leasing costs and capital expenditures.

As of December 31, 2022 , the Company has approximately $ 4.4 million of restricted cash. 

At December 31, 2021 , the Company had approximately $ 7.3 million in deposits in financial institutions that exceeded the federally insurable limits.

The funds in escrow are for payment of property taxes, insurance, leasing costs, mortgage payment reserves, and capital expenditures.

As of December 31, 2023 , the Company has approximately $ 3.7 million of restricted cash.

At December 31, 2022 , the Company had approximately $ 8.8 million in deposits in financial institutions that exceeded the federally insurable limits.

Restricted cash consists of funds held in escrow for Company lenders for properties held as collateral by the lenders.

The funds in escrow are for payment of property taxes, insurance, leasing costs and capital expenditures.

As of December 31, 2021 , the Company has approximately $ 4.7 million of restricted cash.

As of December 31, 2022 , the Company has approximately $ 4.4 million of restricted cash.

Accounts Receivables.

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due from tenants and maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements.

In addition, the Company maintains an allowance for deferred rent receivable that arises from straight lining of rents.

In addition, the Com pany maintains an allowance for deferred rent receivable that arises from straight lining of rents.

The Company exercises judgment in establishing these allowances and considers payment history and current credit status of its tenants in developing these estimates.

December 31, 2022

, the balance of allowance for possible uncollectable tenant receivables included in other assets, net in the accompanying consolidated balance sheets was approximately $ 138,000  and $ 70,000 , respectively.

December 31, 2023 and

2022 , the balance of allowance for possible uncollectable tenant receivables included in other assets, net in the accompanying consolidated balance sheets was approximately

$ 138,000 , respectively.

Deferred Leasing Costs.

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Management re-evaluates the remaining useful lives of leasing costs as the creditworthiness of the tenants and economic and market conditions change.

If management determines the estimated remaining life of the respective lease has changed, the amortization period is adjusted.

December 31, 2022

, the Company had net deferred leasing costs of approximately $ 1.5 million and $ 1.3 million, respectively.

If management determines the estimated remaining life of the respective lease has changed, the am ortization period is adjusted.

December 31, 2023 and

2022 , the Company had net deferred leasing costs of approximately

$ 1.7 million and

$ 1.5 million, respectively.

Total amortization expense for the years ended

December 31, 2022

 was approximately $ 0.4  million and $ 0.3  million, respectively.

December 31, 2023 and

2022 was approximately

$ 0.5 million and

$ 0.4 million, respectively.

Deferred Financing Costs.

Costs incurred, including legal fees, origination fees, and administrative fees, in connection with debt financing are capitalized as deferred financing costs, are amortized using the straight line method, which approximates the effective interest method, over the contractual term of the respective loans and recorded as an offset to the carrying value of the debt.

At December 31, 2022  and 2021 , unamortized deferred financing costs related to mortgage notes payable were approximately $ 0.9 million and $ 0.6 million.

For the years ended December 31, 2022  and 2021 , total amortization expense related to the mortgage notes payable deferred financing costs was approximately $ 0.2  million and $ 0.9 million, respectively.

Costs incurred, including legal fees, originatio n fees, and administrative fees, in connection with debt financing are capitalized as deferred financing costs, are amortized using the straight line method, which approximates the effective interest method, over the contractual term of the respective loans and recorded as an offset to the carrying value of the debt.

At December 31, 2023 and 2022 , unamortized deferred financing costs related to mortgage notes payable were approximately $ 0.8 million and $ 0.9 million.

For the years ended December 31, 2023 and 2022 , total amortization expense related to the mortgage notes payable deferred financing costs was approximately $ 0.3 million and $ 0.2 million , respectively.

Amortization of deferred financing costs are included in interest expense in the accompanying consolidated statements of operations.

Deferred Offering Costs. 

Deferred offering costs represent legal, accounting and other direct costs related to our offerings.

As of December 31, 2022 and December 31, 2021, we have incurred approximately $ 117,000  and $ 135,000 , at the end of each period. 

These costs are related to various registration statements and our offering of common and preferred stock in connection with the sponsorship, through our wholly-owned subsidiary Murphy Canyon Acquisition Sponsor, LLC (the “Sponsor”), of a special purpose acquisition company (“SPAC”) initial public offering as of December 31, 2021. 

As of December 31, 2022 , the costs related to the preparation of a registration statement for the Company have gone stale and were fully expensed during the year ended December 31, 2022. 

As of December 31, 2022, there were no deferred offering costs. 

Deferred Offering Costs.

Deferred offering costs represent legal, accounting and other direct costs related to our offeri ngs and as of December 31, 2023 we have incurred approximately $ 5,000 .

These costs are related to an amendment to a registration statement for the sale of our common stock that has not been finalized.

As of December 31, 2022, there were no deferred offering costs.

Income Taxes.

  We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, for federal income tax purposes.

To maintain our qualification as a REIT, we are required to distribute at least 90 % of our REIT taxable income to our stockholders and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership.

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We are subject to certain state and local income taxes.

As of December 31, 2022 , we have estimated approximately $ 18.0 million of Federal net operating loss (NOLs) carryforwards to offset potential future federal tax obligations.

As of December 31, 2023 , we have estimated appr oximately $ 18.0 million of Federal net operating loss (NOLs) carryforwards to offset potential future federal tax obligations.

We may not generate sufficient taxable income in future periods to be able to realize fully the tax benefits of our NOL carry-forwards.

We, together with our subsidiary, NetREIT Dubose, have elected to treat such subsidiary as taxable REIT subsidiary (a “TRS”) for federal income tax purposes.

We, together with one of our entities, have elected to treat certain subsidiaries as a taxable REIT subsidiary (a “TRS”) for federal income tax purposes.

Certain activities that we undertake must be conducted by a TRS, such as non-customary services for our tenants, and holding assets that we cannot hold directly.

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The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

Neither the Company nor its subsidiaries have been assessed any significant interest or penalties for tax positions by any major tax jurisdictions.

Fair Value Measurements .  Certain assets and liabilities are required to be carried at fair value, or if long-lived assets are deemed to be impaired, to be adjusted to reflect this condition.

Neither the Company nor its subsidiaries have been assessed any significant interest or penalties for tax positions by any tax jurisdictions.

Fair Value Measurements .

Certain assets and liabilities are required to be carried at fair value, or if long-lived assets are deemed to be impaired, to be adjusted to reflect this condition.

The guidance requires disclosure of fair values calculated under each level of inputs within the following hierarchy:

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When available, we utilize quoted market prices from independent third -party sources to determine fair value and classify such items in Level 1 or Level 2 .

 In instances where the market for a financial instrument is not  active, regardless of the availability of a nonbinding quoted market price, observable inputs might not  be relevant and could require us to make a significant adjustment to derive a fair value measurement.

Additionally, in an inactive market, a market price quoted from an independent third -party may 

rely more on models with inputs based on information available only to that independent third -party.

When we determine the market for a financial instrument owned by us to be illiquid or when market transactions for similar instruments do not  appear orderly, we use several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establish a fair value by assigning weights to the various valuation sources. 

As of December 31, 2022  and December 31, 2021 , our marketable securities presented on the balance sheet were measured at fair value using Level 1 market prices and totaled approximately $ 0.8 million and $ 1.5 million, respectively, with a cost basis of approximately $ 0.9 million and $ 1.6 million, respectively.  There were no  financial liabilities measured at fair value as of December 31, 2022  and December 31, 2021 .

Additionally, when determining the fair value of a liability in circumstances in which a quoted price in an active market for an identical liability is not available, we measure fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach.  Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values.

In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

Sales of Real Estate Assets . 

Effective January 1, 2018, we adopted the guidance of ASC 610 - 20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610 - 20”

), which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business.

In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require us to make a significant adjustment to derive a fair value measurement.

Additionally, in an inactive market, a market price quoted from an independent third -party may rely more on models with inputs based on information available only to that independent third -party.

When we determine the market for a financial instrument owned by us to be illiquid or when market transactions for similar instruments do not appear orderly, we use several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establish a fair value by assigning weights to the various valuation sources.

As of December 31, 2023 and December 31, 2022 , our marketable securities (excluding our investments in Conduit's common stock and common stock warrants), held at a third party broker, presented on the balance sheet were measured at fair value using Level 1 market prices and totaled approximately $ 45,149 and $ 0.8 million, respectively, with a cost basis of approximately $ 40,315 and $ 0.9 million, respectively.

Additionally, the funds held in the Trust Account for the SPAC Class A common stockholders included a money market portfolio that was comprised of U.S.

Treasury securities, considered cash equivalent, which were measured at fair value using Level 1 and totaled approximately $ 0 million and $ 136.9 million as of December 31, 2023 and December 31, 2022 , respectively.

Our investments in Conduit's common stock and common stock warrants presented on the consolidated balance sheets were measured at fair value using Level 1 market prices, which are currently held at Conduit's transfer agent, taking into account the adoption of ASU 2022 - 03 Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , and totaled approximately $ 18.3 million as of December 31, 2023 , with a cost basis of approximately $ 7.5 million.

The Company entered into a lock-up agreement with Conduit regarding the common stock held by the Company, for 180 days from the closing of the business combination which ended March 20, 2024.

There were no financial liabilities measured at fair value as of December 31, 2023 and December 31, 2022 .

The following table presents as of December 31, 2023 the Company’s assets subject to measurement at fair value on a nonrecurring basis (in thousands):

Fair Value Measurements as of December 31, 2023

Goodwill for Dubose Model Homes

$ - $ - $ 1,123,000 $ 1,123,000

Goodwill for NTR Property Management

- - 451,000 451,000

$ - $ - $ 1,574,000 $ 1,574,000

The following table presents as of December 31, 2022 the Company’s assets subject to measurement at fair value on a nonrecurring basis (in thousands):

Fair Value Measurements as of December 31, 2022

Goodwill for Dubose Model Homes

$ - $ - $ 1,123,000 $ 1,123,000

Goodwill for NTR Property Management

- - 1,300,000 1,300,000

$ - $ - $ 2,423,000 $ 2,423,000

Earnings per share ( “ EPS ” ).

The EPS on common stock has been computed pursuant to the guidance in FASB ASC Topic 260, Earnings Per Share.

The guidance requires the classification of the Company’s unvested restricted stock, which contains rights to receive non-forfeitable dividends, as participating securities requiring the two -class method of computing net income per share of common stock.

In accordance with the two -class method, earnings per share have been computed by dividing the net income less net income attributable to unvested restricted shares by the weighted average number of shares of common stock outstanding less unvested restricted shares.

Diluted earnings per share is computed by dividing net income by the weighted average shares of common stock and potentially dilutive securities outstanding in accordance with the treasury stock method.

Dilutive common stock equivalents include the dilutive effect of in-the-money stock equivalents, which are calculated based on the average share price for each period using the treasury stock method, excluding any common stock equivalents if their effect would be anti-dilutive.

In periods in which a net loss has been incurred, all potentially dilutive common stock shares are considered anti-dilutive and thus are excluded from the calculation.

Securities that are excluded from the calculation of weighted average dilutive common stock, because their inclusion would have been antidilutive, are:

For the Year Ended December 31,

Common Stock Warrants

2,000,000 2,000,000

Placement Agent Warrants

80,000 80,000

Series A Warrants

14,450,069 14,450,069

Unvested Common Stock Grants

760,995 349,042

Total potentially dilutive shares

17,291,064 16,879,111

Income (Loss) per Common Share.

Basic income (loss) per common share (Basic EPS) is computed by dividing net income (loss) available to common shareholders (Numerator) by the weighted average number of common shares outstanding (Denominator) during the period.

Diluted loss per common share (Diluted EPS) is similar to the computation of Basic EPS except that the Denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

In addition, in computing the dilutive effect of convertible securities, the Numerator is adjusted to add back the after-tax amount of interest recognized in the period associated with any convertible debt.

The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net earnings per share.

For the year ended December 31, 2023 the basic and diluted net earnings per share was $ 0.68 , since all potentially dilutive securities were determined to be anti-dilutive, and for the year ended December 31, 2022 the basic and diluted net loss per share are equivalent at $ 0.57 per share because the Company had incurred a net loss attributable to common stockholders causing any potentially dilutive securities to be anti-dilutive.

Sales of Real Estate Assets .

Effective January 1, 2018, we adopted the guidance of ASC 610 - 20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610 - 20” ), which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business.

Generally, our sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610 - 20.

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If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or by us.

When we are the owner of the tenant improvements, rental revenue begins when the tenant takes possession or has control of the physical us e of the leased space and any tenant improvement allowance, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed.

When we are the owner of the tenant improvements, rental revenue begins when the tenant takes possession or has control of the physical us e of the leased space and any tenant improvement allowance, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed.

When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term.

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In some cases, the ultimate resolution of these claims can exceed one year.

When a tenant is in bankruptcy, we will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments. 

Variable Interest Entity.

 We determine whether an entity is a Variable Interest Entity ("VIE") and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective.

Our determination of whether an entity in which we hold a direct or indirect variable interest is a VIE is based on several factors, including whether we participated in the design of the entity and the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support.

We determine whether an entity is a Variable Interest Entity ("VIE") and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective.

We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.

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Determining which reporting entity, if any, has a controlling financial interest in a VIE is primarily a qualitative approach focused on identifying which reporting entity has both:

(i) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance;

and (ii) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity.

Performance of that analysis requires the exercise of judgment.

We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance, including, but not limited to, the ability to direct operating decisions and activities.

In addition, we consider the rights of other investors to participate in those decisions.

We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion continually. 

We consolidate any VIE of which we are the primary beneficiary.

The Company is involved in the formation of an entity considered to be a VIE.

The Company evaluates the consolidation of this entity as required pursuant to ASC Topic 810 relating to the consolidation of such VIE.

The Company’s determination of whether it is the primary beneficiary of the VIE is based in part on an assessment of whether or not the Company and its related parties have the power to direct activities of the VIE and are exposed to the majority of the risks and rewards of the entity.  

Following the completion of the Murphy Canyon IPO, we determined that Murphy Canyon is a VIE in which we have a variable interest because we participated in its formation and design, manage the significant activities, and Murphy Canyon does not have enough equity at risk to finance its activities without additional subordinated financial support.

We have also determined that Murphy Canyon's public stockholders do not have substantive rights, and their equity interest constitutes temporary equity, outside of permanent equity, in accordance with ASC 480 - 10 - S99 - 3A.

As such, we have concluded that we are currently the primary beneficiary of Murphy Canyon as a VIE, as we have the right to receive benefits or the obligation to absorb losses of the entity, as well as the power to direct a majority of the activities that significantly impact Murphy Canyon's economic performance.

Since we are the primary beneficiary, Murphy Canyon is consolidated into our consolidated financial statements.  See Note 9  Commitments and Contingencies for additional details regarding Murphy Canyon.

Shares Subject to Possible Redemption . 

The Company accounts for common stock issued by the SPAC (which is consolidated in our condensed consolidated financial statements), that is subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.”

Under ASC 480, shares of common stock subject to mandatory redemption are classified as a liability instrument and are measured at fair value.

Conditionally redeemable shares of common stock (including shares of common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity.

At all other times, shares of common stock are classified as shareholders’

equity. 

All of the Public Shares of Murphy Canyon SPAC (Class A Common Shares) contain a redemption feature which allows for the redemption of such Public Shares in connection with the SPAC's liquidation, if there is a stockholder vote or tender offer in connection with the SPAC's initial business combination and in connection with certain amendments to the SPAC's amended and restated certificate of incorporation.

In accordance with SEC and its guidance on redeemable equity instruments, which has been codified in ASC 480 - 10 - S99, redemption provisions not solely within the control of a company require common stock subject to redemption to be classified outside of permanent equity. 

Accordingly, as of 

December 31, 2022 , the Public Shares are presented as temporary equity, outside the shareholder's equity section of the Company's 

December 31, 2022  consolidated balance sheet.

Given that the Public Shares were issued with other freestanding instruments (i.e., public warrants which were classified as permanent equity as described below), the proceeds and initial carrying value of Class A common stock classified as temporary equity was allocated in accordance with ASC 470 - 20.

The Company was involved in the formation of an entity considered to be a VIE, prior to September 22, 2023, when Murphy Canyon completed its business combination.

The Company evaluated the consolidation of this entity as required pursuant to ASC Topic 810 relating to the consolidation of such VIE.

The Company’s determination of whether it is the primary beneficiary of the VIE is based in part on an assessment of whether or not the Company and its related parties have the power to direct activities of the VIE and are exposed to the majority of the risks and rewards of the entity.

Following the completion of the Murphy Canyon IPO in January 2022, we determined that Murphy Canyon was a VIE in which we had a variable interest because we participated in its formation and design, manage the significant activities, and Murphy Canyon did not have enough equity at risk to finance its activities without additional subordinated financial support.

We have also determined that Murphy Canyon's public stockholders did not have substantive rights, and their equity interest constituted temporary equity, outside of permanent equity, in accordance with ASC 480 - 10 - S99 - 3A.

As such, we have concluded that, prior to the Business Combination, we were the primary beneficiary of Murphy Canyon as a VIE, as we had the right to receive benefits or the obligation to absorb losses of the entity, as well as the power to direct a majority of the activities that significantly impacted Murphy Canyon's economic performance.

Since we were the primary beneficiary, Murphy Canyon was consolidated into our consolidated financial statements.

See Note 9 Commitments and Contingencies for additional details regarding Murphy Canyon.

Shares Subject to Possible Redemption .

The Murphy Canyon Class A common stock is subject to ASC 480 - 10 - S99.

In addition, because it is probable that the equity instrument will become redeemable, we have the option to either (i) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or (ii) recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period.

We have elected to recognize the accretion resulting from changes in redemption value immediately during the year ended December 31, 2022. 

See Note 9  Commitments and Contingencies for additional details regarding Murphy Canyon.

In addition, because it was probable that the equity instrument will become redeemable, we had the option to either (i) accrete changes in the redemption value over the period from the date of issuance (or from the date that it became probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or (ii) recognize changes in the redemption value immediately as they occurred and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period.

We elected to recognize the accretion resulting from changes in redemption value immediately during the three months ended March 31, 2022, and every quarter since then, until September 22, 2023 as noted above.

See Note 9 Commitments and Contingencies for additional details regarding Murphy Canyon.

In accordance with the Inflation Reduction Act of 2022, the Company accrues the expected excise tax obligation at the end of each reporting period as a cost of redeeming any shares as of that date.

In connection with the vote to approve the Charter Amendment Proposal for the SPAC, holders of 11,037,272 shares of SPAC Class A Common Stock properly exercised their right to redeem their shares of Class A Common Stock for the aggregate redemption amount of $ 114,068,280 .

As such the SPAC had recorded a 1 % excise tax liability in the amount of $ 1,140,683 during January 2023.

The liability did not impact the statements of operations or statement cash flows and is an offset against additional paid in capital, to the extent available, and accumulated deficit.

On September 22, 2023, Murphy Canyon completed its business combination with Conduit Pharma and shareholders and debtholders of Conduit Pharma were issued 65,000,000 shares of Conduit common stock.

The excise tax liability recorded in connection with the January 2023 redemptions was reversed in full by the issuance of Conduit shares on September 22, 2023.

Warrant Instruments SPAC.

 The Company and Murphy Canyon account for warrants in accordance with the guidance contained in ASC 480 and FASB ASC 815, “Derivatives and Hedging”.

Under ASC 815 - 40 and ASC 840 warrants that meet the criteria for equity treatment are recorded in stockholder’s equity.

Murphy Canyon accounted for warrants in accordance with the guidance contained in ASC 480 and FASB ASC 815, “Derivatives and Hedging”.

Under ASC 815 - 40 and ASC 840 warrants that meet the criteria for equity treatment are recorded in stockholder’s equity.

The warrants are subject to re-evaluation of the proper classification and accounting treatment at each reporting period.

If the warrants no longer meet the criteria for equity treatment, they will be recorded as a liability and remeasured each period with changes recorded in the statement of operations. The warrants meet the criteria for classification as equity because they are not exercisable until after the SPAC business combination is completed, at which point the common shares are no longer redeemable and because they are indexed to Murphy Canyon's common stock and meet the other criteria for equity classification.   See Note 9  Commitments and Contingencies for additional details regarding Murphy Canyon.

Income (Loss) per Common Share.

The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net earnings per share.  For the years ended

December 31, 2022

, the basic and diluted net loss per share are equivalent at $ 0.57  and $ 0.46

 per share because the Company had incurred a net loss attributable to common stockholders causing any potentially dilutive securities to be anti-dilutive.

If the warrants no longer meet the criteria for equity treatment, they will be recorded as a liability and remeasured each period with changes recorded in the statements of operations.

The warrants meet the criteria for classification as equity because they were not exercisable until after the SPAC business combination, which occurred on September 22, 2023, at which point the common shares are no longer redeemable and because they are indexed to Murphy Canyon's common stock and meet the other criteria for equity classification.

See Note 9 Commitments and Contingencies for additional details regarding Murphy Canyon / Conduit.

Subsequent Events.

We evaluate subsequent events up until the date the condensed consolidated financial statements are issued.

We evaluate subsequent events up until the date the consolidated financial statements are issued.

Recently Issued and Adopted Accounting Pronouncements.

June 2022, the FASB issued ASU

Financial Instruments –

Credit Losses, amended

February 2020 with ASU

Financial Instruments —

Credit Losses (Topic 326 ) and Leases (Topic 842 ) . ASU

13 introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments.

13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses.

13 was effective for periods beginning after

December 15, 2019, the issuance of ASU

02 has allowed for the delay in adoption for certain smaller public companies and is now effective for fiscal periods beginning after

December 15, 2022.

Retrospective adjustments shall be applied through a cumulative-effect adjustment to retained earnings. The adoption did

not have an impact to our financial statements as this was effective

January 1, 2023.

In August 2020, the FASB issued ASU No.

2020 - 06, Debt —

Debt with Conversion and Other Options  

(Subtopic 470 - 20 ) and Derivatives and Hedging - Contracts in Entity ’

s Own Equity  

(Subtopic 815 - 40 ).

 This ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S.

Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features.

The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it.

The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas.  The amendments in ASU No.

2020 - 06 are effective for public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after 

December 15, 2020, including interim periods within those fiscal years.  The Company has adopted this guidance with no material impact on our financial statements.

In March 2020, the FASB issued Accounting Standards Update No.

2020 - 04 - 

Reference Rate Reform (Topic 848 ):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting  (“ASU 2020 - 04”

), which provides optional expedients and exceptions in order to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as it relates to contracts, hedging relationships and other transactions by allowing companies to modify contracts that previously contained LIBOR rates without evaluating whether the modification constituted a new contract.

The expedients and exceptions provided by the amendments do 

not  apply to contract modifications made and hedging relationships entered into or evaluated after 

December 31, 2022 

and are used on a prospective basis upon adoption. 

In December 2022, the FASB issued Accounting Standards Update No.

2022 - 06  - 

Reference Rate Reform (Topic 848 ):

Deferral of the Sunset Date of Topic 848  (“ASU 2022 - 06”

), which deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024 

after which entities will no longer be permitted to apply the relief in Topic 848.

  The Company adopted this guidance of ASU 2020 - 04 as of 

March 31, 2020 

no material impact to the financial statements and does not expect the update in ASU 2022 - 06 to have a material impact to our financial statements.

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to (

1 ) clarify the guidance in Topic

820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (

2 ) to amend a related illustrative example, and (

3 ) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic

The update clarifies that a contractual restriction on the sale of an equity security is

not considered part of the unit of account of the equity security and, therefore, is

not considered in measuring fair value.

It also requires the following disclosures for equity securities subject to contractual sale restrictions:

The fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet,

The nature and remaining duration of the restriction(s), and

The circumstances that could cause a lapse in the restriction(s).

For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years.

Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.

The Company has adopted this guidance during the three months ended September 30, 2023 and will apply it to fair value measurements as of September 30, 2023.

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023 - 09, Income Taxes , to enhance income tax disclosures, provide more information about tax risks and opportunities present in worldwide operations, and to disaggregate existing income tax disclosures.

The guidance is effective for annual periods beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively.

Early adoption is permitted.

We have not yet adopted ASU 2023 - 09 and are currently evaluating the impact on our financial statement disclosures.

In November 2023, FASB issued Accounting Standards Update ASU 2023 - 07, Segment Reporting , establishing improvements to reportable segments disclosures to enhance segment reporting under Topic 280.

This ASU aims to change how public entities identify and aggregate operating segments and apply quantitative thresholds to determine their reportable segments.

This ASU also requires public entities that operate as a single reportable segment to provide all segment disclosures in Topic 280, not just entity level disclosures.

The guidance will be effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 and the amendments should be applied retrospectively to all periods presented in the financial statements.

We have not yet adopted ASU 2023 - 07 and are currently evaluating the impact on our financial statement disclosures.

RECENT REAL ESTATE TRANSACTIONS

Significant Transactions in 2023 and 2022

Acquisitions during the year ended December 31, 2023:

We acquired 31  Model Home Properties and leased them back to the homebuilders under triple net leases during the year ended December 31, 2022 .

We acquired 40 Model Home Properties and leased them back to the homebuilders under triple net leases during the year ended December 31, 2023 .

The purchase price for these properties was $ 21.9 million.

The purchase price consisted of cash payments of $ 4.8 million and mortgage notes of $ 10.8 million.

The purchase price consisted of cash payments of $ 6.6 million and mortgage notes of $ 15.3 million.

Acquisitions during the year ended December 31, 2022:

On August 17, 2021, the Company, through its 61.3 % owned subsidiaries NetREIT Palm Self Storage, LP and NetREIT Highland LLC, acquired a single story newly constructed 10,500 square foot building in Houston, Texas for a purchase price of approximately $ 4.9 million, in connection with a like-kind exchange transaction pursued under Section 1031 of the Internal Revenue Code of 1986, as amended (the "Code"). 

The building is 100 % occupied under a 15 -year triple net lease and was purchased with all cash.

On December 22, 2021, the Company purchased a 31,752 square foot building in Baltimore, Maryland for a purchase price of approximately $ 8.9 million. 

The building is 100 % occupied under a 5 year triple net lease to Johns Hopkins University’s Bloomberg School of Public Health and was purchased with all cash.

We acquired 18  Model Home Properties and leased them back to the homebuilders under triple net leases during the year ended December 31, 2021 .

We acquired 31 Model Home Properties and leased them back to the homebuilders under triple net leases during the year ended December 31, 2022 .

The purchase price for the properties was $ 15.6 million.

The purchase price consisted of cash payments of $ 2.7 million and mortgage notes of $ 5.7 million.

Dispositions during the year ended December 31, 2022:

The purchase price consisted of cash payments of $ 4.8 million and mortgage notes of $ 10.8 million.

We review our portfolio of investment properties for value appreciation potential on an ongoing basis, and dispose of any properties that no longer satisfy our requirements in this regard, taking into account tax and other considerations.

The proceeds from any such property sale, after repayment of any associated mortgage or repayment of secured or unsecured indebtedness, are available for investing in properties that we believe will have a greater likelihood of future price appreciation. 

Dispositions during the year ended December 31, 2023:

During year ended December 31, 2023 , we disposed of the following properties:

World Plaza, which was sold on March 11, 2022, for approximately $ 10.0 million and the Company recognized a loss of approximately $ 0.3 million.

31 model homes for approximately $ 17.5 million and the Company recognized a gain of approximately $ 5.4 million.

22 model homes for approximately $ 11.7 million and the Company recognized a gain of approximately $ 3.2 million.

Dispositions during the year ended December 31, 2022:

During year ended 

December 31, 2021 , we disposed of the following properties:

Waterman Plaza, which was sold on January 28, 2021, for approximately $ 3.5 million and the Company recognized a loss of approximately $ 0.2 million.

Garden Gateway, which was sold on February 19, 2021, for approximately $ 11.2  million and the Company recognized a loss of approximately $ 1.4 million.

Highland Court, which was sold on May 20, 2021, for approximately $ 10.2  million and the Company recognized a loss of approximately $ 1.6 million.

Executive Office Park, which was sold on May 21, 2021, 

for approximately $ 8.1  million and the Company recognized a gain of approximately $ 2.5 million.

44 model homes for approximately $ 20.7 million and the Company recognized a gain of approximately $ 3.2 million.

 REAL ESTATE ASSETS

During year ended December 31, 2022 , we disposed of the following properties:

World Plaza, which was sold on March 11, 2022, for approximately $ 10.0 million and the Company recognized a loss of approximately $ 0.3 million.

• 31 model homes for approximately $ 17.5 million and the Company recognized a gain of approximately $ 5.4 million.

REAL ESTATE ASSETS

The Company owns a diverse portfolio of real estate assets.

The primary types of properties the Company invests in are office, industrial, retail, and triple-net leased model home properties. 

We have five commercial properties located in Colorado, four in North Dakota, 

one in Southern California, one in Texas and one in Maryland.

The primary types of properties the Company invests in are office, industrial, retail, and triple-net leased model home properties.

We have five commercial properties located in Colorado, four in North Dakota, one in Southern California, one in Texas and one in Maryland.

Our model home properties are located in three states.

As of December 31, 2023 , the Company owned or had an equity interest in:

Eight office buildings and one  industrial building (“Office/Industrial Properties”) which total approximately rentable 

756,265  square feet;

Three retail shopping centers (“Retail Properties”) which total approximately 

65,242 rentable square feet;

92 homes owned by our affiliated limited partnerships and one corporation (“Model Homes”

or “Model Home Properties”) leased back on a triple-net basis to homebuilders that are owned by 

five affiliated limited partnerships and 

one  wholly-owned corporation.

A summary of the properties owned by the Company as of December 31, 2022  and 2021  is as follows:

Eight office buildings and one industrial building (“Office/Industrial Properties”) which total approximately rentable 758,175 square feet;

Three retail shopping centers (“Retail Properties”) which total approximately 65,242 rentable square feet;

110 model homes owned by our affiliated limited partnerships and one corporation (“Model Homes” or “Model Home Properties”) leased back on a triple-net basis to homebuilders that are owned by six affiliated limited partnerships and one wholly-owned corporation.

A summary of the properties owned by the Company as of December 31, 2023 and 2022 is as follows:

Real estate assets, net

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December 31, 2022

World Plaza (1)

September 2007

San Bernardino, CA

Genesis Plaza (1)

San Diego, CA

$ 7,542,725 $ 7,995,980

Dakota Center

9,201,883 8,569,537

Grand Pacific Center (2)

8,274,454 5,228,006

Arapahoe Center

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Centennial, CO

9,341,991 8,664,604

Union Town Center

1 unchanged sentence

Colorado Springs, CO

8,918,742 9,039,039

West Fargo Industrial

6,819,765 6,893,292

2,774,176 2,899,694

Research Parkway

Colorado Springs, CO

2,266,173 2,319,588

One Park Center (3)

Westminster, CO

5,700,000 7,991,809

Shea Center II (4)

1 unchanged sentence

Highlands Ranch, CO

19,367,289 19,501,998

4,692,274 4,783,985

December 2021

Baltimore, MD

8,466,165 8,690,874

Presidio Property Trust, Inc.

93,365,637 92,578,406

Model Home properties (6)

AZ, FL, IL, TX, WI

50,790,147 37,933,824

Total real estate assets and lease intangibles, net

This property was sold during the year ended December 31, 2022 .

$ 144,155,784 $ 130,512,230

( 1 ) Genesis Plaza is owned by two tenants-in-common, each of which own 57 % and 43 %, respectively, and we beneficially own an aggregate of 76.4 %, based on our ownership percentages of each tenant-in-common.

( 2 ) Grand Pacific Center, Bismarck, ND, was removed from held for sale after signing a major lease with KLJ Engineering on December 7, 2022 for approximately 33,296 usable square feet, a term of 122 months, and starting annualized rent of $ 532,736 .

KLJ Engineering moved into the building during December 2023, with rent commencing on February 28, 2024.

( 3 ) During the year ended December 31, 2023 , we recorded a $ 2.0 million impairment charge for One Park Center that reflects management’s revised estimate of the fair market value based on sales comparable of like property in the same geographical area as well as an evaluation of future cash flows or an executed purchase sale agreement.

( 4 ) On December 31, 2022, the lease for our largest tenant, Halliburton, expired.

Halliburton was located in our Shea Center II property in Colorado, and made up approximately 536,080 of our annual base rent.

Halliburton did not renew the lease and we placed approximately $ 1.1 million in a reserve account with our lender to cover future mortgage payments, if necessary, none of which has been used as of December 31, 2023.

Our management team is working to fill the 45,535 square foot space and has leased approximately 20% of the space to a tenant during 2023 and has reviewed various proposals for the remaining 80%.

As of December 31, 2023, none of the third party proposals have fit into our long-term plans.

We will continue to work on filling the space during 2024.

( 5 ) A portion of the proceeds from the sale of Highland Court were used in like-kind exchange transactions pursued under Section 1031 of the Code for the acquisition of our Mandolin property.

Mandolin is owned by NetREIT Palm Self-Storage LP, through its wholly owned subsidiary NetREIT Highland LLC, and the Company is the sole general partner and owns 61.3 % of NetREIT Palm Self-Storage LP.

Includes six  Model Homes listed as held for sale as of December 31, 2022 .

On December 31, 2022, the lease for our largest tenant, Halliburton Energy Services, Inc., expired. 

Halliburton Energy Services, Inc.

was located in our Shea Center II property in Colorado, and made up approximately 8.57 % of our annual base rent. 

The tenant did not  renew the lease and we placed approximately $ 1.1 million in a reserve account with our lender to cover future mortgage payments, if necessary. 

Our management team is working to fill the 45,535 square foot space as quickly as possible, and has already leased approximately 20% of the space to a tenant during 

January 2023.

Grand Pacific Center, Bismarck, ND, was removed from held for sale after signing a major lease with KLJ Engineering on December 7, 2022 for approximately 33,296 usable square feet, a term of 122 months, starting annualized rent of $ 532,736 , and a commencement date estimated to be between November 1, 2023 and March 1, 2024.

( 6 ) Includes Model Homes listed as held for sale as of December 31, 2023 .

During the year ended December 31, 2023 we recorded a $ 0.4 million impairment charge for eight model homes that reflects the estimated sales prices for these specific model homes in 2024 as a result of an abnormally short hold period, less than two years, on model homes purchased in 2022, where the builder changed their product type in these neighborhoods after we had purchased the homes.

LEASE INTANGIBLES

9 unchanged sentences

In-place leases

$ 2,515,264  

$ ( 2,485,234 )  

$ 30,030  

$ 2,515,264  

$ ( 2,353,782 )  

$ 161,482  

$ 2,515,264 $ ( 2,495,016 ) $ 20,248 $ 2,515,264 $ ( 2,485,234 ) $ 30,030

Leasing costs

1,261,390  

( 1,236,591 )  

24,799  

1,261,390  

( 1,165,701 )  

95,689  

1,261,390 ( 1,244,335 ) 17,055 1,261,390 ( 1,236,591 ) 24,799

Above-market leases

333,485  

( 333,485 )  

333,485  

( 333,485 )  

$ 4,110,139  

$ ( 4,055,310 )  

$ 54,829  

$ 4,110,139  

$ ( 3,852,968 )  

$ 257,171  

December 31, 2022  and 2021 , there were no gross lease intangible assets and accumulated amortization related to the lease intangible assets included in real estate assets held for sale.

The net value of acquired intangible liabilities was approximately $ 18,240 and $ 73,130 relating to below-market leases at 

December 31, 2022  and 

December 31, 2021, respectively.

333,485 ( 333,485 ) — 333,485 ( 333,485 ) —

$ 4,110,139 $ ( 4,072,836 ) $ 37,303 $ 4,110,139 $ ( 4,055,310 ) $ 54,829

At December 31, 2023 and 2022 , there were no gross lease intangible assets and accumulated amortization related to the lease intangible assets included in real estate assets held for sale.

The net value of acquired intangible liabilities was approximately $ 13,266 and $ 18,240 relating to below-market leases at December 31, 2023 and December 31, 2022 , respectively.

Future aggregate approximate amortization expense for the Company's lease intangible assets is as follows:

$ 17,526  

17,526  

15,670  

$ 54,829  

Other assets consist of the following:

Deferred rent receivable

Prepaid expenses, deposits and other

Investment in marketable securities

$ 1,973,887 $ 1,641,831

Accounts receivable, net

Right-of-use assets, net

Other intangibles, net

694,869 67,780

Prepaid expenses, deposits and other

349,160 619,621

Notes receivable

316,374 316,374

Investment in marketable securities (not including Conduit)

45,149 797,749

Right-of-use assets, net

15,649 45,843

Deferred offering costs

Other intangibles, net

Total other assets

Periodically, the Company may sell an option in the marketable securities it holds to unrelated third parties for the right to purchase certain securities held within its investment portfolios (“covered call options”).

$ 3,400,088 $ 3,511,681

These option transactions are designed primarily to increase the total return associated with holding the related securities as earning assets by using fee income generated from these options.

These transactions are not designated as hedging relationships pursuant to accounting guidance ASC 815 and, accordingly, changes in fair values of these contracts, are reported in other income (expense). 

There are several risks associated with transactions in options on securities.

1 unchanged sentence

A transaction in options or securities may be unsuccessful to some degree because of market behavior or unexpected events.

When we write a covered call option, we forgo, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retain the risk of loss should the price of the underlying security decline.

The writer of an option has no control over the time when it may be required to fulfill its obligation before the sold option expires, and once an option writer has received an exercise notice, it must deliver the underlying security in exchange for the strike price.

As of December 31, 2022 , we owned common shares of 18  different publicly traded REITs and an immaterial amount of covered call options in three  of those same REITs. 

The gross fair market value on our publicly traded REIT securities was $ 798,206 , with covered call options totaling $ 457 . 

As of December 31, 2022 , the net fair value of our publicly traded REIT securities was $ 797,749  based on the December 31, 2022 closing price. 

As of December 31, 2021 , we owned common shares and options of 19  different publicly traded REITs and an immaterial amount of covered call options in 

ten of those same REITs. 

The gross fair market value on our publicly traded REIT securities was $ 1,529,185 , with covered call options totaling $ 14,702 . 

As of December 31, 2021 , the net fair value of our publicly traded REIT securities was $ 1,514,483  based on the 

December 31, 2021  closing price.

 MORTGAGE NOTES PAYABLE

As of December 31, 2023 , we owned common shares of 3 different publicly traded REITs and no written covered call options in any of those same REITs.

The fair market value on our publicly traded REIT securities was $ 45,149 , based on the December 31, 2023 closing prices.

As of December 31, 2022 , we owned common shares and options of 18 different publicly traded REITs and an immaterial amount of covered call options in three of those same REITs.

The gross fair market value on our publicly traded REIT securities was $ 798,206 , with covered call options totaling $ 457 .

As of December 31, 2022 , the net fair value of our publicly traded REIT securities was $ 797,749 based on the December 31, 2022 closing prices.

MORTGAGE NOTES PAYABLE

Mortgage notes payable consist of the following:

2 unchanged sentences

Dakota Center (2)

9,197,346 9,442,976 Fixed

4.74 % 7/6/2024

Research Parkway

1,588,742 1,648,237 Fixed

3.94 % 1/5/2025

Arapahoe Service Center

7,426,088 7,602,273 Fixed

4.34 % 1/5/2025

Union Town Center

7,870,468 8,025,300 Fixed

4.28 % 1/5/2025

One Park Centre

6,043,882 6,163,177 Fixed

4.77 % 9/5/2025

Genesis Plaza

5,937,251 6,055,682 Fixed

4.71 % 9/6/2025

Shea Center II

16,951,095 17,229,573 Fixed

4.92 % 1/5/2026

West Fargo Industrial (3)

3,922,829 4,030,297 Fixed

6.70 % 8/5/2029

Grand Pacific Center (4)

5,470,305 3,496,330 Fixed

6.35 % 5/5/2033

5,670,000 5,670,000 Fixed

4.67 % 4/6/2032

3,573,201 3,635,362 Fixed

4.35 % 4/20/2029

Subtotal, Presidio Property Trust, Inc.

$ 73,651,207 $ 72,999,207

Model Home mortgage notes (5)

34,815,699 24,752,448 Fixed

Mortgage Notes Payable

$ 108,466,906 $ 97,751,655

Unamortized loan costs

( 753,633 ) ( 852,956 )

Mortgage Notes Payable, net

$ 107,713,273 $ 96,898,699

Interest rates as of December 31, 2023 .

The mortgage note payable for 300 N.P. is an amortizing loan with a balloon payment of $ 2.2 million due at maturity, on June 11, 2022.  

The Company paid this note in full on May 11, 2022 with available cash on hand.  

Interest rate is subject to possible reset on September 1, 2023.  

The lender may, upon not less than sixty ( 60 ) days prior written notice to the Company, increase the interest rate effective on September 1, 2023 and September 1, 2030 to the rate then being quoted by the Lender for new seven -year commercial mortgage loans of similar size and quality with like terms and security (provided that in no event shall the new rate be less than the initial rate).

As of December 31, 2022, there were six  model homes included as real estate assets held for sale.

Our model homes have stand-alone mortgage notes at interest rates ranging from 2.50 % to 6.70 % per annum as of 

December 31, 2022 .

The lender may, upon not less than sixty ( 60 ) days prior written notice to the Company, increase the interest rate effective on the August 5, 2023 and August 5, 2026, to the rate then being quoted by the lender for new three -year commercial mortgage loans of similar size and quality with like terms and security (provided that in no event shall the new rate be less than the initial rate).

The Company is in compliance with all material conditions and covenants of its mortgage notes payable.

( 2 ) The loan on Dakota Center matures in July 2024 and Management has reached out to the lender seeking an extension and additional provision to change the terms of the loan and maturity date.

We have also inquired with other lenders to refinance the property.

If we are unsuccessful in refinancing the property or changing the terms of the original loan, Management would consider selling the property and paying the loan in full or surrendering the property to the current lender.

( 3 ) On August 5, 2023, the lender increased the interest rate to 6.70 %.

The loan agreement states that the lender may, upon not less than sixty ( 60 ) days prior, give written notice to the Company to increase the interest rate effective on August 5, 2023, and August 5, 2026, to the rate then being quoted by the lender for new three -year commercial mortgage loans of similar size and quality with like terms and security (provided that in no event shall the new rate be less than the initial rate).

( 4 ) On May 5, 2023, the Company, through its subsidiary, refinanced the mortgage loan on our Grand Pacific Center property and entered into a construction loan related to the tenant improvement associated with the KLJ Engineering LLC lease to occupy 33,296 square feet of the building.

The refinanced loan is for approximately $ 3.8 million, a term of 10 years, with an interest rate of 6.35 %, for the first 60 months.

The interest rate is subject to reset in year five.

The construction loan is for approximately $ 2.7 million, a term of 10 years, and will begin amortizing in year three, with an interest rate of 6.35 %, for the first 60 months.

The interest rate is subject to reset in year five.

As of December 31, 2023 , we had drawn down approximately $ 1.7 million on the construction loan.

( 5 ) As of December 31, 2023 , there were 15 model homes included as real estate assets held for sale.

Our model homes have stand-alone mortgage notes at interest rates ranging from 2.68 % to 7.12 % per annum as of December 31, 2023 .

( 6 ) These mortgage loans mature within the next twelve months and management is reviewing various options for the loan maturity, including but not limited to refinancing, restructuring and or selling these properties.

As we get closer to the loan maturity date the Company will finalize our plans.

The loan agreement between NetREIT Model, Homes, Inc.

(“NRMH”) and their Lender has a covenant for a Fixed Charge Coverage Ratio, (“FCCR”) as defined for NRMH as of any date (a) the sum of (i) EBITDA for the period ended as of such date minus (ii) Distributions for the period ended as of such date divided by (b) the sum of (ii) Principal Payments Paid for the period ended as of such date plus (iii) Interest Expense for period ended as of such date.

The FCCR is to be no less than 1.10 to 1.00, tested at the end of each fiscal quarter.

As of December 31, 2023 , NRMH was in compliance with this covenant.

The Company and stand along subsidiaries have other various quarterly and annual reporting requirements to the individual property lenders and is in compliance with all material conditions and covenants on those mortgage notes payable as of December 31, 2023 .

Scheduled principal payments of mortgage notes payable were as follows as of December 31, 2023 :

4 unchanged sentences

Notes Payable

$ 10,403,266 $ 13,088,440 $ 23,491,706

28,772,504 10,404,945 39,177,449

16,648,942 300,081 16,949,023

294,780 300,081 594,861

310,560 8,330,316 8,640,876

17,221,155 2,391,836 19,612,991

$ 73,651,207 $ 34,815,699 $ 108,466,906

NOTES PAYABLE

On April 22, 2020, the Company received an Economic Injury Disaster Loan of $ 10,000 from the Small Business Administration ("SBA") to provide economic relief during the COVID- 19 pandemic.

This loan advance is not required to be repaid, has no stipulations on use, and has been recorded as fees and other income in the condensed consolidated statements of operations during fiscal 2020.

August 17, 2020, we received an additional Economic Injury Disaster Loan ("EIDL") of $ 150,000 , for which principal and interest payments are deferred for twelve months from the date of issuance, and interest accrues at 3.75% per year.

The loan matures on August 17, 2050. 

We have used the funds for general corporate purposes to alleviate economic injury caused by the COVID- 19 pandemic, which economic injury included abating or deferring rent to certain tenants (primarily retail tenants).

As of December 31, 2022, we have issued six promissory notes to our majority owned subsidiaries, Dubose Model Home Investors 202 LP and Dubose Model Home Investors 204 LP, for the refinancing of six model home properties in Texas and Wisconsin, for approximately $ 1.36  million with interest rates ranging from 

3.0 % to 5.76 % per annum. 

These loans were issued between September 3, 2021 through December 15, 2022, with terms of 12 months, and are fully eliminated in consolidation.

On August 17, 2021, we issued a promissory note to our majority owned subsidiary, NetREIT Highland, for the acquisition of the Mandolin property in Houston, Texas, for $ 1.56 million with an interest rate of 4.0 % per annum and a maturity date of August 17, 2022. 

This note payable and note receivable, including interest expe nse and interest income related to this promissory note, were eliminated through consolidation on our financial statements. 

This loan advance is not required to be repaid, has no stipulations on use, and has been recorded as fees and other income in the consolidated statements of operations during fiscal 2020.

On August 17, 2020, we received an additional Economic Injury Disaster Loan ("EIDL") of $ 150,000 , for which principal and interest payments are deferred for twelve months from the date of issuance, and interest accrues at 3.75% per year.

The loan matures on August 17, 2050.

We have used the funds for general corporate purposes to alleviate economic injury caused by the COVID- 19 pandemic, which economic injury included abating or deferring rent to certain tenants (primarily retail tenants).

As of December 31, 2023, we had issued two promissory notes to our majority owned subsidiaries, Dubose Model Home Investors 202 LP and Dubose Model Home Investors 204 LP, for the refinancing of two model home properties in Texas and Wisconsin, for approximately $ 0.5 million with interest rates ranging from 3.0 % to 5.55 % per annum and maturity dates between August 2024 and November 2025.

These notes payable and notes receivable, including interest expense and interest income related to these promissory notes, are eliminated through consolidation on our financial statements.

On August 17, 2021, we issued a promissory note to our majority owned subsidiary, NetREIT Highland, for the acquisition of the Mandolin property in Houston, Texas, for $ 1.56 million with an interest rate of 4.0 % per annum and a maturity date of August 17, 2022.

This note payable and note receivable, including interest expe nse and interest income related to this promissory note, were eliminated through consolidation on our financial statements.

During April 2022, this loan was refinanced with a loan from a third -party bank totaling $ 3.7 million, with the proceeds being used to pay back our $ 1.56 million promissory note.

On December 20, 2021, we issued a promissory note to our majority owned subsidiary, PPT Baltimore, for the acquisition of the Baltim ore property in Baltimore, Maryland, for $ 5.65 million with an interest rate of 4.5 % per annum and a maturity date of December 20, 2022. 

This note payable and note receivable, including interest expense and interest income related to this promissory note, were eliminated through consolidation on our financial statements.  During March 2022, this loan was refinanced with a loan from a third -party lender totaling $ 5.67  million, with the proceeds being used to pay back our $ 5.65 million promissory note.

 COMMITMENTS AND CONTINGENCIES

On December 20, 2021, we issued a promissory note to our majority owned subsidiary, PPT Baltimore, for the acquisition of the Baltim ore property in Baltimore, Maryland, for $ 5.65 million with an interest rate of 4.5 % per annum and a maturity date of December 20, 2022.

This note payable and note receivable, including interest expense and interest income related to this promissory note, were eliminated through consolidation on our financial statements.

During March 2022, this loan was refinanced with a loan from a third -party lender totaling $ 5.67 million, with the proceeds being used to pay back our $ 5.65 million promissory note.

COMMITMENTS AND CONTINGENCIES

The Company is obligated under certain tenant leases to fund tenant improvements and the expansion of the underlying leased properties.

From time to time, we may become involved in various lawsuits or legal proceedings which arise in the ordinary course of business. Neither the Company nor any of the Company’s properties are presently subject to any material litigation nor, to the Company’s knowledge, is there any material threatened litigation.

As of December 31, 2023 , approximately $ 1.2 million is estimated for such capital expenditures on existing properties, net of any construction financing, during the rest of 2024.

On March 13, 2024, a stockholder announced that it intends to file a preliminary proxy statement and accompanying WHITE universal proxy card with the Securities and Exchange Commission to be used to solicit votes for the election of director nominees at our next annual meeting of stockholders.

Activist stockholder activities could adversely affect our business because responding to proxy contests and reacting to other actions by activist stockholders can be costly and time-consuming, disrupt our operations and divert the attention of management and our employees.

We have or in the future may retain the services of various professionals to advise us on activist stockholder matters, including legal, financial, strategic and communication advisors, the costs of which may negatively impact our future financial results.

In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist stockholders’ initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, business partners, and employees, and cause our stock price to experience periods of volatility or stagnation.

We have evaluated this contingency and have determined a material loss is not probable or estimable at this time.

The Company and the Board of Directors will review all legal means necessary to defend the company from actions by activist stockholders.

From time to time, we may become involved in various lawsuits or legal proceedings which arise in the ordinary course of business.

Neither the Company nor any of the Company’s properties are presently subject to any material litigation nor, to the Company’s knowledge, is there any material threatened litigation.

Environmental Matters.

The Company monitors its properties for the presence of hazardous or toxic substances.

While there can be no assurance that a material environmental liability does not exist, the Company is not currently aware of any environ mental liability with respect to the properties that would have a material effect on the Company’s financial condition, results of operations and cash flow.

Further, the Company is not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that the Company believes would require additional disclosure or recording of a loss contingency.

Financial Markets.  

The Company monitors concerns over economic recession, the COVID- 19 pandemic, interest rate increases, policy priorities of the U.S.

presidential administration, trade wars, labor shortages, and inflation, any of which 

may contribute to increased volatility and diminished expectations for the economy and markets.

Additionally, concern over geopolitical issues may also contribute to prolonged market volatility and instability.

For example, the conflict between Russia and Ukraine could lead to disruption, instability and volatility in global markets and industries.

government and other governments in jurisdictions have imposed severe economic sanctions and export controls against Russia and Russian interests, have removed Russia from the SWIFT system, and have threatened additional sanctions and controls.

The impact of these measures, as well as potential responses to them by Russia, is unknown.

presidential administration, trade wars, labor shortages, and inflation, any of which may contribute to increased volatility and diminished expectations for the economy and markets.

Additionally, the economic and geopolitical ramifications of the military conflicts in the Middle East and Ukraine, including sanctions, retaliatory sanctions, nationalism, supply chain disruptions and other consequences, could impact commercial real estate fundamentals and result in lower occupancy, lower rental rates, and declining values in our real estate portfolio and in the collateral securing our loan investments.

We have not currently experienced a direct material impact to our Company or operations;

however, we will continue to monitor the financial markets for events that could impact our commercial real estate properties.

Sponsorship of Special Purpose Acquisition Company . On January 7, 2022, we announced our sponsorship, through our wholly-owned subsidiary, Murphy Canyon Acquisition Sponsor, LLC (the “Sponsor”), of a special purpose acquisition company (“SPAC”) initial public offering.

The registration statement and prospectus relating to the initial public offering (“IPO”) of the SPAC, Murphy Canyon Acquisition Corp.

(“M urphy Canyon”), was declared effective by the Securities and Exchange Commission (the “SEC”) on February 2, 2022 and SPAC units, consisting of one share of Class A common stock, par value $ 0.0001 per share, of Murphy Canyon and one redeemable warrant, with each whole warrant entitling the holder thereof to purchase one share of common stock at a price of $ 11.50 per share, began trading on the Nasdaq Global Market on February 3, 2022.

The Murphy Canyon IPO closed on February 7, 2022, raising gross proceeds for Murphy Canyon of $ 132,250,000 , including the exercise in full by the underwriters of their over-allotment option.

In connection with the IPO, we purchased, through the Sponsor, 754,000 placement units (the “placement units”) at a price of $ 10.00 per unit, for an aggregate purchase price of $ 7,540,000 . 

The Sponsor has agreed to transfer an aggregate of 45,000  placement units ( 15,000 each) to each of Murphy Canyon’s independent directors.  In connection with the initial public offering, Murphy Canyon incurred $ 7,738,161 in issuance costs, including $ 2,645,000 of underwriting discounts and commission, $ 4,628,750 of deferred underwriting fees and $ 464,411 of other offering costs. 

These costs were allocated to temporary and permanent equity and offset against the proceeds.

We, through our wholly-owned subsidiary, owned approximately 23.5 % of the issued and outstanding stock in the entity upon the initial public offering being declared effective and consummated (excluding the private placement units described below). Following the completion of its initial public offering, the SPAC has operated as a separately managed, publicly traded entity.

The SPAC offered 132,250,000 units, with each unit consisting of one share of common stock and three -quarters of one redeemable warrant. 

The warrants were evaluated using the guidance in ASC 480 "Distinguishing Liabilities from Equity" and we concluded that the warrants are indexed to Murphy Canyon's common stock and meet the criteria to be classified in stockholders' equity.

On November 8, 2022, the SPAC entered into an agreement and plan of merger with Conduit Pharmaceuticals Limited, a Cayman Islands exempted company (“Conduit”), and Conduit Merger Sub, Inc., a Cayman Islands exempted company and the SPAC’s wholly owned subsidiary.

If the merger agreement is approved by the SPAC’s stockholders and the transactions under the merger agreement  are consummated, the SPAC’s Cayman Island subsidiary will merge with and into Conduit, with Conduit surviving the merger as the SPAC’s wholly owned subsidiary.

Pursuant to the merger agreement, the outstanding ordinary shares (including the shares issued upon conversion of all outstanding convertible debt, which conversion shall have occurred prior to the consummation of the merger) of Conduit will be converted into an aggregate of 65,000,000 shares of the SPAC’s newly issued common stock, with each such outstanding Conduit ordinary share (including the ordinary shares issued upon conversion of all outstanding convertible debt, which conversion shall have occurred prior to the consummation of the merger) converted into newly issued shares of the SPAC’s common stock on a pro rata basis.

Initially, the SPAC was required to complete its initial business combination transaction by 12 months from the consummation of its initial public offering or up to 18 months if it extended the period of time to consummate a business combination in accordance with its Certificate of Incorporation. 

On January 26, 2023, at a special meeting of the stockholders, the stockholders approved a proposal to amend the SPAC’s certificate of incorporation to extend the date by which it has to consummate a business combination up to 12 times, each such extension for an additional one month period, from February 7, 2023, to February 7, 2024.  

The stockholders also approved a related proposal to amend the trust agreement allowing the SPAC to deposit into the trust account, for each one -month extension, one - third of 1% of the funds remaining in the trust account following the redemptions made in connection with the approval of the extension proposal at the special meeting.  The Company has committed to provide additional funds if needed to make such a deposit for the extension.

In connection with the stockholders’

vote at the special meeting, 11,037,272 shares of common stock were tendered for redemption, which were redeemed in February 2023.

After the redemptions, there were 2,187,728 shares SPAC Class A common stock subject to possible redemption.

On March 3, 2023 we loaned Murphy Canyon $ 300,000 to fund its trust account and for operating expenses, and may lend up to $ 1.5 million in total. 

 The loan is non-interest bearing, unsecured and will be repayable in full upon the earlier of (i) the date on which the SPAC consummates its initial business combination and (ii) the date that its winding up is effective.

 STOCKHOLDERS’

EQUITY  

Preferred Stock. 

The Company is authorized to issue up to 1,000,000 shares of Preferred Stock (the “Preferred Stock”).

The Preferred Stock may be issued from time to time in one or more series.  The Board of Directors is authorized to fix the number of shares of any series of the Preferred Stock, to determine the designation of any such series, and to set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each series of Preferred Stock.

On June 15, 2021, the Company completed its secondary offering of 800,000 shares of our Series D Preferred Stock for cash consideration of $ 25.00 per share to a syndicate of underwriters led by Benchmark, as representative, resulting in approximately $ 18.1  million in net proceeds, after deducting the underwriting discounts and commissions and the offering expenses paid by the Company.

The Series D Preferred Stock is listed for trading on The Nasdaq Capital Market under the symbol SQFTP.   The Company has used these proceeds for general corporate and working capital purposes, including acquiring additional properties. 

Sponsorship of Special Purpose Acquisition Company .

On January 7, 2022, we announced our sponsorship, through our wholly-owned subsidiary, Murphy Canyon Acquisition Sponsor, LLC (the “Sponsor”), of a special purpose acquisition company (“SPAC”) initial public offering.

The SPAC raised $ 132,250,000 in capital investment to acquire one or more businesses.

The SPAC offered 132,250,000 units, with each unit consisting of one share of common stock and three -quarters of one redeemable warrant.

The warrants were evaluated using the guidance in ASC 480 "Distinguishing Liabilities from Equity" and we concluded that the warrants are indexed to Murphy Canyon's common stock and meet the criteria to be classified in stockholders' equity.

The Murphy Canyon IPO of 13,225,000 units of common stock and warrants, closed on February 7, 2022, raising gross proceeds for Murphy Canyon of $ 132,250,000 , including the exercise in full by the underwriters of their over-allotment option.

In connection with the IPO, we purchased, through the Sponsor, 754,000 placement units (the “placement units”) at a price of $ 10.00 per unit, for an aggregate purchase price of $ 7,540,000 .

These proceeds were deposited in a trust account established for the benefit of the Murphy Canyon public shareholders and are included in Investments held in Trust.

In connection with the initial public offering, Murphy Canyon incurred $ 7,738,161 in issuance costs, including $ 2,645,000 of underwriting discounts and commission, $ 4,628,750 of deferred underwriting fees and $ 464,411 of other offering costs.

These costs were allocated to temporary and permanent equity and offset against the proceeds.

On November 8, 2022, the SPAC entered into an agreement and plan of merger with Conduit Pharmaceuticals Limited, a Cayman Islands exempted company (“Conduit Pharma”), and Conduit Merger Sub, Inc., a Cayman Islands exempted company and the SPAC’s wholly owned subsidiary.

The merger agreement provided that the SPAC’s Cayman Island subsidiary will merge with and into Conduit Pharma, with Conduit Pharma surviving the merger as the SPAC’s wholly owned subsidiary and the public company renamed “Conduit Pharmaceuticals Inc.” (“Conduit”).

On January 26, 2023, at a special meeting of the stockholders, the stockholders approved a proposal to amend the SPAC’s certificate of incorporation to extend the date by which it has to consummate a business combination up to 12 times, each such extension for an additional one -month period, from February 7, 2023, to February 7, 2024.

The stockholders also approved a related proposal to amend the trust agreement allowing the SPAC to deposit into the trust account, for each one -month extension, one - third of 1% of the funds remaining in the trust account following the redemptions made in connection with the approval of the extension proposal at the special meeting.

The Company has committed to providing additional funds if needed to make such a deposit for the extension.

In connection with the stockholders’ vote at the special meeting, 11,037,272 shares of common stock were tendered for redemption, which were redeemed in February 2023.

Approximately $ 114.1 million in cash was removed from the Trust Account to pay such stockholders and, accordingly, after giving effect to such redemptions, income tax withdraws of $ 200,050 and adding $ 155,403 in extension payments, the balance in the Trust Account was approximately $ 23.3 million.

After the redemptions, there were 2,187,728 shares of SPAC Class A common stock subject to possible redemption.

On January 27, 2023, the merger agreement was amended to provide for only one class of authorized common stock of the SPAC following the business combination, instead of both authorized Class A common stock and Class B common stock as set forth in the original merger agreement.

On May 11, 2023 the merger agreement was further amended to provide for (i) removal of the provision that indicates that no tax opinion would be delivered in connection with the closing, (ii) a closing obligation that that the SPAC either (a) be exempt from the provisions of Rule 419 promulgated under the Securities Act of 1933, as amended other than through its net tangible assets or (b) have at least $ 5,000,001 of net tangible assets either immediately prior to or upon consummation of the merger, and (iii) extension of the outside date for the closing of the merger from May 31, 2023, to February 7, 2024.

The investments held in Trust for the SPAC Class A common stockholders generated approximately $ 1.2 million of income during the nine months ended September 30, 2023, and was included in interest and other income (expense), net on our consolidated statement of operations.

During the nine months ended September 30, 2022, the trust investment generated approximately $ 0.8 million of income.

Although the Trust held approximately $ 135.1 million as of September 30, 2022, income generated from the interest on the funds was much less for the first nine months of that year, with an annual expected yield of 0.97 %.

Also, the deposits were first added to the Trust in February 2022, so the account was not earning interest for all the nine months ended September 30, 2022.

As of September 22, 2023, the Trust account balance had been deconsolidated along with the other Conduit assets and liabilities.

As of immediately prior to the consummation of the SPAC's business combination, which occurred on September 22, 2023, the Company, through its subsidiary, had loaned the SPAC $ 1.0 million to fund its trust account and for operating expenses.

The loan was non-interest bearing, unsecured and was repaid in full upon the SPAC's business combination on September 22, 2023.

This notes payable and notes receivable related to the SPAC were eliminated through consolidation on our financial statements.

On September 22, 2023, the SPAC completed its business combination with Conduit Pharma and changed its name to Conduit Pharmaceuticals Inc.

Immediately prior to the business combination the Company owned approximately 65 % of the SPAC’s outstanding common stock.

Upon consummation of the business combination, the SPAC’s shares of Class B common stock were converted into shares of its Class A common stock and the shares of Class A common stock were then reclassified as a single class of Conduit common stock.

As a result of the business combination, the Company was issued (i) 3,306,250 shares of Conduit’s common stock due to the conversion of the shares of the SPAC’s Class B common stock into shares of the SPAC’s Class A common stock and then reclassification into shares of Conduit common stock, (ii) 754,000 shares of Conduit common stock, which prior to the business combination were shares of the SPAC’s Class A common stock and (iii) private warrants to purchase 754,000 shares of Conduit common stock, which prior to the business combination were warrants to purchase 754,000 shares of the SPAC’s Class A common stock.

Also in the business combination, shareholders and debtholders of Conduit Pharma were issued 65,000,000 shares of Conduit common stock.

Immediately following the consummation of the business combination, the Company transferred 45,000 shares of Conduit common stock and warrants to purchase 45,000 shares of Conduit common stock to the SPAC’s independent directors as compensation for their services.

As a result, the Company owned approximately 6.5 % of Conduit’s common stock immediately following the business combination and currently owns approximately 6.3 % of Conduit’s common stock.

In connection with the business combination, the Company’s officers and directors who also served as officers and directors of the SPAC resigned from the SPAC, with the exception of the Company’s former Chief Financial Officer who resigned from the Company.

Following the completion of the Murphy Canyon IPO in February 2022, we determined that Murphy Canyon is a Variable Interest Entity ("VIE") in which we had a variable interest because Murphy Canyon did not have enough equity at risk to finance its activities without additional subordinated financial support.

Since the business combinations with Conduit on September 22, 2023, we have determined that Conduit’s (formally Murphy Canyon) public stockholders have substantive rights and we no longer have control of Conduit’s activity.

Since we are no longer the controlling party, or have a majority of the issued and outstating common stock, the Company deconsolidated Conduit from our consolidated financial statements.

In connection with the deconsolidation we recorded a gain of approximately $ 40.3 million.

Of the total gain recognized on deconsolidation, approximately $ 34.1 million relates to the remeasurement of our retained investment in Murphy Canyon via the Sponsor shares which converted into shares of Conduit's common stock on September 22, 2023, and approximately $ 6.2 million relates to the deconsolidation of Murphy Canyon's assets and liabilities as of September 22, 2023.

Since deconsolidating Conduit, on September 22, 2023, our investments in Conduit's common stock and common stock warrants presented on the consolidated balance sheets were measured at fair value using Level 1 market prices, taking into account the adoption of ASU 2022 - 03 Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , and totaled approximately $ 18.3 million as of December 31, 2023 , with a cost basis of approximately $ 7.5 million.

The Company entered into a lock-up agreement with Conduit regarding the common stock held by the Company, for 180 days from the closing of the business combination which ended on March 20, 2024.

STOCKHOLDERS’ EQUITY

Preferred Stock.

The Company is authorized to issue up to 1,000,000 shares of Preferred Stock (the “Preferred Stock”).

The Preferred Stock may be issued from time to time in one or more series.

The Board of Directors is authorized to fix the number of shares of any series of the Preferred Stock, to determine the designation of any such series, and to set the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each series of Preferred Stock.

On June 15, 2021, the Company completed its secondary offering of 800,000 shares of our Series D Preferred Stock for cash consideration of $ 25.00 per share to a syndicate of underwriters led by Benchmark, as representative, resulting in approximately $ 18.1 million in net proceeds, after deducting the underwriting discounts and commissions and the offering expenses paid by the Company.

The Company granted the underwriters a 45 -day option to purchase up to an additional 120,000 shares of Series D Preferred Stock to cover over-allotments, which they exercised on June 17, 2021, resulting in approximately $ 2.7 million in net proceeds, after deducting the underwriting discounts and commissions and the offering expenses paid by the Company.

The Series D Preferred Stock is listed for trading on The Nasdaq Capital Market under the symbol SQFTP.

The Company has used these proceeds for general corporate and working capital purposes, including acquiring additional properties.

Below are some of the key terms of the Series D Preferred Stock:

Holders of shares of the Series D Preferred Stock are entitled to receive cumulative cash dividends at a rate of 9.375 % per annum of the $ 25.00 per share liquidation preference (equivalent to $ 2.34375 per annum per share).

Dividends will be payable monthly on the 15th day of each month (each, a “Dividend Payment Date”), provided that if any Dividend Payment Date is not a business day, then the dividend that would otherwise have been payable on that Dividend Payment Date may be paid on the next succeeding business day without adjustment in the amount of the dividend.

Voting Rights:

Holders of shares of the Series D Preferred Stock will generally have no voting rights.

However, if the Company does not pay dividends on the Series D Preferred Stock for eighteen or more monthly dividend periods (whether or not consecutive), the holders of the Series D Preferred Stock (voting separately as a class with the holders of all other classes or series of the Company’s preferred stock it may issue upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series D Preferred Stock in the election referred to below) will be entitled to vote for the election of two additional directors to serve on the Company’s  Board of Directors until the Company pays, or declares and sets apart funds for the payment of, all dividends that it owes on the Series D Preferred Stock, subject to certain limitations.

In addition, the affirmative vote of the holders of at least two -thirds of the outstanding shares of Series D Preferred Stock (voting together as a class with all other series of parity preferred stock the Company may issue upon which like voting rights have been conferred and are exercisable) is required at any time for the Company to (i) authorize or issue any class or series of its stock ranking senior to the Series D Preferred Stock with respect to the payment of dividends or the distribution of assets on liquidation, dissolution or winding up or (ii) to amend any provision of the Company charter so as to materially and adversely affect any rights of the Series D Preferred Stock or to take certain other actions. 

However, if the Company does not pay dividends on the Series D Preferred Stock for eighteen or more monthly dividend periods (whether or not consecutive), the holders of the Series D Preferred Stock (voting separately as a class with the holders of all other classes or series of the Company’s preferred stock it may issue upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series D Preferred Stock in the election referred to below) will be entitled to vote for the election of two additional directors to serve on the Company’s Board of Directors until the Company pays, or declares and sets apart funds for the payment of, all dividends that it owes on the Series D Preferred Stock, subject to certain limitations.

Liquidation Preference :

In the event of the Company’s voluntary or involuntary liquidation, dissolution or winding up, the holders of shares of Series D Preferred Stock will be entitled to be paid out of the assets the Company has legally available for distribution to its stockholders, subject to the preferential rights of the holders of any class or series of its stock the Company may issue ranking senior to the Series D Preferred Stock with respect to the distribution of assets upon liquidation, dissolution or winding up, a liquidation preference of $25.00 per share, plus any accumulated and unpaid dividends to, but not including, the date of payment, before any distribution of assets is made to holders of the Company’s common stock or any other class or series of the Company’s stock it may issue that ranks junior to the Series D Preferred Stock as to liquidation rights.

In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, the Company’s available assets are insufficient to pay the amount of the liquidating distributions on all outstanding shares of Series D Preferred Stock and the corresponding amounts payable on all shares of other classes or series of the Company’s stock that it issues ranking on parity with the Series D Preferred Stock in the distribution of assets, then the holders of the Series D Preferred Stock and all other such classes or series of stock shall share ratably in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. 

Commencing on or after June 15, 2026, the Company may redeem, at its option, the Series D Preferred Stock, in whole or in part, at a cash redemption price equal to $ 25.00 per share, plus any accumulated and unpaid dividends to, but not including the redemption date.

Prior to June 15, 2026, upon a Change of Control (as defined in the Articles Supplementary), the Company may redeem, at its option, the Series D Preferred Stock, in whole or part, at a cash redemption price of $25.00 per share, plus any accumulated and unpaid dividends to, but not including the redemption date.

Prior to June 15, 2026, upon a Change of Control (as defined in the Articles Supplementary), the Company may redeem, at its option, the Series D Preferred Stock, in whole or part, at a cash redemption price of $25.00 per share, plus any accumulated and unpaid dividends to, but not including the redemption date.

The Series D Preferred Stock has no stated maturity, will not be subject to any sinking fund or other mandatory redemption, and will not be convertible into or exchangeable for any of our other securities.

In accordance with the terms of the Series D Preferred Stock, the Series D monthly dividend has been approved by the Board of Directors through Decemb er 2022 in the amount of $ 0.19531 per share payable on the 15th  of every month to stockholders of record of Series D Preferred Stock as of the last day of the prior month. 

Total dividends paid to Series D Preferred stockholders during the year ended December 31, 2022  

and 2021 was approximately $ 2.2 million and $ 1.2 million, respectively. 

In accordance with the terms of the Series D Preferred Stock, the Series D monthly dividend has been approved by the Board of Directors through March 2024 in the amount of $ 0.19531 per share payable on the 15th of every month to stockholders of record of Series D Preferred Stock as of the last day of the prior month.

Total dividends paid to Series D Preferred stockholders during the year ended December 31, 2023 and 2022 were approximately $ 2.1 million and $ 2.2 million , respectively.

Common Stock.

The Company is authorized to issue up to 100,000,000 shares of Series A Common Stock, 1,000 shares of Series B Common Stock, and 9,000,000 shares of Series C Common Stock (collectively, the "Common Stock") each with $ 0.01 par value per share.

Each class of Common Stock has identical rights, preferences, terms, and conditions except that the holders of Series B Common Stock are not entitled to receive any portion of Company assets in the event of the Company's liquidation.

Each class of Common Stock has identical rights, preferences, terms, and conditions except that the holders of Series B Common Stock are not entitled to receive any portion of Company assets in the event of the Company's liquidation.

No shares of Series B or Series C Common Stock have been issued.

Each share of Common Stock entitles the holder to one vote.

Shares of our Common Stock are not subject to redemption and do not have any preference, conversion, exchange, or preemptive rights. 

The Company’s charter contains restrictions on the ownership and transfer of the Common Stock that prevents one person from owning more than 9.8 % of the outstanding shares of common stock.

On July 12, 2021, the Company entered into a securities purchase agreement with a single U.S.

institutional investor for the purchase and sale of 1,000,000 shares of its Series A Common Stock, Common Stock Warrants to purchase up to 2,000,000 shares of Series A Common Stock and Pre-Funded Warrants to purchase up to 1,000,000 shares of Series A Common Stock.

Each share of Common Stock and accompanying Common Stock Warrants were sold together at a combined offering price of $ 5.00 , and each share of Common Stock and accompanying Pre-Funded Warrants were sold together at a combined offering price of $ 4.99 .

Shares of our Common Stock are not subject to redemption and do not have any preference, conversion, exchange, or preemptive rights.

The Company’s charter contains restrictions on the ownership and transfer of the Common Stock that prevents one person from owning more than 9.8 % of the outstanding shares of common stock.

On July 12, 2021, the Company entered into a securities purchase agreement with a single U.S.

institutional investor for the purchase and sale of 1,000,000 shares of its Series A Common Stock, Common Stock Warrants to purchase up to 2,000,000 shares of Series A Common Stock and Pre-Funded Warrants to purchase up to 1,000,000 shares of Series A Common Stock.

Each share of Common Stock and accompanying Common Stock Warrants were sold together at a combined offering price of $ 5.00 , and each share of Common Stock and accompanying Pre-Funded Warrants were sold together at a combined offering price of $ 4.99 .

The Pre-Funded Warrants were exercised in full during August 2021 at a nominal exercise price of $ 0.01 per share.

The Common Stock Warrants have an exercise price of $ 5.50 per share, were exercisable upon issuance and will expire five years from the date of issuance.  In connection with this additional offering, we agreed to issue the Placement Agent Warrants to purchase up to 80,000 shares of Series A Common Stock, representing 4.0 % of the Series A Common Stock and shares of Series A Common Stock issuable upon exercise of the Pre-Funded Warrant. 

The Placement Agent Warrants were issued in August 2021, post exercise of the Pre-Funded Warrants with an exercise price of $ 6.25 and will expire five years from the date of issuance.

The Company evaluated the accounting guidance in ASC 480 and ASC 815 regarding the classification of the Pre-Funded Warrant, Common Stock Warrants, and Placement Agent Warrants as equity or a liability and ultimately determined that it should be classified as permanent equity.  As of

December 31, 2022

, none of the Common Stock Warrants and Placement Agent Warrants have been exercised. 

The Common Stock Warrants have an exercise price of $ 5.50 per share, were exercisable upon issuance and will expire five years from the date of issuance.

In connection with this additional offering, we agreed to issue the Placement Agent Warrants to purchase up to 80,000 shares of Series A Common Stock, representing 4.0 % of the Series A Common Stock and shares of Series A Common Stock issuable upon exercise of the Pre-Funded Warrant.

The Placement Agent Warrants were issued in August 2021, post exercise of the Pre-Funded Warrants with an exercise price of $ 6.25 and will expire five years from the date of issuance.

The Company evaluated the accounting guidance in ASC 480 and ASC 815 regarding the classification of the Pre-Funded Warrant, Common Stock Warrants, and Placement Agent Warrants as equity or a liability and ultimately determined that it should be classified as permanent equity.

As of December 31, 2023 , none of the Common Stock Warrants and Placement Agent Warrants have been exercised.

Stock Repurchase Program .

September 17, 2021, the Board of Directors authorized a stock repurchase program of up

to $ 10 million of outstanding shares of our Series A Common Stock, which expired in September 2022.

On September 15, 2022, the Board of Directors authorized a stock repurchase program of up to $ 6.0 million of outstanding shares of our Series A Common Stock and up to $ 4.0 million of our Series D Preferred Stock. 

During the year ended December 31, 2021, the Company repurchased 29,721 shares of our Series A Common Stock at an average price of approximately $ 3.7223 per share, including a commission of $ 0.035 per share, for a total cost of $ 110,631 . 

During the year ended

December 31, 2022

, the Company repurchased 196,631 shares of our Series A Common Stock at an average price of approximately $ 1.59  per share, including a commission of $ 0.035 per share, and 6,013  shares of our Series D Preferred Stock at an average price of approximately $ 20.31 per share, including a commission of $ 0.035 per share, for a total cost of $ 313,578 for the Series A Common Stock and $ 122,141 for the Series D Preferred Stock. The repurchased shares will be treated as authorized and unissued in accordance with Maryland law and shown as a reduction of stockholders' equity at cost. 

While we will continue to pursue value creating investments, the Board of Directors believes there is significant embedded value in our assets that is yet to be realized by the market.

Therefore, returning capital to stockholders through a repurchase program is an attractive use of capital currently.

On September 17, 2021, the Board of Directors authorized a stock repurchase program of up to $ 10 million of outstanding shares of our Series A Common Stock, which expired in September 2022.

During the year ended December 31, 2022, the Company repurchased 196,631 shares of our Series A Common Stock at an average price of approximately $ 1.59 per share, including a commission of $ 0.035 per share, and 6,013 shares of our Series D Preferred Stock at an average price of approximately $ 20.31 per share, including a commission of $ 0.035 per share, for a total cost of $ 313,578 for the Series A Common Stock and $ 122,141 for the Series D Preferred Stock.

In November 2023, the Board of Directors authorized a stock repurchase program of up to $ 6.0 million of outstanding shares of our Series A Common Stock and up to $ 4.0 million of our Series D Preferred Stock which shall expire in November 2024.

During the year ended December 31, 2023 , the Company repurchased 23,041 shares of our Series D Preferred Stock at an average price of approximately $ 15.97 per share, including a commission of $ 0.035 per share, and no shares of our Series A Common Stock, for a total cost of $ 0.2 million for the Series D Preferred Stock.

The repurchased shares will be treated as authorized and unissued in accordance with Maryland law and shown as a reduction of stockholders’ equity at cost.

Cash Dividends.

For the years ended December 31, 2022  and 

December 31, 2021 the Company declared and paid Series A Common Stock cash dividends of approximately $ 3.1 million and $ 4.5 million, respectively.  For the years ended December 31, 2022  and 

December 31, 2021 the Company declared and paid Series D Preferred Stock cash dividends of approximately $ 2.2 million and $ 1.2 million, respectively. 

The following is a summary of distributions declared per share of our Series A Common Stock and for our Series D Preferred Stock for the years ended December 31, 2022  and 2021 . 

The Company intends to continue to pay dividends to our common stockholders on a quarterly basis, and on a monthly basis to holders of our Series D Preferred Stock going forward, but there can be no guarantee the Board of Directors will approve any future dividends.  

The following is a summary of distributions declared per share of our Series A Common Stock and for our Series D Preferred Stock for the years ended December 31, 2022  and 

December 31, 2021 .

For the years ended December 31, 2023 and December 31, 2022 the Company declared and paid Series A Common Stock cash dividends of approximately $ 1.2 million and $ 3.1 million, respectively.

For the years ended December 31, 2023 and December 31, 2022 the Company declared and paid Series D Preferred Stock cash dividends of approximately $ 2.1 million and $ 2.2 million, respectively.

The following is a summary of distributions declared per share of our Series A Common Stock and for our Series D Preferred Stock for the years ended December 31, 2023 and 2022 .

The Company intends to continue to pay dividends to our common stockholders on a quarterly basis, and on a monthly basis to holders of our Series D Preferred Stock going forward, but there can be no guarantee the Board of Directors will approve any future dividends.

The following is a summary of distributions declared per share of our Series A Common Stock and for our Series D Preferred Stock for the years ended December 31, 2023 and December 31, 2022 .

Series A Common Stock

2 unchanged sentences

Distributions Declared

$ 0.022 $ 0.105

$ 0.091 $ 0.252

Series D Preferred Stock

1 unchanged sentence

Distributions Declared

Partnership Interests. 

Through the Company, its subsidiaries, and its partnerships, we own 

12  commercial properties in fee interest, 

two of which we own partial interests in through our holdings in various affiliates in which we serve as general partner, member and/or manager.

Each of the limited partnerships is referred to as a “DownREIT.”

In each DownREIT, we have the right, through put and call options, to require our co-investors to exchange their interests for shares of our Common Stock at a stated price after a defined period (generally five years from the date they first invested in the entity’s real property), the occurrence of a specified event or a combination thereof.

$ 0.19531 $ 0.19531

0.19531 0.19531

$ 2.34372 $ 2.34372

Partnership Interests.

Through the Company, its subsidiaries, and its partnerships, we own 12 commercial properties in fee interest, two of which we own partial interests in through our holdings in various affiliates in which we serve as general partner, member and/or manager.

Each of the limited partnerships is referred to as a “DownREIT.” In each DownREIT, we have the right, through put and call options, to require our co-investors to exchange their interests for shares of our Common Stock at a stated price after a defined period (generally five years from the date they first invested in the entity’s real property), the occurrence of a specified event or a combination thereof.

The Company is a limited partner in five partnerships and sole stockholder in one corporation, which entities purchase and leaseback model homes from homebuilders.

Warrant Dividend.

In January 2022, we distributed the Series A Warrants to holders of our Series A Common Stock. 

The Series A Warrants and the shares of Series A Common Stock issuable upon the exercise of the Series A Warrants were registered on a registration statement that was filed with the SEC and was declared effective January 21, 2022.

The Series A Warrants commenced trading on the Nasdaq Capital Market under the symbol “SQFTW”

on January 24, 2022 and were distributed on that date to persons who held shares of common stock and existing outstanding warrants as of the January 14, 2022 record date, or who acquired shares of Series A Common Stock in the market following the record date, and who continued to hold such shares at the close of trading on January 21, 2022. 

In January 2022, we distributed the Series A Warrants to holders of our Series A Common Stock.

The Series A Warrants commenced trading on the Nasdaq Capital Market under the symbol “SQFTW” on January 24, 2022 and were distributed on that date to persons who held shares of common stock and existing outstanding warrants as of the January 14, 2022 record date, or who acquired shares of Series A Common Stock in the market following the record date, and who continued to hold such shares at the close of trading on January 21, 2022.

The Series A Warrants give the holder the right to purchase one share of Series A Common Stock at $ 7.00 per share, for a period of five years.

Should warrantholders not exercise the Series A Warrants during that holding period, the Series A Warrants will automatically convert to 1/10 of a share of Series A Common Stock at expiration, rounded down to the nearest number of whole shares.

Dividend Reinvestment Plan. 

The Company adopted a distribution reinvestment plan (the “DRIP”) that allowed stockholders to have dividends and other distributions otherwise distributable to them invested in additional shares of the Company’s Common Stock.

Should warrant holders not exercise the Series A Warrants during that holding period, the Series A Warrants will automatically convert to 1/10 of a share of Series A Common Stock at expiration, rounded down to the nearest number of whole shares.

On the first day of trading SFQTW closed at $ 0.17 per warrant with 14,450,069 warrants in the public market.

Dividend Reinvestment Plan.

The Company registered 3,000,000 shares of Common Stock pursuant to the DRIP.

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Any such amendment, suspension or termination is effective upon a designated dividend record date and notice of such amendment, suspension or termination is sent to all participants at least thirty ( 30 ) days prior to such record date.

The DRIP became effective on January 23, 2012, 

was suspended on December 7, 2018 

and adopted on October 6, 2020 in connection with our IPO, and updated to reflect a change in transfer agent and registrar.

December 31, 2022 , approximately $ 17.4 million or approximately 917,074 shares of Common Stock have been issued under the DRIP. 

The DRIP became effective on January 23, 2012, was suspended on December 7, 2018 and adopted on October 6, 2020 in connection with our IPO, and updated to reflect a change in transfer agent and registrar.

As of December 31, 2023 , approximately $ 17.4 million or approximately 917,074 shares of Common Stock have been issued under the DRIP.

There have been no shares issued under the DRIP since it was suspended in 2018.

5 unchanged sentences

Prior to our IPO, the value of non-vested shares was calculated based on the offering price of the shares in the most recent private placement offering of $ 20.00 , adjusted for stock dividends since granted and assumed selling costs, which management believed approximated fair market value as of the date of grant.

Upon our IPO, the value of non-vested shares granted is generally calculated based on the closing price of our common stock on the date of the grant. 

During our Annual Stockholders meeting, held on May 26, 2022, the Company's 2017 Incentive Award Plan was amended to increase the available shares for issuance from 1.1 million to 2.5 million.

A summary of the activity for the Company’s restricted stock was as follows:

Upon our IPO, the value of non-vested shares granted is generally calculated based on the closing price of our common stock on the date of the grant.

During our Annual Stockholders meeting, held on May 26, 2022, the Company's 2017 Incentive Award Plan was amended to increase the available shares for issuance from 1.1 million to 2.5 million and at our Annual Stockholders meeting, held on June 1, 2023, the Company's 2017 Incentive Award Plan was amended to increase the available shares for issuance from 2.5 million to 3.5 million add an evergreen provision to, on April 1 st and October 1 st of each year, automatically increase the maximum number of shares of common stock available under the plan to 15% of the Company’s outstanding shares of common stock, if on such date 3,500,000 (as adjusted for any reverse splits) is less than 15% of the Company’s then-outstanding shares of common stock.

A summary of the activity for the Company’s restricted stock was as follows:

Outstanding shares:

1 unchanged sentence

Balance at December 31, 2022

295,471  

407,245  

Balance at December 31, 2023

349,042  

The non-vested restricted shares outstanding as of

December 31, 2023

 will vest over the next one to five  years.

will vest over the next one to five years.

Share-based compensation expense for the years ended

December 31, 2023

 was approximately $ 1.2 million and

was approximately $ 1.0 million and

$ 1.2 million

, respectively. 

December 31, 2023

, future unrecognized stock compensation related to unvested shares totaled approximately $ 1.5  million and $ 1.6 million, respectively.

 SEGMENTS

The Company’s reportable segments consist of three types of real estate properties for which the Company’s decision-makers internally evaluate operating performance and financial results:

, future unrecognized stock compensation related to unvested shares totaled approximately $ 1.5 million and $ 1.5 million, respectively.

The Company’s reportable segments consist of three types of real estate properties for which the Company’s decision-makers internally evaluate operating performance and financial results:

Office/Industrial Properties, Model Home Properties and Retail Properties.

The Company also has certain corporate-level activities including accounting, finance, legal administration, and management information systems which are not considered separate operating segments. 

There is no material inter-segment activity.

The Company evaluates the performance of its segments based upon net operating income (“NOI”), which is a non-GAAP supplemental financial measure.

The Company defines NOI for its segments as operating revenues (rental income, tenant reimbursements and other operating income) less property and related expenses (property operating expenses, real estate taxes, insurance, asset management fees, impairments and provision for bad debt).

NOI excludes certain items that are not considered to be controllable in connection with the management of an asset such as non-property income and expenses, depreciation and amortization, real estate acquisition fees and expenses and corporate general and administrative expenses.

The Company uses NOI to evaluate the operating performance of the Company’s real estate investments and to make decisions regarding allocation of resources.

The Company evaluates the performance of its segments based upon net operating income (“NOI”), which is a non-GAAP supplemental financial measure.

The Company uses NOI to evaluate the operating performance of the Company’s real estate investments and to make decisions about resource allocations.

The following tables compare the Company’s segment activity to its results of operations and financial position as of and for the years ended December 31, 2022  and 2021 , respectively.

The Company uses NOI to evaluate the operating performance of the Company’s real estate investments and to make decisions about resource allocations.

The following tables compare the Company’s segment activity to its results of operations and financial position as of and for the years ended December 31, 2023 and 2022 , respectively.

Year Ended December 31,

1 unchanged sentence

Rental, fees and other income

$ 11,648,034 $ 12,702,986

Property and related expenses

( 7,264,029 ) ( 5,148,110 )

Net operating income, as defined

4,384,005 7,554,876

Model Home Properties:

Rental, fees and other income

4,132,130 2,909,871

Property and related expenses

( 588,477 ) ( 102,660 )

Net operating income, as defined

3,543,653 2,807,211

Retail Properties:

Rental, fees and other income

1,884,330 2,224,479

Property and related expenses

( 537,389 ) ( 663,681 )

Net operating income, as defined

Reconciliation to net income (loss):

1,346,941 1,560,798

Reconciliation to net income:

Total net operating income, as defined, for reportable segments

9,274,599 11,922,885

Goodwill impairment

( 849,000 ) —

General and administrative expenses

( 6,790,432 ) ( 6,163,816 )

Depreciation and amortization

( 5,425,739 ) ( 5,465,015 )

Interest expense

Gain on extinguishment of government debt

Other income (expense), net

( 5,004,889 ) ( 4,712,487 )

Gain on marketable securities

1,414,420 2,018,847

Loss on Conduit marketable securities

( 23,359,774 ) —

Gain on deconsolidation of SPAC

Other income, net

20,878 21,075

Income tax expense

335,780 ( 1,215,873 )

Gain on sale of real estate

Net income (loss)

3,240,200 5,079,912

$ 13,177,526 $ 1,485,528

Assets by Reportable Segment:

1 unchanged sentence

Land, buildings and improvements, net (1)

$ 77,472,724 $ 76,400,983

Total assets (2)

$ 78,140,372 $ 79,057,998

Model Home Properties:

Land, buildings and improvements, net (1)

$ 50,790,147 $ 37,933,824

Total assets (2)

$ 51,456,292 $ 35,274,545

Retail Properties:

Land, buildings and improvements, net (1)

$ 15,877,190 $ 16,142,613

Total assets (2)

$ 16,539,399 $ 16,810,627

Reconciliation to Total Assets:

Total assets for reportable segments

$ 146,136,063 $ 131,143,170

Other unallocated assets:

Cash, cash equivalents and restricted cash

277,143 8,570,121

Other assets, net

29,549,432 151,638,363

$ 175,962,638 $ 291,351,654

Includes lease intangibles and the land purchase option related to property acquisitions.

Includes land, buildings and improvements, cash, cash equivalents, and restricted cash, current receivables, deferred rent receivables and deferred leasing costs and other related intangible assets, all shown on a net basis.

Includes land, buildings and improvements, cash, cash equivalents, and restricted cash, current receivables, deferred rent receivables and deferred leasing costs and other related intangible assets, all shown on a net basis.

For the Year Ended December 31,

1 unchanged sentence

Office/Industrial Properties:

Acquisition of operating properties

Capital expenditures and tenant improvements

Capital expenditures and tenant improvements, office

$ 6,512,594 $ 1,994,371

Model Home Properties:

Acquisition of operating properties

Acquisition of operating properties, model home

21,909,963 15,673,575

Retail Properties:

Acquisition of operating properties

Capital expenditures and tenant improvements

Capital expenditures and tenant improvements, retail

150,522 113,134

Acquisition of operating properties, net

21,909,963 15,673,575

Capital expenditures and tenant improvements

6,663,116 2,107,505

Total real estate investments

 SUBSEQUENT EVENTS

Sponsorship of Special Purpose Acquisition Company and Trust Extension

At the special meeting the stockholders also approved a proposal to amend the SPAC’s certificate of incorporation to expand the methods that it may employ to not become subject to the “penny stock”

rules of the SEC. 

In connection with the stockholders’

vote at the special meeting, 11,037,272 shares of common stock were tendered for redemption for a redemption price of approximately $ 10.33 per share, leaving 2,187,728 shares of Class A common stock outstanding and subject to possible redemption in connection with a business combination.

On March 3, 2023 we loaned Murphy Canyon $ 300,000 to fund its trust account and for operating expenses, and may lend up to $ 1.5 million in total. 

On March 7, 2023, 

the Company, though it subsidiary, entered into a $ 1.5 million promissory note with Murphy Canyon Acquisition Corp to fund their trust account and operating expenses. 

On March 7, 2023 we advanced $300,000 and will provide additional funds as necessary under the promissory note.

These loans are non-interest bearing, unsecured and will be repayable in full upon the earlier of (i) the date on which Murphy Canyon Acquisition Corp consummate their initial business combination and (ii) the date that their winding up is effective.

$ 28,573,079 $ 17,781,080

INCOME TAX PROVISION

The Company accounts for income taxes under the asset and liability method under which it recognizes deferred income taxes, net of valuation allowances, if any, for the estimated future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and its tax bases and net operating loss and tax credit carryforwards.

The Company may, from time to time, be assessed interest or penalties by tax jurisdictions, although any such assessments historically have been minimal and immaterial to its financial results.

In the event the Company has such an assessment from a taxing authority, it is its accounting policy to recognize any interest and penalties as a component of income tax.

We, together with one of our entities, have elected to treat certain subsidiaries as a taxable REIT subsidiary (a “TRS”) for federal income tax purposes.

Certain activities that we undertake must be conducted by a TRS, such as non-customary services for our tenants, and holding assets that we cannot hold directly.

A TRS is subject to federal and state income taxes.

The Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

Neither the Company nor its subsidiaries have been assessed any significant interest or penalties for tax positions by any tax jurisdictions.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The provision (benefit) for income taxes consists of the following for the years ended December 31, 2023 and 2022 :

December 31, 2023

December 31, 2022

Current income tax expense (benefit)

$ 100,036 $ 20,265

( 89,054 ) 1,195,608

Total current income tax expense (benefit)

10,982 1,215,873

Deferred income tax expense (benefit)

( 289,480 ) 211,627

Total deferred income tax expense (benefit)

( 346,762 ) 211,627

Change in Valuation Allowance

- ( 211,627 )

Total income tax (benefit) expense

$ ( 335,780 ) $ 1,215,873

Income tax provision differed from the amount computed by applying the U.S.

federal income tax rate of 21 % to income (loss) before taxes, as follows:

December 31, 2023

December 31, 2022

Taxes at federal statutory rate

$ 2,696,767 $ 567,294

21,821 1,195,608

REIT entities not subject to tax

Pass through entities not subject to tax

( 2,135,580 )

Deconsolidation adjustment

( 1,303,720 ) -

Non-controlling interest

( 636,527 ) ( 758,656 )

True Up Adjustment

( 424,378 ) -

Change In Valuation Allowance

Total income tax (benefit) expense

$ ( 335,780 ) $ 1,215,873

The tax effects of temporary differences which give rise to significant portions of deferred tax assets are as follows as of December 31:

For The Years Ended

Deferred Tax Assets

Deferred Revenue

Start up costs

24,543 211,627

Total deferred tax asset

346,762 211,627

Deferred Tax Liabilities

Basis difference in investments

Net deferred tax assets

346,762 211,627

Valuation allowance

- ( 211,627 )

Net deferred tax assets (liability)

$ 346,762 $ -

In 2022, the Company recognized a valuation allowance of $ 211,627 against the deferred tax assets generated by the Murphy Canyon Acquisition Company.

As of September 23, 2023, the Company deconsolidated with Murphy Canyon Acquisition Company, and no longer have a valuation allowance recorded to the company's deferred tax asset.

Management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

A significant piece of objective positive evidence evaluated was the history of cumulative income for Model Homes Inc.

incurred over the three -year period ended December 31, 2023.

Such objective evidence provides support for no valuation allowance to be recorded for the year ended December 31, 2023.

The Company files income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

The Company is no longer subject to U.S.

federal, state, and local or non-U.S.

income tax examinations by tax authorities for years before 2019.

In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ):

Improvements to Income Tax Disclosures, which improves income tax disclosures through enhanced disaggregation within the rate reconciliation table and disaggregation of income taxes paid by jurisdiction.

The amendment is effective for fiscal years beginning after December 15, 2024 and early adoption is permitted.

The amendments should be applied on a prospective basis, however, retrospective application is permitted.

We are currently evaluating the impact of adopting this ASU on our disclosures.

RELATED PARTY TRANSACTIONS

During the years ended December 31, 2023 and 2022 , the Company leased a portion of its corporate headquarters to a company that is owned 100 % by the CEO, which is Puppy Toes, Inc.

Note that Centurion Counsel is another entity that pays rent to the Company and it is consolidated into Puppy Toes, Inc.

This is a continuation of the same related party transaction from 2020, which began in 2019 when we moved our corporate headquarters to Genesis Plaza.

Puppy Toes, Inc has leased space from the Company since November 2008.

Rent billed to these entities from the Company totaled $ 10,752 , in both years ended December 31, 2023 and 2022, and is included in the rent paid by Presidio Property Trust to Genesis Plaza.

Additionally, we received full payroll reimbursement for employee services relate to Centurion Counsel and Puppy Toes, Inc.

during the years ended December 31, 2023 and 2022 ., which totaled approximately $ 154,895 and $ 143,984 , respectively.

These reimbursements were at cost and were not marked up or discounted.

As of December 31, 2023 and 2022, we had a reimbursement receivable balance of approximately $ 52,879 and $ 12,967 , which were paid in full during January 2024 and January 2023, respectively.

SUBSEQUENT EVENTS

The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date the financial statements were issued.

Based upon this review, except as disclosed below, the Company did

not identify any subsequent events that would have required adjustment or disclosure in the financial statements other than disclosed below.

December 31, 2023, our investments in Conduit's common stock ("CDT") and common stock warrants ("CDTTW") presented on the consolidated balance sheets were measured at fair value using Level

1 market prices, which closed at

$ 4.55 per share and

$ 0.069 per warrant.

April 12, 2024, CDT and CDTTW closed at

$ 3.18 per share and

$ 0.08 per warrant, respectively.

Presidio Property Trust, Inc.

and Subsidiaries

Schedule III - Real Estate and Accumulated Depreciation and Amortization –

as of December 31, 2022

Schedule III - Real Estate and Accumulated Depreciation and Amortization – as of December 31, 2023

All amounts are in thousands

10 unchanged sentences

Genesis Plaza, San Diego, CA

$ 5,937 $ 1,400 $ 8,600 $ 10,000 $ 3,169 $ 1,400 $ 11,769 $ 13,169 $ 5,626 $ — $ 7,543 08/10

Dakota Center, Fargo, ND

9,197 832 8,743 9,575 4,228 832 12,971 13,803 4,601 — 9,202 05/11

Grand Pacific Center, Bismarck, ND

5,470 413 4,926 5,339 5,206 413 10,407 10,820 2,546 — 8,274 03/14

Arapahoe Center, Centennial, CO

7,426 1,420 10,430 11,850 1,601 1,420 12,031 13,451 4,109 — 9,342 12/14

West Fargo Industrial, Fargo, ND

3,923 1,693 6,207 7,900 657 1,693 6,864 8,557 1,737 — 6,820 08/15

300 N.P., Fargo, ND

— 135 3,715 3,850 371 135 4,086 4,221 1,139 308.0 2,774 08/15

One Park Centre, Westminster, CO

6,044 1,206 7,944 9,150 2,070 1,206 10,014 11,220 3,553 1,966.1 5,700 08/15

Shea Center II, Highlands Ranch, CO

16,951 2,214 23,747 25,961 3,451 2,214 27,198 29,412 10,044 — 19,368 12/15

McElderry, Baltimore, MD

5,670 215 8,677 8,892 29 215 8,705 8,920 454 8,466 12/20

Total Office/ Industrial properties

60,619 9,528 82,989 92,517 20,781 9,528 104,045 113,573 33,810 2,274.1 77,489

Union Town Center, Colorado Springs, CO

7,870 1,750 9,462 11,212 317 1,750 9,779 11,529 2,610 — 8,919 12/14

Research Parkway, Colorado Springs, CO

1,589 408 2,442 2,850 ( 37 ) 408 2,405 2,813 547 — 2,266 08/16

Mandolin, Houston, TX

3,573 1,330 3,562 4,892 15 1,330 3,577 4,907 214 — 4,693 08/21

Total Retail properties

13,032 3,488 15,466 18,954 295 3,488 15,761 19,249 3,371 — 15,878

Model Homes-DMH LP #202

269 83 400 483 — 83 400 483 64 — 419 2017 - 2018 2017

Model Homes-DMH LP #203

643 202 858 1,060 — 202 858 1,060 96 — 964 2017 - 2019 2019

Model Homes-DMH LP #204

940 278 1,286 1,564 — 278 1,286 1,564 137 — 1,427 2018 - 2020 2018 - 2020

Model Homes-DMH LP #205

2,762 791 3,732 4,523 — 791 3,732 4,523 380 — 4,142 2019 - 2020 2019 - 2020

Model Homes-DMH LP #206

1,416 289 2,002 2,292 — 289 2,002 2,292 158 — 2,133 2020 - 2021 2020 - 2021

Model Homes-DMH LP #207

5,065 1,323 5,938 7,262 — 1,323 5,938 7,262 17 — 7,244 2023 2023

Model Homes-NMH Inc.

24,270 5,679 30,262 35,941 — 5,679 30,262 35,941 1,050 432.0 34,460 2018 - 2022 2018 - 2023

Total Model Home properties

35,363 8,646 44,478 53,124 — 8,646 44,478 53,124 1,902 432.0 50,789

CONSOLIDATED TOTALS:

(1)     Depreciation is computed on a straight-line basis using useful lives up to 39 years.

$ 109,014 $ 21,662 $ 142,933 $ 164,595 $ 21,076 $ 21,662 $ 164,284 $ 185,946 $ 39,083 $ 2,706 $ 144,156

( 1 ) Depreciation is computed on a straight-line basis using useful lives up to 39 years.

Presidio Property Trust, Inc.

and Subsidiaries

Schedule III - Real Estate and Accumulated Depreciation and Amortization (continued) –

as of December 31, 2022

Schedule III - Real Estate and Accumulated Depreciation and Amortization (continued) – as of December 31, 2023

For the Year Ended December 31,

Balance at the beginning of the year

$ 165,316,008 $ 171,013,693

21,909,963 15,673,575

6,663,116 2,107,503

( 2,398,097.0 ) —

Dispositions of real estate

( 8,252,089 ) ( 23,478,763 )

Balance at the end of the year

$ 183,238,901 $ 165,316,008

Accumulated depreciation and amortization

Balance at the beginning of the year

$ ( 34,803,778 ) $ ( 32,948,757 )

Depreciation and amortization expense

( 4,925,463 ) ( 5,015,491 )

Dispositions of real estate

646,124 3,160,470

Balance at the end of the year

$ ( 39,083,117 ) $ ( 34,803,778 )

Real estate assets, net

$ 144,155,784 $ 130,512,230

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures