As filed with the
Securities and Exchange Commission May 27, 2016
Registration
Statement No. 333-208226
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
POST-EFFECTIVE
AMENDMENT
NO. 3
TO
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ZONED
PROPERTIES, INC.
(Exact
name of registrant as specified in its charter)
Nevada
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6799
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46-5198242
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(State
or other jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
No.)
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14300
N. Northsight Blvd., #208
Scottsdale,
AZ 85260
Phone:
(877) 360-8839
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Bryan
McLaren, President
Zoned
Properties, Inc.
14300
N. Northsight Blvd., #208
Scottsdale,
AZ 85260
Phone:
(877) 360-8839
(Name,
address and telephone number of agent for service)
Copies
to: Laura Anthony, Esq.
Legal
& Compliance, LLC
330
Clematis Street, Suite 217
West
Palm Beach, FL 33401
Phone:
(800) 341-2684
Approximate
date of proposed sale to public: As soon as practicable after this registration statement becomes effective.
If
any of the securities being registered on the Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box: ☐
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering: ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier registration statement for the same offering: ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier registration statement for the same offering: ☐
Indicate
by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
(Do not check if a smaller reporting company)
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Smaller
reporting company
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☒
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CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities to
be Registered
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Amount
to be
Registered (1)
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Proposed Maximum Offering
Price per Share
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Proposed
Maximum Aggregate Offering
Price
(2)
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Amount
of Registration
Fee
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Common Stock, par value $0.001, by Selling
Stockholders
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1,185,012
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$
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3.61
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$
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4,277,893.32
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$
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430.78
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(1)
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Represents outstanding shares of common stock offered for resale by certain selling stockholders listed herein. In the event of stock splits, stock dividends or similar transactions involving the common stock, the number of common shares registered shall, unless otherwise expressly provided, automatically be deemed to cover the additional securities to be offered or issued pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended.
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(2)
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Estimated
solely for purposes of calculating the registration fee in accordance with Rule 457 of the Securities Act of 1933, as amended.
Prior to the filing of this post-effective amendment to registration statement on Form S-1, $10,800,120 aggregate principal
amount of securities remained registered and unsold pursuant to Registration Statement No. 333-208226, which was initially
filed by the registrant on November 25, 2015 and declared effective on December 18, 2015. Pursuant to Rule 457(p), all of
the total registration fee of $430.78 required in connection with the registration for resale of $4,277,893.32 aggregate principal
amount of securities under this registration statement is being offset against $430.78 of the registration fee associated
with the unsold securities registered under Registration Statement No. 333-208226.
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The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective
on such date as the Commission, acting pursuant to Section 8(a) may determine.
EXPLANATORY
NOTE
This Post-Effective Amendment No.
3 relates to the Registration Statement on Form S-1 (File No. 333-208226), originally filed by the registrant with the
Securities and Exchange Commission (the “SEC”) on November 25, 2015 (as amended, the “Registration
Statement”), registering 1,351,915 shares of the registrant’s common stock for resale, from time to time, by the
selling stockholders named in the Registration Statement. The Registration Statement was declared effective by the SEC on
December 18, 2015. As of the date hereof, 1,900 shares (representing $15,200 of the original proposed maximum aggregate
offering price of $10,815,320) were sold under the Registration Statement. The registrant is filing this Post-Effective
Amendment No. 3 in order to:
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●
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Remove three selling stockholders that were listed in the original Registration
Statement, which selling stockholders were offering an aggregate of 165,000 shares for resale,
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Update
the “Principal and Selling Stockholders” table to reflect sales effected since the Registration Statement was
declared effective,
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●
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Reduce the aggregate number
of shares being registered for resale by three shares in order to correct a rounding error,
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Permit the selling stockholders to sell all or a portion of their shares of common stock through public or private transactions at prevailing market prices or at privately negotiated prices, and
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●
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Provide
updated business and financial information for the three months ended March 31, 2016 and the fiscal year ended December 31,
2015.
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Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-208226
PROSPECTUS
ZONED
PROPERTIES, INC.
1,185,012 Shares
of Common Stock
This prospectus relates to the potential
resale by certain selling stockholders of up to an aggregate of 1,185,012 shares of our common stock, par value $0.001 per share.
The selling stockholders may sell all or a portion of their shares through public or private transactions at prevailing market
prices or at privately negotiated prices. This prospectus may be used by the selling stockholders named herein to resell, from
time to time, those shares of our common stock included herein. For information about the selling stockholders see “Principal
and Selling Stockholders” on page 12.
We
will not receive any proceeds from the resale of the shares offered by the selling stockholders. The selling stockholders, and
any participating broker-dealers, may be deemed to be “underwriters” within the meaning of the Securities Act of 1933,
as amended (the “Securities Act”), and any commissions or discounts given to any such broker-dealer may be regarded
as underwriting commissions or discounts under the Securities Act. The selling stockholders have informed us that they do not
have any agreement or understanding, directly or indirectly, with any person to distribute their common stock. We will be responsible
for all fees and expenses incurred in connection with the preparation and filing of the registration statement of which this prospectus
is a part;
provided, however,
that we will not be required to pay any underwriters’ discounts or commissions relating
to the securities covered by the registration statement.
Our common stock is quoted on the OTC Markets
Group, Inc.’s OTCQX® tier under the symbol “ZDPY.” There has never been an active public market for our
common stock, and the shares are being offered in anticipation of the development of a secondary trading market. On May 26, 2016,
the closing sale price of our common stock on the OTCQX was $3.87.
We
are an “emerging growth company” as defined in the Securities and Exchange Commission (“SEC”) rules and
we will be subject to reduced public reporting requirements. See “Emerging Growth Company and Smaller Reporting Company
Status.”
Persons
effecting transactions in the shares should confirm the registration of these securities under the securities laws of the states
in which transactions occur or the existence of applicable exemptions from such registration.
INVESTING
IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE “RISK FACTORS” BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A
DISCUSSION OF INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN OUR SECURITIES.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
You
should rely only on the information contained in this prospectus. We have not, and the selling stockholders have not, authorized
anyone to provide you with different information from that contained in this prospectus. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our
common stock. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy the securities in any
circumstances under which the offer or solicitation is unlawful. Neither the delivery of this prospectus nor any distribution
of securities in accordance with this prospectus shall, under any circumstances, imply that there has been no change in our affairs
since the date of this prospectus.
The date of
this prospectus is May 27, 2016.
TABLE
OF CONTENTS
No
dealer, salesperson or other individual has been authorized to give any information or to make any representation other than those
contained in this prospectus in connection with the offer made by this prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by us or the selling stockholders. This prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such an offer or solicitation is not
authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in our affairs or that information contained herein is
correct as of any time subsequent to the date hereof.
For
investors outside the United States: We have not, and the selling stockholders have not, done anything that would permit this
offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves,
and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus
outside the United States.
PROSPECTUS
SUMMARY
The
following summary highlights material information concerning our business and this offering that is contained elsewhere in this
prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making
an investment decision, you should read the entire prospectus carefully, including the “Risk Factors” section, the
consolidated financial statements and the notes to the consolidated financial statements. If you invest in our common stock, you
are assuming a high degree of risk. As used throughout this prospectus, unless the context otherwise requires, the terms “Zoned
Properties,” “Company,” “we,” “us,” or “our” refer to Zoned Properties,
Inc. and its wholly owned subsidiaries, Tempe Industrial Properties, LLC, Gilbert Property Management, LLC, Green Valley Group,
LLC, Kingman Property Group, LLC, Chino Valley Properties, LLC, Zoned Oregon Properties, LLC, Zoned Colorado Properties, LLC,
and Zoned Illinois Properties, LLC.
The
Company
We
believe that the traditional commercial real estate industry is being transformed by many factors that can be characterized as
“mega trends.” These trends include technological changes, shifting demographics resulting in a greater influence
of millennials and social changes. The utilization of commercial property for retail, business and education is being affected
by engagement through digital means as opposed to physical means. As a commercial property, project development and management
services company, our mission is to identify, develop, and manage properties, initially for the medical marijuana industry and,
as our operations develop, for other emerging industries. Our strategy, which is aligned with the shifting trends of the market,
can position us to create property value and enhanced cash flow from rents leveraging our expertise in zoning, permitting, security,
energy efficiency, waste and water remediation and sustainable design.
In
order to drive value creation, one of mega trends we have focused on with respect to commercial properties that can be acquired
and potentially zoned and permitted for specific development purposes, has been the emergence on a state-by-state basis of licensed
medical marijuana dispensaries and cultivation facilities. We are focusing on commercial real estate development in this space
to derive value from the new and emerging medical marijuana industry without directly participating in the cultivation, distribution,
or sale of medical marijuana products.
The
core of our business involves identifying and developing properties that exist within highly regulated zoning regions and may
be candidates for re-zoning. This is an essential aspect of our overall growth strategy and value creation because we target specifically
zoned properties that can be developed as candidates for specific industry operators. Once the properties have been acquired,
adequately zoned and permitted, the opportunity to increase their value becomes substantially greater as a result of above market
rents, as the demand for these properties within the specific zoning region increases.
We
focus on acquiring properties that have the potential to increase significantly in value and use a variety of development strategies
to build long-term growth. We have established a network of experts in the fields of real estate, design, construction, operations,
and management in order to provide clients and prospective tenants with these development strategies to best meet their needs.
We require all of our clients and prospective tenants to go through extensive due diligence in order to be what we consider to
be highly sophisticated, credit worthy and experienced operators.
We
currently maintain a portfolio of properties that we own, lease, and manage. In addition, we provide direct consultation and support
for the development of each property. Development can range from complete architectural design and subsequent build-out, utility
installation, property management, facilities management, and state of the art security systems.
There
are significant challenges that exist when zoning, permitting, and constructing facilities associated with the medical marijuana
market. Each state and jurisdiction adopts a set of specific zoning and permitting regulations. We have gained valuable knowledge
and experience in this area by successfully completing four major projects in the state of Arizona, a highly regulated market.
We believe we can replicate this business model in other states as markets mature and tighter regulations are established.
Our
vision is to be recognized for creating the standard in property development for emerging industries, while increasing community
prosperity and shareholder value. We believe that a focus on real estate and the development of properties will bring value to
the local communities and all of our stakeholders. While we intend to expand into a variety of emerging industries, our current
focus is on developing projects within the emerging medical marijuana industry.
Our common stock is quoted on the OTC Market
Group, Inc.’s OTCQX tier under the symbol “ZDPY.” The last reported per share sale price of our common stock
on the OTCQX was $3.87 on May 26, 2016.
In
2014, we effected a complete change in management. An entirely new Board of Directors was named, as was a new Chief Executive
Officer. In addition, the Company recruited and put in place an SEC counsel, transfer agent, auditor, and investor relations firm.
During the three months ended March
31, 2016, we generated revenue of $406,406, including $345,526 from related parties, and had a net loss of $236,653. During the
year ended December 31, 2015, we generated revenue of $1,395,294, including $980,509 from related parties, and had a net loss
of $1,372,030.
Emerging
Growth Company and Smaller Reporting Company Status
Emerging
Growth Company
We
are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities
Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible
to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations
regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding
a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved. We intend to take advantage of all of these exemptions.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards,
and delay compliance with new or revised accounting standards until those standards are applicable to private companies. We have
elected to take advantage of the benefits of this extended transition period.
We
could be an emerging growth company until the last day of the first fiscal year following the fifth anniversary of our first common
equity offering, although circumstances could cause us to lose that status earlier if our annual revenues exceed $1.0 billion,
if we issue more than $1.0 billion in non-convertible debt in any three-year period or if we become a “large accelerated
filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Smaller
Reporting Company
We
also qualify as a “smaller reporting company” under Rule 12b-2 of the Exchange Act, which is defined as a company
with a public equity float of less than $75 million. To the extent that we remain a smaller reporting company at such time as
we are no longer an emerging growth company, we will still have reduced disclosure requirements for our public filings, some of
which are similar to those of an emerging growth company, including not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act and the reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements.
Corporate
Information
Our
principal executive offices are located at 14300 N. Northsight Blvd., #208, Scottsdale, AZ 85260, and our telephone number is
(877) 360-8839. Our corporate website address is www.zonedproperties.com. Information on, or accessible through, our website is
not a part of, or incorporated by reference in, this prospectus.
Summary
of the Offering
Common
stock outstanding before the Offering
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17,135,850 shares
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Common
stock offered by the selling stockholders
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1,185,012 shares
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Common
stock to be outstanding after the Offering
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17,135,850 shares
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Offering price per share
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The selling stockholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices. See “Plan of Distribution.”
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Use of proceeds
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We will not receive any proceeds from the sale of common stock by the selling stockholders in this offering. See “Use of Proceeds” and “Principal and Selling Stockholders.”
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Risk
factors
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Investment
in our common stock involves a high degree of risk. You should read the “Risk Factors” section of this
prospectus beginning on page 4 of this prospectus for a discussion of factors that you should consider carefully before deciding
to invest in our common stock.
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OTCQX
Symbol
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ZDPY
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SUMMARY
HISTORICAL FINANCIAL DATA
The following tables set forth, for
the periods and as of the dates indicated, our summary historical financial data. The statements of operations data for the years
ended December 31, 2015 and 2014 are derived from our audited consolidated financial statements included elsewhere in this prospectus.
The summary historical financial data for the three months ended March 31, 2016 and 2015 and the balance sheet data as of March
31, 2016 and 2015 are derived from our unaudited financial statements.
You
should read the following information together with the more detailed information contained in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes
included elsewhere in this prospectus. Our historical results are included for illustrative and informational purposes only and
are not indicative of the results to be expected in the future and results of interim periods are not necessarily indicative of
results for the entire year.
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Year
Ended
December
31,
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Three
Months Ended
March
31,
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2015
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2014
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2016
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2015
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(unaudited)
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Statement of Income Data:
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Revenues:
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Rental revenues
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$
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414,785
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$
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327,387
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$
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60,880
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$
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82,175
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Rental
revenues - related party
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980,509
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140,527
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345,526
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145,111
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Total Revenues
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1,395,294
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467,914
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406,406
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227,286
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Operating Expenses
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2,541,860
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5,947,862
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586,186
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355,262
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Loss from Operations
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(1,146,566
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)
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(5,479,948
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)
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(179,780
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)
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(127,976
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)
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Other Expense
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(225,464
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)
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(260,418
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)
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(56,873
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)
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(56,590
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)
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Net Loss
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$
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(1,372,030
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)
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$
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(5,740,366
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)
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$
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(236,653
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)
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$
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(184,566
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Net Loss per Common Share
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$
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(0.08
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)
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$
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(0.72
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)
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$
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(0.01
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)
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$
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(0.01
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)
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Weighted
Average Shares Outstanding - Basic and Diluted
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18,134,328
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7,931,701
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17,112,141
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18,527,971
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December 31,
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March 31,
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2015
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2016
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(unaudited)
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Balance Sheet Data:
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Total assets
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$
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9,088,381
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$
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9,164,882
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Total liabilities
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$
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3,347,823
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$
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3,364,698
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Total stockholders' equity
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$
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5,740,558
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$
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5,800,184
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RISK
FACTORS
Investing
in our common stock involves a high degree of risk. You should not invest in our stock unless you are able to bear the complete
loss of your investment. You should carefully consider the risks described below, as well as other information provided to you
in this prospectus, including information in the section of this prospectus entitled “Cautionary Statement Regarding Forward-Looking
Statements” before making an investment decision. The risks and uncertainties described below are not the only ones facing
Zoned Properties. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may
also impair our business operations. If any of the following risks actually occur, our business, financial condition or results
of operations could be materially adversely affected, the value of our common stock could decline, and you may lose all or part
of your investment.
Risks
Related to Our Business and Our Industry
Because
we have limited operating history in the cannabis industry, we may not succeed.
We
have limited operating history or experience in procuring, building out or leasing real estate for agricultural purposes, specifically
marijuana grow facilities, or with respect to any other activity in the cannabis industry. Moreover, we are subject to all risks
inherent in a developing a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses,
difficulties, complications, and delays frequently encountered in connection with establishing a new business and the competitive
and regulatory environment in which we operate. For example, the medical marijuana industry is new and may not succeed, particularly
should the federal government change course and decide to prosecute those dealing in medical marijuana. If that happens there
may not be an adequate market for our properties or other activities we propose to engage in.
You
should further consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by
companies that, like us, are in their early stages. For example, unanticipated expenses, delays and or complications with build
outs, zoning issues, legal disputes with neighbors, local governments, communities and or tenants. We may not successfully address
these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, it could materially harm
our business to the point of having to cease operations and could impair the value of our common stock to the point investors
may lose their entire investment.
We
may be unable to continue as a going concern if we do not successfully raise additional capital.
We
may need to raise additional funds through public or private debt or equity financings, as well as obtain credit from vendors
to be able to fully execute our business plan. If we are unable to successfully raise the capital we need, we may need to reduce
the scope of our business to fully satisfy our future short-term liquidity requirements. If we cannot raise additional capital
or reduce the scope of our business, we may be otherwise unable to achieve our goals or continue our operations. While we believe
that we will be able to raise the capital we need to continue our operations, there can be no assurances that we will be successful
in these efforts or will be able to resolve our liquidity issues or eliminate our operating losses. In addition, any additional
capital raised through the sale of equity may dilute your ownership interest. We may not be able to raise additional funds on
favorable terms, or at all. If we are unable to obtain additional funds or credit from our vendors, we will be unable to execute
our business plan and you could lose your investment.
Because
we may be unable to identify and or successfully acquire properties which are suitable for our business, our financial condition
may be negatively affected.
Our
business plan involves the identification and the successful acquisition of properties, which are zoned for marijuana businesses,
including cultivation and retail. The properties we acquire will be leased to licensed marijuana operators. Local governments
must approve and adopt zoning ordinances for marijuana facilities and retail dispensaries. A lack of properly zoned real estate
may reduce our prospects and limit our opportunity for growth and or increase the cost at which suitable properties are available
to us. Conversely a surplus of real estate zoned for marijuana establishments may reduce demand and prices we are able to charge
for properties we may have previously acquired.
In
addition, some jurisdictions, such as Arizona, impose limits on the number of medical marijuana dispensaries that will be permitted
to operate within designated geographic areas. Such limitations inherently place constraints on the number of properties we acquire
for lease to operators in the marijuana industry.
Because
our business is dependent upon continued market acceptance by consumers, any negative trends will adversely affect our business
operations.
We
are substantially dependent on continued market acceptance and proliferation of consumers of medical marijuana. We believe that
as marijuana becomes more accepted the stigma associated with marijuana use will diminish and as a result consumer demand will
continue to grow. And while we believe that the market and opportunity in the marijuana space continues to grow, we cannot predict
the future growth rate and size of the market. Any negative outlook on the marijuana industry will adversely affect our business
operations.
In
addition, it is believed by many that large well-funded businesses may have a strong economic opposition to the cannabis industry.
We believe that the pharmaceutical industry clearly does not want to cede control of any product that could generate significant
revenue. For example, medical marijuana will likely adversely impact the existing market for the current “marijuana pill”
sold by the mainstream pharmaceutical industry, should marijuana displace other drugs or encroach upon the pharmaceutical industry’s
products. The pharmaceutical industry is well funded with a strong and experienced lobby that eclipses the funding of the medical
marijuana movement. Any inroads the pharmaceutical could make in halting the impending cannabis industry could have a detrimental
impact on our proposed business.
Because
marijuana is illegal under federal law, we could be subject to criminal and civil sanctions for engaging in activities that violate
those laws.
The
U.S. Government classifies marijuana as a schedule-I controlled substance. As a result, marijuana is an illegal substance under
federal law. Even in those jurisdictions in which the use of medical marijuana has been legalized at the state level, its prescription
is a violation of federal law. The United States Supreme Court has ruled in United States v. Oakland Cannabis Buyers’ Coop.
and Gonzales v. Raich that it is the federal government that has the right to regulate and criminalize cannabis, even for medical
purposes. Therefore, federal law criminalizing the use of marijuana pre-empts state laws that legalizes its use for medicinal
purposes.
As of May 17, 2016, 24 states and the
District of Columbia allow its citizens to use medical marijuana. Additionally, Colorado and Washington have legalized cannabis
for adult use. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession
illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct
federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution
of medical marijuana. However, there is no guarantee that the administration will not change its stated policy regarding the low-priority
enforcement of federal laws. Additionally, any new administration that follows could change this policy and decide to enforce
the federal laws strongly. Any such change in the federal government’s enforcement of current federal laws could cause significant
financial damage to us and our shareholders.
Should
such a change occur, our business operations would be affected. If our marijuana tenants are forced to shut their operations,
we would need to seek to replace those tenants with non-marijuana tenants, who would likely expect to pay lower rents. Moreover,
if the marijuana industry were forced to shut down at once, it would result in a high amount of vacancies at once and create a
surplus of supply, driving leases and property values lower. Additionally, we would realize an economic loss on any and all improvements
made to the properties that were specific to the marijuana industry and we would likely lose any and all investments in the U.S.
market that were marijuana related.
In
addition, although we do not intend to harvest, cultivate, possess, distribute or sell cannabis, by leasing facilities to growers
of medicinal marijuana, we could be deemed to be participating in marijuana cultivation or aiding and abetting, which remains
illegal under federal law, and exposes us to potential criminal liability, with the additional risk that our properties could
be subject to civil forfeiture proceedings. Moreover, since the use of marijuana is illegal under federal law, we may have difficulty
acquiring or maintaining bank accounts and insurance and our shareholders may find it difficult to deposit their stock with brokerage
firms.
In
an effort to provide guidance to federal law enforcement, the Department of Justice (the “DOJ”) has issued Guidance
Regarding Marijuana Enforcement to all United States Attorneys in a memorandum from Deputy Attorney General David Ogden on October
19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011 and in a memorandum from Deputy Attorney General
James Cole on August 29, 2013. Each memorandum provides that the DOJ is committed to enforcement of the Controlled Substance Act
(the “CSA”), pursuant to which a range of activities including cultivation and use of cannabis for personal use is
prohibited, but the DOJ is also committed to using its limited investigative and prosecutorial resources to address the most significant
threats in the most effective, consistent and rational way.
The
August 29, 2013 memorandum provides updated guidance to federal prosecutors concerning marijuana enforcement in light of state
laws legalizing medical and recreational marijuana possession in small amounts. The memorandum sets forth certain enforcement
priorities that are important to the federal government:
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Distribution of marijuana to children;
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Revenue from the sale of marijuana going to criminals;
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Diversion of medical marijuana from states where is legal to states where it is not;
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Using
state authorized marijuana activity as a pretext of other illegal drug activity;
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Preventing
violence in the cultivation and distribution of marijuana;
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Preventing
drugged driving;
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Growing
marijuana on federal property; and
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Preventing
possession or use of marijuana on federal property.
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In
the event the DOJ reverses stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical
marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our revenue and profits.
Laws
and regulations affecting the regulated marijuana industry are constantly changing, which could materially adversely affect our
proposed operations, and we cannot predict the impact that future regulations may have on us.
Local,
state and federal medical marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could
require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these
laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on its operations.
In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business.
We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect
additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
FDA
regulation of marijuana and the possible registration of facilities where medical marijuana is grown could negatively affect the
cannabis industry, which would directly affect our financial condition.
Should
the federal government legalize marijuana for medical use, it is possible that the U.S. Food and Drug Administration (the “FDA”)
would seek to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations
including cGMPs (certified good manufacturing practices) related to the growth, cultivation, harvesting and processing of medical
marijuana. Clinical trials may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities
where medical marijuana is grown be registered with the FDA and comply with certain federally prescribed regulations. In the event
that some or all of these regulations are imposed, we do not know what the impact would be on the medical marijuana industry,
what costs, requirements and possible prohibitions may be enforced. If we or our tenants are unable to comply with the regulations
and or registration as prescribed by the FDA, we and or our tenants may be unable to continue to operate their and our business
in its current form or at all.
We
and our clients may have difficulty accessing the service of banks, which may make it difficult to contract for real estate needs.
On
February 14, 2014, the U.S. government issued rules allowing banks to legally provide financial services to state-licensed marijuana
businesses. A memorandum issued by the Justice Department to federal prosecutors re-iterated guidance previously given, this time
to the financial industry that banks can do business with legal marijuana businesses and “may not” be prosecuted.
The Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued guidelines to banks that “it
is possible to provide financial services” to state-licensed marijuana businesses and still be in compliance with federal
anti-money laundering laws. The guidance falls short of the explicit legal authorization that banking industry officials had pushed
the government to provide and to date it is not clear what if any banks have relied on the guidance and taken on legal marijuana
companies as clients. The aforementioned policy may be administration dependent and a change in presidential administrations may
cause a policy reversal and retraction of current policies, wherein legal marijuana businesses may not have access to the banking
industry. We could be subject to sanctions if we are found to be a financial institution and not in harmony with FinCEN guidelines.
Also, the inability of potential clients in our target market to open accounts and otherwise use the service of banks may make
it difficult for them to contract with us.
Because
we buy and lease property, we will be subject to general real estate risks.
We
will be subject to risks generally incident to the ownership of real estate, including: (a) changes in general economic or local
conditions; (b) changes in supply of, or demand for, similar or competing properties in the area; (c) bankruptcies, financial
difficulties or defaults by tenants or other parties; (d) increases in operating costs, such as taxes and insurance; (e) the inability
to achieve full stabilized occupancy at rental rates adequate to produce targeted returns; (f) periods of high interest rates
and tight money supply; (g) excess supply of rental properties in the market area; (h) liability for uninsured losses resulting
from natural disasters or other perils; (i) liability for environmental hazards; and (j) changes in tax, real estate, environmental,
zoning or other laws or regulations. For these and other reasons, no assurance can be given that we will be profitable.
Because
our business model depends upon the availability of private financing, any change in our ability to raise money will adversely
affect our financial condition.
Our
ability to acquire, operate and sell properties, engage in the business activities that we have planned and achieve positive financial
performance depends, in large measure, on our ability to obtain financing in amounts and on terms that are favorable. The capital
markets in the United States have recently undergone a turbulent period in which lending was severely restricted. Although there
appears to be signs that financial institutions are resuming lending, the market has not yet returned to its pre-2008 state. Obtaining
favorable financing in the current environment remains challenging.
Because
we will compete with others for suitable properties, competition will result in higher costs that could materially affect our
financial condition.
We
will experience competition for real estate investments from individuals, corporations and other entities engaged in real estate
investment activities, many of whom have greater financial resources than us. Competition for investments may have the effect
of increasing costs and reducing returns to our investors.
Because
we are liable for hazardous substances on our properties, environmental liabilities are possible and can be costly.
Federal,
state and local laws impose liability on a landowner for releases or the otherwise improper presence on the premises of hazardous
substances. This liability is without regard to fault for, or knowledge of, the presence of such substances. A landowner may be
held liable for hazardous materials brought onto a property before it acquired title and for hazardous materials that are not
discovered until after it sells the property. Similar liability may occur under applicable state law. Sellers of properties may
make only limited representations as to the absence of hazardous substances. If any hazardous materials are found within our properties
in violation of law at any time, we may be liable for all cleanup costs, fines, penalties and other costs. This potential liability
will continue after we sell the properties and may apply to hazardous materials present within the properties before we acquire
the properties. If losses arise from hazardous substance contamination, which cannot be recovered from a responsible party, the
financial viability of the properties may be adversely affected. It is possible that we will purchase properties with known or
unknown environmental problems, which may require material expenditures for remediation.
Because
we may not be adequately insured, we could experience significant liability for uninsured events.
While
we currently carry comprehensive insurance on our properties, including fire, liability and extended coverage insurance; however,
there are certain risks that may be uninsurable or not insurable on terms that management believes to be economical. For example,
management may not obtain insurance against floods, terrorism, mold-related claims, or earthquake insurance. If such an event
occurs to, or causes the damage or destruction of, a property, we could suffer financial losses.
If
we are found non-compliance with the Americans with Disabilities Act, we will be subject to significant liabilities.
If
any of our properties are not in compliance with the Americans with Disabilities Act of 1990, as amended (the “ADA”),
we may be required to pay for any required improvements. Under the ADA, public accommodations must meet certain federal requirements
related to access and use by disabled persons. The ADA requirements could require significant expenditures and could result in
the imposition of fines or an award of damages to private litigants. We cannot assure that ADA violations do not or will not exist
at any of our properties.
We
have never paid dividends on our common stock, and cannot guarantee that we will pay dividends to our stockholders in the future.
We
have never paid dividends on our common stock. For the foreseeable future, we intend to retain our future earnings, if any, in
order to reinvest in the development and growth of our business and, therefore, do not intend to pay dividends on our common stock.
However, in the future, our board of directors may declare dividends on our common stock. Any future determination to pay dividends
will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital
requirements, and such other factors as our board of directors deems relevant. Accordingly, investors may need to sell their shares
of our common stock to realize a return on their investment, and they may not be able to sell such shares at or above the price
paid for them. We cannot guarantee that we will pay dividends to our stockholders in the future.
Requirements
associated with being a reporting public company will require significant company resources and management attention.
For at least one year after the
December 18, 2015 effective date of our registration statement on Form S-1, we are required to file certain reports with the SEC
pursuant to Section 15(d) of the Exchange Act. We intend to file periodic reports to maintain current information with the SEC
on Forms 10-Q, 10-K and 8-K as prescribed by the rules and regulations of the Exchange Act. We work with independent legal, accounting
and financial advisors to ensure adequate disclosure and control systems to manage our growth and our obligations as a company
that files reports with the SEC. These areas include corporate governance, internal control, internal audit, disclosure controls
and procedures and financial reporting and accounting systems. However, we cannot assure you that these and other measures we
may take will be sufficient to allow us to satisfy our obligations as an SEC reporting company on a timely basis.
In addition, compliance with reporting
and other requirements applicable to SEC reporting companies create additional costs for us. It requires the time and attention
of management and may require the hiring of additional personnel and legal, audit and other professionals. We cannot predict or
estimate the amount of the additional costs we may incur, the timing of such costs or the impact that our management’s attention
to these matters will have on our business.
Our
inability to effectively manage our growth could harm our business and materially and adversely affect our operating results and
financial condition
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Our
strategy envisions growing our business. Any growth in or expansion of our business is likely to continue to place a strain on
our management and administrative resources, infrastructure and systems. As with other growing businesses, we expect that we will
need to further refine and expand our business development capabilities, our systems and processes and our access to financing
sources. We also will need to hire, train, supervise and manage new employees. These processes are time consuming and expensive,
will increase management responsibilities and will divert management attention. We cannot assure you that we will be able to:
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expand
our business effectively or efficiently or in a timely manner;
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allocate
our human resources optimally;
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meet
our capital needs;
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identify
and hire qualified employees or retain valued employees; or
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effectively
incorporate the components of any business or product line that we may acquire in our effort to achieve growth.
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Our
inability or failure to manage our growth and expansion effectively could harm our business and materially and adversely affect
our operating results and financial condition.
We
will be required to attract and retain top quality talent to compete in the marketplace.
We
believe our future growth and success will depend in part on our ability to attract and retain highly skilled managerial, sales
and marketing, and finance personnel. There can be no assurance of success in attracting and retaining such personnel. Shortages
in qualified personnel could limit our ability to compete in the marketplace.
We
are dependent on Bryan McLaren, our Chief Executive Officer and President, and the loss of this officer could harm our business
and prevent us from implementing our business plan in a timely manner.
In
view of his direct relationships with industry partners that directly contribute to our business development strategy, our success
depends substantially upon the continued services of Mr. McLaren. Although we intend to purchase a key person life insurance policy
on our Chief Executive Officer and President, we do not currently maintain such a policy. The loss of Mr. McLaren’s services
could have a material adverse effect on our business and operations.
Adam
Wasserman, our Chief Financial Officer, does not dedicate 100% of his time to our business.
Adam
Wasserman, our Chief Financial Officer, provides services to us under a letter agreement with CFO Oncall, Inc (“CFO Oncall”),
which permits him to provide services to other companies during the term of the agreement. Mr. Wasserman is Chief Executive Officer
of CFO Oncall, where he owns 80%. All compensation payable under the letter agreement is paid to CFO Oncall. CFO Oncall provides
chief financial officer services to various companies.
Mr. Wasserman also serves as Chief Financial Officer of Pen Inc.
since January 2015, Point Capital, Inc. since July 2015, and other companies from time to time. Mr. Wasserman dedicates approximately
31% of his business time to us. In addition to Mr. Wasserman’s time, CFO Oncall has full-time dedicated, professional employees
that also assist Mr. Wasserman with our financial matters and communication needs. Mr. Wasserman’s other projects may detract
from the time he can spend on our business.
Risks
Related to Our Common Stock and This Offering
Our
common stock is quoted on the OTCQX, which may limit the liquidity and price of our common stock more than if our common stock
were listed on the Nasdaq Stock Market or another national exchange.
Our
securities are currently quoted on the OTCQX, an inter-dealer automated quotation system for equity securities. Quotation of our
securities on the OTCQX may limit the liquidity and price of our securities more than if our securities were listed on the Nasdaq
Stock Market or another national exchange. As an OTCQX company, we do not attract the extensive analyst coverage that accompanies
companies listed on national securities exchanges. Further, institutional and other investors may have investment guidelines that
restrict or prohibit investing in securities quoted on the OTCQX. These factors may have an adverse impact on the trading and
price of our common stock.
The
trading price of our common stock may decrease due to factors beyond our control.
The
stock market from time to time has experienced extreme price and volume fluctuations, which have particularly affected the market
prices for emerging growth companies and which often have been unrelated to the operating performance of the companies. These
broad market fluctuations may adversely affect the market price of our common stock. If our shareholders sell substantial amounts
of their common stock in the public market, the price of our common stock could fall. These sales also might make it more difficult
for us to sell equity, or equity-related securities, in the future at a price we deem appropriate.
The
market price of our common stock may also fluctuate significantly in response to the following factors, most of which are beyond
our control:
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variations
in our quarterly operating results,
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changes
in general economic conditions and in the real estate industry,
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changes
in market valuations of similar companies,
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announcements
by us or our competitors of significant new contracts, acquisitions, strategic partnerships or joint ventures, or capital
commitments,
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loss
of a major customer, partner or joint venture participant and
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the
addition or loss of key managerial and collaborative personnel.
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Any
such fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance. As
a result, stockholders may be unable to sell their shares, or may be forced to sell them at a loss.
The
market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and
thinly traded public float, limited operating history and lack of profits which could lead to wide fluctuations in our share price.
You may be unable to sell your common shares at or above your purchase price, which may result in substantial losses to you.
The
market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect
that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our
share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and thinly traded.
As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately
influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in
the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned
issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky”
investment due to our limited operating history and lack of profits to date. As a consequence of this enhanced risk, more risk-adverse
investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be
more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of
a seasoned issuer. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless
of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common
shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what
effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.
The
registration and potential sale, pursuant to this prospectus, by the selling stockholders of a significant number of shares could
depress the price of our common stock.
Because
there is a limited public market for our common stock, there may be significant downward pressure on our stock price caused by
the sale or potential sale of a significant number of shares pursuant to this prospectus, which could allow short sellers of our
stock an opportunity to take advantage of any decrease in the value of our stock. The presence of short sellers in our common
stock may further depress the price of our common stock.
If
the selling stockholders sell a significant number of shares of common stock, the market price of our common stock may decline.
Furthermore, the sale or potential sale of the offered shares pursuant to the prospectus and the depressive effect of such sales
or potential sales could make it difficult for us to raise funds from other sources.
Our
preferred stockholders together have, and will continue to have after giving effect to this offering, voting control, which will
limit your ability to influence the outcome of important transactions, including a change in control.
Each
of our preferred stockholders beneficially owns 1,000,000 shares of our preferred stock. Each share of preferred stock entitles
the holder to 50 votes per share. In contrast, each share of our common stock, which is the stock we are offering pursuant to
this prospectus, has one vote per share. Upon the completion of this offering, each of our preferred stockholders will hold approximately
43% of the voting power of our outstanding capital stock. Because of the 50-to-1 voting ratio between our preferred stock and
our common stock, after the completion of this offering, our preferred stockholders together will continue to control a majority
of the combined voting power of our capital stock and therefore be able to control all matters submitted to our stockholders for
approval. The preferred stockholders may also have interests that differ from yours and may vote in a way with which you disagree
and which may be adverse to your interests. This concentrated control may have the effect of delaying, preventing or deterring
a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their capital stock
as part of a sale of our company and might ultimately affect the market price of our common stock.
We
are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging
growth companies will make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies, including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We
cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors
find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock
price may be more volatile.
Under
the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards
apply to private companies. We have elected to take advantage of the benefits of this extended transition period.
Because
we are subject to additional regulatory compliance matters as a result of being a public company, which compliance includes Section
404 of the Sarbanes-Oxley Act, and our management has limited experience managing a public company, the failure to comply with
these regulatory matters could harm our business.
Our
management and outside professionals will need to devote a substantial amount of time to new compliance initiatives and to meeting
the obligations that are associated with being a public company. Bryan McLaren, our President, has little experience running a
public company. For now, he will rely heavily on legal counsel and accounting professionals to help with our future SEC reporting
requirements. This will likely divert needed capital resources away from the objectives of implementing our business plan. These
expenses could be more costly than we are able to bear and could result in us not being able to successfully implement our business
plan.
We
expect rules and regulations such as the Sarbanes-Oxley Act will increase our legal and finance compliance costs and make some
activities more time-consuming than in the past. We may need to hire a number of additional employees with public accounting and
disclosure experience in order to meet our ongoing obligations as a public company.
As
a smaller reporting company, our management will be required to provide a report on the effectiveness of our internal controls
over financial reporting, but will not be required to provide an auditor’s attestation regarding such report. Section 404
compliance efforts may divert internal resources and will take a significant amount of time and effort to complete. We may not
be able to successfully complete the procedures and certification of Section 404 by the time we will be required to do so. If
we fail to do so, or if in the future our management determines that our internal controls over financial reporting are not effective,
we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions
of our company may suffer, and this could cause a decline in the market price of our stock. Furthermore, whether or not we comply
with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations
and harm our reputation. If we are unable to implement necessary procedures or changes effectively or efficiently, it could harm
our operations, financial reporting or financial results.
Rule
144 Related Risks
Pursuant
to Rule 144, a person who has beneficially owned restricted shares of our common stock for at least six months is entitled to
sell his or her securities provided that: (i) such person is not deemed to have been one of our affiliates at the time of, or
at any time during the three months preceding, a sale, (ii) we are subject to the Exchange Act periodic reporting requirements
for at least 90 days before the sale and (iii) if the sale occurs prior to satisfaction of a one-year holding period, we provide
current information at the time of sale.
Persons
who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time
of, or at any time during the three months preceding a sale, would be subject to additional restrictions, by which such person
would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either
of the following:
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1%
of the total number of securities of the same class then outstanding; or
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the
average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144
with respect to the sale;
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provided
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in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.
Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.
In
addition, as a former shell company, we are subject to additional restrictions. Historically, the SEC staff has taken the position
that Rule 144 is not available for the resale of securities initially issued by companies that are, or previously were, shell
companies, such as Zoned Properties. Rule 144 is not available for resale of securities issued by any shell companies (other than
business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has
provided an exception to this prohibition, however, if the following conditions are met:
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The
issuer of the securities that was formerly a shell company has ceased to be a shell company,
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The
issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
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The
issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding
12 months (or such shorter period that the issuer was required to file such reports and materials), other than current reports
on Form 8-K, and
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At
least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its
status as an entity that is not a shell company.
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Therefore,
Rule 144 will be unavailable for resales by our stockholders until at least 12 months following the time that the registration
statement on Form S-1, of which this prospectus forms a part, is declared effective by the SEC.
We are registering the resale
of 1,185,012 shares of common stock, which may be sold by the selling stockholders. The resale of such shares by the selling stockholders
could depress the market price of our common stock.
We are registering the resale of
1,185,012 shares of common stock under the registration statement of which this prospectus forms a part. As of May 26, 2016, the
shares being registered represent approximately 6.9% of our outstanding common stock. The sale of these shares into the public
market by the selling stockholders could depress the market price of our common stock. As of May 26, 2016, there were 17,135,850
shares of our common stock issued and outstanding. The sale of those additional shares into the public market by the selling stockholders
could further depress the market price of our common stock.
The
arbitrary offering price of the shares being offered by the selling stockholders pursuant to this prospectus may result in a loss
of value of shares of our common stock.
The
offering price of the shares bears no relation to book value, assets, earnings or any other objective criteria of value. It has
been arbitrarily determined by the selling stockholders. There can be no assurance that the shares will attain market values commensurate
with the offering price.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this
prospectus that are forward-looking in nature are based on the current beliefs of our management as well as assumptions made by
and information currently available to management, including statements related to general trends in our operations or financial
results, plans, expectations, estimates and beliefs. In addition, when used in this prospectus, the words “may,” “could,”
“should,” “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“plan,” “predict” and similar expressions and their variants, as they relate to us or our management,
may identify forward-looking statements. These statements reflect our judgment as of the date of this prospectus with respect
to future events, the outcome of which is subject to risks, which may have a significant impact on our business, operating results
or financial condition. You are cautioned that these forward-looking statements are inherently uncertain. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein. Except as required by law, we undertake no obligation to update forward-looking statements.
The risks identified in our annual report on Form 10-K for the fiscal year ended December 31, 2015 and those identified in the
“Risk Factors” section of this prospectus, among others, may impact forward-looking statements contained in this prospectus.
You
should also refer to the section of this prospectus entitled “Risk Factors” for a discussion of factors that may cause
our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these
factors, we cannot assure you that the forward-looking statements in this prospectus will prove to be accurate. Furthermore, if
our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties
in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other
person that we will achieve our objectives and plans in any specified time-frame, or at all.
All
written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their
entirety by these cautionary statements. You should evaluate all forward-looking statements made in this prospectus in the context
of these risks and uncertainties.
We
caution you that the important factors referenced above may not contain all of the factors that are important to you.
USE
OF PROCEEDS
We
will not receive any proceeds from the sale of common stock offered by the selling stockholders. See “Principal and Selling
Stockholders.”
PRINCIPAL
AND SELLING STOCKHOLDERS
At May 26, 2016, we had 17,135,850 shares
of our common stock issued and outstanding. We are registering for resale shares of our common stock that are issued and outstanding
held by the selling stockholders identified below. We are registering the shares to permit the selling stockholders to resell
the shares when and as they deem appropriate in the manner described in the “Plan of Distribution.” The following
table sets forth information regarding the beneficial ownership of our common stock as of May 26, 2016, and as adjusted to reflect
the sale of common stock offered by the selling stockholders in this offering, for:
|
●
|
Each
of our named executive officers,
|
|
|
|
|
●
|
Each
of our directors,
|
|
|
|
|
●
|
All
of our directors and executive officers as a group
|
|
|
|
|
●
|
Each
stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock, and
|
|
|
|
|
●
|
All
selling stockholders.
|
Each
share of common stock is entitled to one vote per share on each matter submitted to a vote of stockholders. Each share of our
non-convertible preferred stock is entitled to 50 votes per share on each matter submitted to a vote of stockholders. Holders
of preferred shares vote along with common stockholders on each matter submitted to a vote of security holders. As a result of
the multiple votes accorded to holders of the preferred stock, Greg Johnston and Alex McLaren have the ability to control the
outcome of all matters submitted to a vote of stockholders, including the election of directors. In addition, certain corporate
action requires the affirmative vote by holders of at least 51% of the outstanding preferred stock. On those matters that require
the approval of at least 51% of the preferred stock, both Mr. Johnston and Mr. McLaren must provide their approval inasmuch as
each of them owns 50% of the outstanding preferred stock. A more complete description of the rights and privileges of the preferred
stock is contained elsewhere in this prospectus under the caption “Description of Securities.”
Information
on beneficial ownership of securities is based upon a record list of our stockholders and we have determined beneficial ownership
in accordance with the rules of the SEC. We believe, based on the information furnished to us that the persons and entities named
in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own,
subject to applicable community property laws. Based on the information provided to us by or on behalf of the selling stockholders,
none of the selling stockholders, and no entity listed in the footnotes to the table below, is a broker-dealer nor an affiliate
of a broker-dealer. None of the selling stockholders had an agreement or understanding, directly or indirectly, to distribute
any of the shares being registered at the time of purchase.
The
selling stockholders may offer for sale all or part of the shares from time to time. The table below assumes that the selling
stockholders will sell all of the shares offered for sale. The selling stockholders are under no obligation, however, to sell
any shares pursuant to this prospectus. Unless otherwise indicated, the business address of each person listed below is c/o Zoned
Properties, Inc., 14300 N. Northsight Blvd., #208, Scottsdale, AZ 85260.
The resale of 1,185,012
shares of our common stock is covered by this prospectus. The circumstances under which the selling stockholders received their
shares are as follows:
|
●
|
During
the quarter ended March 31, 2014, we sold 48,980 shares to an aggregate of 45 investors in a private placement of common stock
under Section 4(2) of the Securities Act and the rules and regulations thereunder, at a purchase price of $120.00 per share.
|
|
|
|
|
●
|
In
July 2014, we sold 16,637,000 shares issued to an aggregate of 52 investors in a private placement of common stock under Section
4(2) of the Securities Act and the rules and regulations thereunder, at a purchase price of $0.01 per share.
|
|
|
|
|
●
|
From
August 2014 to December 2014, we sold 1,850,000 shares issued to an aggregate of seven investors in a private placement of
common stock under Section 4(2) of the Securities Act and the rules and regulations thereunder, at a purchase price of $1.00
per share.
|
|
|
|
|
●
|
In
May 2015, we sold 1,000,000 shares of common stock to accredited investors pursuant to a private placement, in a private placement
of common stock under Section 4(2) of the Securities Act and the rules and regulations thereunder, at a purchase price of
$1.00 per share.
|
|
|
|
|
●
|
30
,000
of the shares were issued to three individuals as compensation for their services as directors.
These shares were valued
using the sale price of the common stock on the date of grant of $1.00 per share.
|
All
of the shares being offered by the selling stockholders pursuant to this prospectus were acquired in one of the above transactions.
Name
and Address of Beneficial Owner
|
|
Stock
Beneficially Owned Prior
to Offering
(1)
|
|
|
Percent
of Class Beneficially Owned Prior to Offering
|
|
|
Percent
of Voting Power Prior to Offering
(2)
|
|
|
Shares
of Common Stock Offered under this Prospectus
|
|
|
Stock
Beneficially Owned After Offering
(1)
|
|
|
Percent
of Class Beneficially Owned After Offering
|
|
|
Percent
of Voting Power After Offering
(2)
|
|
Executive
Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryan
McLaren
|
|
|
25,000
|
(3)
|
|
|
*
|
|
|
|
*
|
|
|
|
-
|
|
|
|
25,000
|
(3)
|
|
|
*
|
|
|
|
*
|
|
Irvin
Rosenfeld
|
|
|
20,000
|
(4)
|
|
|
*
|
|
|
|
*
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Art
Friedman
|
|
|
20,000
|
(4)
|
|
|
*
|
|
|
|
*
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Alex
McLaren
|
|
|
1,521,667
|
(5)
|
|
|
8.9
|
%
|
|
|
44.0
|
%
|
|
|
10,000
|
|
|
|
1,501,667
|
|
|
|
8.8
|
%
|
|
|
44.0
|
%
|
Adam Wasserman
|
|
|
27,100
|
|
|
|
*
|
|
|
|
*
|
|
|
|
-
|
|
|
|
27,100
|
|
|
|
*
|
|
|
|
*
|
|
All
executive officers and directors as a group (5 persons)
|
|
|
1,610,017
|
|
|
|
9.4
|
%
|
|
|
44.1
|
%
|
|
|
30,000
|
|
|
|
1,580,017
|
|
|
|
9.0
|
%
|
|
|
44.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
5% Owners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
Abrams
16624
North 90
th
Street, Ste. 101
Scottsdale,
AZ 85260
|
|
|
3,526,669
|
|
|
|
20.6
|
%
|
|
|
3.0
|
%
|
|
|
-
|
|
|
|
3,526,669
|
|
|
|
20.6
|
%
|
|
|
3.0
|
%
|
Greg
Johnston
915 Stitch Rd.
Lake
Stevens, WA 98258
|
|
|
2,512,500
|
|
|
|
14.7
|
%
|
|
|
44.8
|
%
|
|
|
-
|
|
|
|
2,512,500
|
|
|
|
14.7
|
%
|
|
|
44.8
|
%
|
Christopher
Carra
8880 E. Friess
Scottsdale,
AZ 85260
|
|
|
2,043,335
|
|
|
|
11.9
|
%
|
|
|
1.7
|
%
|
|
|
-
|
|
|
|
2,043,335
|
|
|
|
11.9
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Selling Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew
Ludwig
1508 Bay Rd.
Apt.
829
North Miami Beach, FL 33139
|
|
|
55,418
|
(6)
|
|
|
*
|
|
|
|
*
|
|
|
|
11,084
|
|
|
|
44,334
|
|
|
|
*
|
|
|
|
*
|
|
Beth
Levine
c/o
Caron Partners, LP
20155
NE 38
th
Court #1804
Aventura,
FL 33180
|
|
|
100,834
|
(7)
|
|
|
*
|
|
|
|
*
|
|
|
|
20,167
|
|
|
|
80,667
|
|
|
|
*
|
|
|
|
*
|
|
Name
and Address of Beneficial Owner
|
|
Stock
Beneficially Owned Prior
to Offering
(1)
|
|
|
Percent
of Class Beneficially Owned Prior to Offering
|
|
|
Percent
of Voting Power Prior to Offering
(2)
|
|
|
Shares
of Common Stock Offered under this Prospectus
|
|
|
Stock
Beneficially Owned After Offering
(1)
|
|
|
Percent
of Class Beneficially Owned After Offering
|
|
|
Percent
of Voting Power After Offering
(2)
|
|
Clifford
Berger
7 Old Round Hill Ln.
Greenwich, CT 06831
|
|
|
201,667
|
|
|
|
1.2
|
%
|
|
|
*
|
|
|
|
40,333
|
|
|
|
161,334
|
|
|
|
*
|
|
|
|
*
|
|
Daniel
Hartwell
5505 N. Ocean Blvd., #201,
Ocean Ridge, FL 33435
|
|
|
10,084
|
|
|
|
*
|
|
|
|
*
|
|
|
|
2,017
|
|
|
|
8,067
|
|
|
|
*
|
|
|
|
*
|
|
Daniel
Iannettone
736 Arthur Godfrey
Miami Beach, FL 33140
|
|
|
50,417
|
|
|
|
*
|
|
|
|
*
|
|
|
|
10,083
|
|
|
|
40,334
|
|
|
|
*
|
|
|
|
*
|
|
Raimondo
Dias
c/o
Fusion Capital Investments Corp.
620
NW 12
th
Ave., Boca Raton,
FL
33486
|
|
|
20,417
|
(8)
|
|
|
*
|
|
|
|
*
|
|
|
|
4,083
|
|
|
|
16,334
|
|
|
|
*
|
|
|
|
*
|
|
Gerard
Pollino
16 Overidge Ln.
Wilton, CT 06897
|
|
|
201,667
|
|
|
|
1.2
|
%
|
|
|
*
|
|
|
|
40,333
|
|
|
|
161,334
|
|
|
|
*
|
|
|
|
*
|
|
Guy
S. Amico
3526 Palais
Terrace
Wellington, FL 33449
|
|
|
200,000
|
|
|
|
1.2
|
%
|
|
|
*
|
|
|
|
40,000
|
|
|
|
160,000
|
|
|
|
*
|
|
|
|
*
|
|
Jeffrey
Williams
c/o
El Dorado LLC
Pop
Center, Edgar Rios, 19
th
Floor, 208 Ponce de Leon
San
Juan, PR 00918
|
|
|
100,709
|
(9)
|
|
|
*
|
|
|
|
*
|
|
|
|
20,142
|
|
|
|
80,567
|
|
|
|
*
|
|
|
|
*
|
|
Jody
Kane
10 Power Horn Hill Rd.
Wilton, CT 06897
|
|
|
50,417
|
|
|
|
*
|
|
|
|
*
|
|
|
|
10,083
|
|
|
|
40,334
|
|
|
|
*
|
|
|
|
*
|
|
Joseph
Bartonek
949 Durham Rd.
Edison, NJ 08817
|
|
|
756,250
|
|
|
|
4.4
|
%
|
|
|
*
|
|
|
|
151,250
|
|
|
|
605,000
|
|
|
|
3.5
|
%
|
|
|
*
|
|
John
Andrew Hulsey
c/o John Andrew Hulsey Living Trust
14629 Marshview Drive,
Jacksonville, FL 32250
|
|
|
115,834
|
(10)
|
|
|
*
|
|
|
|
*
|
|
|
|
23,167
|
|
|
|
92,667
|
|
|
|
*
|
|
|
|
*
|
|
Jonathan
Lichter
1119 Cambridge Rd.
Teaneck, NJ 07666
|
|
|
147,434
|
(11)
|
|
|
*
|
|
|
|
*
|
|
|
|
28,350
|
(12)
|
|
|
119,084
|
(13)
|
|
|
*
|
|
|
|
*
|
|
Keith
Anderson and Cathy Zeni
18324 Hampton Ct.
Livonia, MI 48152
|
|
|
100,834
|
|
|
|
*
|
|
|
|
*
|
|
|
|
20,167
|
|
|
|
80,667
|
|
|
|
*
|
|
|
|
*
|
|
Name
and Address of Beneficial Owner
|
|
Stock
Beneficially
Owned Prior to
Offering
(1)
|
|
|
Percent
of Class Beneficially Owned Prior to Offering
|
|
|
Percent
of Voting Power Prior to Offering
(2)
|
|
|
Shares
of Common Stock Offered under this Prospectus
|
|
|
Stock
Beneficially Owned After Offering
(1)
|
|
|
Percent
of
Class Beneficially Owned After Offering
|
|
|
Percent
of Voting Power After Offering
(2)
|
|
Mark
Baker
320 Don Fernando Rd.
Santa Fe, NM 87505
|
|
|
160,000
|
|
|
|
*
|
|
|
|
*
|
|
|
|
40,000
|
|
|
|
120,000
|
|
|
|
*
|
|
|
|
*
|
|
Max
Nalder
113 Paradise Pt. Dr.
Brandon, MS 85248
|
|
|
183,517
|
|
|
|
1.1
|
%
|
|
|
*
|
|
|
|
36,703
|
|
|
|
146,814
|
|
|
|
*
|
|
|
|
*
|
|
Michael
Antonakos
17 S. Hampton Dr.
Fairfield, NJ 07004
|
|
|
10,084
|
|
|
|
*
|
|
|
|
*
|
|
|
|
2,017
|
|
|
|
8,067
|
|
|
|
*
|
|
|
|
*
|
|
Michael
Blume
5505 N. Ocean Blvd., Ste. 107
Boynton, FL 33435
|
|
|
39,167
|
|
|
|
*
|
|
|
|
*
|
|
|
|
7,833
|
|
|
|
31,334
|
|
|
|
*
|
|
|
|
*
|
|
Chris
Humphrey
4808
N. 24
th
St., #403
Phoenix,
AZ 85016
|
|
|
5,000
|
|
|
|
*
|
|
|
|
*
|
|
|
|
1,000
|
|
|
|
4,000
|
|
|
|
*
|
|
|
|
*
|
|
Michael
Iacono
11606 Orange Blossom Ln.
Boca Raton, FL 33428
|
|
|
200,000
|
|
|
|
1.2
|
%
|
|
|
*
|
|
|
|
40,000
|
|
|
|
160,000
|
|
|
|
*
|
|
|
|
*
|
|
Milton
B. Hubbard III
120 N. Hamilton Dr., Apt. 12
Beverly Hills, CA 90211
|
|
|
197,667
|
|
|
|
1.2
|
%
|
|
|
*
|
|
|
|
39,533
|
|
|
|
158,134
|
|
|
|
*
|
|
|
|
*
|
|
Nicholas
Gregory Johnston
915 Stitch Rd.
Lake Stevens, WA 98258
|
|
|
150,000
|
|
|
|
*
|
|
|
|
*
|
|
|
|
30,000
|
|
|
|
120,000
|
|
|
|
*
|
|
|
|
*
|
|
Peter
Ferrara
1106 Don Cubero Ave.
Santa Fe, NM 87505
|
|
|
160,000
|
|
|
|
*
|
|
|
|
*
|
|
|
|
40,000
|
|
|
|
120,000
|
|
|
|
*
|
|
|
|
*
|
|
Regina
Fieramosca
15 Wescott Blvd.
Staten Island, NY 10314
|
|
|
50,417
|
|
|
|
*
|
|
|
|
*
|
|
|
|
10,083
|
|
|
|
40,334
|
|
|
|
*
|
|
|
|
*
|
|
Richard
Kepes and Judy Kepes
3665 Quail Hollow Dr.
Bloomfield Hills, MI 48302
|
|
|
100,834
|
|
|
|
*
|
|
|
|
*
|
|
|
|
20,167
|
|
|
|
80,667
|
|
|
|
*
|
|
|
|
*
|
|
Ron
Levine
c/o
Bellajule Partners LP 20155
NE 38
th
Ct. #1804
Aventura,
FL 33180
|
|
|
50,418
|
(14)
|
|
|
*
|
|
|
|
*
|
|
|
|
10,084
|
|
|
|
40,334
|
|
|
|
*
|
|
|
|
*
|
|
Ronald
Iannelli
30-75
33
rd
St., #B4
Astoria,
NY 11102
|
|
|
50,417
|
|
|
|
*
|
|
|
|
*
|
|
|
|
10,083
|
|
|
|
40,334
|
|
|
|
*
|
|
|
|
*
|
|
Name
and Address of Beneficial Owner
|
|
Stock
Beneficially
Owned Prior to
Offering
(1)
|
|
|
Percent
of Class Beneficially Owned Prior to Offering
|
|
|
Percent
of Voting Power Prior to Offering
(2)
|
|
|
Shares
of Common Stock
Offered
under this Prospectus
|
|
|
Stock
Beneficially Owned After Offering
(1)
|
|
|
Percent
of
Class Beneficially Owned After Offering
|
|
|
Percent
of Voting Power After Offering
(2)
|
|
Scott
H. Goldstein
6799 Royal Orchid Circle
Delray Beach, FL 33446
|
|
|
200,000
|
|
|
|
1.2
|
%
|
|
|
*
|
|
|
|
40,000
|
|
|
|
160,000
|
|
|
|
*
|
|
|
|
*
|
|
Thomas
V. Sagona
30 Sagona Court
Staten Island, NY 10309
|
|
|
252,084
|
|
|
|
1.5
|
%
|
|
|
*
|
|
|
|
50,417
|
|
|
|
201,667
|
|
|
|
*
|
|
|
|
*
|
|
Todd
Ruetsch
419 Knowell Rd.
Camillus, NY 13031
|
|
|
100,834
|
|
|
|
*
|
|
|
|
*
|
|
|
|
20,167
|
|
|
|
80,667
|
|
|
|
*
|
|
|
|
*
|
|
Tom
Fagan and Beverly Fagan
6080 Wellington Ave.
Gainesville, GA 30506
|
|
|
200,934
|
|
|
|
1.2
|
%
|
|
|
*
|
|
|
|
40,167
|
|
|
|
160,767
|
|
|
|
*
|
|
|
|
*
|
|
William
Boyce
6814 Kingsbury
St. Louis, MO 63130
|
|
|
301,667
|
|
|
|
1.2
|
%
|
|
|
*
|
|
|
|
60,333
|
|
|
|
241,334
|
|
|
|
*
|
|
|
|
*
|
|
Guy
S. Amico
c/o Newbridge Financial, Inc.
3526 Palais Terrace
Wellington, FL 33449
|
|
|
550,000
|
(15)
|
|
|
3.2
|
%
|
|
|
*
|
|
|
|
110,000
|
|
|
|
440,000
|
|
|
|
*
|
|
|
|
*
|
|
Maureen
Kenny
c/o Philip B. Kenny Trust
707 Glenayre Dr.
Glenview, IL 60025
|
|
|
500,000
|
(16)
|
|
|
2.9
|
%
|
|
|
*
|
|
|
|
100,000
|
|
|
|
400,000
|
|
|
|
*
|
|
|
|
*
|
|
Karen
Bovay
1532 W. Campbell Ave.
Phoenix, AZ 85015
|
|
|
25,000
|
|
|
|
*
|
|
|
|
*
|
|
|
|
5,000
|
|
|
|
20,000
|
|
|
|
*
|
|
|
|
*
|
|
Jennifer
Kridos
8880 E. Friess Dr.
Scottsdale, AZ 85260
|
|
|
50,417
|
|
|
|
*
|
|
|
|
*
|
|
|
|
10,083
|
|
|
|
40,334
|
|
|
|
*
|
|
|
|
*
|
|
Valera
Knight
7718 E. Chaparral Rd.
Scottsdale, AZ 85250
|
|
|
50,417
|
|
|
|
*
|
|
|
|
*
|
|
|
|
10,083
|
|
|
|
40,334
|
|
|
|
*
|
|
|
|
*
|
|
*
|
Less than 1%.
|
(1)
|
Beneficial ownership is determined in accordance with the rules and regulations of the SEC.
In computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities that
are currently convertible or exercisable into shares of our common stock, or convertible or exercisable into shares of our
common stock within 60 days of the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding for
the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to the following
table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite
such stockholder’s name.
|
(2)
|
Gives effect to ownership of preferred stock (see table below), the holders of which are entitled
to 50 votes per share.
|
(3)
|
Consists of vested stock options.
|
(4)
|
Of these shares, 10,000 represent shares issuable upon exercise of vested stock options.
|
(5)
|
Of these shares, 1,501,667 shares are held by McLaren Family LLLP. Alex McLaren is the
general partner of McLaren Family LLLP and has voting and dispositive power over such shares.
|
(6)
|
Of these shares, 40,334 are held by NuView IRA FBO Andrew Ludwig. Mr. Ludwig has voting
and dispositive power over such shares.
|
(7)
|
Shares are held by Caron Partners, LP. Beth Levine has voting and dispositive power over
these shares.
|
(8)
|
Shares are held by Fusion Capital Investments Corp. Mr. Dias has voting and dispositive
power over such shares.
|
(9)
|
Shares are held by El Dorado LLC. Mr. Williams has voting and dispositive power over such
shares.
|
(10)
|
Shares are held by John Andrew Hulsey Living Trust, of which Mr. Hulsey is the trustee.
Mr. Hulsey has voting and dispositive power over such shares.
|
(11)
|
Of these shares, 100,834 are held by Diamond Bridge Capital LLC. Mr. Lichter has voting
and dispositive power over such shares.
|
(12)
|
Of these shares, 20,167 are being offered by Diamond Bridge Capital LLC. Mr. Lichter has
voting and dispositive power over such shares.
|
(13)
|
Of these shares, 80,667 will be held by Diamond Bridge Capital LLC. Mr. Lichter has voting
and dispositive power over such shares.
|
(14)
|
Shares are held by Bellajule Partners, LP. Mr. Levine has voting and dispositive power
over such shares.
|
(15)
|
Shares are held by Newbridge Financial, Inc. Mr. Amico has voting and dispositive power
over such shares.
|
(16)
|
Shares are held by Philip B. Kenny Trust, of which Ms. Kenny is the trustee. Ms. Kenny
has voting and dispositive power over such shares.
|
Preferred
Stock
Name and Address of Beneficial Owner
|
|
Shares of Preferred Stock
Beneficially Owned
|
|
|
Percent of Class Beneficially
Owned
|
|
|
Percent
of Voting
Power
(2)
|
|
Greg Johnston
915 Stitch Rd.
Lake Stevens, WA 98258
|
|
|
1,000,000
|
|
|
|
50
|
%
|
|
|
44.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alex McLaren (1)
c/o Zoned Properties, Inc.
14300 N. Northsight Blvd., #208
Scottsdale,
AZ 85260
|
|
|
1,000,000
|
|
|
|
50
|
%
|
|
|
44.1
|
%
|
|
(1)
|
Shares
are held by McLaren Family LLLP. Alex McLaren is the general partner of McLaren Family LLLP and has voting and dispositive
power over such shares.
|
|
(2)
|
As
a result of the multiple votes accorded to holders of the preferred stock (50 votes per share), Greg Johnston and Alex McLaren
have the ability to control the outcome of all matters submitted to a vote of stockholders, including the election of directors.
The percent of voting power in the table gives effect to the holder’s beneficial ownership of common stock and preferred
stock.
|
PLAN
OF DISTRIBUTION
This prospectus relates to the resale
of 1,185,012 shares of common stock offered by the selling stockholders. The selling stockholders and any of their respective
pledges, donees, assignees and other successors-in-interest may, from time to time, sell any or all of its shares of common stock
on any stock exchange, market or trading facility on which the shares are traded or in private transactions. The selling stockholders
may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated
prices.
The
selling stockholders may use any one or more of the following methods when selling shares:
|
●
|
ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
|
|
|
●
|
block
trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
|
|
|
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
|
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable exchange;
|
|
|
|
|
●
|
privately
negotiated transactions;
|
|
|
|
|
●
|
short
sales after this registration statement becomes effective;
|
|
|
|
|
●
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
|
|
|
|
|
●
|
through
the writing of options on the shares;
|
|
|
|
|
●
|
a
combination of any such methods of sale; and
|
|
|
|
|
●
|
any
other method permitted pursuant to applicable law.
|
The
selling stockholders or any of their respective pledgees, donees, transferees or other successors in interest, may also sell the
shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers.
Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which
compensation as to a particular broker-dealer might be in excess of customary commissions. Before any such agent, or broker-dealer
sells any of the shares registered here, a post-effective amendment will be filed to name anyone receiving compensation for selling
the shares before any sales take place. Market makers and block purchasers purchasing the shares will do so for their own account
and at their own risk. It is possible that a selling stockholder will attempt to sell shares of common stock in block transactions
to market makers or other purchasers at a price which may be below the then market price. The selling stockholders cannot assure
that all or any of the shares offered in this prospectus will be sold by the selling stockholders. The selling stockholders and
any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus, are “underwriters”
as that term is defined under the Securities Act or the Exchange Act, or the rules and regulations under such acts. In such event,
any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Discounts,
concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder.
The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving
sales of the shares if liabilities are imposed on that person under the Securities Act.
A
selling stockholder may from time to time pledge or grant a security interest in some or all of the shares of common stock owned
by it and, if it defaults in the performance of its secured obligations, the pledgee or secured parties may offer and sell the
shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or any other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this prospectus.
A
selling stockholder also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees
or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares
of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee
or other successors-in-interest as selling stockholders under this prospectus.
We
are required to pay all fees and expenses incident to the registration of the shares of common stock. We have agreed to indemnify
the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
The
selling stockholders acquired the securities offered hereby in the ordinary course of business and have advised us that they have
not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of
their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of
shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this
prospectus.
If
the selling stockholders use this prospectus for any sale of the shares of common stock, it will be subject to the prospectus
delivery requirements of the Securities Act.
The
anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of our common stock and activities of the selling
stockholders.
DIVIDEND
POLICY
Historically, we have not paid any
cash dividends on our common stock. It is our present intention not to pay any cash dividends in the foreseeable future, but rather
to reinvest earnings, if any, in our business operations. However, in the future, our board of directors may declare dividends
on our common stock. Payment of future dividends on our common stock, if any, will be at the discretion of our board of directors
and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual
restrictions and other factors that our board of directors may deem relevant. In addition, the agreements into which we may enter
in the future, including indebtedness, may impose limitations on our ability to pay dividends or make other distributions on our
capital stock. We cannot guarantee that we will pay dividends to our stockholders in the future. Holders of preferred shares are
entitled to dividends equal to common share dividends.
DESCRIPTION
OF SECURITIES
The
following discussion summarizes the material terms of our common stock and preferred stock. This discussion does not purport to
be complete and is qualified in its entirety by reference to our articles of incorporation, as amended, and our bylaws, copies
of which have been filed as exhibits to the registration statement of which this prospectus forms a part.
General
As of the date of this prospectus,
our authorized capital stock consists of 100,000,000 shares of common stock, $0.001 par value per share, 17,135,850 of which were
issued and outstanding, and 5,000,000 shares of preferred stock, $0.001 par value per share, 2,000,000 of which were issued and
outstanding.
Common
Stock
Holders
of the Company’s common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders
of common stock do not have cumulative voting rights. Holders of the Company’s common stock are entitled to share in all
dividends that our board of directors, in its discretion, declares from legally available funds. In the event of a liquidation,
dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. The Company’s
common stock has no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to the Company’s
common stock.
Cash
Dividends
Historically, we have not paid any
cash dividends on our common stock. It is our present intention not to pay any cash dividends in the foreseeable future, but rather
to reinvest earnings, if any, in our business operations. However, in the future, our board of directors may declare dividends
on our common stock. Payment of future dividends on our common stock, if any, will be at the discretion of our board of directors
and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual
restrictions and other factors that our board of directors may deem relevant. In addition, the agreements into which we may enter
in the future, including indebtedness, may impose limitations on our ability to pay dividends or make other distributions on our
capital stock. We cannot guarantee that we will pay dividends to our stockholders in the future. Holders of preferred shares are
entitled to dividends equal to common share dividends.
Preferred
Stock
Our
articles of incorporation, as amended, authorizes our board of directors, subject to any limitations prescribed by law, without
further stockholder approval, to establish and to issue from time to time one or more classes or series of preferred stock. Each
class or series of preferred stock will cover the number of shares and will have the powers, preferences, rights, qualifications,
limitations and restrictions determined by the board of directors, which may include, among others, dividend rights, liquidation
preferences, voting rights, conversion rights, preemptive rights and redemption rights. Except as provided by law or in a preferred
stock designation, the holders of preferred stock will not be entitled to vote at or receive notice of any meeting of stockholders.
The
certificate of designation for the preferred stock provides that the shares are not convertible into any other class or series
of stock. Holders of preferred shares are entitled to 50 votes for each share held. Voting rights are not subject to adjustment
for splits that increase or decrease the common shares outstanding. Upon liquidation, holders of preferred stock will be entitled
to receive $1.00 per share plus redemption provision before assets are distributed to other stockholders. Holders of preferred
shares are entitled to dividends equal to common share dividends. Once any shares of preferred stock are outstanding, at least
51% of the total number of shares of preferred stock outstanding must approve the following transactions:
|
●
|
alteration
of the rights, preferences of privileges of the preferred stock,
|
|
|
|
|
●
|
creation
of any new class of stock having preferences over the preferred stock,
|
|
|
|
|
●
|
repurchase
of any of our common stock,
|
|
|
|
|
●
|
merger
of consolidation with any other company, other than one of our wholly-owned subsidiaries,
|
|
|
|
|
●
|
sale,
conveyance or other disposal of, or creation or incurrence of any mortgage, lien, or charge or encumbrance or security interest
in or pledge of, or sale and leaseback of, all or substantially all of our property or business, or
|
|
|
|
|
●
|
incurrence,
assumption or guarantee of any indebtedness maturing more than 18 months after the date on which it is incurred, assumed or
guaranteed by us, except for operating leases and obligations assumed as part of the purchase price of property.
|
Holders
of a majority of the voting power of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy,
are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of our outstanding voting
shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our articles
of incorporation.
Holders
of preferred shares vote along with common stockholders on each matter submitted to a vote of security holders. As a result of
the multiple votes accorded to holders of the preferred stock, Greg Johnston and Alex McLaren have the ability to control the
outcome of all matters submitted to a vote of stockholders, including the election of directors. On those matters that require
the approval of at least 51% of the preferred stock, both Mr. Johnston and Mr. McLaren must provide their approval inasmuch as
each of them owns 50% of the outstanding preferred stock.
Anti-Takeover
Effects of Certain Provisions of Our Articles of Incorporation, as Amended, and Our Bylaws
These
provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits
of increased protection and our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure us outweigh the disadvantages of discouraging these proposals because, among other things, negotiation
of these proposals could result in an improvement of their terms.
Preferred
Stock.
Our articles of incorporation, as amended, authorize our board of directors to issue from time to time any series of
preferred stock and fix the voting powers, designation, powers, preferences and rights of the shares of such series of preferred
stock.
Calling
of Special Meetings of Stockholders.
Our bylaws provide that special meetings of the stockholders may be called only by the
chairman of the board or the chief executive officer, and shall be called by the chairman of the board or the secretary (i) when
so directed by the board, or (ii) at the written request of stockholders owning shares representing at least 25% of voting power
in the election of directors.
Advance
Notice Requirements for Stockholder Proposals and Director Nominations.
Our bylaws establish an advance notice procedure for
stockholder proposals to be brought before a meeting of our stockholders, including proposed nominations of persons for election
to the board of directors.
Removal
of Directors; Vacancies.
Our bylaws provide that a director may be removed from office by stockholders for cause, or without
cause by a majority vote of the stockholders. A vacancy on the board of directors may be filled only by a majority of the directors
then in office.
DESCRIPTION
OF THE BUSINESS
Overview
Zoned
Properties, Inc., incorporated in Nevada on August 25, 2003, believes that the traditional commercial real estate industry is
being disrupted by many factors that can be characterized as “mega trends.” These trends include technological changes,
shifting demographics resulting in a greater influence of millennials and social changes. The utilization of commercial property
for retail, business and education is being affected by digital means as opposed to physical means. As a commercial property,
project development and management services company, our mission is to identify, develop, and manage properties, initially for
the medical marijuana industry and, as our operations develop, for other emerging industries. Our strategy, which is aligned with
these shifting trends, positions us well to create property value and enhanced cash flow from rents leveraging our expertise in
zoning, permitting, security, energy efficiency, waste and water remediation and sustainable design.
In
order to drive value creation, one of trends we have focused on with respect to commercial properties has been the emergence on
a state-by-state basis of licensed medical marijuana dispensaries and cultivation facilities. We have established a focus on commercial
real estate development in this space to derive value from the new and emerging medical marijuana industry without directly participating
in the cultivation, distribution, or sale of medical marijuana products. While we intend to expand into a variety of emerging
industries, our current focus is on developing projects within the emerging medical marijuana industry.
The
core of our business involves identifying and developing properties that exist within highly regulated zoning regions and may
be candidates for re-zoning. For the licensed medical marijuana industry, local jurisdictions typically develop strict zoning
regulations that dictate the specific region within which a licensed cultivation or retail property can operate. These regulations
often include setbacks for example restricting the licensed facility from being within a mile of any parks, schools, churches,
or residential districts. In some jurisdictions, local representatives will simply adopt the rules and regulations established
by the state legislation. It is at that point that the local representatives welcome participation from the community and developers
such as our company to establish more customized regulations for zoning that meet the local community’s needs.
We
have been closely involved with local representatives in each of the developed properties currently held in our portfolio. For
example, we have worked directly with local representatives in Tempe, Arizona over the past year to continue to define and develop
local code that regulates the development of licensed medical marijuana facilities. The code amendments directly impact the continued
development of our licensed medical marijuana cultivation facility that operates within city limits.
The
process of establishing zoning and permitting will directly impact our ability to place a licensed operator in a long-term lease
agreement. In a scenario where the zoning and permitting process has not been completed, such as is the case for our property
in Gilbert, Arizona, we continue to work with local representatives to explore development possibilities as the industry evolves.
We approach these situations on a case-by-case basis. In locations where we conclude that the zoning and permitting may not be
feasible at this time but have a possibility to be successful in the future, we will likely hold the undeveloped property or lease
the property out in the interim.
The
successful development of zoning, permitting, construction and placement of long-term tenants creates an increased value for the
property. Our property in Kingman, Arizona was successfully developed in this manner. The long-term lease agreement with a licensed
operator has led to a leased-fee appraisal valued above five times the initial acquisition cost. We charge over $35 per square
foot in rent, a significant premium compared to standard market rates in that region.
This
is an essential aspect of our overall growth strategy and value creation because we target specifically zoned properties that
can be developed as candidates for specific industry operators. Once the properties have been acquired, adequately zoned and permitted,
the opportunity to increase their value becomes substantially greater as a result of above market rents, as the demand for these
properties within the specific zoning region increases.
We
focus on acquiring properties that have the potential to increase significantly in value and use development strategies to build
long-term growth. We have established a network of experts in the fields of real estate, design, construction, operations, and
management in order to provide clients and prospective tenants with complete solutions to best meet their needs. We require all
of our clients and prospective tenants to go through extensive due diligence in order to be what we consider to be highly sophisticated,
credit worthy and experienced operators in their industries.
We
currently maintain a portfolio of properties that we own, lease, and manage. In addition, we provide direct consultation and support
for the development of each property. Development can range from complete architectural design and subsequent build-out, utility
installation, property management, facilities management, and state of the art security systems. There are significant challenges
that exist when zoning, permitting, and constructing facilities associated with the medical marijuana market. Each state and jurisdiction
adopts specific zoning and permitting regulations. We have gained valuable knowledge and experience in this area by successfully
completing four major projects in the state of Arizona, a highly regulated market. We believe we can replicate this business model
in other states as markets mature and tighter regulations are established.
The
Company generally confirms baseline zoning during the due diligence period and as a contingency of an acquisition. Ideally, properties
we consider acquiring are already zoned for use in cultivating marijuana or as a marijuana dispensary. We currently lease building
space at five of the six properties in our portfolio, and lease the vacant land at our sixth property. Four of the properties
leased to licensed medical marijuana tenants are located in areas where correct zoning was already in place and use as a marijuana
facility was already permitted. In these instances, rezoning was not required. Two of the properties were zoned for and leased
to licensed medical marijuana dispensaries, and two were zoned for and leased to licensed medical marijuana cultivation sites.
The
process for confirming proper zoning and or acquiring proper permitting for a licensed medical marijuana operator generally takes
several months. The confirmation process for the Kingman and Green Valley properties both took approximately one month to complete.
The Chino Valley property took approximately three months to confirm the zoning and permitted use for a licensed medical marijuana
cultivation facility in that local jurisdiction. The process primarily involves working directly with the local Planning and Zoning
Commission or Development Director. Notwithstanding proper zoning and permitted use, we may work with local zoning authorities
in order to revise zoning laws. For example, we were recently successful in submitting an approved zoning code amendment to the
City of Tempe, whereby the new zoning code allows for an increase in the size of a cultivation facility. That process took approximately
six months to complete. The Tempe property is a multi-tenant facility that also leases space to tenants, which have no association
to medical marijuana.
In
the event a property is not properly zoned or does not permit use as a marijuana facility, we may work with local authorities
to seek changes to existing zoning or permitted use. Our efforts may not be successful. For example, the Gilbert property has
not been successfully zoned for a prospective licensed medical marijuana dispensary nor has it been leased to a medical marijuana
operator.
Our
vision is to be recognized for creating the standard in property development for emerging industries, while increasing community
prosperity and shareholder value. We believe that a strong focus on the development of real estate properties will bring value
to the local communities and all of our stakeholders. We have initially established a focus on properties within the licensed
medical marijuana industry because we believe there will be increasing demand in this industry, as the national industry continues
to evolve.
Our
strategy is to rent buildings that we purchase and to earn rental income. Property acquisitions in 2014 are an indication of the
commencement of principal operations. These properties represent assets that have already been identified and zoned for licensed
medical marijuana operations.
We
are the sole member of eight limited liability companies: Tempe Industrial Properties LLC, Gilbert Property Management LLC, Green
Valley Group LLC, Kingman Property Group LLC, Chino Valley Properties LLC, Zoned Colorado Properties LLC, Zoned Illinois Properties
LLC, and Zoned Oregon Properties LLC.
Four
of the entities have completed acquisitions of property as agents of Zoned Properties. Gilbert Property Management LLC, Green
Valley Group LLC, Kingman Property Group LLC, and Chino Valley Properties LLC have all acquired land and real property.
Green
Valley Group LLC, Kingman Property Group LLC, and Chino Valley Properties LLC have executed related party lease agreements at
the properties within their respective regions and have begun generating rental revenue. Zoned Properties has executed multiple
lease agreements at its Tempe, Arizona properties and has been generating rental revenue. One such lease agreement is with a related
party and one lease agreement is with an unrelated third party.
We currently own a portfolio of six
properties located in the state of Arizona, covering an aggregate of approximately 54.8 acres and having an approximate aggregate
market value as of March 31, 2016 of approximately $13.5 million based on most recent appraisals. Additionally, pursuant to a
letter of intent, we may acquire an additional property consisting of approximately 1.5 acres located in the state of Colorado.
Multiple
state-licensed operators have approached Zoned Properties from Oregon, Washington, Colorado, New Mexico, and Illinois for consultation
and to partner on development and prospective sale-lease back arrangements. We are continuously evaluating these opportunities
and exploring financing terms with our funding partners.
We
believe that we are well positioned to benefit from the development opportunities that the medical marijuana industry presents
without having to deal with the risk of directly cultivating, distributing, or dispensing the product, which is still illegal
under federal law.
Our
initial holdings and acquisition targets have been in the state of Arizona. Unlike many other states that have legalized medical
marijuana, Arizona’s program has some of the strictest regulations in the country and limits the number of dispensaries
that will be allowed to be open and operate within the state. While there are hundreds of marijuana dispensaries in Denver, Colorado,
the entire state of Arizona can have a maximum of 126 operating dispensaries under current legislation, 27 of which are allocated
to areas under tribal jurisdictions. Of the remaining 99 dispensaries, licenses to operate 85 have been awarded, and an unknown
number of other license applications are pending. Two of our properties in Arizona (in Kingman and Green Valley) are leased to
operators that have been awarded dispensary licenses. This limitation on the number of dispensaries permitted to operate in Arizona
under current legislation will limit our ability to purchase property in Arizona for lease to dispensary operators.
The
Opportunity in Arizona
We
are implementing a property acquisition strategy in the State of Arizona that includes placing a variety of operating tenants
into long-term lease agreements within the medical marijuana industry. Arizona’s medical marijuana program is still in its
infancy stage. There are ample property management and build-out opportunities for medical marijuana cultivation facilities and
dispensaries. We are already working with multiple groups in Arizona that are in need of quality resources or experience to get
these facilities operational to serve the growing marketplace. The need for expertise regarding zoned properties was one of the
main catalysts in forming our company. While there are many opportunities in Arizona, most investor groups lack the resources,
knowledge, and expertise to see these projects through from start to finish, and complete the necessary due diligence required
to ensure a sophisticated tenant operator.
The
Opportunity in Additional States
We have created a business development
plan that will allow for expansion into additional states when appropriate. Each state adopts specific and constantly evolving
regulations associated with zoning, permitting, and licensing for medical marijuana operators. Zoned Properties will be introducing
plans for expansion into additional states over the coming months as further regulations become established. In the second quarter
of 2016, we entered into an agreement for the acquisition of land in Parachute, CO. We expect to continue moving forward with
the development of the project after placing a prospective tenant in the second quarter of 2016.
Corporate
History and Transactions
The
Company was originally incorporated in Nevada on August 25, 2003 under the name, Mongolian Explorations Ltd.
In
September 2013, Marc Brannigan acquired 125,000 shares of our common stock, which represented approximately 91.54% of the then
issued and outstanding voting power of the Company. The transaction resulted in a change in control of the Company.
In
December 2013, we entered into a Note Purchase and Loan Participation Assignment Agreement with two related parties and five individual
investors, pursuant to which we issued 8,333 shares of common stock and two convertible promissory notes aggregating $170,000
to purchase a promissory note dated February 19, 2013. The promissory note in the principal amount of $209,400, has a maturity
date of February 1, 2018 and is secured by a Mortgage/Deed of Trust on Real Property. There was no gain or loss recognized in
this transaction. The transaction closed on January 8, 2014. On March 12, 2014, we sold the note for a cash payment of $210,500.
The Company reported a realized gain of $41,019.
In
December 2013, the board of directors approved the issuance of 700,000 shares of preferred stock to a related party partially
owned by our former President for professional services in connection with setting up the commercial property acquisition business,
management of the business and running the daily operations of the Company. On July 22, 2014, these 700,000 shares were redeemed
by us for a cost of $700.
On
January 22, 2014, we entered into a real estate purchase agreement pursuant to which we acquired certain land located in Gilbert,
Arizona for a total payment of $266,667, of which $250,000 was paid in cash, and $16,667 was paid by issuing 139 shares of the
common stock of the Company at a price of $120 per share. Simultaneously, we issued 833 shares of common stock of the Company
to Cumbre Investment LLC, a related party of the Company, to acquire its right of first refusal on the land. The transaction closed
on January 22, 2014.
On
January 29, 2014, we entered into a purchase and consulting agreement with Ultra Health, LLC,, a related party due to common ownership
and investments made by a beneficial stockholder of the Company (“Ultra Health”), pursuant to which we acquired a
permanent modular building located in Gilbert, Arizona for total payments of $675,000. Simultaneously, we issued 1,166 shares
of common stock of the Company at a price of $120 per share to the seller of the building to acquire a conditional use permit
for the building. The transaction closed on January 29, 2014. In connection with the 1,536 square foot modular building discussed
above, on April 10, 2015, we became a party to a certain case pending in the Superior Court of the State of Arizona in and for
Maricopa County, Arizona discussed elsewhere in this prospectus. We review our rental properties for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Based on this review, on December
31, 2014, we determined that the Gilbert building carrying value of $675,000 was not recoverable and we recorded an impairment
loss of $675,000.
On
March 7, 2014, we entered into a real estate purchase agreement with Maryland LLC, pursuant to which we acquired certain property
located in Tempe., Arizona for total payments of $4,600,000, of which $2,500,000 was paid in cash and a $2,100,000 mortgage note
from Maryland LLC. The transaction closed on March 7, 2014. The mortgage terms do not allow participations by the lender in either
the appreciation in the fair value of the mortgaged real estate project or the results of operations of the mortgaged real estate
project.
During
the first quarter of 2014, we issued 48,933 shares of restricted common stock at a price of $120.00 per share to approximately
28 accredited investors pursuant to a private placement, exempt from registration under the Securities Act. The total proceeds
the Company received from this private placement were approximately $5,872,000, less the $10,000 recorded as a subscription receivable.
On
April 4, 2014, we entered into a purchase agreement with Ultra Health pursuant to which we acquired a modular building in Green
Valley, Arizona for total payment of $87,073. On October 22, 2014, Green Valley entered into a real estate purchase and sale agreement
with a company owned by Duke Rodriguez who became a beneficial stockholder of the Company in July 2014 (“Duke Rodriguez”),
pursuant to which we acquired the property located in Green Valley, AZ for a purchase price of $400,000.
During
the first quarter of 2014, we issued a total of 24,382 shares of common stock of the Company to settle the principal obligations
of certain convertible notes payable - related parties in the amount of $330,440.
On
April 14, 2014, our board of directors and its representative shareholders elected to retire 38,135 shares of common stock back
into the company treasury.
Effective
May 13, 2014, the Company completed a 1:120 reverse split of its common stock. As permitted by Nevada law, the reverse split was
completed with the approval of the board of directors without the requirement for shareholder consent.
On
July 22, 2014, the Board of Directors accepted a subscription agreement from the McLaren Family LLLP, whose general partner is
Alex C. McLaren, a Director and the father of the Company’s current President and CEO Bryan McLaren, for the acquisition
of 1,000,000 shares of the Company’s Preferred Stock for cash of $1,000. We simultaneously accepted a subscription agreement
from a beneficial common stockholder, for the acquisition of 1,000,000 shares of the Company’s preferred stock for cash
of $1,000. Additionally, on July 22, 2014, we accepted a subscription agreement from Gregory Johnston, a beneficial shareholder,
for the acquisition of 1,000,000 shares of the Company’s Preferred Stock for cash of $1,000. In addition to a beneficial
ownership of common stock, Mr. Johnston holds 50% of the current Preferred Stock that controls the Company.
On
August 12, 2014, we entered into a real estate purchase agreement with Stormwind Group, LLC, a company owned by Duke Rodriguez,
pursuant to which we acquired 11.3 acres in Bernalillo County, New Mexico for total payment of $2,750,000. As discussed elsewhere
in this prospectus, on July 9, 2015 and amended and made effective on August 1, 2015 (the “Settlement Date”), we entered
into a settlement agreement with Duke Rodriguez, Ultra Health, LLC, and Cumbre Investment, LLC (the “ Defendants”),
that, among other things, settles all claims and grants mutual general releases. Under the terms of the settlement, we transferred
title to the Bernalillo, New Mexico property to the Defendants.
On
September 22, 2014, the Company purchased two vehicles from Arizona RV Supercenter for the aggregate purchase price of $38,855.
We intend to use the vehicles on site for property and facilities management.
On
October 22, 2014, Green Valley Group, LLC, our wholly owned subsidiary, entered into a real estate purchase and sale agreement
with a company owned by Duke Rodriguez, pursuant to which we acquired the property located in Green Valley, AZ for a purchase
price of $400,000.
From August 2014 to December 2014,
we issued 1,850,000 shares of common stock to accredited investors pursuant to a private placement, exempt from registration pursuant
to Rule 506(c) under the Securities Act of 1933, as amended at a price of $1.00 per share for proceeds of $1,850,000.
On
April 10, 2015, we became a party to a certain case pending in the Superior Court of the State of Arizona in and for Maricopa
County, Arizona styled, Zoned Properties, Inc. v. Duke Rodriguez, Ultra Health, LLC and Cumbre Investment, LLC (collectively,
the “Defendants”), Case No. CV-2015-004225, wherein we alleged, among other things, that the Defendants, alone or
in collusion with one another, breached a certain contract for the construction of the Gilbert building, and had made material
misrepresentations or had negligently misrepresented certain material elements upon which we relied in purchasing the land upon
which that building was to be constructed, which the Defendants failed to deliver. On June 8, 2015, we filed a motion to dismiss
the counterclaim. On July 9, 2015 and amended and made effective on August 1, 2015, we entered into a settlement agreement with
the Defendants that, among other things, settles the pending claims and grants mutual general releases.
Under
the terms of the settlement:
|
1.
|
On
August 1, 2015, we transferred title to its Bernalillo, New Mexico property to Defendants. At June 30, 2015 and December 31,
2014, the carrying value of this property was $2,719,658 and $2,737,863, respectively. In connection with such property, we
forfeited quarterly straight-lined rental revenue of approximately of $287,000 through September 2024. For the years ended
December 31, 2015 and 2014, rental revenues from this property amounted to $150,000 and $30,000, respectively.
|
|
2.
|
The
Defendants returned 2,496,054 shares of common stock to the Company and we cancelled such shares. On the Settlement Date,
such shares were valued at $1,406,603 or $0.5635 per common share which represents the cost of the treasury shares purchased
and retired;
|
|
3.
|
The
Defendants effectuated the transfer of four parcels of property in Chino Valley, Arizona to the Company which consists of
approximately 48 Acres of land and we acquired an additional parcel in Chino Valley for $200,000 in cash. Based on an independent
appraisal, on the Settlement Date, the fair value of property obtained, consisting of land, buildings and improvements, amounted
to approximately $1,528,000.
|
|
4.
|
We
obtained water rights associated with property in Chino Valley, Arizona effective December 31, 2015.
|
In
connection with the settlement agreement, we did not record any settlement gain or loss.
On
October 27, 2015, we entered into a letter of intent with X Bar Ranch LLC to acquire a 44-acre parcel of real property located
at 421 Upper Cattle Creek Rd., Carbondale, CO for a purchase price of $1,000,000. We deposited $42,500 in earnest money with an
escrow agent and the $957,500 balance was payable in cash at closing. We had the right to terminate the agreement on or prior
to December 14, 2015 in the event we were unable to complete a satisfactory due diligence inspection for the property. As permitted
pursuant to the terms of the X Bar letter of intent, the Company terminated the letter of intent with X Bar on December 14, 2015
and the deposit was returned.
On
October 2, 2015, we entered into a letter of intent with HQ Holdings LLC, to acquire a 2,497 square foot parcel of real property
located at 730 Main Street, Silt, CO for a purchase price of $430,000, of which $4,000 has been deposited into an earnest money
escrow and the $426,000 balance was due in cash at closing. The obligations of the parties to complete the sale and purchase were
conditioned upon consummation of the transactions contained in the letter of intent with X Bar Ranch LLC described in the preceding
paragraph. Pursuant to the terms of the HQH letter of intent, the closing of the Silt property acquisition was conditioned upon
consummation of the Carbondale property acquisition. Accordingly, the HQH letter of intent was terminated on December 14, 2015,
following termination of the letter of intent with X Bar.
On
February 16, 2016, we entered into a letter of intent (the “Chino Valley LOI”) with C3C3 Group, LLC (the “Tenant”)
and Broken Arrow Herbal Center, Inc. (“Broken Arrow”). Each of the Tenant and Broken Arrow are owned by Alan Abrams,
a significant stockholder of the Company.
Pursuant
to the terms of the Chino Valley LOI, the parties agreed to amend the existing lease agreement, dated August 6, 2015, to provide
for the lease by Chino Valley to Tenant of approximately 45,000 square feet of space in Chino Valley, Arizona. The monthly rent
due, pursuant to the terms of the Chino Valley LOI, will be $70,833 beginning June 1, 2016 and $127,500 beginning August 1, 2016;
however, the increased rental revenue will be contingent upon the completion of the constructed expansion at the facility. In
subsequent years beginning August 1, 2017, there will be a 5% annual increase in the monthly rent. The parties identified a budget
of $2,000,000 for developing the property and constructing the tenant improvements. The Chino Valley LOI and the Amendment to
the lease agreement shall be contingent upon: (a) the Company obtaining financing for the development of the premises and the
construction of the tenant improvements in such amount and on such terms and provisions as are acceptable to the Company in our
sole and absolute discretion from a lender approved by us in our sole discretion, and (b) approval by the Town of Chino Valley
of the Phased Protected Development Rights Plan. In the event that the contingencies have not
been
satisfied, this LOI
shall
terminate,
and
all of
the d
eposits
,
except
for
$100.00
,
shall
be
returned
to
Tenant.
On
March 15, 2016, we entered into a binding letter of intent (the “Catalina Partners LOI”) with Catalina Partners III
LLC (“Catalina Partners”) and Catalina Hills Botanical Care, Inc. (“Catalina Hills”) pursuant to which
the parties agreed to work together in good faith to mutually agree on the terms of a lease agreement to be entered into by the
parties.
Pursuant
to the terms of the Catalina Partners LOI, the parties will execute a lease agreement consistent with the terms of the Catalina
Partners LOI no later than 90 days after execution of the Catalina Partners LOI. The lease agreement will provide for the lease
of approximately 25,000 square feet of space (the “Premises”) by us to Catalina Partners. We agreed to grant Catalina
Partners an option to lease an additional 15,000 square feet of adjacent space.
The
parties agreed that our total projected budget for constructing Catalina Partners’ improvements and developing the Premises
is an amount equal to or less than $2,500,000, with such additional amounts subject to approval by Catalina Partners. The cost
of Catalina Partners’ improvements will be paid by us.
Pursuant
to the terms of the Catalina Partners LOI, the lease shall provide that the monthly rent for the Premises will be as follows:
|
Months
2-6
|
|
-
|
|
$
|
50,000.00
|
|
|
|
Months
7-12
|
|
-
|
|
$
|
56,250.00
|
|
|
|
Months
13-60
|
|
-
|
|
$
|
64,583.33
|
|
|
|
Months
61-120
|
|
-
|
|
$
|
65,625.00
|
|
|
|
Months
121-180
|
|
-
|
|
$
|
83,333.33
|
|
|
The
Catalina Partners LOI and execution of the lease agreement are subject to certain contingencies, including that we must obtain
commercially reasonable financing for the development of the Premises and the construction of Catalina Partners’ improvements,
acquisition by us of written approval of all due diligence and underwriting matters required by us and/or our lender, acquisition
of necessary zoning and land use entitlements, and Catalina Partners’ obtaining written approval from AZDHS of approval
to operate the Premises as a medical marijuana cultivation and production facility on behalf of Catalina Hills.
Certain individuals agreed to personally
guarantee the Catalina Partners lease agreement.
On April 22, 2016, Zoned Colorado
Properties, LLC (“Zoned Colorado”), our wholly-owned subsidiary, entered into a Contract to Buy and Sell Real Estate
(Commercial) (the “Parachute Agreement”) with Parachute Development Corporation (“Seller”) pursuant to
which Zoned Colorado agreed to purchase, and Seller agreed to sell, property in Parachute, Colorado (the “Property”)
for a purchase price of $499,857. Of the total purchase price, $274,857, or 55%, will be paid in cash at closing and $225,000,
or 45%, will be financed by Seller at an interest rate of 6.5%, amortized over a five-year period, with a balloon payment at the
end of the fifth year. Payments will be made monthly and there will be no pre-payment penalty.
Pursuant to the terms of the Parachute
Agreement, the parties will cooperate in good faith to complete due diligence during a period of 45 days following execution of
the Parachute Agreement. The closing is subject to certain contingencies, including that Zoned Colorado must obtain acceptable
financing for the purchase and development of the property, the grant of a special use permit by the Town of Parachute, approval
of a protected development deal or equivalent agreement by the Town of Parachute, execution of a lease agreement by a prospective
tenant and the prospective tenant’s obtaining a license to cultivate on the property. Pursuant to the terms of the Parachute
Agreement, Zoned Colorado will have a right of first refusal on eleven additional lots owned by Seller in Parachute, Colorado.
In April 2016, we paid a refundable deposit of $45,000 into escrow in connection with the Parachute Agreement.
On May 17, 2016, Zoned Colorado
entered into a binding letter of intent (the “American Green LOI”) with American Green, Inc. (“American Green”)
and Herbal Elements, LLC (“Herbal Elements”) pursuant to which the parties agreed to the material terms of a lease
agreement to be entered into by the parties.
Pursuant to the terms of the American
Green LOI, the parties will execute a lease agreement consistent with the terms of the American Green LOI no later than 90 days
after effective date of the American Green LOI, which is the date that is three business days after the mutual execution and delivery
of the American Green LOI by Zoned Colorado and American Green. The lease agreement will provide for the lease of approximately
15,000 square feet of space (the “American Green Premises”) by Zoned Colorado to American Green.
The parties agreed that Zoned Colorado’s
total projected budget for constructing the American Green improvements and developing the American Green Premises is an amount
equal to or less than $1,250,000, with such additional amounts subject to approval by American Green. The cost of the American
Green improvements will be paid by Zoned Colorado.
Pursuant to the terms of the American
Green LOI, the monthly rent for the American Green Premises will be as follows:
|
Months
1-6
|
|
-
|
|
$
|
32,500
|
|
|
|
Months
7-12
|
|
-
|
|
$
|
37,500
|
|
|
|
Months
13-60
|
|
-
|
|
$
|
43,125
|
|
|
|
Months
61-120
|
|
-
|
|
$
|
45,625
|
|
|
|
Months
121-180
|
|
-
|
|
$
|
50,000
|
|
|
The American Green LOI and execution
of the lease agreement are subject to certain contingencies, including that Zoned Colorado must obtain commercially reasonable
financing for the development of the American Green Premises and the construction of the American Green improvements, acquisition
by Zoned Colorado of written approval of all due diligence and underwriting matters required by Zoned Colorado and/or its lender,
acquisition of necessary zoning and land use entitlements, and American Green’s obtaining written approval from the Colorado
Marijuana Enforcement Division of approval to operate the American Green Premises as a medical or recreational marijuana cultivation
and production facility on behalf of Herbal Elements.
We
are the sole member of eight limited liability companies: Tempe Industrial Properties LLC, Gilbert Property Management LLC, Green
Valley Group LLC, Kingman Property Group LLC, Chino Valley Properties LLC, Zoned Colorado Properties LLC, Zoned Illinois Properties
LLC, and Zoned Oregon Properties LLC. Four of the entities have completed acquisitions of property as agents of Zoned Properties.
Gilbert Property Management LLC, Green Valley Group LLC, Kingman Property Group LLC, and Chino Valley Properties LLC have all
acquired land and real property. Green Valley Group LLC, Kingman Property Group LLC, and Chino Valley Properties LLC have executed
lease agreements and have begun generating rental revenue. Zoned Properties has executed multiple lease agreements at its Tempe,
Arizona property and has been generating rental revenue. Pursuant to the Settlement Agreement referenced above, the Bernalillo
property was transferred to the Defendants and thereafter no longer an asset of the Company.
During the three months ended March
31, 2016 and 2015, we generated revenue of $406,406 and $227,286, respectively, including $345,526 and $145,111, respectively,
from related parties. For the three months ended March 31, 2016 and 2015, we had a net loss of $236,653 and $184,566, respectively.
During the year ended December 31, 2015, we generated revenue of $1,395,294, including $980,509 from related parties, and had
a net loss of $1,372,030. During the year ended December 31, 2014, we generated revenue of $467,914, including $140,527 from related
parties, and had a net loss of $5,740,366.
Customers
We
target customers who require assistance with identification, development, and management of sophisticated, safe, and sustainable
properties in a variety of emerging industries including the licensed medical marijuana industry. The most significant barrier
to success for many industry operators includes distractions from primary business operations. These distractions often include
services related to the identification, zoning, permitting, design, and construction of properties.
We
complete significant due diligence on any prospective customer as a prospective tenant operator regardless of industry focus.
Credit-worthiness, character, and cash flows are all important traits that contribute to a sophisticated customer for the Company.
Marketing
We
do not actively market our services using any direct marketing campaigns. Industry reputation, word-of-mouth, and networking are
the primary tools used by us to complete the marketing of our services. We maintain an updated website, shareholder presentation,
and profile outlining its services. These tools are created for transparency of operations and activities. Our executive management
believes the reputation of having integrity is an essential tool for marketing and business development.
Competition
The
commercial real estate market is highly competitive. We believe finding properties that are zoned for the specific use of allowing
licensed medical marijuana operations may be limited as more competitors enter the market. Several competitors have recently entered
the marketplace, including Cannabis-RX, Inc., The Cannabis Business Group, Inc., MJ Holdings, Inc., Home Treasure Finders, Inc.,
Advanced Cannabis Solutions, Inc. and Grow Condos, Inc. We face significant competition from a diverse mix of market participants,
including but not limited to, other public companies with similar business models, independent investors, hedge funds and other
real estate investors, hard money lenders, as well as would be clients, marijuana operators themselves, all of whom, who may compete
against us in our efforts to acquire real estate zoned for marijuana grow and retail operations. In some instances, we will be
competing to acquire real estate with persons who have no interest in the marijuana business, but have identified value in a piece
of real estate that we may be interested in acquiring.
Government
Regulation
We
are subject to applicable provisions of federal and state securities laws and to regulations specifically governing the real estate
industry, including those governing fair housing and federally backed mortgage programs. Our operations will also be subject to
regulations normally incident to business operations, such as occupational safety and health acts, workmen’s compensation
statutes, unemployment insurance legislation and income tax and social security related regulations. Although we will use our
best efforts to comply with applicable regulations, we can provide no assurance of our ability to do so, nor can we fully predict
the effect of these regulations on our proposed activities.
In
addition, zoning commercial properties for specific purposes, such as medical marijuana dispensaries or cultivation facilities,
is subject to specific regulations to the zoning requirements for the city, county and state related to any medical marijuana
facility. We expect regulations to get tighter as time goes on.
In
November 2010, Arizona voters passed the Arizona Medical Marijuana Act (“AMMA”). The AMMA designates the Arizona Department
of Health Services (“ADHS”) as the licensing authority for the program. ADHS is tasked with issuing Registry Identification
Cards (“RIC”) to qualifying patients, designated caregivers, and dispensary agents, as well as selecting, registering,
and providing oversight for nonprofit medical marijuana dispensaries. With permission from ADHS, qualifying patients or their
caregivers may cultivate marijuana if the patient lives more than 25 miles from a dispensary. Currently over 95% of the state
is covered within the 25-mile rule, which will eliminate the caregiver model that has been able to survive since the program’s
inception in 2010.
Qualifying
patients can legally possess and purchase medical marijuana under Arizona law as long as they hold a RIC. They acquire their medicine
from non-profit medical marijuana dispensaries. These dispensaries acquire, possess, cultivate, manufacture, deliver, transfer,
transport, supply, sell, and dispense medical marijuana. Arizona is divided into 126 Community Health Assessment Areas (each,
a “CHAA”) and each CHAA may only have one dispensary located within it. Dispensaries are the only place patients are
legally allowed to purchase medical marijuana in Arizona. Arizona law permits the number of CHAAs to change based on the number
of registered pharmacies in Arizona. In order to operate, a dispensary must have a Dispensary Registration Certificate and Approval
to Operate Certificate from ADHS. The first dispensaries began operation in 2012, and it is anticipated that at maturity, there
will be about 112 dispensaries statewide - one in each CHAA not part of one of Arizona’s Native American Indian Reservations.
The
U.S. Government classifies marijuana as a schedule-I controlled substance. The federal Controlled Substances Act (“CSA”)
makes it illegal under federal law to manufacture, distribute, or dispense marijuana. The Company maintains its operations so
as to remain in compliance with the CSA. Even in those jurisdictions in which the use of medical marijuana has been legalized
at the state level, its prescription is a violation of federal law. The U.S. Supreme Court has ruled in United States v. Oakland
Cannabis Buyers' Coop. and Gonzales v. Raich that the federal government has the right to regulate and criminalize cannabis, even
for medical purposes. Therefore, federal law criminalizing the use of marijuana pre-empts state laws that legalize its use for
medicinal purposes. Federal prosecutions of marijuana crimes, where the operators are acting in accordance with state law are
rare, however. This is the result of U.S. Justice Department policies under the current presidential administration that allow
states to implement these laws and favor not prosecuting individuals operating in accordance with applicable state law. It is
possible, however, that future presidential administrations could reverse the current position regarding enforcement of federal
marijuana laws, thereby effectively eliminating the legal marijuana industry.
Employees
As of May 26, 2016, we had three full-time
employees. We have established an extensive network of external partners, contractors, and consultants to outsource to in an effort
to minimize administrative overhead and maximize efficiency.
Description
of Property
Our
principal executive offices are currently located at 14300 N. Northsight Blvd., #208, Scottsdale, AZ 85260.
On February 1, 2014, we executed a 39-month
operating lease for our old office space. The annual rent during year one is $31,302, year two is $32,241 and year three $33,215.
We also paid a security deposit of $3,267. We have since vacated this office location and have subleased the premises.
On
January 27, 2015, we executed a 24-month operating lease for our current office space. We were able to negotiate a lower rental
payment by pre-paying the entire sum of the 24-months of rental payments under the lease agreement in the amount of $57,358. We
also paid a security deposit of $2,600.
We are in the business of property acquisition, development, and commercial leasing and
intend to primarily structure lease agreements with prospective tenants using a triple-net lease model. The property portfolio
currently includes (i) land and real property constructed in Green Valley, Arizona, (ii) land and real property in Kingman, Arizona,
(iii) vacant land in Gilbert, Arizona, (iv) a multi-tenant industrial park in Tempe Arizona, which includes debt in the form of
a $2,100,000 carry-back note held by the seller, (v) land and real property of approximately 50 acres in Chino Valley, Arizona.
The properties in Tempe, Green Valley, Kingman, and Chino Valley, Arizona are currently leasing space to multiple tenants. Each
of these leased properties is generating revenue to date.
LEGAL
PROCEEDINGS
Holistic Patient Wellness
Group, LLC v. Zoned Properties, Inc.; Court Filed: Maricopa County Superior Court, Arizona; Case Number: CV2014-003047, which
has been consolidated with CV2014-005642; Date Filed: March 14, 2014
Holistic Patient Wellness Group,
LLC (“HPWG”) leased from the Company retail space in Tempe, Arizona to operate a medical marijuana cultivation site.
HPWG claims that we violated the terms of the lease for various reasons. On May 23, 2014, we concluded that HPWG had breached
the lease, and terminated the lease and retook possession of the property. On May 27, 2014, HPWG filed a petition for an order
to show cause, seeking an expedited ruling on its claim that we violated the terms of the stipulated preliminary injunction. The
court re-set the hearing multiple times, ultimately continuing it until March 17, 2015. On April 27, 2015, two entities related
to HPWG moved for leave to amend their answer and counterclaim to assert several new claims against new parties, including us.
On June 2, 2015, the court
sua sponte
denied the motion. On August 17, 2015, the court granted a renewed request made by
the two entities related to HPWG to move for leave to amend their answer and counterclaim, but expressly afforded us an opportunity
to respond in opposition to such a motion. On October 20, 2015, HPWG filed a motion to enforce a purported settlement agreement
with the Company and to dismiss its claims against us. The Company responded in opposition to the motion, because (i) the mutual
release in the purported settlement agreement was too broad in its scope, and (ii) the Company wanted to preserve its right to
seek an award of attorney’s fees and costs against HPWG. On February 1, 2016, the Court granted HPWG’s motion to enforce
the settlement agreement and to dismiss the claims against the Company, each party to bear its own attorneys’ fees and costs.
On March 7, 2016, the Court filed its final judgment dismissing the Company from the lawsuit. The Company has no financial obligations
to HPWG as result of the settlement and dismissal. While the Company no longer is a party to the lawsuit, related claims still
are pending among other parties in the lawsuit.
Healing
Healthcare 3, Inc.; Xingang, LLC v. v. Zoned Properties, Inc., et al.; Court Filed: Maricopa County Superior Court, Arizona; Case
Number: CV2015-012264; Date Filed: October 21, 2015.
In lieu of filing an amended
complaint in
Holistic Patient Wellness Group, LLC v. Zoned Properties, Inc.; Court Filed: Maricopa County Superior Court, Arizona;
Case Number: CV2014-00304
(see above), Healing Healthcare 3, Inc. (“HH3”) and Xingang, LLC filed a new complaint
against the Company, President and CEO Bryan McLaren, Board member Alex McLaren, and wholly-owned subsidiary Tempe Industrial
Properties, LLC, among others. As in the prior action, the complaint concerns the Company’s lease of space in Tempe, Arizona
to operate a medical marijuana cultivation site. HH3 and Xingang claim that the Company and its related parties violated the terms
of the lease for various reasons. On May 23, 2014, the Company concluded that the lease had been breached, and terminated the
lease and retook possession of the property. Plaintiffs have asserted various contract and tort claims against the Company and
its related parties, and seeks $10,000 per day “for each day that the Company remained in possession of the Tempe Property
in violation of the Lease,” attorneys’ fees and costs, treble damages, punitive damages, and interest. The complaint
was served on the Company and its related parties on February 17, 2016. On March 8, 2016, the Company filed a motion to transfer
the lawsuit to the Honorable Judge James T. Blomo, and to consolidate the lawsuit with the First Lawsuit, because: (i) Judge Blomo
has presided over the First Lawsuit and is familiar with the issues raised by the complaint; and (ii) related claims still are
pending in the First Lawsuit. On the same day, the Company, Bryan McLaren, Alex McLaren, and TIP (the “Moving Parties”)
also filed a motion to dismiss the claims asserted against them in the complaint, with prejudice, on various grounds. On March
23, 2016, Judge Blomo denied the Company’s motion to transfer and consolidate. On April 14, 2016, Judge Brodman granted
in part, and denied in part, the motion to dismiss. In sum, the court granted the dismissal of the contract claims against the
McLarens without leave to amend; denied the dismissal of the two contract claims against the Company and TIP; and granted the
dismissal of the remaining tort claims, subject to leave to amend the complaint within 20 days of the order. On May 5, 2016, HH3
and Xingang filed an amended complaint, which no longer names Alex McLaren as a defendant but otherwise purports to maintain the
same claims. On May 24, 2016, the Company filed a motion to dismiss the amended complaint, with further briefing to follow.
In a letter dated February
4, 2016, the Company’s former Chief Operating Officer (“COO”), through legal counsel, made a written demand
on the Company related to her resignation on December 29, 2015. In her letter, the COO alleges, among other things, that we refused
to establish a bonus program for the COO as had been represented to her before she joined the Company, that she was not allowed
to perform her duties, and that she was subject to “mistreatment” by the Chief Executive Officer. The COO has demanded
$500,000 to settle her purported claims. On February 18, 2016, the Company responded to the COO’s written demand, denied
all liability, and offered an additional one-month of severance pay (approximately $8,350) in exchange for a full release to settle
the dispute. On March 29, 2016, Ms. Haugland rejected the Company’s settlement offer without making a counter-offer, and
proposed that the parties participate in mediation. On April 8, 2016, the Company rejected Ms. Haugland’s proposal for mediation,
and re-urged its original settlement offer. Ms. Haugland’s deadline to respond was April 15, 2016. As of the date of this
prospectus, no response has been received by Ms. Haugland.
In a letter dated April 4, 2016,
a shareholder of the Company, Greentree Financial Group, Inc. (“Greentree”), through legal counsel, made a demand
on the Company related to a certain reverse-stock split that occurred following changes in the composition of the Company’s
officers and directors in 2014. In its letter, Greentree alleges, among other things, that: the reverse-stock split was designed
to dilute existing Company interests of existing shareholders and to further entrench new management’s control over the
Company. Greentree has demanded that the board of directors bring a legal action against certain officers and directors and against
the Company’s transfer agent for various alleged violations of federal and state law. Greentree has indicated its intent
to file a putative shareholder derivative action if its demand is not accepted. The Company evaluated Greentree’s demand
and has been engaged in settlement talks for several weeks. As of May 26, 2016, the parties reached a confidential settlement
in principle, subject to entering into a formal settlement agreement. The settlement involves the issuance of shares to Greentree
over the next four quarters in exchange for a full release.
In a letter dated May 10, 2016, Marc
Brannigan, the Company’s former CEO, and related parties (collectively “Brannigan”) sent a demand letter, through
counsel, to the Company and certain other third-parties, claiming, among other things, that the Company improperly diluted Brannigan’s
equity in the Company. Brannigan demands that the Company issue shares to “reverse” the dilution, invalidate shares
improperly issued by the Company, pay unspecified damages, recover one-third of all Company shares owned by Alan Abrams and Chris
Carra, and recover Brannigan’s purported majority ownership and voting control of the Company. The Company is evaluating
Brannigan’s claims, and in the interim has tentatively agreed to schedule a mediation in July 2016 if the parties cannot
otherwise resolve this matter.
Except
as set forth above, there are no pending or threatened legal or administrative actions pending or threatened against us that we
believe would have a material effect on our business.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock is quoted on the OTCQX, operated by the OTC Markets Group, under the symbol “ZDPY.” Prior to December
28, 2015, our common stock was quoted on the Pink Sheets. There have been minimal recent public quotations of our common stock
on the Pink Sheets or the OTCQX. There has never been an active public market for our common stock.
The
following table reflects the high and low bid information for our common stock for the period indicated. The bid information was
obtained from the OTC Markets Group, Inc. and reflects inter-dealer prices, without retail mark-up, markdown or commission, and
may not necessarily represent actual transactions. As of May 12, 2014, we effected a 1-for-120 reverse stock split. All prices
in the following table give effect to the reverse split.
Quarter Ended
|
|
High
|
|
|
Low
|
|
December 31, 2015
|
|
$
|
18.00
|
|
|
$
|
8.50
|
|
September 30, 2015
|
|
$
|
34.00
|
|
|
$
|
18.00
|
|
June 30, 2015
|
|
$
|
50.00
|
|
|
$
|
30.00
|
|
March 31, 2015
|
|
$
|
50.00
|
|
|
$
|
34.00
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
$
|
30.00
|
|
|
$
|
8.50
|
|
September 30, 2014
|
|
$
|
30.00
|
|
|
$
|
15.00
|
|
June 30, 2014
|
|
$
|
1,499.40
|
|
|
$
|
30.00
|
|
March 31, 2014
|
|
$
|
3,372.15
|
|
|
$
|
40.82
|
|
On May 26, 2016, the closing price of our common stock on
the OTCQX was $3.87 per share.
Holders
of Common Stock
As of May 26, 2016, there
were approximately 134 record holders of our common stock. The number of record holders does not include beneficial owners of
common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.
Recent
Sales of Unregistered Securities
Date
|
|
Name
of Person or Entity
|
|
Nature
of Each Offering
|
|
Jurisdiction
|
|
Number
of shares offered
|
|
|
Number
of Shares sold
|
|
|
Price
shares were offered
|
|
|
Amount
paid to the Issuer
|
|
Trading
Status of the shares
|
|
Legend
|
1/10/2015
|
|
Multiple Parties
(1)
|
|
Section
4(a)(2)
|
|
N/A
|
|
|
30,000
|
|
|
|
30,000
|
|
|
$
|
1.00
|
|
|
For
Services
|
|
Restricted
|
|
Yes
|
5/1/2015
|
|
Patricia Haugland
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
15,000
|
|
|
|
15,000
|
|
|
$
|
1.00
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
5/6/2015
|
|
Newbridge Financial,
Inc.
(2)
|
|
Rule 506
|
|
N/A
|
|
|
500,000
|
|
|
|
500,000
|
|
|
$
|
1.00
|
|
|
$500,000
|
|
Restricted
|
|
Yes
|
5/6/2015
|
|
Phillip B. Kenny Trust
|
|
Rule 506
|
|
N/A
|
|
|
500,000
|
|
|
|
500,000
|
|
|
$
|
1.00
|
|
|
$500,000
|
|
Restricted
|
|
Yes
|
6/16/2015
|
|
Vincent Cunzio
|
|
Rule 506
|
|
N/A
|
|
|
45,000
|
|
|
|
45,000
|
|
|
$
|
1.00
|
|
|
Settlement
|
|
Restricted
|
|
Yes
|
6/16/2015
|
|
PCSR&P Holdings,
LLC
|
|
Rule 506
|
|
N/A
|
|
|
5,000
|
|
|
|
5,000
|
|
|
$
|
1.00
|
|
|
Settlement
|
|
Restricted
|
|
Yes
|
7/31/2015
|
|
Kimberly Anderson
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
2,500
|
|
|
|
2,500
|
|
|
$
|
1.00
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
9/30/2015
|
|
Hayden IR
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
7,500
|
|
|
|
7,500
|
|
|
$
|
1.00
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
10/20/2015
|
|
Doug Reed
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
1,000
|
|
|
|
1,000
|
|
|
$
|
5.00
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
10/20/2015
|
|
CFO Oncall, Inc.
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
19,600
|
|
|
|
19,600
|
|
|
$
|
5.00
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
2/15/2016
|
|
CFO OnCall, Inc.
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
3,750
|
|
|
|
3,750
|
|
|
$
|
1.00
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
1/27/2016
|
|
Members of Board of
Directors (Messrs. McLaren, Rosenfeld and Friedman)
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
30,000
(10,000 shares each)
|
|
|
|
30,000
(10,000 shares each)
|
|
|
$
|
1.00
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
2/10/2016
|
|
Unrelated third party
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
10,000
|
|
|
|
10,000
|
|
|
$
|
2.17
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
4/1/2016
|
|
Hayden IR
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
7,500
|
|
|
|
7,500
|
|
|
$
|
1.00
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
4/1/2016
|
|
CFO OnCall, Inc.
|
|
Section 4(a)(2)
|
|
N/A
|
|
|
3,750
|
|
|
|
3,750
|
|
|
$
|
1.00
|
|
|
For Services
|
|
Restricted
|
|
Yes
|
(1)
Company issued stock to three board members as compensation for services.
(2)
Newbridge Financial, Inc.’s Executive Chairman is Guy Amico.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
None.
Securities
Authorized for Issuance under Equity Compensation Plans
On
October 1, 2014, the Board of Directors authorized the 2014 Equity Compensation Plan (the “Plan”), which reserved
10,000,000 shares of common stock. The number of shares of common stock available for issuance under the Plan shall automatically
increase on the first trading day of January each calendar year during the term of the Plan, beginning with calendar year 2015,
by an amount equal to one and one-half percent (1.5%) of the total number of shares of common stock outstanding on the last trading
day in December of the immediately preceding calendar year, but in no event shall any such annual increase exceed 400,000 shares
of common stock. If any share of common stock that have been granted pursuant to a stock option ceases to be subject to a stock
option, or if any shares of common stock that are subject to any other stock-based award granted are forfeited or terminates,
such shares shall again be available for distribution in connection with future grants and awards under the Plan. The Plan’s
purpose is to enable the Company to offer its employees, officers, directors and consultants an opportunity to acquire a proprietary
interest in the Company for their contributions.
Plan Category
|
|
Number of securities to be
issued upon exercise of outstanding options, warrants and rights
|
|
|
Weighted-average exercise
price of outstanding options, warrants and rights
|
|
|
Number of securities remaining
available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
-
|
|
|
|
N/A
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
1,550,000
|
|
|
$
|
1.00
|
|
|
|
8,450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,550,000
|
|
|
$
|
1.00
|
|
|
|
8,450,000
|
|
DESCRIPTION
OF SECURITIES
General
Outstanding
Shares and Holders
As of May 26, 2016, our authorized
capital stock consists of 100,000,000 shares of common stock, $0.001 par value per share, 17,135,850 of which were issued and
outstanding, and 5,000,000 shares of preferred stock, $0.001 par value per share, 2,000,000 of which were issued and outstanding.
Common
Stock
Holders
of the Company’s common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders
of common stock do not have cumulative voting rights. Holders of the Company’s common stock are entitled to share in all
dividends that our board of directors, in its discretion, declares from legally available funds. In the event of a liquidation,
dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after
payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. The Company’s
common stock has no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to the Company’s
common stock.
Preferred
Stock
Our
articles of incorporation, as amended, authorizes our board of directors, subject to any limitations prescribed by law, without
further stockholder approval, to establish and to issue from time to time one or more classes or series of preferred stock. Each
class or series of preferred stock will cover the number of shares and will have the powers, preferences, rights, qualifications,
limitations and restrictions determined by the board of directors, which may include, among others, dividend rights, liquidation
preferences, voting rights, conversion rights, preemptive rights and redemption rights. Except as provided by law or in a preferred
stock designation, the holders of preferred stock will not be entitled to vote at or receive notice of any meeting of stockholders.
The
certificate of designation for the preferred stock provides that the shares are not convertible into any other class or series
of stock. Holders of preferred shares are entitled to 50 votes for each share held. Voting rights are not subject to adjustment
for splits that increase or decrease the common shares outstanding. Upon liquidation, holders of preferred stock will be entitled
to receive $1.00 per share plus redemption provision before assets are distributed to other stockholders. Holders of preferred
shares are entitled to dividends equal to common share dividends. Once any shares of preferred stock are outstanding, at least
51% of the total number of shares of preferred stock outstanding must approve the following transactions:
|
●
|
alteration
of the rights, preferences of privileges of the preferred stock,
|
|
|
|
|
●
|
creation
of any new class of stock having preferences over the preferred stock,
|
|
|
|
|
●
|
repurchase
of any of our common stock,
|
|
|
|
|
●
|
merger
of consolidation with any other company, other than one of our wholly-owned subsidiaries,
|
|
|
|
|
●
|
sale,
conveyance or other disposal of, or creation or incurrence of any mortgage, lien, or charge or encumbrance or security interest
in or pledge of, or sale and leaseback of, all or substantially all of our property or business, or
|
|
|
|
|
●
|
incurrence,
assumption or guarantee of any indebtedness maturing more than 18 months after the date on which it is incurred, assumed or
guaranteed by us, except for operating leases and obligations assumed as part of the purchase price of property.
|
Holders
of a majority of the voting power of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy,
are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of our outstanding voting
shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our articles
of incorporation.
Holders
of preferred shares vote along with common stockholders on each matter submitted to a vote of security holders. As a result of
the multiple votes accorded to holders of the preferred stock, Greg Johnston and Alex McLaren have the ability to control the
outcome of all matters submitted to a vote of stockholders, including the election of directors. On those matters that require
the approval of at least 51% of the preferred stock, both Mr. Johnston and Mr. McLaren must provide their approval inasmuch as
each of them owns 50% of the outstanding preferred stock.
Dividends
Historically, we have not paid any cash
dividends on our common stock. It is our present intention not to pay any cash dividends in the foreseeable future, but rather
to reinvest earnings, if any, in our business operations. However, in the future, our board of directors may declare dividends
on our common stock. Payment of future dividends on our common stock, if any, will be at the discretion of our board of directors
and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual
restrictions and other factors that our board of directors may deem relevant. In addition, the agreements into which we may enter
in the future, including indebtedness, may impose limitations on our ability to pay dividends or make other distributions on our
capital stock. We cannot guarantee that we will pay dividends to our stockholders in the future. Holders of preferred shares are
entitled to dividends equal to common share dividends.
Anti-Takeover
Effects of Certain Provisions of Our Articles of Incorporation, as Amended, and Our Bylaws
These
provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits
of increased protection and our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure us outweigh the disadvantages of discouraging these proposals because, among other things, negotiation
of these proposals could result in an improvement of their terms.
Preferred
Stock.
Our articles of incorporation, as amended, authorize our board of directors to issue from time to time any series of
preferred stock and fix the voting powers, designation, powers, preferences and rights of the shares of such series of preferred
stock.
Calling
of Special Meetings of Stockholders.
Our bylaws provide that special meetings of the stockholders may be called only by the
chairman of the board or the chief executive officer, and shall be called by the chairman of the board or the secretary (i) when
so directed by the board, or (ii) at the written request of stockholders owning shares representing at least 25% of voting power
in the election of directors.
Advance
Notice Requirements for Stockholder Proposals and Director Nominations.
Our bylaws establish an advance notice procedure for
stockholder proposals to be brought before a meeting of our stockholders, including proposed nominations of persons for election
to the board of directors.
Removal
of Directors; Vacancies.
Our bylaws provide that a director may be removed from office by stockholders for cause, or without
cause by a majority vote of the stockholders. A vacancy on the board of directors may be filled only by a majority of the directors
then in office.
Transfer
Agent
The
transfer agent for our common stock is West Coast Stock Transfer, Inc. West Coast Stock Transfer’s telephone number is (619)
664-4780.
Financial
Statements
Our
consolidated financial statements are included in this prospectus, beginning on page F-1.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary
Note Regarding Forward-Looking Information and Factors That May Affect Future Results
This
prospectus contains forward-looking statements regarding our business, financial condition, results of operations and prospects.
The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information so
that investors can better understand a company’s future prospects and make informed investment decisions. This prospectus
and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated
results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible,
to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,”
“intend,” “plan,” “believe,” “will” and similar expressions in connection with
any discussion of future operating or financial performance. In particular, these include statements relating to future actions,
future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal
proceedings, and financial results. Factors that could cause our actual results of operations and financial condition to differ
materially are set forth in the “Risk Factors” section of this prospectus.
We
caution that these factors could cause our actual results of operations and financial condition to differ materially from those
expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking
statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake
no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement
is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to
time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on
our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
The
following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere
in this prospectus.
Business
and Corporate History
We
are a strategic real estate development firm whose primary mission is to identify, develop, and manage sophisticated, safe, and
sustainable properties in emerging industries, including the licensed medical marijuana industry. Our vision is to be recognized
for creating the standard in property development for emerging industries, while increasing community prosperity and shareholder
value. We believe that a strong focus on the development of real estate properties will bring value to the local communities and
all of our stakeholders. We have initially established a focus on properties within the medical marijuana industry because we
believe there will be increasing demand in this industry, as the national industry continues to evolve.
We
target commercial properties that can be acquired and potentially re-zoned for specific development purposes, including but not
limited to, licensed medical marijuana dispensaries or cultivation facilities. The core of our business involves identifying and
acquiring properties that exist within highly regulated zoning regions and may be candidates for re-zoning. This is an essential
aspect of our overall growth strategy because we target uniquely zoned properties that are developed as candidates for specific
industry operators. Once the properties have been acquired and/or re-zoned, their value may be substantially higher as demand
for properties within the specific zoning region increases.
We
manage a portfolio of properties that we own, lease, and provide direct development on each property we acquire. This can include
complete architectural design and subsequent build-outs, general support, landscaping, general up-keep, facilities management,
and state of the art security systems. During the three months ended March 31, 2016, improvements made to rental properties amounted
to $206,579.
During the year ended December 31, 2015,
improvements made to rental properties amounted to $75,447.
As of March 31, 2016, a summary of rental
properties owned by us consisted of the following:
Description
|
|
Tempe, AZ
|
|
|
Tempe, AZ
|
|
|
|
|
|
Green Valley
Sahuarita,
AZ
|
|
|
Chino Valley, AZ
|
|
|
Kingman, AZ
|
|
|
|
Mixed -use warehouse/office
|
|
|
Mixed -use warehouse/office
|
|
|
Gilbert, AZ Land
|
|
|
Retail
(special-use)
|
|
|
Greenhouse /
Nursery
|
|
|
Retail
(Special-Use)
|
|
Current Use
|
|
Medical marijuana
cultivation and packaging
|
|
|
Warehouse/office
|
|
|
Future development
|
|
|
Dispensary
|
|
|
Medical marijuana
cultivation and packaging
|
|
|
Dispensary
|
|
Date Acquired
|
|
|
March
2014
|
|
|
|
March
2014
|
|
|
|
January 2014
|
|
|
|
October 2014
|
|
|
|
August 2015
|
|
|
|
May 2014
|
|
Lease Start Date
|
|
|
August
2015
|
|
|
|
April
2015
|
|
|
|
N/A
|
|
|
|
October
2014
|
|
|
|
August 2015
|
|
|
|
October 2014
|
|
Lease End Date
|
|
|
July
2035
|
|
|
|
March
2020
|
|
|
|
N/A
|
|
|
|
September 2024
|
|
|
|
July
2035
|
|
|
|
September 2024
|
|
Total Rentable Sq. Ft.
|
|
|
60,000
|
|
|
|
22,355
|
|
|
|
0
|
|
|
|
1,440
|
|
|
|
38,799
|
|
|
|
1,497
|
|
Sq. Ft. rented as of March 31, 2016
|
|
|
5,000
|
|
|
|
22,355
|
|
|
|
N/A
|
|
|
|
1,440
|
|
|
|
15,000
|
|
|
|
1,497
|
|
Vacant Rentable Sq. Ft.
|
|
|
55,000
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
23,799
|
|
|
|
0
|
|
Land Area
|
|
|
3.65
Acres
158,772
Sq. Ft.
|
|
|
|
1.28
Acres
56,000
Sq. Ft.
|
|
|
|
0.8
acres
34,717
Sq. Ft.
|
|
|
|
1.33
Acres
57,769
Sq. Ft.
|
|
|
|
47.6
Acres
2,072,149
Sq. Ft.
|
|
|
|
0.16
Acres
7,061
Sq. Ft
|
|
Total No. of Tenants
|
|
|
1
|
|
|
|
1
|
|
|
|
N/A
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
No.
of Related party Tenants
|
|
|
1
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Base Rent:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
(remainder of year)
|
|
$
|
124,871
|
|
|
$
|
148,365
|
|
|
$
|
-
|
|
|
$
|
9
1,271
|
|
|
$
|
370,000
|
|
|
$
|
115,200
|
|
2017
|
|
|
173,639
|
|
|
|
202,266
|
|
|
|
-
|
|
|
|
127,256
|
|
|
|
514,500
|
|
|
|
160,745
|
|
2018
|
|
|
182,328
|
|
|
|
208,329
|
|
|
|
-
|
|
|
|
133,619
|
|
|
|
540,225
|
|
|
|
168,782
|
|
2019
|
|
|
191,442
|
|
|
|
214,588
|
|
|
|
-
|
|
|
|
140,300
|
|
|
|
567,236
|
|
|
|
177,221
|
|
2020
|
|
|
201,014
|
|
|
|
54,041
|
|
|
|
|
|
|
|
147,315
|
|
|
|
595,598
|
|
|
|
186,082
|
|
Thereafter
|
|
|
4,375,384
|
|
|
|
-
|
|
|
|
-
|
|
|
|
620,269
|
|
|
|
12,964,099
|
|
|
|
783,497
|
|
Total
|
|
$
|
5,248,678
|
|
|
$
|
827,589
|
|
|
$
|
-
|
|
|
$
|
1,260,030
|
|
|
$
|
15,551,658
|
|
|
$
|
1,591,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized $ per Rented Sq. Ft.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
$
|
24
|
|
|
$
|
8
|
|
|
|
-
|
|
|
$
|
76
|
|
|
$
|
22
|
|
|
$
|
93
|
|
2016
|
|
$
|
33
|
|
|
$
|
9
|
|
|
|
-
|
|
|
$
|
84
|
|
|
$
|
32
|
|
|
$
|
102
|
|
2017
|
|
$
|
35
|
|
|
$
|
9
|
|
|
|
-
|
|
|
$
|
88
|
|
|
$
|
34
|
|
|
$
|
107
|
|
Recent
Developments
On February 16, 2016, our wholly-owned
subsidiary, Chino Valley entered into a letter of intent (the “Chino Valley LOI”) with C3C3 Group, LLC (the “Tenant”)
and Broken Arrow Herbal Center, Inc. (“Broken Arrow”). Each of the Tenant and Broken Arrow are owned by a significant
stockholder of the Company. Pursuant to the terms of the Chino Valley LOI, the parties agreed to amend the existing lease agreement,
dated August 6, 2015, to provide for the lease by Chino Valley to Tenant of approximately 45,000 square feet of space in Chino
Valley, Arizona. The monthly rent due, pursuant to the terms of the Chino Valley LOI, will be $70,833 beginning June 1, 2016 and
$127,500 beginning August 1, 2016; however, the increased rental revenue will be contingent upon the completion of the constructed
expansion at the facility. In subsequent years beginning August 1, 2017, there will be a 5% annual increase in the monthly rent.
The parties identified a budget of $2,000,000 for developing the property and constructing the tenant improvements. Through March
31, 2016, capitalized construction in progress costs related to the China Valley LOI amounted to $146,166. The Chino Valley LOI
and the Amendment to the lease agreement shall be contingent upon: (a) the Company obtaining financing for the development of
the premises and the construction of the tenant improvements in such amount and on such terms and provisions as are acceptable
to us in our sole and absolute discretion from a lender approved by us in our sole discretion, and (b) approval by the Town of
Chino Valley of the Phased Protected Development Rights Plan. In the event that the contingencies have not been satisfied, this
LOI shall terminate, and all of the deposits, except for $100, shall be returned to Tenant.
On March 15, 2016, we entered into a letter
of intent (the “Catalina Partners LOI”) with Catalina Partners III LLC (“Catalina Partners”) and Catalina
Hills Botanical Care, Inc. (“Catalina Hills”) pursuant to which the parties agreed to work together in good faith
to mutually agree on the terms of a lease agreement to be entered into by the parties. Pursuant to the terms of the Catalina Partners
LOI, the parties will execute a lease agreement consistent with the terms of the Catalina Partners LOI no later than 90 days after
execution of the Catalina Partners LOI. The lease agreement will provide for the lease of approximately 25,000 square feet of
space (the “Premises”) by us to Catalina Partners. We agreed to grant Catalina Partners an option to lease an additional
15,000 square feet of adjacent space. The parties agreed that our total projected budget for constructing Catalina Partners’
improvements and developing the Premises is an amount equal to or less than $2,500,000, with such additional amounts subject to
approval by Catalina Partners. The cost of Catalina Partners’ improvements will be paid by us. The Catalina Partners LOI
and execution of the lease agreement are subject to certain contingencies, including that we must obtain commercially reasonable
financing for the development of the Premises and the construction of Catalina Partners’ improvements, acquisition by us
of written approval of all due diligence and underwriting matters required by us and/or our lender, acquisition of necessary zoning
and land use entitlements, and Catalina Partners’ obtaining written approval from AZDHS of approval to operate the Premises
as a medical marijuana cultivation and production facility on behalf of Catalina Hills. Certain individuals agreed to personally
guarantee the Catalina Partners lease agreement.
On April 22, 2016, Zoned Colorado Properties,
LLC (“Zoned Colorado”), our wholly-owned subsidiary, entered into a Contract to Buy and Sell Real Estate (Commercial)
(the “Agreement”) with Parachute Development Corporation (“Seller”) pursuant to which Zoned Colorado agreed
to purchase, and Seller agreed to sell, property in Parachute, Colorado (the “Property”) for a purchase price of $499,857.
Of the total purchase price, $274,857, or 55%, will be paid in cash at closing and $225,000, or 45%, will be financed by Seller
at an interest rate of 6.5%, amortized over a five-year period, with a balloon payment at the end of the fifth year. Payments
will be made monthly and there will be no pre-payment penalty.
Pursuant to the terms of the Agreement,
the parties will cooperate in good faith to complete due diligence during a period of 45 days following execution of the Agreement.
The closing is subject to certain contingencies, including that Zoned Colorado must obtain acceptable financing for the purchase
and development of the property, the grant of a special use permit by the Town of Parachute, approval of a protected development
deal or equivalent agreement by the Town of Parachute, execution of a lease agreement by a prospective tenant and the prospective
tenant’s obtaining a license to cultivate on the property. Pursuant to the terms of the Agreement, Zoned Colorado will have
a right of first refusal on eleven additional lots owned by Seller in Parachute, Colorado. In April 2016, we paid a refundable
deposit of $45,000 into escrow in connection with the Agreement.
On May 17, 2016, Zoned Colorado entered
into a binding letter of intent (the “American Green LOI”) with American Green, Inc. (“American Green”)
and Herbal Elements, LLC (“Herbal Elements”) pursuant to which the parties agreed to the material terms of a lease
agreement to be entered into by the parties.
Pursuant to the terms of the American Green
LOI, the parties will execute a lease agreement consistent with the terms of the American Green LOI no later than 90 days after
effective date of the American Green LOI, which is the date that is three business days after the mutual execution and delivery
of the American Green LOI by Zoned Colorado and American Green. The lease agreement will provide for the lease of approximately
15,000 square feet of space (the “American Green Premises”) by Zoned Colorado to American Green.
The parties agreed that Zoned Colorado’s
total projected budget for constructing the American Green improvements and developing the American Green Premises is an amount
equal to or less than $1,250,000, with such additional amounts subject to approval by American Green. The cost of the American
Green improvements will be paid by Zoned Colorado.
Pursuant to the terms of the American Green
LOI, the monthly rent for the American Green Premises will be as follows:
Months 1-6
|
|
|
-
|
|
|
$
|
32,500
|
|
Months 7-12
|
|
|
-
|
|
|
$
|
37,500
|
|
Months 13-60
|
|
|
-
|
|
|
$
|
43,125
|
|
Months 61-120
|
|
|
-
|
|
|
$
|
45,625
|
|
Months 121-180
|
|
|
-
|
|
|
$
|
50,000
|
|
The American Green LOI and execution of
the lease agreement are subject to certain contingencies, including that Zoned Colorado must obtain commercially reasonable financing
for the development of the American Green Premises and the construction of the American Green improvements, acquisition by Zoned
Colorado of written approval of all due diligence and underwriting matters required by Zoned Colorado and/or its lender, acquisition
of necessary zoning and land use entitlements, and American Green’s obtaining written approval from the Colorado Marijuana
Enforcement Division of approval to operate the American Green Premises as a medical or recreational marijuana cultivation and
production facility on behalf of Herbal Elements.
Results of Operations
The following comparative analysis on results
of operations was based primarily on the comparative consolidated financial statements, footnotes and related information for
the periods identified below and should be read in conjunction with the unaudited condensed consolidated financial statements
and notes to those statements for the three months ended March 31, 2016 and 2015, and the audited consolidated financial statements
and the notes to those statements for the years ended December 31, 2015 and 2014, which are included elsewhere in this prospectus.
Comparison of Results of Operations for the Three Months
ended March 31, 2016 and 2015
Revenues
For the three months ended March 31, 2016 and 2015, revenues consisted
of the following:
|
|
Three Months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Rent revenues
|
|
$
|
60,880
|
|
|
$
|
82,175
|
|
Rent revenues – related parties
|
|
|
345,526
|
|
|
|
145,111
|
|
Total revenues
|
|
$
|
406,406
|
|
|
$
|
227,286
|
|
For the three months ended March 31, 2016,
total revenues amounted to $406,406, including related party revenues of $345,526, as compared to $227,286, including related party
revenues of $145,111, for the three months ended March 31, 2015, an increase of $179,120 or 78.8%. In March 2014, we began recording
revenue from the leases of our properties. In August 2015, in connection with a settlement agreement, we received our Chino Valley
property in exchange for our New Mexico property resulting in a net increase in rent revenues – related parties of approximately
$167,000.
Operating expenses
For the three months ended March 31, 2016,
operating expenses amounted to $586,186 as compared to $355,262 for the three months ended March 31, 2015, representing an increase
of $230,924 or 65.0%. For the three months ended March 31, 2016 and 2015, operating expenses consisted of the following:
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Compensation and benefits
|
|
$
|
179,824
|
|
|
$
|
66,926
|
|
Professional fees
|
|
|
276,522
|
|
|
|
121,005
|
|
General and administrative expenses
|
|
|
51,621
|
|
|
|
62,171
|
|
Depreciation and amortization
|
|
|
41,098
|
|
|
|
37,186
|
|
Property operating expenses
|
|
|
15,460
|
|
|
|
14,557
|
|
Real estate taxes
|
|
|
21,661
|
|
|
|
14,667
|
|
Consulting fees - related parties
|
|
|
-
|
|
|
|
21,250
|
|
Settlement expense
|
|
|
-
|
|
|
|
17,500
|
|
Total
|
|
$
|
586,186
|
|
|
$
|
355,262
|
|
|
·
|
For the three months ended March 31, 2016, compensation and benefit expense increased by $112,898 or 168.7% as compared to the three months ended March 31, 2015. The increase was primarily attributable to the following:
|
|
1.
|
During the three months ended March 31, 2016, we recorded stock-based compensation of $99,328 as compared to $30,000 for the comparable 2015 period, an increase of $69,328 or 231.1%. The increase was related to the accretion of stock option expense in 2016 of $16,772, an increase in stock-based compensation related to the issuance of shares to the Company’s directors and chief financial officer of $115,500, offset by the reversal of stock-based compensation of $62,944 related to the cancellation of unvested stock options.
|
|
2.
|
During the three months ended March 31, 2016, we incurred additional compensation and benefit expense as compared to the comparable 2015 period related to the hiring of our chief operating officer and chief financial officer of approximately $42,000.
|
|
●
|
For the three months ended March 31, 2016, professional fees increased by $155,517, or 128.5%, as compared to the three months ended March 31, 2015. The increase was primarily attributable to an increase in legal fees of $10,735 attributable to real estate and other legal matters, an increase in consulting fees of $82,752 related to accretion of stock-based consulting expense of $111,901 from the granting of stock options to a consultant, offset by a decrease in consulting expense of $29,150, and an increase in public relations fees incurred of $59,836. We used consultants to assist us with introductions to potential business partners and customers, to help us with public relations services, including helping us find market makers, broker-dealers, and sources of capital, advise us on construction of indoor, outdoor and greenhouse agricultural systems, assist us with agricultural licensing and zoning, and assist with development of business modeling, market development and advice concerning equity and debt financings.
|
|
|
|
|
●
|
General and administrative expenses consist of expenses such as rent expense, directors’ and officers’ liability insurance, travel expenses, office expenses, telephone and internet expenses and other general operating expenses. For the three months ended March 31, 2016, general and administrative expenses decreased by $10,550 or 17.0% as compared to the three months ended March 31, 2015. These changes were primarily attributable to a decrease in rent expense of $2,275, a decrease in insurance expense of $10,664 related to the New Mexico property, a decrease in travel expenses of $4,504 offset by an increase in filing fees of $8,865 primarily related to fees paid for a listing on the OTCQX and EDGAR filing fees and a net decrease in other general and administrative expenses of $1,972.
|
|
●
|
For the three months ended March 31, 2016, depreciation and amortization expense amounted to $41,098, as compared to $37,186 for the three months ended March 31, 2015, representing an increase of $3,912 or 10.5%, attributable to an increase in depreciable assets.
|
|
|
|
|
●
|
Property operating expenses consist of property management fees, property insurance, repairs and maintenance fees, utilities and other expenses related to our rental properties. For the three months ended March 31, 2016, property operating expenses amounted to $15,460, as compared to $14,557 for the three months ended March 31, 2015, representing an increase of $903 or 6.2% attributable to an increase in insurance paid for the additional the property in Chino Valley. In the third quarter of 2015, we terminated the use of a management company and now we manage all of our properties.
|
|
|
|
|
●
|
For the three months ended March 31, 2016, real estate taxes amounted to $21,661 as compared to $14,667 for the three months ended March 31, 2015, representing an increase of $6,994 or 47.7%. In August 2015, we acquired additional rental properties and began incurring such taxes.
|
|
●
|
For the three months ended March 31, 2016, consulting fees – related parties amounted to zero as compared to $21,250 for the three months ended March 31, 2015, representing a decrease of $21,250 or 100%. Beginning in August 2014, we incurred consulting fees in connection with a consulting agreement with a related party. In August 2015, this employment agreement was terminated.
|
|
|
|
|
●
|
For the three months ended March 31, 2016, settlement expense amounted to zero as compared to $17,500 for the three months ended March 31, 2015. During 2015, we settled certain litigation and a claim by paying cash of $17,500.
|
Loss from operations
As a result of the factors described above,
for the three months ended March 31, 2016, our loss from operations amounted to $179,780 as compared to $127,976 for the three
months ended March 31, 2015, representing an increase of $51,804 or 40.5%.
Other income (expenses)
Other expenses includes interest expense
and other income. For the three months ended March 31, 2016, total other expenses, net amounted to $56,873 as compared to $56,590,
representing a decrease of $283 or 0.5%. This decrease was attributable to an increase in interest income of $283.
Net loss
As a result of the foregoing, for the three
months ended March 31, 2016 and 2015, net loss amounted to $236,653, or $0.01 per common share, and $184,566, or $0.01 per common
share, respectively.
Comparison
of Results of Operations for the Years ended December 31, 2015 and 2014
Revenues
For
the years ended December 31, 2015 and 2014, revenues consisted of the following:
|
|
Year Ended
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Rent revenues
|
|
$
|
414,785
|
|
|
$
|
327,387
|
|
Rent revenues - related party
|
|
|
980,509
|
|
|
|
140,527
|
|
Total revenues
|
|
$
|
1,395,294
|
|
|
$
|
467,914
|
|
For
the year ended December 31, 2015, total revenues amounted to $1,395,294, including related party revenues of $980,509, as compared
to $467,914, including related party revenues of $140,527 for the year ended December 31, 2014, an increase of $927,380 or 198.2%.
In March 2014, we began recording revenue from the leases of our properties.
Operating
expenses
For
the year ended December 31, 2015, operating expenses amounted to $2,541,860 as compared to $5,947,862 for the year ended December
31, 2014, a decrease of $3,406,002 or 57.3%. For the year ended December 31, 2015 and 2014, operating expenses consisted of the
following:
|
|
Year ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Compensation and benefits
|
|
$
|
455,037
|
|
|
$
|
3,918,440
|
|
Professional fees
|
|
|
1,333,435
|
|
|
|
932,510
|
|
General and administrative expenses
|
|
|
274,797
|
|
|
|
148,157
|
|
Depreciation and amortization
|
|
|
150,368
|
|
|
|
99,822
|
|
Property operating expenses
|
|
|
120,094
|
|
|
|
75,069
|
|
Real estate taxes
|
|
|
87,117
|
|
|
|
63,447
|
|
Consulting fees - related parties
|
|
|
53,512
|
|
|
|
35,417
|
|
Impairment loss on building - related party
|
|
|
-
|
|
|
|
675,000
|
|
Settlement expense
|
|
|
67,500
|
|
|
|
-
|
|
Total
|
|
$
|
2,541,860
|
|
|
$
|
5,947,862
|
|
|
●
|
For
the year ended December 31, 2015, compensation and benefit expense decreased by $3,463,403
or 88.4% as compared to the year ended December 31, 2014. The decrease was primarily
attributable to:
|
|
1.
|
The
issuance of super voting control preferred stock on July 22, 2014 (herein referred to
as the “Valuation Date”. The Company assessed the fair value of the preferred
stock issued to Gregory Johnston and McLaren Family LLLP for purposes of determining
the valuation as set forth in ASC 820-10-35-37
Fair Value in Financial Instruments.
On the Valuation date, we utilized the market approach and for the year ended December
31, 2014, we recorded stock-based compensation of $3,365,000. We did not incur such expense
during the 2015 period. The preferred stock issued was valued based upon industry specific
control premiums and our market cap at the time of the transactions. The market approach
was utilized to arrive at an indication of equity value by using equity based transactions
common stock prices (the market data was deemed unreliable due to the limited trading)
on July 22, 2014. The control premium for the Company was based on publicly traded companies
or comparable entities which have been recently acquired in arm’s-length transactions.
We estimated the control premium for the voting control of the preferred stock based
on Real Estate industries at 17.5
%
as of July 22, 2014.
|
|
2.
|
During
the year ended December 31, 2014, we recorded stock-based compensation of $250,000 related
to the issuance and subsequent cancellation of common shares to the Company’s chief
executive officer.
|
|
●
|
For
the year ended December 31, 2015, professional fees increased by $400,925, or 43.0%,
as compared to the year ended December 31, 2014. The increase was attributable to an
increase in legal fees of $222,024 attributable to legal matters as discussed in recent
developments, an increase in accounting fees of $26,411 attributable to our financial
audits and increased accounting needs, a net increase in consulting fees of $120,577
related to granting of stock options to consultants, and an increase in architectural
fees incurred to develop standard build-out plans for future developments of $30,062.
We used consultants to assist us with introductions to potential business partners and
customers, to help us with public relations services including helping us find market
makers, broker-dealers, and sources of capital, advise us on construction of indoor,
outdoor and greenhouse agricultural systems, assist us with agricultural licensing and
zoning, and assistance with development of business modeling, market development and
advice concerning equity and debt financings.
|
|
●
|
General
and administrative expenses consist of expenses such as rent expense, directors and officer’s
liability insurance, travel expenses, office expenses, telephone and internet expenses
and other general operating expenses. For the year ended December 31, 2015, general and
administrative expenses increased by $126,640 or 85.54% as compared to the year ended
December 31, 2014. These increases were primarily attributable to an increase in rent
expense of $24,044, an increase in insurance expense of $56,615, and an increase in travel
expenses of $9,223 and increases in other general and administrative expenses of $36,758.
|
|
●
|
For
the year ended December 31, 2015, depreciation and amortization expense amounted to $150,368
as compared to $99,822 for the year ended December 31, 2014, an increase of $45,025 or
50.6%, attributable to an increase in depreciable assets.
|
|
●
|
Property
operating expenses consist of property management fees, property insurance, repairs and
maintenance fees, utilities and other expenses related to our rental properties. For
the year ended December 31, 2015, property operating expenses amounted to $120,094 as
compared to $75,069 for the year ended December 31, 2014, an increase of $45,025 or 60.0%
attributable to an increase in fees paid to a third party management company to manage
our properties and to an increase in rental properties. In the third quarter of 2015,
we terminated the use of a management company and now we manage all of the properties.
|
|
●
|
For
the year ended December 31, 2015, real estate taxes amounted to $87,117 as compared to
$63,447 for the year ended December 31, 2014, an increase of $23,670 or 37.3%. In 2015
and 2014, we acquired additional rental properties and began incurring such taxes.
|
|
●
|
For
the year ended December 31, 2015, consulting fees - related parties amounted to $53,512
as compared to $35,417 for the year ended December 31, 2014, an increase of $18,095 or
51.1%. Beginning in August 2014, we began incurred consulting fees in connection with
an employment agreement with a related party. In August 2015, this employment agreement
was terminated.
|
|
●
|
For
the year ended December 31, 2014, impairment loss on building amounted to $675,000. We
did incur any impairment charges for the year ended December 31, 2015. On January 29,
2014, we entered into a purchase and consulting agreement with Ultra Health pursuant
to which we were to acquire a 1,536 square foot modular building to be delivered and
erected on purchased land for total cash payments of $675,000. In connection with this
modular building, on April 10, 2015, we became a party to a certain case pending in the
Superior Court of the State of Arizona in and for Maricopa County, Arizona, wherein we
alleged, among other things, that the Defendants, alone or in collusion with one another,
breached a certain contract for the construction of the Gilbert building, and made material
misrepresentations or had negligently misrepresented certain material elements upon which
we relied, in purchasing the land upon which that building was to be constructed, which
the Defendants failed to perform. We review our rental properties for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Based on this review, on December 31, 2014, we determined that the
Gilbert building carrying value of $675,000 was not recoverable and recorded an impairment
loss of $675,000. The case was settlement on August 1, 2015 and is discussed elsewhere.
|
|
●
|
For
the year ended December 31, 2015, settlement expense amounted to $67,500 as compared
to zero for the year ended December 31, 2014. During the year ended December 31, 2015,
we settled certain litigation and a claim by paying cash of $17,500 and by issuing 50,000
shares of our common stock with a fair value of $50,000.
|
Loss
from operations
As
a result of the factors described above, for the year ended December 31, 2015, loss from operations amounted to $1,146,566 as
compared to $5,479,948 for the year ended December 31, 2014, a decrease of $4,333,382 or 79.1%.
Other
income (expenses)
Other
expenses includes interest expense and other income. For the year ended December 31, 2015, total other expenses, net amounted
to $225,464 as compared to $260,418, a decrease of $34,954 or 13.4%. This decrease was attributable to:
|
●
|
a
decrease in interest expense of $72,990 primarily attributable to a decrease in amortization
of debt discount of $142,564 offset by an increase in interest expense of $26,250 related
to a mortgage payable dated March 2014, and an increase of $44,911 related to an increase
in convertible debt, and,
|
|
●
|
an
increase in interest income of $439, offset by:
|
|
●
|
a
decrease in other income of $38,475. For the year ended December 31, 2014, we recognized
other income of $41,020 from the sale of a note receivable compared to zero for the year
ended December 31, 2015.
|
Net
loss
As
a result of the foregoing, for the year ended December 31, 2015 and 2014, net loss amounted to $1,372,030, or $0.08 per common
share, and $5,740,366, or $0.72 per common share, respectively.
Liquidity
and Capital Resources
Liquidity
is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements.
Three Months Ended March 31, 2016 Compared
to Three Months Ended March 31, 2015
We had cash of $1,052,504 and $1,281,464
as of March 31, 2016 and December 31, 2015, respectively.
Our primary uses of cash have been for salaries,
fees paid for professional services, property operating expenses, general and administrative expenses, and the acquisition of rental
properties. All funds received have been expended in the furtherance of growing the business. The following trends are reasonably
likely to result in changes in our liquidity over the near to long term:
|
●
|
An increase in working capital requirements to finance our current business,
|
|
●
|
Acquisition and buildout of rental properties;
|
|
|
|
|
●
|
Addition of administrative and sales personnel as the business grows, and
|
|
|
|
|
●
|
The cost of being a public company.
|
We currently have material commitments for
capital expenditures amounting to approximately $5,000,000 for the expansion and buildout of our Chino Valley and Tempe properties
and acquisition of new rental properties. These capital expenditures are contingent upon: (a) the Company obtaining financing for
the development of the premises and the construction of the tenant improvements in such amount and on such terms and provisions
as are acceptable to the Company in our sole and absolute discretion from a lender approved by us in our sole discretion, and (b)
approval by the Town of Chino Valley of the Phased Protected Development Rights Plan. Accordingly, we can delay or cancel these
planned capital expenditures, if necessary.
We may need to raise additional funds, particularly
if we are unable to generate positive cash flow as a result of our operations. We estimate that based on current plans and assumptions,
that our available cash will be sufficient to satisfy our cash requirements under our present operating expectations for the next
12 months. Other than revenue received from the lease of our rental properties, funds received from the sale of our common stock
and funds received from debt, we presently have no other significant alternative source of working capital. We have used these
funds to fund our operating expenses, pay our obligations, acquire rental properties, and grow our company. We need to raise significant
additional capital or debt financing to acquire new properties, to develop existing properties, and to assure we have sufficient
working capital for our ongoing operations and debt obligations.
Our future operation is dependent on our
ability to manage our current cash balances and on the collection of rental revenues. We intend on securing additional financing
to acquire and develop additional and existing properties. Financing transactions may include the issuance of equity or debt securities,
obtaining credit facilities, or other financing mechanisms. Even if we are able to raise the funds required, it is possible that
we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative
financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the
new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability
to obtain additional capital may restrict our ability to grow our business operations.
Cash Flow
For the Three Months Ended March 31, 2016 and 2015
Net cash flow used by operating activities
was $22,381 for the three months ended March 31, 2016 as compared to $90,745 for the three months ended March 31, 2015, representing
a decrease in cash used in operations of $68,364.
|
●
|
Net cash flow used in operating activities for the three months ended March 31, 2016 primarily reflected a net loss of $(236,653) adjusted for the add-back of non-cash items consisting of depreciation and amortization of $41,098, stock-based compensation expense of $185,550, net accretion of stock-based stock option expense of $65,729, and a non-cash increase in deferred rent receivables of $(129,332), and changes in operating assets and liabilities primarily consisting of a decrease in accrued expense of $(22,148), offset by a decrease in real estate tax escrow of $27,601, a decrease of prepaid expenses and other assets of $6,751, an increase in accounts payable of $31,499, an increase in accrued expenses – related parties of $2,750, and an increase in security deposits payable of $4,774.
|
|
|
|
|
●
|
Net cash flow used in operating activities for the year ended March 31, 2015 primarily reflected a net loss of $(184,566) adjusted for the add-back of non-cash items consisting of depreciation and amortization of $37,186, stock-based compensation expense of $30,000, and a non-cash increase in deferred rent receivables of $(28,027), and changes in operating assets and liabilities primarily consisting of an increase in real estate tax escrow of $(11,844), and an increase in prepaid expenses and other assets of $(29,415), offset by an increase in accounts payable of $30,279, accrued expenses of $34,502, and accrued expenses – related parties of $33,000
|
Net cash flow used in investing activities
reflects the purchase of property and equipment, and rental properties that primarily consists of buildings and improvements and
property and equipment of $206,579 and $2,491 for the three months ended March 31, 2016 and 2015, respectively.
Net cash flows from financing activities
was zero for the three months ended March 31, 2016 as compared to net cash used in financing activities $2,250 for the three months
ended March 31, 2015 for the redemption of common stock.
Year Ended December 31, 2015 Compared
to Year Ended December 31, 2014
We had cash of $1,026,134 and $1,281,464
as of March 20, 2016 and December 31, 2015, respectively.
Our
primary uses of cash have been for salaries, fees paid to third parties for professional services, property operating expenses,
general and administrative expenses, and the acquisition of rental properties. All funds received have been expended in the furtherance
of growing the business. The following trends are reasonably likely to result in changes in our liquidity over the near to long
term:
|
●
|
An
increase in working capital requirements to finance our current business,
|
|
●
|
Acquisition
and buildout of rental properties;
|
|
●
|
Addition
of administrative and sales personnel as the business grows, and
|
|
●
|
The
cost of being a public company.
|
We
currently have material commitments for capital expenditures amounting to approximately $5,000,000 for the expansion and
buildout of our Chino Valley property, acquisition of new rental properties and buildout of our Tempe, Arizona property. These
capital expenditures are contingent upon: (a) the Company obtaining financing for the development of the premises and
the construction of the tenant improvements in such amount and on such terms and provisions as are acceptable to the Company
in our sole and absolute discretion from a lender approved by us in our sole discretion, and (b) approval by the Town of
Chino Valley of the Phased Protected Development Rights Plan. Accordingly, we can delay or cancel these planned
capital expenditures, if necessary. We may need to raise additional funds, particularly if we are unable to generate positive
cash flow as a result of our operations. We estimate that based on current plans and assumptions, that our available cash
will be sufficient to satisfy our cash requirements under our present operating expectations for the next 12 months. Other
than revenue received from the lease of our rental properties, funds received from the sale of our common stock and funds
received from debt, we presently have no other significant alternative source of working capital. We have used these funds to
fund our operating expenses, pay our obligations, acquire rental properties, and grow our company. We need to raise
significant additional capital or debt financing to acquire new properties, to develop existing properties, and to assure we
have sufficient working capital for our ongoing operations and debt obligations. Our future operation is dependent on our
ability to manage our current cash balances and on the collection of rental revenues. We intend on securing additional
financing to acquire and develop additional and existing properties. Financing transactions may include the issuance of
equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to raise the funds
required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that
would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders
may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those
of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow
our business operations.
Recent
financings
During
the quarter ended March 31, 2014, we issued 48,980 shares of restricted common stock at a price of $120 per share to approximately
28 accredited investors pursuant to a private placement, exempt from registration pursuant to Rule 506(c) under the Securities
Act of 1933, as amended. In July 2014, we cancelled 83 shares and returned proceeds of $10,000 to an investor. The total proceeds
we received from this private placement were approximately $5,858,000 and a subscription receivable of $4,000.
In
July 2014, we issued 16,637,000 shares of common stock to accredited investors pursuant to a private placement, exempt from registration
pursuant to Rule 506(c) under the Securities Act of 1933, as amended, at a price of $0.01 per share for proceeds of $166,370.
On
August 20, 2014, we received an aggregate of $1,000,000 from Greg Johnston, a beneficial stockholder and stockholder
pursuant to the terms of Senior Convertible Debentures. The Debentures bear interest at 7% and the principal balance and all
accrued interest is due on the maturity date of August 20, 2017. The holders have the option after 12 months to convert all
or a portion of the Debentures into shares of the Company’s common stock at the conversion price of $5.00 per share. As
of December 31, 2015, the principal and accrued interest balances due and owing under these Debentures is
$1,000,000 and $47,542, respectively. As of December 31, 2014, the principal and accrued interest balances due and owing
under these Debentures is $1,000,000 and $12,542, respectively.
From August 2014 to December 2014, we issued
1,850,000 shares of common stock to accredited investors pursuant to a private placement, exempt from registration pursuant to
Rule 506(c) under the Securities Act of 1933, as amended at a price of $1.00 per share for proceeds of $1,850,000.
In May 2015, we issued 1,000,000 shares of common
stock to accredited investors pursuant to a private placement, exempt from registration pursuant to Rule 506(c) under the Securities
Act of 1933, as amended, at a price of $1.00 per share for proceeds of $1,000,000.
Cash
Flow
For
the Years Ended December 31, 2015 and 2014
Net
cash flow used by operating activities was $500,255 for the year ended December 31, 2015 as compared to $828,479 for the year
ended December 31, 2014, an increase of $328,224.
|
●
|
Net
cash flow used in operating activities for the year ended December 31, 2015 primarily
reflected a net loss of $(1,372,030) adjusted for the add-back of non-cash items consisting
of depreciation and amortization of $150,369, stock-based compensation expense of $79,601,
stock-based settlement expense of $50,000, accretion of stock-based stock option expense
of $782,063, and a non-cash increase in deferred rent receivables of $(347,895), and
changes in operating assets and liabilities primarily consisting of an increase in real
estate tax escrow of $(6,950) and other assets of $(1,134), offset by a decrease in prepaid
expenses of $69,269, an increase in accounts payable of $8,962, an increase in accrued
expenses of $34,207, an increase in accrued expenses - related parties of $8,583, and
an increase in security deposits payable of $44,340.
|
|
●
|
Net
cash flow used in operating activities for the year ended December 31, 2014 primarily
reflected a net loss of $(5,740,366) adjusted for the add-back of non-cash items consisting
of depreciation and amortization of $99,821, stock-based compensation expense of $4,100,344,
impairment loss on building of $675,000, amortization of debt discount of $142,564, and
a non-cash increase in deferred rent receivables of $(28,027), and changes in operating
assets and liabilities primarily consisting of an increase in real estate tax escrow
of $39,122, and an increase in prepaid expenses and other assets of $132,171, offset
by an increase in accounts payable of $27,835, accrued expenses of $43,603, and accrued
expenses - related parties of $51,984.
|
Net
cash flow used in investing activities reflects the purchase of property and equipment, and rental properties that primarily consists
of land and buildings and improvements, of $282,408 and $9,303,799 for the years ended December 31, 2015 and 2014, respectively.
For the year ended December 31, 2014, we received proceeds from the sale of a note receivable of $211,020 compared to $0 for the
year ended December 31, 2015.
Net
cash provided by financing activities was $997,750 for the year ended December 31, 2015 as compared to $10,975,671 for the year
ended December 31, 2014. During the year ended December 31, 2015, we received proceeds from the sale of common stock of $1,000,000
offset by the redemption of common stock of $2,250. During the year ended December 31, 2014, we received proceeds from the sale
of common stock of $7,874,371, proceeds from convertible debt of $1,000,000, net proceeds from the sale of preferred stock of
$1,300, and proceeds from mortgage payable of $2,100,000.
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations
We
have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs,
cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates.
We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant
assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information
within the context of our consolidated financial position, results of operations, and cash flows.
The
following tables summarize our contractual obligations as of December 31, 2015 (dollars in thousands), and the effect these obligations
are expected to have on our liquidity and cash flows in future periods.
|
|
Payments Due by Period
|
|
Contractual obligations:
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5
+
years
|
|
Convertible notes
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
1,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest on convertible notes
|
|
|
159
|
|
|
|
118
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
Mortgage payable
|
|
|
2,100
|
|
|
|
-
|
|
|
|
2,100
|
|
|
|
-
|
|
|
|
-
|
|
Interest on mortgage payable
|
|
|
502
|
|
|
|
157
|
|
|
|
345
|
|
|
|
-
|
|
|
|
|
|
Total
|
|
$
|
3,761
|
|
|
$
|
275
|
|
|
$
|
3,486
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Off-balance
Sheet Arrangements
We
have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties.
We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity
or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest
in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do
not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support
to us or engages in leasing, hedging or research and development services with us.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are based upon our audited and unaudited consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually
evaluate our estimates, including those related to income taxes, and the valuation of equity transactions. We base our estimates
on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts
of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation
of the unaudited consolidated financial statements.
Rental
Properties
Rental
properties are carried at cost less accumulated depreciation and amortization. Betterments, major renovations and certain costs
directly related to the improvement of rental properties are capitalized. Maintenance and repair expenses are charged to expense
as incurred. Depreciation is recognized on a straight-line basis over estimated useful lives of the assets, which range from 7
to 39 years. Tenant improvements are amortized on a straight-line basis over the lives of the related leases, which approximate
the useful lives of the assets.
Upon
the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified
intangibles, such as acquired above-market leases and acquired in-place leases) and acquired liabilities (such as acquired below-market
leases) and allocate the purchase price based on these assessments. The Company assesses fair value based on estimated cash flow
projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash
flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. We
record acquired intangible assets (including acquired above-market leases and acquired in-place leases) and acquired intangible
liabilities (including below-market leases) at their estimated fair value. We amortize acquired above-and below-market leases
as a decrease or increase to rental income, respectively, over the lives of the respective leases. Amortization of acquired in-place
leases is included as a component of depreciation and amortization.
Our
properties, including any related intangible assets, are individually reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An impairment exists when the carrying amount of an asset
exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment
loss is measured based on the excess of the property’s carrying amount over its estimated fair value. Impairment analyses
are based on our current plans, intended holding periods and available market information at the time the analyses are prepared.
If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation
of impairment losses may be different and such differences could be material to our consolidated financial statements. The evaluation
of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital
requirements that could differ materially from actual results. Plans to hold properties over longer periods decrease the likelihood
of recording impairment losses.
We
have capitalized land, which is not subject to depreciation.
Revenue
recognition
Rental
income includes base rents that each tenant pays in accordance with the terms of its respective lease and is reported on a straight-line
basis over the non-cancellable term of the lease, which includes the effects of rent steps and rent abatements under the leases.
We commence rental revenue recognition when the tenant takes possession of the leased space or controls the physical use of the
leased space and the leased space is substantially ready for its intended use. Rental income also includes the amortization of
acquired above-and below-market leases, net. Beginning in 2014, we began generating revenues from the non-residential rental properties.
Certain
of our leases currently contain rental increases at specified intervals. We record as an asset, and include in revenue, rents
receivable that will be received if the tenant makes all rent payments required through the expiration of the initial term of
the lease. Deferred rents receivable in the accompanying balance sheets includes the cumulative difference between rental revenue
recorded on a straight-line basis and rents received from the tenants in accordance with the lease terms. Accordingly, management
determines to what extent the deferred rent receivable applicable to each specific tenant is collectible. We review material rents
receivable and takes into consideration the tenant’s payment history, the financial condition of the tenant, business conditions
in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event
that the collectability of rent receivable with respect to any given tenant is in doubt, we record an increase in the allowance
for uncollectible accounts or we record a direct write-off of the specific rent receivable. For the year ended December 31, 2014,
in connection with certain related party leases, we only included in revenues the amount of rents received from the related parties
in accordance with the lease terms since on August 1, 2015, we transferred title to its Bernalillo, New Mexico and the respective
related party lease as part of a settlement agreement discussed elsewhere herein, and cancelled a related party lease in June
2015.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based
on the grant-date fair value of the award.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the service period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. We initially record compensation expense based on the fair
value of the award at the reporting date.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (the “FASB”) issued an update to Revenue from Contracts with Customers
("ASU 2014-09"). ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue
arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an
entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.
ASU 2014-09 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016. We are currently
evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.
In
June 2014, the FASB issued an update to ASC Topic 718, Compensation-Stock Compensation (“ASU 2014-12”). ASU
2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based award
has ended, as a performance condition that affects vesting. ASU 2014-12 is effective for interim and annual reporting periods
in fiscal years that begin after December 15, 2015. The adoption of ASU 2014-12 is not expected to have a material effect on our
financial position, results of operations and cash flows.
In
August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,
which will require management to assess an entity’s ability to continue as a going concern, and to provide related footnote
disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there is substantial
doubt about an entity’s ability to continue as a going concern within one year after the issuance date. Substantial doubt
exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date. The new
standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise to substantial
doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific disclosures.
This standard is effective for public entities for annual periods ending after December 15, 2016. Earlier application of this
standard is permitted. This standard is not expected to have a material effect on our financial position, results of operations
and cash flows.
In
February 2015, the FASB issued ASU 2015-02,
Consolidation
(Topic 810) (“ASU 2015-02”), to address financial
reporting considerations for the evaluation as to the requirement to consolidate certain legal entities. ASU 2015-02 is effective
for fiscal years and for interim periods within those fiscal years beginning after December 15, 2015. This standard is not expected
to have a material effect on our financial position, results of operations and cash flows.
In
April 2015, the FASB issued ASU 2015-03,
Interest-Imputation of Interest (Subtopic 835-30)
(“ASU 2015-03”),
as part of the initiative to reduce complexity in accounting standards. The update requires that debt issuance costs related to
a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. ASU 2015-03 is effective for annual periods beginning after December 15, 2015 and for interim
periods within those fiscal years.
In
November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”),
which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet.
The ASU simplifies the current guidance in ASC Topic 740,
Income Taxes
, which requires entities to separately present deferred
tax assets and liabilities as current and noncurrent in a classified balance sheet. ASU 2015-17 is effective for fiscal years
beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities
as of the beginning of an interim or annual reporting period. The Company does not expect the impact of ASU 2015-17 to be material
to our consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
MANAGEMENT
Members
of our board of directors are elected by the stockholders to a term of one year and serve until their successors are elected and
qualified. Our officers are appointed by our board to a term of one year and serve until their successors are duly appointed and
qualified, or until the officer is removed from office. While our board has established a compensation committee, we have not
yet established a nominating and corporate governance committee or an audit committee.
Set
forth below is certain information regarding our executive officers and directors.
Name
|
|
Age
|
|
Position
|
Bryan
McLaren
|
|
29
|
|
Chief
Executive Officer, President, Treasurer, Secretary and Chairman
|
Adam
Wasserman
|
|
51
|
|
Chief
Financial Officer
|
Irvin
Rosenfeld
|
|
63
|
|
Director
|
Art
Friedman
|
|
56
|
|
Director
|
Alex
McLaren, MD
|
|
63
|
|
Director
|
Bryan
McLaren is the son of Alex McLaren.
Background
Information about our Officers and Directors
Biographical
information concerning the directors and executive officers listed above is set forth below. The information presented includes
information each individual has given us about all positions they hold and their principal occupation and business experience
for the past five years. In addition to the information presented below regarding each director’s specific experience, qualifications,
attributes and skills that led our board to conclude that he should serve as a director, we also believe that all of our directors
have a reputation for integrity, honesty and adherence to high ethical standards. Each has demonstrated business acumen and an
ability to exercise sound judgment, as well as a commitment of service to our company and our board of directors.
Bryan
McLaren.
Mr. McLaren has a dedicated history of work in the sustainability industry and in business development. Prior to
his appointment as President, CEO and a director of our company in April 2014, Mr. McLaren was recruited as our Chief Sustainability
Officer and VP of Operations. Before joining the Company, from February 2013 to February 2014, Mr. McLaren worked as a sustainability
consultant for Waste Management, Inc., where he served as a Project Manager for the Arizona State University account. Prior to
2013, Mr. McLaren worked as a Sustainability Manager for Northern Arizona University and as a Sustainability Commissioner for
the City of Flagstaff, Arizona. Mr. McLaren has a Masters Degree in Sustainable Community Development, and Executive Masters Degree
in Sustainability Leadership, and a Masters of Business Administration Degree with an emphasis on Sustainable Development. Mr.
McLaren has served as a member of our board of directors during April 2014 and since June 2014. Mr. McLaren’s business development
experience, academic achievements, and knowledge of our business, has led our board of directors to conclude that he should continue
to serve as a director and in his current roles.
Adam
Wasserman.
Mr. Wasserman has served as our Chief Financial Officer since October 1, 2015 and has served as an advisory CFO
since July 10, 2014. Mr. Wasserman has been a majority shareholder and chief executive officer of CFO Oncall, Inc. (“CFO
Oncall”) since 1999. CFO Oncall provides chief financial officer services to a number of companies. Through CFO Oncall,
Mr. Wasserman serves and has served as the chief financial officer of a number of private and publicly held companies. From June
1991 to November 1999 Mr. Wasserman was a Senior Audit Manager at American Express Tax and Business Services, in Fort Lauderdale,
Florida where his responsibilities included supervising, training and evaluating senior accounting staff members, work paper review,
auditing, maintaining client relations, preparation of tax returns and financial statements. From September 1986 to May 1991,
Mr. Wasserman was employed by Deloitte & Touche, LLP where his assignments included public and private company audits and
Securities and Exchange Commission reporting, tax preparation and planning, management consulting, systems design, staff instruction
and recruiting. Mr. Wasserman is a member of the American Institute of Certified Public Accountants. Mr. Wasserman holds a Bachelor
of Science Degree in Accounting from the State University of New York at Albany.
Irvin
Rosenfeld.
Mr. Rosenfeld is currently a Registered Representative with Newbridge Securities Corporation and has worked in
that capacity throughout the past five years. He has over 28 years of experience in the financial industry and is an accomplished
author, including his book “My Medicine” published in 2010. Mr. Rosenfeld has appeared on dozens of television news
programs and in print media. Mr. Rosenfeld has served as a member of our board of directors during April 2014 and since June 2014.
Mr. Rosenfeld’s knowledge of our business and the emerging medical marijuana industry has led our board of directors to
conclude that he should continue to serve as a director. We believe that Mr. Rosenfeld’s background in the financial services
industry provides us with important guidance as we seek to access US capital markets and qualifies him to serve on our board of
directors.
Art
Friedman.
Mr. Friedman, who was appointed as a director on October 1, 2014, has served as Owner/Principal of Triple J Management
Services, which specializes in consulting and professional services for the alcoholic beverage industry. Art was most recently
President and CEO of Gold Coast Beverage Distributors, a position he held for the last 10 years of his 23 years with the company.
During his tenure as President/CEO, Gold Coast more than tripled sales revenue and increased EBITDA by more than five-fold. Over
the same period, Mr. Friedman led significant market share gains through organic growth as well as consolidating wholesaler acquisitions.
Mr. Friedman began his career with General Foods Corporation, now part of Kraft Foods. He has served on the distributor advisory
councils of Diageo-Guinness, Heineken USA, InBev and Miller-Coors. Mr. Friedman graduation Cum Laude with a Bachelor of Science
in Business Management from the University of Florida, Warrington School of Business. We believe that Mr. Friedman’s background
as an advisor in the area of business management and his experience in operating, growing and advising companies provides us with
the requisite skills and qualifications to serve on our board.
Alex
McLaren, MD.
Dr. McLaren, who has served as a director since October 1, 2014, serves as the Program Director for the Banner
Orthopedic Residency Program and has served in that capacity throughout the past five years. After graduating from Queen’s
University School of Medicine, Kingston, Ontario, Canada in 1977, Dr. McLaren completed an orthopedic residency at the University
of Western Ontario in 1982 and a fellowship at the University of Southern California in 1983. Dr. McLaren is first and foremost
an orthopedic educator and researcher whose career has included teaching, research and administration of educational programs.
His clinical interest includes orthopedic infections, revision arthroplasty and complex musculoskeletal trauma. With hundreds
of publications, numerous grand-funded projects, and medical association postings, Dr. McLaren has established a prized reputation
in his field. We believe that Dr. McLaren’s Services provided to numerous organizations and provides us with the requisite
skills and qualifications to serve on our board.
Involvement
in Certain Legal Proceedings
No
director, executive officer, significant employee or control person of the Company has been involved in any legal proceeding listed
in Item 401(f) of Regulation S-K in the past 10 years.
Board
of Directors and Board Committees
Our
board currently consists of four directors. Our board has established a compensation committee, and plans to establish an Audit
Committee, a Strategic Advisory Committee, and a Nominating and Corporate Governance Committee before the end of 2016. The composition
and responsibilities of the compensation committee are described below. Members serve on this committee until their resignation
or until otherwise determined by our board.
Two
of our four board members are independent. The board has determined that each of Messrs. Friedman and Rosenfeld is independent
directors pursuant to the listing standards of The Nasdaq Stock Market.
Compensation
Committee
Messrs.
Friedman and Rosenfeld and Dr. McLaren serve on our compensation committee. Mr. Friedman, an independent director, is the chair
of the compensation committee. The committee is responsible for discharging the board’s responsibility relating to compensation
of our executive officers and directors, evaluating the performance of our executive officers in light of our goals and objectives
and recommending to the board for approval our compensation plans, policies and programs.
Code
of Ethics
We
have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those
employees responsible for financial reporting.
EXECUTIVE
COMPENSATION
Summary
Compensation
The
following table summarizes all compensation recorded by us for the years ended December 31, 2015 and 2014 for our “named
executive officers” as such term is defined in Item 402(m)(2) of Regulation S-K.
2015
Summary Compensation Table
Name and
principal position
|
|
Year
|
|
Salary
$
|
|
|
Bonus
$
|
|
|
Stock
Awards
$
|
|
|
Option
Awards
$
|
|
|
Non-Equity
Incentive Plan Compensation
$
|
|
|
Nonqualified
Deferred Compensation Earnings
$
|
|
|
All
Other Compensation
$
|
|
|
Total
$
|
|
Bryan McLaren,
Chief Executive Officer
|
|
2015
|
|
$
|
123,453
|
|
|
|
-
|
|
|
|
-
|
|
|
|
237,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
360,603
|
|
and President (1)
|
|
2014
|
|
$
|
87,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
87,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adam Wasserman, Chief Financial
|
|
2015
|
|
$
|
-
|
|
|
|
-
|
|
|
|
19,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,200
|
|
|
$
|
74,800
|
|
Officer (2)
|
|
2014
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,800
|
|
|
$
|
18,800
|
|
|
(1)
|
Mr.
McLaren was appointed as our Chief Executive Officer and President on March 30, 2014.
On December 30, 2015, we granted the Mr. McLaren an option pursuant to our 2014 Equity
Compensation Plan, to purchase 250,000 of the Company’s common stock at an exercise
price of $1.00 per share. The grant date of the Option was December 30, 2015 and the
Options expire on December 30, 2026. The options vest as to 25,000 of such shares on
December 30, 2015, 25,000 options vest on December 30, 2016 and for each year thereafter
through December 30, 2026. The fair value of this option grant was estimated on the date
of grant using the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 0%; expected volatility of 120%; risk-free interest rate
of 2.31%; and, an estimated holding period of 10 years. In connection with these options,
the Company valued these options at a fair value of $237,150 and will record stock-based
compensation expense over the vesting period. For the year ended December 31, 2015, we
recorded stock-based compensation expense of $23,715.
|
|
(2)
|
Mr.
Adam Wasserman became chief financial officer in October 2015. In 2015, all other compensation
amounts represents $35,700 paid to CFO Oncall as a consulting fee prior to becoming CFO
and $19,500 of fees paid to CFO Oncall as compensation as chief financial officer. In
2014, CFO Oncall was paid $18,800 in consulting fees for accounting services provided.
Additionally, as compensation for services as CFO, CFO Oncall received 19,600 shares
of common stock valued at $19,600.
|
Narrative
Disclosure to Summary Compensation Table
Except
as otherwise described below, there are no compensatory plans or arrangements, including payments to be received from the Company
with respect to any executive officer, that would result in payments to such person because of his or her resignation, retirement
or other termination of employment with the Company, or our subsidiaries, any change in control, or a change in the person’s
responsibilities following a change in control of the Company.
Employment
Agreements
On
July 31, 2014, we entered into an employment agreement with Mr. McLaren pursuant to which we agreed to pay Mr. McLaren an annual
salary of $120,000 with increases based on completion of graduate degrees. In 2015, Mr. McLaren completed these degrees and is
current salary is $150,000 per year. In addition, the employment agreement has a term of 10 years. Pursuant to the terms of Mr.
McLaren’s employment agreement, we may terminate the agreement upon a change of control with 90 days’ written notice.
In connection with the employment agreement, on December 30, 2015, we granted the Mr. McLaren an option pursuant to our 2014 Equity
Compensation Plan, to purchase 250,000 of the Company’s common stock at an exercise price of $1.00 per share. The grant
date of the Option was December 30, 2015 and the Options expire on December 30, 2026. The options vest as to 25,000 of such shares
on December 30, 2015, 25,000 options vest on December 30, 2016 and for each year thereafter through December 30, 2026. The fair
value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0%; expected volatility of 120%; risk-free interest rate of 2.31%; and, an estimated
holding period of 10 years. In connection with these options, the Company valued these options at a fair value of $237,150 and
will record stock-based consulting expense over the vesting period. For the year ended December 31, 2015, the Company recorded
stock-based compensation expense of $23,715.
Agreement
with CFO Oncall, Inc.
Effective
October 1, 2015 we entered into an agreement with CFO Oncall, Inc. (CFO Oncall”) pursuant to which Adam Wasserman serves
as our Chief Financial Officer. Under the agreement, CFO Oncall is to assist us with the timely preparation and assembly of our
annual audit, and our quarterly and annual filings with the SEC, assisting with other public filings, summarizing adjusting entries
relating to non-monetary transactions, assistance in communicating with our board of directors and attendance at board meetings,
assistance with investor relations and assistance with staff training. For its services, we have agreed to pay CFO Oncall (a)
a base cash fee of $4,500 per month, (b) an additional cash fee of $2,000 per month (which is deferred until the earlier of April
1, 2016 or our receipt of the proceeds of a capital raise, at which time the additional fee is increased to $6,500 per month and
(c) $3,500 per month payable in shares of our common stock valued at the lesser of the share price from the most recent capital
raise and 60% of the bid price for our common stock on the last day of the preceding fiscal quarter. Effective October 1, 2015
we issued 19,600 shares of common stock to CFO Oncall in satisfaction of required share issuances through December 31, 2015 (17,500
shares of which was issued as a bonus determined by the Company).
Long-Term
Incentive Plans
On
October 1, 2014, the Board of Directors authorized the 2014 Equity Compensation Plan the (“Plan”), which reserved
10,000,000 shares of common stock. The number of shares of common stock available for issuance under the Plan shall automatically
increase on the first trading day of January each calendar year during the term of the Plan, beginning with calendar year 2015,
by an amount equal to one and one-half percent (1.5%) of the total number of shares of common stock outstanding on the last trading
day in December of the immediately preceding calendar year, but in no event shall any such annual increase exceed 400,000 shares
of common stock. If any share of common stock that have been granted pursuant to a stock option ceases to be subject to a stock
option, or if any shares of common stock that are subject to any other stock-based award granted are forfeited or terminates,
such shares shall again be available for distribution in connection with future grants and awards under the Plan, The Plans purpose
is to enable the Company to offer its employees, officers, directors and consultants an opportunity to acquire a proprietary interest
in the Company for their contributions. As of December 31, 2015, 1,550,000 options have been granted pursuant to the Plan and
8,450,000 shares are available for future issuance. Through December 31, 2014, no equity instruments had been issued pursuant
to the Plan.
Outstanding
Equity Awards at 2015 Fiscal Year-End
The
following table sets forth information as options outstanding on December 31, 2015.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
OPTION AWARDS
|
|
STOCK AWARDS
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
options
(#)
Exercisable
|
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Unexercisable
|
|
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
($)
|
|
|
Number of
Shares or
Units of
Stock
that
have not Vested
(#)
|
|
|
Market
Value of
Shares or
Units
of
Stock that
Have not Vested
($)
|
|
|
Equity Incentive
Plan Awards:
Number
of
Unearned Shares,
Units or
Other
Rights that
have not
Vested
(#)
|
|
|
Equity Incentive
Plan Awards:
Market
or
Payout Value
of Unearned
Shares, Units
or other
Rights that
have not
Vested
($)
|
|
Bryan McLaren
|
|
|
25,000
|
|
|
|
225,000
|
|
|
|
0
|
|
|
$
|
1.00
|
|
|
|
12/30/2026
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Adam Wasserman
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Compensation
of Directors
Each
non-employee director receives 10,000 shares of our common stock per year of service. Mr. McLaren does not receive any additional
compensation for his service as a member of our board of directors.
2015
Director Compensation
Name
|
|
Fees earned or paid in cash
($)
|
|
|
Stock
awards
($)
|
|
|
Option
awards
($)
|
|
|
Non-equity incentive plan compensation ($)
|
|
|
Nonqualified deferred compensation earnings
($)
|
|
|
All other compensation ($)
|
|
|
Total
($)
|
|
Irvin Rosenfeld(1)
|
|
|
-
|
|
|
$
|
10,000
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
10,000
|
|
Art Friedman (3)
|
|
|
-
|
|
|
|
10,000
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
Alex McLaren (5)
|
|
|
-
|
|
|
|
10,000
|
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
(1)
|
As of December 31, 2015, Mr. Rosenfeld held 10,000 shares of our common stock.
|
|
(2)
|
Represents 10,000 shares of common stock issued in January 2015 valued at $1.00 per share.
|
|
(3)
|
As of December 31, 2015, Mr. Friedman held 10,000 shares of our common stock.
|
|
(4)
|
As of December 31, 2015, Mr. McLaren held 1,511,667 shares of our common stock.
|
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Safford
Note
In
December 2013, the Company closed a Note Purchase and Loan Participation Assignment Agreement (“Note Purchase Agreement”)
with and amongst MAC CAM LLC, a company partially owned by Marc Brannigan, the Company’s former president, Cumbre Investments
LLC, a company owned by Duke Rodriguez (formerly a principal stockholder), a third party entity, and four individual investors
who are related parties (Marc Brannigan, Duke Rodriguez, Christopher Carra and Alan Abrams), and a third party, pursuant to which
the Company issued 8,333 shares of common stock of the Company and two convertible promissory notes (see convertible Notes Payable
below) in total amount of $170,000 to purchase a Promissory Note (referred to as the “Safford Note”), dated February
19, 2013, in the original principal amount of $209,400 and with a maturity date of February 1, 2018, which is secured by a Mortgage/Deed
of Trust on Real Property recorded March 5, 2013 in Document No. 2013-01174, of the Official Records of the County Recorder of
Graham County, Arizona. On March 12, 2014, the Safford Note was paid to us and we received a cash payment of $210,500.
Convertible
Notes Payable
From
September 2013 to December 2013, the Company borrowed funds from MAC CAM, a limited liability company partially owned by the Company’s
former President, in the aggregate amount of $159,413 to cover its daily operations, including but not limited to, consulting
and advisory fees, accounting fees, legal fees, compliance fees and others general and administrative expenses. The borrowings
were evidenced by four convertible promissory notes, dated on September 30, 2013 (“September Note”), October 31, 2013
(“October Note”), November 30, 2013 (“November Note”) and December 31, 2013 (“December Note”).
The
September Note and October Note accrued annual interest at 8% per annum and the November Note and December Note accrued interest
at 10% per annum. In connection with the September Note and October Note, the holder of the Notes has an option to convert all
or any portion of the accrued interest and unpaid principal balance of the Notes into the common stock of the Company or its successors
at fixed conversion prices of $6.00 and $6.00 per common share, respectively. In connection with the November Note and December
Note, the holder of the Notes has an option to convert all or any portion of unpaid principal balance of the Notes into the common
stock of the Company or its successors at fixed conversion prices of $6.00 and $12.00 per common share, respectively. We evaluated
whether or not these convertible notes contained embedded conversion options, which meet the definition of a derivatives under
ASC Topic 815. We concluded that since the convertible notes had fixed conversion prices, the convertible notes were not derivative
instruments. We analyzed this provision under ASC Topic 815 and therefore it qualified as equity under ASC Topic 815. The convertible
notes were considered to have embedded beneficial conversion features (BCF) because the effective conversion price was less than
the fair value of the Company’s common stock on the respective note dates. The convertible notes were fully convertible
at the issuance date. Accordingly, the intrinsic value of the beneficial conversion features were calculated to be $128,406 and
was recorded as a debt discount and was amortized over the respective note term. For the years ended December 31, 2014 and 2013,
amortization of debt discount related to these convertible notes amounted to $79,121 and $49,285, respectively, and has been included
in interest expense - related party on the accompanying consolidated statements of operations. On March 5, 2014, we issued a total
of 22,942 shares of common stock of the Company to settle all principal and interest obligations pursuant to these convertible
notes payable.
On
December 9, 2013, in connection with the Note Purchase Agreement discussed above, we issued a convertible promissory note in the
amount of $85,000 to MAC CAM. The Note bear an interest rate of 10% per annum and was due on December 9, 2014, pursuant to which
the holders of the Notes have an option to convert all or any portion of the accrued interest and unpaid principal balance of
the Notes into the common stock of the Company or its successors, at 50% of the market bid price of the common stock on the demand
date for conversion. Pursuant to ASC Topic 470-20-525 (Debt with conversion and other options), since this convertible note had
fixed conversion percentages of 50% of the stock price, we determined it had a fixed monetary amount that can be settled for the
debt. Accordingly, at December 31, 2013, we recorded an embedded conversion option liability amounting to $85,000 on the accompanying
consolidated balance sheet since this convertible note is convertible for the conversion premium and recorded interest expense
- related party of $85,000. At December 31, 2013, principal amount due under this convertible note amounted to $85,000. On January
29, 2014, MAC CAM fully converted this note and all unpaid interest into 720 shares of the Company’s common stock. Accordingly,
on the date of conversion, the embedded conversion option liability of $85,000 was reclassified to additional paid-in capital.
On
August 20, 2014, we received $500,000 from Greg Johnston, a beneficial stockholder pursuant to the terms of a Senior Convertible
Debenture. The Debenture bears interest at 7% and the principal balance and all accrued interest is due on the maturity date of
August 20, 2017. The holder has the option after 12 months to convert all or a portion of the Debenture into shares of the Company’s
common stock at the conversion price of $5.00 per share. As of December 31, 2014, the principal and accrued interest balances
due and owing under this Debenture is $500,000 and $12,542, respectively. As of December 31, 2015, the principal and accrued interest
balances due and owing under this Debenture is $500,000 and $47,542, respectively.
Notes
Payable - Related Party
On
January 31, 2014, we received $200,387 from Alan Abrams, a beneficial stockholder. Pursuant to the terms of the loan, the loan
bears interest at 10% and is due on February 14, 2014. On February 11, 2014, the balance due was repaid in full.
Preferred
Stock Issuance
On
December 20, 2013, the board of directors of the Company approved the issuance of 700,000 shares of preferred stock to MAC CAM
for professional services in connection with setting up the business with respect to commercial properties acquisition and management
that face unique zoning challenges, and running the daily operations of the Company. The 700,000 shares of preferred stock are
not convertible into any other class or series of stock, the holder of which are entitled to 50 votes for each share held. Voting
rights are not subject to adjustment for splits that increase or decrease the common shares outstanding. On July 22, 2014, these
700,000 shares were redeemed by the Company under an agreement with the stockholder at a cost of $700.
On
July 22, 2014, the board of directors accepted a subscription agreement from the McLaren Family LLLP, whose general partner is
Alex C. McLaren, the father of the Company’s current President and CEO Bryan McLaren, for the acquisition of 1,000,000 shares
of the Company’s preferred stock. The Company simultaneously accepted a subscription agreement from Gregory Johnston, a
beneficial stockholder, for the acquisition of 1,000,000 shares of the Company’s preferred stock.
Related
party lease agreements
During
2014, the Company entered into lease agreements with non-profit companies and other companies whose director is a beneficial stockholder
of the Company. Additionally, in August 2015, the Company entered into two lease agreements with a company owned by this beneficial
shareholder of the Company to lease space in Tempe, Arizona and Chino Valley, Arizona. The Tempe lease commenced on September
1, 2015 and expires on August 31, 2035 with base monthly rent $13,500, subject to a 5% annual increase. The Chino Valley lease
commenced on August 1, 2015 and expires on July 31, 2035 with base monthly rent $30,000, subject to a 5% annual increase. For
the year ended December 31, 2015 and 2014, rental income associated with these related party leases amounted to $980,509 and $140,527,
respectively. At December 31, 2015 and 2014, deferred rent receivable - related party amounted to $367,013 and $28,027, respectively.
In connection with these leases, the related party tenants shall pay security deposits aggregating $60,000 payable in twelve monthly
installments of $5,000 beginning September 1, 2015. At December 31, 2015, security deposits payable to related parties amounted
to $26,250.
On February 16, 2016, we entered into
a binding letter of intent (the “Chino Valley LOI”) with C3C3 Group, LLC (the “Tenant”) and Broken Arrow
Herbal Center, Inc. (“Broken Arrow”). Each of the Tenant and Broken Arrow are owned by Alan Abrams, a significant
stockholder of the Company. Pursuant to the terms of the Chino Valley LOI, the parties agreed to amend the existing lease agreement,
dated August 6, 2015, to provide for the lease by Chino Valley to Tenant of approximately 45,000 square feet of space in Chino
Valley, Arizona. The monthly rent due, pursuant to the terms of the Chino Valley LOI, will be $70,833 beginning June 1, 2016 and
$127,500 beginning August 1, 2016; however, the increased rental revenue will be contingent upon the completion of the constructed
expansion at the facility. In subsequent years beginning August 1, 2017, there will be a 5% annual increase in the monthly rent.
Pursuant to the Chino Valley LOI, we shall construct certain tenant improvements in the premises for this tenant's use with an
estimated budget of approximately $2 million.
Rental
property acquisition
On
January 29, 2014, we entered into the Ultra Agreement with Ultra Health, pursuant to which we were to acquire a 1,536 square foot
modular building to be delivered and erected on the purchased land for total cash payments of $675,000. Ultra Health is a related
party due to common ownership and investments made with Alan Abrams, a beneficial stockholder of the Company. Subsequent to the
purchase of this land and building, these real estate assets were transferred to Gilbert Property, LLC, a wholly-owned subsidiary
of the Company. In connection with the 1,536 square foot modular building discussed above, on April 10, 2015, we became a party
to a certain case brought in the Superior Court of the State of Arizona in and for Maricopa County, Arizona styled,
Zoned Properties,
Inc. v. Duke Rodriguez, Ultra Health, LLC and Cumbre Investment, LLC
(the “Defendants”), Case No. CV-2015-004225,
wherein we alleged, among other things, that the Defendants, alone or in collusion with one another, breached a certain contract
for the construction of the Gilbert building, and made material misrepresentations or had negligently misrepresented certain material
elements upon which we relied, in purchasing the land upon which that building was to be constructed, which the Defendants failed
to perform. We review our rental properties for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Based on this review, on December 31, 2014, we determined that the Gilbert building
carrying value of $675,000 was not recoverable and recorded an impairment loss - related party of $675,000. On July 9, 2015 and
effective August 1, 2015, as discussed elsewhere herein, we entered into a settlement agreement with the Defendants that, among
other things, settles the pending claims and grants mutual general releases.
On
April 4, 2014, we entered into a purchase agreement with Ultra Health pursuant to which we acquired a modular building in Green
Valley, Arizona for total payment of $87,073. On October 22, 2014, our subsidiary, Green Valley Group LLC entered into a real
estate purchase and sale agreement with a company owned by Duke Rodriguez, pursuant to which we acquired the property located
in Green Valley, AZ for a purchase price of $400,000.
On
May 28, 2014, we entered into a purchase agreement with Ultra Health pursuant to which we acquired three parcels of land and a
building in Mohave County, Arizona for total payments of $260,000.
On
August 12, 2014, we entered into a real estate purchase agreement with a company owned by Duke Rodriguez, who became a beneficial
stockholder of the Company in July 2015, pursuant to which we acquired the property located in Bernalillo County, New Mexico consisting
of 11.30 acres for total payments of $2,750,000. Pursuant to a settlement agreement as discussed above and elsewhere herein, we
transferred title to this property to Defendants.
LEGAL
MATTERS
The
validity of the securities offered hereby will be passed upon for us by Legal & Compliance, LLC, West Palm Beach, FL.
EXPERTS
The
consolidated financial statements of Zoned Properties, Inc. as of December 31, 2015 and 2014, and for the years ended
December 31, 2015 and 2014, included in this prospectus, have been included herein in reliance on the report by D. Brooks and
Associates CPA’s, P.A., our independent registered public accounting firm, given on the authority that the firm are
experts in accounting and auditing.
DISCLOSURE
OF COMMISSION’S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our
directors and officers are indemnified as provided by the Nevada Statutes and our bylaws. We have agreed to indemnify each of
our directors and certain officers against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant
to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in
the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final adjudication of such issue.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed a registration statement, of which this prospectus is a part, on Form S-1 with the SEC relating to this offering. This
prospectus does not contain all of the information in the registration statement and the exhibits and financial statements included
with the registration statement. References in this prospectus to any of our contracts, agreements or other documents are not
necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contracts,
agreements or documents.
The
Company’s filings with the SEC are available to the public on the SEC’s website at www.sec.gov. Those filings will
also be available to the public on, or accessible through, our corporate website at www.zonedproperties.com. The information contained
on or accessible through our corporate web site or any other web site that we may maintain is not part of this prospectus or the
registration statement of which this prospectus is a part. You may also read and copy, at SEC prescribed rates, any document we
file with the SEC, including the registration statement (and its exhibits) of which this prospectus is a part, at the SEC’s
Public Reference Room located at 100 F Street, N.E., Washington D.C. 20549. You can call the SEC at 1-800-SEC-0330 to obtain information
on the operation of the Public Reference Room. You may also request a copy of these filings, at no cost, by writing to us at Zoned
Properties, Inc., 14300 N. Northsight Blvd., #208, Scottsdale, Arizona 85260, Attention: President, or telephoning us at (877)
360-8839.
Upon
the effectiveness of the registration statement, we will be subject to the informational requirements of the Exchange Act and,
in accordance with the Exchange Act, will file with or furnish to the SEC periodic reports, proxy and information statements and
other information. Such annual, quarterly and current reports; proxy and information statements; and other information can be
inspected and copied at the locations set forth above. We will report our financial statements on a year ended December 31. We
intend to furnish our stockholders with annual reports containing consolidated financial statements audited by our independent
registered public accounting firm and will post on our website our quarterly reports containing unaudited consolidated financial
statements for each of the first three quarters of each fiscal year.
INDEX
TO FINANCIAL STATEMENTS
|
D. Brooks and Associates CPA’s, P.A.
Certified Public Accountants ● Valuation Analyst
● Advisors
|
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Zoned Properties, Inc.
We have audited the accompanying consolidated balance
sheets of Zoned Properties, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’
equity, and cash flows for the years then ended. Zoned Properties, Inc.’s management is responsible for these financial statements.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of Zoned Properties, Inc. as of December 31,
2015 and 2014, 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.
D. Brooks and Associates CPA's, P.A.
West Palm Beach, Florida
March 8, 2016
D. Brooks and Associates CPA’s, P.A. - 319 Clematis Street Suite 318, West Palm Beach, FL 33401 - (954) 592-2507
|
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Cash
|
|
$
|
1,281,464
|
|
|
$
|
1,066,377
|
|
Rental properties, net (See Note 3)
|
|
|
7,224,593
|
|
|
|
8,499,705
|
|
Deferred rent receivable
|
|
|
8,909
|
|
|
|
-
|
|
Deferred rent receivable - related parties
|
|
|
367,013
|
|
|
|
28,027
|
|
Real estate tax escrow
|
|
|
46,072
|
|
|
|
39,122
|
|
Prepaid expenses and other current assets
|
|
|
105,684
|
|
|
|
175,313
|
|
Property and equipment, net
|
|
|
46,488
|
|
|
|
45,940
|
|
Security deposits
|
|
|
8,158
|
|
|
|
7,024
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
9,088,381
|
|
|
$
|
9,861,508
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Mortgage payable
|
|
$
|
2,100,000
|
|
|
$
|
2,100,000
|
|
Convertible note payable
|
|
|
500,000
|
|
|
|
500,000
|
|
Convertible note payable - related party
|
|
|
500,000
|
|
|
|
500,000
|
|
Accounts payable
|
|
|
36,797
|
|
|
|
27,835
|
|
Accrued expenses
|
|
|
92,044
|
|
|
|
57,837
|
|
Accrued expenses - related parties
|
|
|
56,542
|
|
|
|
47,959
|
|
Security deposits payable
|
|
|
62,440
|
|
|
|
18,100
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,347,823
|
|
|
|
3,251,731
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (See Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 5,000,000 shares authorized; 2,000,000
shares issued and outstanding at December 31, 2015 and 2014 ($1.00 per share liquidation preference)
|
|
|
2,000
|
|
|
|
2,000
|
|
Common stock: $.001 par value, 100,000,000 shares authorized; 17,080,850
and 18,676,304 issued and outstanding at December 31, 2015 and 2014, respectively
|
|
|
17,081
|
|
|
|
18,676
|
|
Additional paid-in capital
|
|
|
19,412,954
|
|
|
|
18,912,548
|
|
Subscription receivable
|
|
|
-
|
|
|
|
(4,000
|
)
|
Accumulated deficit
|
|
|
(13,691,477
|
)
|
|
|
(12,319,447
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
5,740,558
|
|
|
|
6,609,777
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
9,088,381
|
|
|
$
|
9,861,508
|
|
See accompanying notes to consolidated financial statements.
ZONED PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
Rental revenues
|
|
$
|
414,785
|
|
|
$
|
327,387
|
|
Rental revenues - related parties
|
|
|
980,509
|
|
|
|
140,527
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
1,395,294
|
|
|
|
467,914
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
455,037
|
|
|
|
3,918,440
|
|
Professional fees
|
|
|
1,333,435
|
|
|
|
932,510
|
|
General and administrative expenses
|
|
|
274,797
|
|
|
|
148,157
|
|
Depreciation and amortization
|
|
|
150,368
|
|
|
|
99,822
|
|
Property operating expenses
|
|
|
120,094
|
|
|
|
75,069
|
|
Real estate taxes
|
|
|
87,117
|
|
|
|
63,447
|
|
Consulting fees - related parties
|
|
|
53,512
|
|
|
|
35,417
|
|
Impairment loss on building - related party
|
|
|
-
|
|
|
|
675,000
|
|
Settlement expense
|
|
|
67,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
2,541,860
|
|
|
|
5,947,862
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(1,146,566
|
)
|
|
|
(5,479,948
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
(193,448
|
)
|
|
|
(143,789
|
)
|
Interest expenses - related parties
|
|
|
(35,000
|
)
|
|
|
(157,649
|
)
|
Other income
|
|
|
2,545
|
|
|
|
41,020
|
|
Interest income
|
|
|
439
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Other Expenses, net
|
|
|
(225,464
|
)
|
|
|
(260,418
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(1,372,030
|
)
|
|
|
(5,740,366
|
)
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,372,030
|
)
|
|
$
|
(5,740,366
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.08
|
)
|
|
$
|
(0.72
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
18,134,328
|
|
|
|
7,931,701
|
|
See accompanying notes to consolidated financial statements.
ZONED PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Subscription
|
|
|
Accumulated
|
|
|
Stockholders'
Equity
|
|
|
|
#
of Shares
|
|
|
Amount
|
|
|
#
of Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2013
|
|
|
700,000
|
|
|
$
|
700
|
|
|
|
156,969
|
|
|
$
|
157
|
|
|
$
|
6,426,738
|
|
|
|
-
|
|
|
$
|
(6,579,081
|
)
|
|
$
|
(151,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of preferred shares
|
|
|
(700,000
|
)
|
|
|
(700
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred
shares for cash and control premium
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,365,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,367,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for
services
|
|
|
-
|
|
|
|
-
|
|
|
|
7,083
|
|
|
|
7
|
|
|
|
730,181
|
|
|
|
-
|
|
|
|
-
|
|
|
|
730,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
18,535,897
|
|
|
|
18,536
|
|
|
|
7,859,834
|
|
|
|
(4,000
|
)
|
|
|
-
|
|
|
|
7,874,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon
conversion of convertible debt and related interest
|
|
|
-
|
|
|
|
-
|
|
|
|
24,382
|
|
|
|
24
|
|
|
|
396,859
|
|
|
|
-
|
|
|
|
-
|
|
|
|
396,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for
land acquisition
|
|
|
-
|
|
|
|
-
|
|
|
|
139
|
|
|
|
-
|
|
|
|
16,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares previously
issued for services and liability assumption cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,500
|
)
|
|
|
(24
|
)
|
|
|
(52,755
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(52,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of common
shares previously issued for convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,666
|
)
|
|
|
(24
|
)
|
|
|
24
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of embedded
conversion option
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
170,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
170,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,740,366
|
)
|
|
|
(5,740,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2014
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
18,676,304
|
|
|
|
18,676
|
|
|
|
18,912,548
|
|
|
|
(4,000
|
)
|
|
|
(12,319,447
|
)
|
|
|
6,609,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for
services
|
|
|
-
|
|
|
|
-
|
|
|
|
75,600
|
|
|
|
76
|
|
|
|
79,525
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock
for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
999,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write off of subscription
receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,000
|
)
|
|
|
4,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
and cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(225,000
|
)
|
|
|
(225
|
)
|
|
|
(2,025
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for
settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
49,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock returned
and cancelled in connection with Settlement Agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,496,054
|
)
|
|
|
(2,496
|
)
|
|
|
(1,404,107
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,406,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of stock based
compensation related to stock options issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
782,063
|
|
|
|
-
|
|
|
|
-
|
|
|
|
782,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,372,030
|
)
|
|
|
(1,372,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2015
|
|
|
2,000,000
|
|
|
$
|
2,000
|
|
|
|
17,080,850
|
|
|
$
|
17,081
|
|
|
$
|
19,412,954
|
|
|
$
|
-
|
|
|
$
|
(13,691,477
|
)
|
|
$
|
5,740,558
|
|
See accompanying notes to consolidated financial statements.
ZONED PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Years Ended
|
|
|
|
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Net loss
|
|
$
|
(1,372,030
|
)
|
|
$
|
(5,740,366
|
)
|
Adjustments to reconcile net loss to net
cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
150,369
|
|
|
|
99,821
|
|
Stock-based compensation
|
|
|
79,601
|
|
|
|
4,100,344
|
|
Stock-based settlement expense
|
|
|
50,000
|
|
|
|
-
|
|
Accretion of stock-based stock option expense
|
|
|
782,063
|
|
|
|
-
|
|
Deferred rent receivable
|
|
|
(8,909
|
)
|
|
|
-
|
|
Deferred rent receivable - related parties
|
|
|
(338,986
|
)
|
|
|
(28,027
|
)
|
Amortization of debt discount
|
|
|
-
|
|
|
|
142,564
|
|
Impairment
loss on building - related party
|
|
|
-
|
|
|
|
675,000
|
|
Gain on sale of note receivable
|
|
|
-
|
|
|
|
(41,020
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Real estate tax escrow
|
|
|
(6,950
|
)
|
|
|
(39,122
|
)
|
Prepaid expenses and other assets
|
|
|
69,629
|
|
|
|
(132,171
|
)
|
Security deposits
|
|
|
(1,134
|
)
|
|
|
(7,024
|
)
|
Accounts payable
|
|
|
8,962
|
|
|
|
27,835
|
|
Accrued expenses
|
|
|
34,207
|
|
|
|
43,603
|
|
Accrued expenses - related parties
|
|
|
8,583
|
|
|
|
51,984
|
|
Security deposits
payable
|
|
|
44,340
|
|
|
|
18,100
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(500,255
|
)
|
|
|
(828,479
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from note receivable
|
|
|
-
|
|
|
|
211,020
|
|
Acquisition of land
|
|
|
(200,000
|
)
|
|
|
(3,193,000
|
)
|
Acquisition of buildings and improvements
|
|
|
(75,447
|
)
|
|
|
(6,062,980
|
)
|
Acquisition of property
and equipment
|
|
|
(6,961
|
)
|
|
|
(47,819
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(282,408
|
)
|
|
|
(9,092,779
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
1,000,000
|
|
|
|
7,874,371
|
|
Redemption of common stock
|
|
|
(2,250
|
)
|
|
|
-
|
|
Proceeds from sale of preferred stock
|
|
|
-
|
|
|
|
2,000
|
|
Redemption of preferred stock
|
|
|
-
|
|
|
|
(700
|
)
|
Proceeds from related party loan
|
|
|
-
|
|
|
|
200,387
|
|
Repayment of related party loan
|
|
|
-
|
|
|
|
(200,387
|
)
|
Proceeds from convertible note payable
|
|
|
-
|
|
|
|
500,000
|
|
Proceeds from convertible note payable
- related party
|
|
|
-
|
|
|
|
500,000
|
|
Proceeds from mortgage
payable
|
|
|
-
|
|
|
|
2,100,000
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
997,750
|
|
|
|
10,975,671
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
215,087
|
|
|
|
1,054,413
|
|
CASH, beginning of year
|
|
|
1,066,377
|
|
|
|
11,964
|
|
CASH, end of period
|
|
$
|
1,281,464
|
|
|
$
|
1,066,377
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
193,448
|
|
|
$
|
142,914
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Common stock issued
for land
|
|
$
|
-
|
|
|
$
|
16,667
|
|
Issuance of common
stock for convertible debt and interest
|
|
$
|
-
|
|
|
$
|
396,883
|
|
Reclassification of
embedded conversion option on convertible debt to paid-in capital upon conversion
|
|
$
|
-
|
|
|
$
|
170,000
|
|
Issuance of common
stock for future services
|
|
$
|
-
|
|
|
$
|
240,000
|
|
Purchase
and cancellation and treasury shares in exchange for net properties pursuant to settlement
|
|
$
|
1,406,603
|
|
|
$
|
-
|
|
See accompanying notes to consolidated financial statements.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
1 –
ORGANIZATION AND NATURE OF OPERATIONS
Organization
Zoned
Properties, Inc., formerly Vanguard Minerals Corp. (the “Company”) was incorporated in the State of Nevada on August
25, 2003. On May 2, 2006, the Company changed its name to Knewtrino, Inc. On August 10, 2007, the Company changed its name to
Vanguard Minerals Corporation. On October 2, 2013, the Company changed its name to Zoned Properties, Inc. to reflect its maturing
business model that focuses on commercial property acquisition and development.
The
Company is a strategic real estate development firm whose primary mission is to identify, develop, and manage sophisticated, safe,
and sustainable properties in emerging industries. The Company acquires commercial properties that face unique zoning challenges
and identifies solutions that can potentially have a major impact on the cash flow and value generated. Zoned Properties, Inc.
targets commercial properties that can be acquired and potentially re-zoned for specific purposes. Zoned Properties does not grow,
harvest, sell or distribute cannabis or any substances regulated under United States law such as the Controlled Substances Act.
The
Company incorporated the following wholly-owned limited liability companies:
|
●
|
Gilbert
Property Management, LLC was organized in the State of Arizona on February 10, 2014.
|
|
●
|
Tempe
Industrial Properties, LLC was organized in the State of Arizona on February 19, 2014.
|
|
●
|
Chino
Valley Properties, LLC (“Chino Valley”) was organized in the State of Arizona
on April 15, 2014.
|
|
●
|
Kingman
Property Group, LLC was organized in the State of Arizona on April 15, 2014.
|
|
●
|
Green
Valley Group, LLC (“Green Valley”) organized in the State of Arizona on April
15, 2014.
|
|
●
|
Zoned
Oregon Properties, LLC was organized in the State of Oregon on June 16, 2015.
|
|
●
|
Zoned
Colorado Properties, LLC was organized in the State of Colorado on September 17, 2015.
|
|
●
|
Zoned
Illinois Properties, LLC was organized in the State of Illinois on July 15, 2015.
|
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation and principals of consolidation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances
and transactions have been eliminated upon consolidation.
On May
12, 2014, a 1–for-120 reverse stock split was declared effective for stockholders of record on May 12, 2014. All share and
per share amounts have been retroactively restated in the accompanying consolidated financial statements and related notes to
reflect this stock split.
Use
of estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates for the years
ended December 31, 2015 and 2014 include the collectability of rent, the useful life of rental properties and property and equipment,
assumptions used in assessing impairment of long-term assets, valuation allowances for deferred tax assets, and the fair value
of non-cash equity transactions, including options and stock-based compensation.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair
value of financial instruments
The
carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, note receivable, deferred rent receivable,
prepaid expenses and other current assets, real estate tax escrow, short-term notes payable, mortgages payable, convertible notes
payable, accounts payable, accrued expenses, and other payables approximate their fair market value based on the short-term maturity
of these instruments.
The
Company analyzes all financial instruments with features of both liabilities and equity under the FASB’s accounting standard
for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. The Company did not identify any assets or liabilities that
are required to be presented on the balance sheet at fair value in accordance with ASC Topic 820.
ASC
825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value
option to any outstanding instruments.
Risks
and uncertainties
The
Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks
including the potential risk of business failure. The Company conducts a significant portion of its business in Arizona.
Consequently, any significant economic downturn in the Arizona market could potentially have an effect on the Company’s
business, results of operations and financial condition.
Cash
and cash equivalents
Cash
and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions
and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
The majority of the Company’s cash and cash equivalents are held at major commercial banks, which may at times exceed the
Federal Deposit Insurance Corporation (“FDIC”) limit. To date, the Company has not experienced any losses on
its invested cash. The Company had no cash equivalents at December 31, 2015 and 2014. At December 31, 2015, the Company had approximately
$1,032,000 of cash in excess of FDIC limits.
Accounts
receivable
The
Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries.
The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs,
as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated
with the allowance for doubtful accounts is recognized in general and administrative expense.
Real
estate tax escrow
Real
estate tax escrow consists of funds held for the purpose of real estate taxes owed. These funds will be released as required to
satisfy tax payments as due.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Rental
properties
Rental
properties are carried at cost less accumulated depreciation and amortization. Betterments, major renovations and certain costs
directly related to the improvement of rental properties are capitalized. Maintenance and repair expenses are charged to expense
as incurred. Depreciation is recognized on a straight-line basis over estimated useful lives of the assets, which range from 7
to 39 years. Tenant improvements are amortized on a straight-line basis over the lives of the related leases, which approximate
the useful lives of the assets.
Upon
the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified
intangibles, such as acquired above-market leases and acquired in-place leases) and acquired liabilities (such as acquired below-market
leases) and allocate the purchase price based on these assessments. The Company assesses fair value based on estimated cash flow
projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash
flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. The
Company records acquired intangible assets (including acquired above-market leases and acquired in-place leases) and acquired
intangible liabilities (including below-market leases) at their estimated fair value. The Company amortizes acquired above-and
below-market leases as a decrease or increase to rental income, respectively, over the lives of the respective leases. Amortization
of acquired in-place leases is included as a component of depreciation and amortization. For the years ended December 31, 2015
and 2014, there were no acquired in-place leases.
The
Company’s properties, including any related intangible assets, are individually reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment exists when the
carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted
basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value.
Impairment analyses are based on our current plans, intended holding periods and available market information at the time the
analyses are prepared. If the Company’s estimates of the projected future cash flows, anticipated holding periods, or market
conditions change, the Company’s evaluation of impairment losses may be different and such differences could be material
to its consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions
regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Plans to hold
properties over longer periods decrease the likelihood of recording impairment losses. For the years ended December 31, 2015 and
2014, the Company recorded impairment losses of $0 and $675,000, respectively.
The
Company has capitalized land, which is not subject to depreciation.
Property
and equipment
Property
and equipment is stated at cost, less accumulated depreciation. Depreciation of property and equipment is provided utilizing the
straight-line method over the estimated useful lives. The Company uses a five year life for office equipment, seven years for
furniture and fixtures, and 5 to 10 years for vehicles. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in statements of operations.
The
Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the
fact that their recorded value may not be recoverable.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
R
evenue
recognition
Rental
income includes base rents that each tenant pays in accordance with the terms of its respective lease and is reported on a straight-line
basis over the non-cancellable term of the lease, which includes the effects of rent steps and rent abatements under the leases.
We commence rental revenue recognition when the tenant takes possession of the leased space or controls the physical use of the
leased space and the leased space is substantially ready for its intended use. Rental income also includes the amortization
of acquired above-and below-market leases, net. Beginning in 2014, the Company began generating revenues from the non-residential
rental properties.
Certain
of the Company’s leases currently contain rental increases at specified intervals. The Company records as an asset, and
include in revenue, rents receivable that will be received if the tenant makes all rent payments required through the expiration
of the initial term of the lease. Deferred rents receivable in the accompanying balance sheets includes the cumulative difference
between rental revenue recorded on a straight-line basis and rents received from the tenants in accordance with the lease terms.
Accordingly, management determines to what extent the deferred rent receivable applicable to each specific tenant is collectible.
The Company reviews material rents receivable and takes into consideration the tenant’s payment history, the financial condition
of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the
property is located. In the event that the collectability of rent receivable with respect to any given tenant is in doubt, we
record an increase in the allowance for uncollectible accounts or the Company records a direct write-off of the specific rent
receivable. No such reserves related to deferred rent receivable have been recorded as of December 31, 2015 and 2014. For the
years ended December 31, 2015, in connection with certain related party leases, the Company only included in revenues the amount
of rents received from the related parties in accordance with the lease terms since on August 1, 2015, the Company transferred
title to its Bernalillo, New Mexico and the respective related party lease as part of a settlement agreement (See Note 10), and
cancelled a related party lease in June 2015.
Basic
income (loss) per share
Basic
income (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding
during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. All potentially
dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact
on the Company’s net losses and consisted of the following:
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Convertible debt
|
|
|
200,000
|
|
|
|
200,000
|
|
Stock options
|
|
|
1,550,000
|
|
|
|
-
|
|
Segment
reporting
The
Company’s business is comprised of one reportable segment. The Company has determined that its properties have similar economic
characteristics to be aggregated into one reportable segment (operating, leasing and managing commercial properties). The Company’s
determination was based primarily on its method of internal reporting.
Income
tax
Deferred
income tax assets and liabilities arise from temporary differences between the financial statements and tax basis of assets and
liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred
tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities
to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
The
Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). Certain recognition
thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue
to recognize tax positions that meet a "more-likely-than-not" threshold.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income
tax (continued)
As
of December 31, 2015 and 2014, the Company does not believe it has any uncertain tax positions that would require either recognition
or disclosure in the accompanying consolidated financial statements.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based
on the grant-date fair value of the award.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the service period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based
on the fair value of the award at the reporting date.
Related
parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Recently
issued accounting pronouncements
In
May 2014, the FASB issued an update ("ASU 2014-09")
Revenue from Contracts with Customers.
ASU 2014-09 establishes
a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes
most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services and also requires certain additional disclosures. ASU 2014-09 is effective for interim and annual
reporting periods in fiscal years that begin after December 15, 2016. The Company is currently evaluating the impact of the adoption
of ASU 2014-09 on its consolidated financial statements.
In
June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718,
Compensation – Stock Compensation
.
ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based
award has ended, as a performance condition that affects vesting. ASU 2014-12 is effective for interim and annual reporting periods
in fiscal years that begin after December 15, 2015. The adoption of ASU 2014-12 is not expected to have a material effect on the
Company’s financial position, results of operations and cash flows.
In
August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going
Concern,
that will require management to assess an entity’s ability to continue as a going concern, and to provide related
footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there
is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance date. Substantial
doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date.
The new standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise
to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific
disclosures. This standard is effective for public entities for annual periods ending after December 15, 2016. Earlier application
of this standard is permitted. This standard is not expected to have a material effect on our financial position, results of operations
and cash flows.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
issued accounting pronouncements (continued)
In
February 2015, the FASB issued ASU 2015-02,
Consolidation
(Topic 810) (“ASU 2015-02”), to address financial
reporting considerations for the evaluation as to the requirement to consolidate certain legal entities. ASU 2015-02 is effective
for fiscal years and for interim periods within those fiscal years beginning after December 15, 2015. This standard is not
expected to have a material effect on our financial position, results of operations and cash flows.
In
April 2015, the FASB issued ASU 2015-03,
Interest—Imputation of Interest (Subtopic 835-30)
(“ASU 2015-03”),
as part of the initiative to reduce complexity in accounting standards. The update requires that debt issuance costs related to
a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability,
consistent with debt discounts. ASU 2015-03 is effective for annual periods beginning after December 15, 2015 and for interim
periods within those fiscal years.
In
November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”),
which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet.
The ASU simplifies the current guidance in ASC Topic 740,
Income Taxes
, which requires entities to separately present deferred
tax assets and liabilities as current and noncurrent in a classified balance sheet. ASU 2015-17 is effective for fiscal years
beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities
as of the beginning of an interim or annual reporting period. The Company does not expect the impact of ASU 2015-17 to be material
to our consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
NOTE
3 –
RENTAL PROPERTIES
On
January 22, 2014, the Company entered into a real estate purchase agreement with a stockholder, pursuant to which the Company
acquired land located in Gilbert, Arizona for $266,667, of which $250,000 was paid in cash, and $16,667 was paid by issuing 139
shares of common stock of the Company at an agreed price of $120 per share based on recent sales of the Company’s common
stock in a private placement.
On
January 29, 2014, the Company entered into a purchase and consulting agreement (the “Ultra Agreement”) with Ultra
Health, LLC., a related party due to common ownership and investments made by beneficial stockholders of the Company (“Ultra
Health”), pursuant to which the Company was to acquire a 1,536 square foot modular building to be delivered and erected
on the purchased land for total cash payments of $675,000. Subsequent to the purchase of this land and building, these real estate
assets were transferred to Gilbert Property, LLC, a wholly-owned subsidiary of the Company. In connection with the 1,536 square
foot modular building discussed above, on April 10, 2015, the Company became a party to a certain case pending in the Superior
Court of the State of Arizona in and for Maricopa County, Arizona styled,
Zoned Properties, Inc. v. Duke Rodriguez, Ultra Health,
LLC and Cumbre Investment, LLC (“The Defendants”)
, Case No. CV-2015-004225, wherein the Company alleged, among
other things, that the Defendants, alone or in collusion with one another, breached a certain contract for the construction of
the Gilbert building, and made material misrepresentations or had negligently misrepresented certain material elements upon which
the Company relied, in purchasing the land upon which that building was to be constructed, which the Defendants failed to perform.
The
Company reviews it rental properties for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Based on this review, on December 31, 2014, the Company determined that the Gilbert building
carrying value of $675,000 was not recoverable and recorded an impairment loss - related party of $675,000.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
3 –
RENTAL PROPERTIES (continued)
On
July 9, 2015 and effective August 1, 2015, the Company entered into a settlement agreement with the Defendants that, among other
things, settles the pending claims and grants mutual general releases (See Note 10).
On
March 7, 2014, the Company entered into a real estate purchase agreement with Maryland LLC, an Arizona limited liability company,
pursuant to which the Company acquired land and a building located in Tempe, Arizona, for total payment of $4,600,000, of which
$2,500,000 was paid by cash, and a $2,100,000 promissory note from Maryland LLC. The transaction was completed and the title of
the land was transferred to the Company (See Note 7). Subsequent to the purchase, the Company spent $206,370 on building improvements
and equipment.
On
April 4, 2014, the Company entered into a purchase agreement with Ultra Health pursuant to which the Company acquired a modular
building in Green Valley, Arizona for total payment of $87,073. On October 22, 2014, Green Valley entered into a real estate purchase
and sale agreement with a company owned by Duke Rodriguez who became beneficial stockholder of the Company in July 2014 (”Duke
Rodriguez”), pursuant to which the Company acquired the property located in Green Valley, AZ for a purchase price of $400,000.
On
May 28, 2014, the Company entered into a purchase agreement with Ultra Health pursuant to which the Company acquired three parcels
of land and a building in Mohave County, Arizona for total payments of $260,000. Subsequent to the purchase, the Company spent
$27,538 in improvements.
On
August 12, 2014, the Company entered into a real estate purchase agreement with a company owned by Duke Rodriguez, pursuant to
which the Company acquired the property located in Bernalillo County, New Mexico consisting of 11.30 acres for total payments
of $2,750,000. Pursuant to a settlement agreement (see Note 10), the Company transferred title to this property to Defendants.
On August 1, 2015 (the “Settlement Date”) and December 31, 2014, the carrying value of this property was $2,719,658
and $2,737,863, respectively.
On
the Settlement Date, the Defendants effectuated the transfer of four parcels of property in Chino Valley, Arizona to the Company
which consists of approximately 48 acres of land and the Company acquired an additional parcel in Chino Valley for $200,000 in
cash. Based on an independent appraisal, on the Settlement Date, the fair value of property obtained, consisting of land, buildings
and improvements, amounted to approximately $1,528,000 (see Note 10).
At
December 31, 2015 and 2014, rental properties, net consisted of the following:
Description
|
|
Useful Life (Years)
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Building and building improvements
|
|
39
|
|
$
|
4,823,318
|
|
|
$
|
5,364,815
|
|
Land
|
|
-
|
|
|
2,589,667
|
|
|
|
3,209,668
|
|
Equipment
|
|
7
|
|
|
23,164
|
|
|
|
23,164
|
|
Rental properties, at cost
|
|
|
|
|
7,436,149
|
|
|
|
8,597,647
|
|
Less: accumulated depreciation
|
|
|
|
|
(211,556
|
)
|
|
|
(97,942
|
)
|
Rental properties, net
|
|
|
|
$
|
7,224,593
|
|
|
$
|
8,499,705
|
|
For
the years ended December 31, 2015 and 2014, depreciation and amortization of rental properties amounted to $143,956 and $97,942,
respectively.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
4 -
PROPERTY AND EQUIPMENT
At
December 31, 2015 and 2014, property and equipment consisted of the following:
Description
|
|
Useful Life (Years)
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Vehicle and site trailers
|
|
5 – 10
|
|
$
|
42,555
|
|
|
$
|
42,555
|
|
Office furniture and equipment
|
|
5 - 7
|
|
|
12,225
|
|
|
|
5,264
|
|
|
|
|
|
|
54,780
|
|
|
|
47,819
|
|
Less: accumulated depreciation
|
|
|
|
|
(8,292
|
)
|
|
|
(1,879
|
)
|
Property and equipment, net
|
|
|
|
$
|
46,488
|
|
|
$
|
45,940
|
|
For
the years ended December 31, 2015 and 2014, depreciation expense amounted to $6,413 and $1,879, respectively.
NOTE
5 –
RELATED PARTY TRANSACTIONS
(A)
Note receivable- related party
On
December 9, 2013, the Company entered into a Note Purchase and Loan Participation Assignment Agreement (the “Note Purchase
Agreement”) with and amongst MAC CAM LLC, a limited liability company (“MAC CAM”), partially owned by the Company’s
former President, a third party entity, and five individuals two of which are considered related parties, pursuant to which the
Company issued two convertible promissory notes ($85,000 to MAC CAM and $85,000 to a stockholder) aggregating $170,000 to purchase
a Promissory Note dated February 19, 2013, in the original principal amount of $209,400 and with a maturity date of February 1,
2018, which is secured by a Mortgage/Deed of Trust on Real Property recorded March 5, 2013 in Document No. 2013-01174, of the
Official Records of the County Recorder of Graham County, Arizona. On March 12, 2014, the Company sold this note for a cash payment
of $210,500. For the year ended December 31, 2014, the Company reported a gain of $41,020 which is reflected as other income on
the accompanying consolidated statements of operations.
(B)
Convertible notes payable – related parties
From
September 2013 to December 2013, the Company borrowed funds from MAC CAM, in the aggregate amount of $159,413 to cover its daily
operations, including but not limited to, consulting and advisory fees, accounting fees, legal fees, compliance fees and others
general and administrative expenses. The borrowings were evidenced by four convertible promissory notes, dated on September 30,
2013 (“September Note”), October 31, 2013 (“October Note”), November 30, 2013 (“November Note”)
and December 31, 2013 (“December Note”).
The
September Note and October Note accrued annual interest at 8% per annum and the November Note and December Note accrued interest
at 10% per annum. The holder of the Notes had an option to convert all or any portion of the accrued interest and unpaid principal
balance of the Notes into the common stock of the Company or its successors at fixed conversion prices of $6.00 per common share
for the September Note, October Note, and the November Note, and $12.00 per common share for the December Note. The Company evaluated
whether or not these convertible notes contained embedded conversion options, which meet the definition of a derivatives under
ASC Topic 815. In 2013, the Company concluded that since the convertible notes had fixed conversion prices, the convertible notes
were not derivative instruments. The Company analyzed this provision under ASC Topic 815 and therefore it qualified as equity
under ASC Topic 815. The convertible notes were considered to have embedded beneficial conversion features (BCF) because the effective
conversion price was less than the fair value of the Company’s common stock on the respective note dates. The convertible
notes were fully convertible at the issuance date. Accordingly, the intrinsic value of the beneficial conversion features were
calculated to be $128,406 and was recorded as a debt discount and was amortized over the respective note term. For the year ended
December 31, 2014, amortization of debt discount related to these convertible notes amounted to $79,121 and has been included
in interest expense – related party on the accompanying consolidated statements of operations. On March 5, 2014, the Company
issued a total of 22,942 shares of common stock of the Company to settle all principal and interest obligations pursuant to these
convertible notes payable (see Note 8 (F)).
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
5 –
RELATED PARTY TRANSACTIONS (continued)
(B)
Convertible notes payable – related parties (continued)
On
December 9, 2013, in connection with the Note Purchase Agreement, the Company issued a convertible promissory note in the amount
of $85,000 to MAC CAM. The note bears an interest rate of 10% per annum and was due on December 9, 2014, pursuant to which the
holders of the Notes had an option to convert all or any portion of the accrued interest and unpaid principal balance of the Notes
into the common stock of the Company or its successors, at 50% of the market bid price of the common stock on the demand date
for conversion. Pursuant to ASC Topic 470-20-525 (Debt with conversion and other options), since this convertible note had fixed
conversion percentages of 50% of the stock price, the Company determined it had a fixed monetary amount that can be settled for
the debt. Accordingly, at December 31, 2013, the Company recorded an embedded conversion option liability amounting to $85,000
on the accompanying consolidated balance sheet since this convertible note was convertible for the conversion premium and recorded
interest expense – related party of $85,000. On January 29, 2014, MAC CAM fully converted this note and all unpaid interest
into 720 shares of the Company’s common stock (see Note 8(F). Accordingly, on the date of conversion, the embedded conversion
option liability of $85,000 was reclassified to additional paid-in capital.
On
August 20, 2014, the Company received, pursuant to the terms of a Senior Convertible Debenture, $500,000 from a beneficial common
stockholder who also holds 50% of the issued preferred stock. The Debenture bears interest at 7% and the principal balance and
all accrued interest is due on the maturity date of August 20, 2017. The holder has the option after 12 months to convert all
or a portion of the Debenture into shares of the Company’s common stock at the conversion price of $5.00 per share. As of
December 31, 2015 and 2014, the principal balance due and owing under this Debenture is $500,000. As of December 31, 2015 and
2014, accrued interest payable amounted to $47,542 and $12,542, respectively, and is included in accrued expenses – related
parties on the accompanying consolidated balance sheets.
(C)
Note payable - related party
On
January 31, 2014, the Company received $200,387 from a beneficial stockholder of the Company. Pursuant to the terms of the loan,
the loan earned interest at 10% and was due on February 14, 2014. On February 11, 2014, the balance due was repaid in full.
(D)
Preferred stock
On
July 22, 2014, the Board of Directors of the Company accepted a subscription agreement from the McLaren Family LLLP (“MFT”),
whose general partner is Alex C. McLaren, a Director and the father of the Company’s current President and CEO, Bryan McLaren,
for the acquisition of 1,000,000 shares of the Company’s Preferred Stock for cash of $1,000. In addition to a beneficial
ownership of common stock, MFT holds 50% of the current Preferred Stock that controls the Company.
On
July 22, 2014, the Company accepted a subscription agreement from Gregory Johnston, a beneficial shareholder, for the acquisition
of 1,000,000 shares of the Company’s preferred stock for cash of $1,000 (See Note 8(A)). In addition to a beneficial ownership
of common stock, Mr. Johnston holds 50% of the current Preferred Stock that controls the Company.
In
connection with the issuance of super voting control preferred stock on July 22, 2014 (herein referred to as the “Valuation
Date”, the Company assessed the fair value of the issued preferred stock issued to Gregory Johnston and McLaren Family LLLP
for purposes of determining the valuation as set forth in ASC 820–10–35–37
Fair Value in Financial Instruments.
The Company utilized the market approach, on the valuation dates, and for the year ended December 31, 2014, the Company recorded
stock-based compensation of $3,365,000 (See Note 10).
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
5 –
RELATED PARTY TRANSACTIONS (continued)
(E)
Employment agreement
On
July 31, 2014, the Company entered into a 10 year employment agreement with a beneficial stockholder of the Company, for annual
compensation of $85,000. The Company may also grant this employee/beneficial stockholder stock options of up to 20,000 shares
per year for completed service and may receive a bonus at the discretion of the Company’s board of directors. Additionally,
as part of the employment agreement, the Company entered into a golden parachute agreement with this employee/beneficial stockholder
which expires on December 31, 2039, unless terminated earlier as defined in the agreement, whereby, no benefits under this agreement
shall be payable unless there is a change in control of the Company. In addition to other terms in the agreement, upon a change
in control of the Company as defined in the agreement, if employment by the Company shall be terminated (a) by the Corporation
other than for cause, retirement or disability or (b) by this employee for good reason, then he shall be entitled to certain benefits.
On July 31, 2015, the employee/beneficial resigned and waived his rights in any such benefits, and amounts due were paid in full.
At December 31, 2015 and 2014, amounts due to this employee/beneficial stockholder under this agreement amounted to $0 and $35,417,
respectively, which has been included in accrued expenses – related parties on the accompanying condensed consolidated balance
sheets.
On
October 26, 2015, the Company entered into an engagement letter with a Company majority owned by the Company’s chief financial
officer (“CFO”). Pursuant to the engagement letter, the Company shall pay to a base fee of $6,500 in cash per month
of which $2,000 shall be deferred and paid upon the earlier of six months or a capital raise, and $3,500 per month payable quarterly
in advance in common shares of the Company valued at the lower of the share price from the most recent capital raise or 60% of
the bid price of the Company’s common stock at the last trading day of the previous quarter with a minimum number of common
shares issuable per month of 1,250 shares.
(F)
Related party lease agreements
During
2014, the Company entered into lease agreements with non-profit companies and other companies whose director is a beneficial stockholder
of the Company. Additionally, i
n August 2015, the
Company entered into two lease
agreements with a company owned by this beneficial shareholder of the Company to lease space in Tempe, Arizona and Chino Valley,
Arizona. The Tempe lease commenced on September 1, 2015 and expires on August 31, 2035 with base monthly rent $13,500, subject
to a 5% annual increase. The Chino Valley lease commenced on August 1, 2015 and expires on July 31, 2035 with base monthly rent
$30,000, subject to a 5% annual increase. For the year ended December 31, 2015 and 2014, rental income associated with these related
party leases amounted to $980,509 and $140,527, respectively. At December 31, 2015 and 2014, deferred rent receivable –
related party amounted to $367,013 and $28,027, respectively. In connection with these leases, the related party tenants shall
pay security deposits aggregating $60,000 payable in twelve monthly installments of $5,000 beginning September 1, 2015. At December
31, 2015, security deposits payable to related parties amounted to $26,250. On February 16, 2016, these related party leases were
amended (see Note 12).
(G)
Rental property acquisition
On
January 29, 2014, the Company entered into the Ultra Agreement with Ultra Health, pursuant to which the Company was to acquire
a 1,536 square foot modular building to be delivered and erected on the purchased land for total cash payments of $675,000. In
connection with the 1,536 square foot modular building discussed above, on April 10, 2015, the Company became a party to a certain
case pending in the Superior Court of the State of Arizona in and for Maricopa County, Arizona styled,
Zoned Properties, Inc.
v. Duke Rodriguez, Ultra Health, LLC and Cumbre Investment, LLC (“The Defendants”)
, Case No. CV-2015-004225, wherein
the Company alleges, among other things, that the Defendants, alone or in collusion with one another, breached a certain contract
for the construction of the Gilbert building, and made material misrepresentations or had negligently misrepresented certain material
elements upon which the Company relied, in purchasing the land upon which that building was to be constructed, which the Defendants
failed to perform. The Company reviews it rental properties for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Based on this review, on December 31, 2014, the Company determined
that the Gilbert building carrying value of $675,000 was not recoverable and recorded an impairment loss - related party of $675,000.
On August 1, 2015, the Company settled this lawsuit (see Note 10).
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
5 –
RELATED PARTY TRANSACTIONS (continued)
(G)
Rental property acquisition (continued)
On
April 4, 2014, the Company entered into a purchase agreement with Ultra Health pursuant to which the Company acquired a modular
building in Green Valley, Arizona for total payment of $87,073.
On
May 28, 2014, the Company entered into a purchase agreement with Ultra Health pursuant to which the Company acquired three parcels
of land and a building in Mohave County, Arizona for total payments of $260,000.
On
August 12, 2014, the Company entered into a real estate purchase agreement with a company owned by Duke Rodriguez, pursuant to
which the Company acquired the property located in Bernalillo County, New Mexico consisting of 11.30 acres for total payments
of $2,750,000.
On
October 22, 2014, Green Valley entered into a real estate purchase and sale agreement with a company owned by Duke Rodriguez,
pursuant to which the Company acquired the property located in Green Valley, AZ for a purchase price of $400,000.
(H)
Common stock issued for cash
In
July 2014, the Company sold 8,750,000 shares of common stock to beneficial shareholders at a price of $0.01 per share for proceeds
of $87,500. Additionally, in August 2014, the Company sold 1,000,000 shares of common stock to a beneficial shareholder at a price
of $1.00 per share for proceeds of $1,000,000. (See Note 8(B).
(I)
Common stock issued for services
On
February 10, 2014, the Company issued 2,083 shares of common stock to the chief executive officer of the Company for services
rendered. The shares were valued at their fair value of $250,000 using the recent sale price of the common stock on the dates
of grant of $120 per common share. In July 2014, the 2,083 shares were returned to the Company and the shares were cancelled and
accounted for at par value of $0.001 per share. In connection with these shares, for the year ended December 31, 2014, the Company
recorded stock-based compensation expense of $250,000.
NOTE
6 –
CONVERTIBLE NOTE PAYABLE
On
August 20, 2014, the Company received $500,000 from a stockholder pursuant to the terms of a Senior Convertible Debenture. The
Debenture bears interest at 7% and is payable monthly and the principal balance and any remaining unpaid interest is due on the
maturity date of August 20, 2017. The holder has the option after 12 months to convert all or a portion of the Debenture into
shares of the Company’s common stock at the conversion price of $5.00 per share. As of December 31, 2015 and 2014, the principal
balance due and owing under this Debenture is $500,000.
NOTE
7 –
MORTGAGE PAYABLE
On
March 7, 2014 the Company executed a $2,100,000 mortgage payable to acquire real estate having a carrying value of approximately
$4,600,000. The mortgage bears interest at 7.5%. Monthly interest only payments began April 7, 2014 and continue each month thereafter
until paid. The entire unpaid balance and accrued interest is due on March 7, 2019, the maturity date of the mortgage and is secured
by the underlying property. The mortgage terms do not allow participations by the lender in either the appreciation in the fair
value of the mortgaged real estate project or the results of operations of the mortgaged real estate project.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
8 –
STOCKHOLDERS’ EQUITY
(A)
Preferred Stock
On
December 13, 2013, the Board of Directors of the Company authorized and approved to create a new class of Preferred Stock consisting
of 5,000,000 shares authorized, $.001 par value. The preferred stock is not convertible into any other class or series of stock.
The holders of the preferred stock are entitled to fifty (50) votes for each share held. Voting rights are not subject to adjustment
for splits that increase or decrease the common shares outstanding. Upon liquidation, the holders of the shares will be entitled
to receive $1.00 per share plus redemption provision before assets distributed to other shareholders. The holders of the shares
are entitled to dividends equal to common share dividends.
Once
any shares of Preferred Stock are outstanding, at least 51% of the total number of shares of Preferred Stock outstanding must
approve the following transactions:
|
a.
|
Alter
or change the rights, preferences or privileges of the Preferred Stock.
|
|
b.
|
Create
any new class of stock having preferences over the Preferred Stock.
|
|
c.
|
Repurchase
any of our common stock.
|
|
d.
|
Merge
or consolidate with any other company, except our wholly-owned subsidiaries.
|
|
e.
|
Sell,
convey or otherwise dispose of, or create or incur any mortgage, lien, or charge or encumbrance
or security interest in or pledge of, or sell and leaseback, in all or substantially
all of our property or business.
|
|
f.
|
Incur,
assume or guarantee any indebtedness maturing more than 18 months after the date on which
it is incurred, assumed or guaranteed by us, except for operating leases and obligations
assumed as part of the purchase price of property.
|
On
December 20, 2013, the Board of Directors of the Company approved the issuance of 700,000 shares of preferred stock to MAC CAM
for professional services in connection with setting up the business with respect to commercial properties acquisition and management,
and running the daily operations of the Company. On July 22, 2014, these 700,000 shares were redeemed by the Company under an
agreement with MAC CAM at a cost of $700.
On
July 22, 2014, the Board of Directors accepted a subscription agreement from the McLaren Family LLLP, whose general partner is
Alex C. McLaren, a Director and the father of the Company’s current President and CEO Bryan McLaren, for the acquisition
of 1,000,000 shares of the Company’s Preferred Stock for cash of $1,000. The Company simultaneously accepted a subscription
agreement from a beneficial common stockholder, for the acquisition of 1,000,000 shares of the Company’s preferred stock
for cash of $1,000.
In
connection with the issuance of super voting control preferred stock on July 22, 2014 (herein referred to as the “Valuation
Date”), the Company assessed the fair value of the issued preferred stock issued to a MAC CAM, Gregory Johnston and McLaren
Family LLLP for purposes of determining the valuation as set forth in ASC 820–10–35–37
Fair Value in Financial
Instruments.
Based on an independent appraisal report which utilized the market approach, on the Valuation Date, for the year
ended December 31, 2014, the Company recorded stock-based compensation of $3,365,000. The preferred stock issued was valued based
upon industry specific control premiums and the Company’s market cap at the time of the transaction. The market approach
was utilized to arrive at an indication of equity value based on recent transactions involving the Company’s common stock.
The control premium for the Company was based on publicly traded companies or comparable entities which have been recently acquired
in arm’s–length transactions. The Company estimated the control premium for the voting control of the preferred stock
based on Real Estate industries at 17.5%
as of July 22, 2014, based on comparable publicly traded data, adjusted for company-specific
factors.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
8 –
STOCKHOLDERS’ EQUITY (continued)
(B)
Common stock issued/redeemed for cash
2014
During
the quarter ended March 31, 2014, the Company issued 48,980 shares of restricted common stock at a price of $120 per share to
approximately 28 accredited investors pursuant to a private placement, exempt from registration pursuant to Rule 506(c) under
the Securities Act of 1933, as amended. In July 2014, the Company cancelled 83 shares and returned proceeds of $10,000 to an investor.
The total proceeds the Company received from this private placement were approximately $5,858,000 and a subscription receivable
of $4,000.
In
July 2014, the Company issued 16,637,000 shares of common stock to accredited investors pursuant to a private placement, exempt
from registration pursuant to Rule 506(c) under the Securities Act of 1933, as amended, at a price of $0.01 per share for proceeds
of $166,370.
From
August 2014 to December 2014, the Company issued 1,850,000 shares of common stock to accredited investors pursuant to a private
placement, exempt from registration pursuant to Rule 506(c) under the Securities Act of 1933, as amended at a price of $1.00 per
share for proceeds of $1,850,000.
2015
On
January 20, 2015, the Company cancelled 225,000 shares of common stock and returned proceeds of $2,250 to an investor.
In
May 2015, the Company issued 1,000,000 shares of common stock to accredited investors pursuant to a private placement, exempt
from registration pursuant to Rule 506(c) under the Securities Act of 1933, as amended, at a price
of $1.00 per share for proceeds of $1,000,000.
(C)
Common stock issued for services
2014
On
January 8, 2014, the Company entered into a consulting service agreement with a consultant for services related to compliance
filings in exchange for the issuance of 83 shares of common stock of the Company. The shares were valued at their fair value of
$10,000 using the recent sale price of the common stock on the dates of grant of $120 per common share and the Company recorded
stock-based consulting fees of $10,000.
On
January 22, 2014, the Company issued 833 shares of common stock and paid $20,000 in cash to Cumbre Investment LLC, a company controlled
by a stockholder, to acquire Right of First Refusal on certain properties and the right to a 30% share of the proceeds of the
future sale of such property. The shares were valued at their fair value of $100,000 using the recent sale price of the common
stock on the dates of grant of $120 per common share and accordingly, the Company recorded assignment fees of $100,000 which has
been included in professional fees in the accompanying consolidated statement of operations.
On
January 28, 2014, the Company entered into two consulting service agreements with two consultant/stockholders for business development
services in exchange for the aggregate issuance of 834 shares of common stock of the Company. The shares were valued at their
fair value of $100,000 using the recent sale price of the common stock on the dates of grant of $120 per common share. Accordingly,
the Company recorded prepaid expenses of $100,000 which will be amortized into consulting expense over term of the agreements.
In July 2014, the 834 shares were returned to the Company and cancelled. In connection with these shares, the Company recorded
stock-based consulting fees of $47,221 and on the date of cancellation, the Company reclassified the remaining unamortized prepaid
expense of $52,779 to additional paid-in capital.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
8 –
STOCKHOLDERS’ EQUITY (continued)
(C)
Common stock issued for services (continued)
2014
(continued)
On
January 29, 2014, in connection with the Ultra Agreement (see Note 3) with Ultra Health, the Company issued 1,167 shares of common
stock of the Company as a consulting fee to Ultra for their assistance in helping the Company pursue a certificate of occupancy
and authorization to operate under the AZ Medical Marijuana Act. On November 12, 2014 the Company declared Ultra Health, Inc.
to be in default under the terms of the Agreement for failure to timely deliver a certificate of occupancy and authorization to
operate under the AZ Medical Marijuana Act, as was required. The shares were valued at their fair value of $140,000 using the
recent sale price of the common stock on the dates of grant of $120 per common share. Accordingly, for the year ended December
31, 2014, the Company recorded stock-based consulting expense of $140,000.
On
February 10, 2014, the Company issued 2,083 shares of common stock to the chief executive officer of the Company for services
rendered. The shares were valued at their fair value of $250,000 using the recent sale price of the common stock on the dates
of grant of $120 per common share. In July 2014, the 2,083 shares were returned to the Company and the shares were cancelled and
accounted for at par value of $0.001 per share. In connection with these shares, for the year ended December 31, 2014, the Company
recorded stock-based compensation expense of $250,000.
On
May 27, 2014, the Company issued 2,083 shares of common stock to a consultant for services rendered. The shares were valued at
their fair value of $130,188 using the recent sale price of the common stock on the dates of grant of $120 per common share and
accordingly, the Company recorded stock-based consulting fees of $130,188.
2015
On
January 10, 2015, the Company issued an aggregate of 30,000 shares of common stock to three members of the Company’s board
of directors (10,000 each) for services rendered. The shares were valued at their fair value of $30,000 using the recent sale
price of the common stock on the dates of grant of $1.00 per common share. In connection with these shares, in January 2015, the
Company recorded stock-based compensation expense of $30,000.
On
May 1, 2015, the Company entered into a five year employment agreement with an officer of the Company. In connection with this
employment agreement, the Company issued 15,000 shares of its common stock. The shares were valued at their fair value of $15,000
using the recent sale price of the common stock on the dates of grant of $1.00 per common share. Accordingly, the Company recorded
compensation expense of $15,000.
In
July 2015, the Company issued 2,500 shares of common stock to an employee for services rendered. The shares were valued at their
fair value of $2,500 using the recent sale price of the common stock on the dates of grant of $1.00 per common share. In connection
with these shares, in July 2015, the Company recorded compensation expense of $2,500.
Effective
September 1, 2015, the Company entered into a one year consulting agreement with an investor relations firm for investor relations
services. In connection with this consulting agreement, the Company shall compensate the consultant for services rendered 1) cash
of $5,000 per month and 2) 7,500 restricted shares to be issued within the first thirty days of the contractual period and an
additional 7,500 shares of restricted stock to be issued at the end of month seven. On September 30, 2015, the Company issued
7,500 shares of restricted stock. The shares were valued at their fair value of $7,500 using the recent sale price of the common
stock on the dates of grant of $1.00 per common share. Accordingly, the Company recorded consulting fees of $7,500.
On
October 23, 2015, the Company issued 1,000 shares of its common stock for services rendered. The shares were valued at their fair
value of $5,000 based on the value of services rendered. In connection with these shares, in October 2015, the Company recorded
compensation expense of $5,000.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
8 –
STOCKHOLDERS’ EQUITY (continued)
(C)
Common stock issued for services (continued)
2015
(continued)
On
October 23, 2015, pursuant to an engagement letter, the Company issued 19,600 shares of its common stock to a Company majority
owned by the Company’s chief financial officer (“CFO”) for services rendered. The shares were valued at their
fair value of $19,600 using the recent sale price of the common stock on the dates of grant of $1.00 per common share. In connection
with these shares, in October 2015, the Company recorded compensation expense of $19,600.
(D)
Equity Incentive Plan
On
October 1, 2014, the Board of Directors authorized the 2014 Equity Compensation Plan the (“Plan”), which reserved
10,000,000 shares of common stock. The number of shares of common stock available for issuance under the Plan shall automatically
increase on the first trading day of January each calendar year during the term of the Plan, beginning with calendar year 2015,
by an amount equal to one and one-half percent (1.5%) of the total number of shares of common stock outstanding on the last trading
day in December of the immediately preceding calendar year, but in no event shall any such annual increase exceed 400,000 shares
of common stock. If any share of common stock that have been granted pursuant to a stock option ceases to be subject to a stock
option, or if any shares of common stock that are subject to any other stock-based award granted are forfeited or terminates,
such shares shall again be available for distribution in connection with future grants and awards under the Plan, The Plans purpose
is to enable the Company to offer its employees, officers, directors and consultants an opportunity to acquire a proprietary interest
in the Company for their contributions. As of December 31, 2015, 1,550,000 options have been granted pursuant to the Plan and
8,450,000 shares are available for future issuance. Through December 31, 2014, no equity instruments had been issued pursuant
to the Plan.
(E)
Common stock issued for rental property
On
January 22, 2014, the Company entered into a real estate purchase agreement with a stockholder pursuant to which the Company acquired
land located in Gilbert, Arizona for $266,667, of which $250,000 was paid in cash and $16,667 was paid by issuing 139 shares of
the common stock of the Company valued at $120 per common share based on recent sales of the Company’s common stock.
(F)
Common stock issued for convertible debt - related parties and other
During
the first quarter of 2014, the Company issued a total of 24,382 shares of common stock of the Company to settle the principal
obligations of certain convertible notes payable - related parties aggregating $244,413 (See Note 5(B)), convertible notes of
$85,000, and all related accrued interest payable in amount of $4,027. In connection with these shares, for the year ended December
31, 2014, the Company reduced principal amounts due under these convertible notes by $329,413, reduced accrued interest expense
by $4,027, and recorded interest expense - related parties of $63,443 which represents an interest charge related the calculation
of a beneficial conversion feature upon the conversion of accrued interest payable at a discount to the fair market value of the
Company’s common stock on the date of conversion. In July 2014, 23,666 of these shares were returned to the Company and
the shares were cancelled and accounted for at par value of $0.001 per share.
(G)
Common stock issued for settlement
On
June 16, 2015, the Company issued 50,000 shares of common stock in connection with a settlement agreement related to a claim.
The shares were valued at their fair value of $50,000 using the recent sale price of the common stock on the dates of grant of
$1.00 per common share. In connection with these shares, in June 2015, the Company recorded settlement expense of $50,000.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
8 –
STOCKHOLDERS’ EQUITY (continued)
(H)
Common stock redeemed and cancelled
On
September 1, 2013, the Company issued 125,000 shares of common stock at $1.20 per share to Marc Brannigan, the Company’s
former chief executive officer for the assumption of a liability of $150,000. At September 1, 2013, the 125,000 shares of common
stock represented approximately 91.54% of the issued and outstanding voting power of the Company. The transaction resulted in
a change in control of the Company. On April 14, 2014, the former chief executive officer of the Company returned 21,583 of such
of common shares to the Company. The shares were cancelled and accounted for at par value of $0.001 per share.
On
August 1, 2015, the Defendants returned 2,496,054 shares of common stock to the Company and the Company cancelled such shares.
On the Settlement Date, such shares were valued at $1,406,603 or $0.5635 per common share which represents the cost of the treasury
shares purchased and retired. (See Note 10).
(I)
Stock options granted pursuant to consulting and employment agreements
On
May 6, 2015, the Company entered into a 36-month consulting agreement with a stockholder for business advisory services. In connection
with this consulting agreement, the Company granted options to purchase 1,000,000 shares of the Company’s common stock at
an exercise price of $1.00 per share under the Company’s 2014 Employee Stock Option Plan. The options vest as to 125,000
of such shares on July 1, 2015 and for each quarter thereafter through April 1, 2017, and expire on May 5, 2025 or earlier due
to employment termination. The fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: dividend yield of 0%; expected volatility of 120%; risk-free interest rate
of 2.25%; and, an estimated holding period of 10 years. In connection with these options, the Company valued these options at
a fair value of $948,400 and will record stock-based consulting expense over the vesting period. For the year ended December 31,
2015, the Company recorded consulting expense of $654,054 related to these options.
In
connection with an employment agreement with a former officer of the Company, the Company granted options to purchase 300,000
shares of the Company’s common stock at an exercise price of $1.00 per share to the employee under the Company’s 2014
Employee Stock Option Plan. The options vest as to 50,000 of such shares on August 1, 2015, 50,000 options vest on May 1, 2016
and for each year thereafter through May 1, 2020, and expire five years from the date of grant or earlier due to employment termination.
The fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0%; expected volatility of 120%; risk-free interest rate of 1.50%; and, an estimated
holding period of 5 years. In connection with these options, the Company valued these options at a fair value of $248,100 and
will record stock-based consulting expense over the vesting period. For the year ended December 31, 2015, the Company recorded
stock-based compensation expense of $104,294. In January 2016, the employee resigned and the employment agreement was terminated.
Accordingly, in January 2016, all non-vested options were cancelled.
On
December 30, 2015, the Company granted the Company’s Chief Executive Officer and President an option (the “Option”),
pursuant to the Company’s 2014 Equity Compensation Plan, to purchase 250,000 of the Company’s common stock at an exercise
price of $1.00 per share. The grant date of the Option was December 30, 2015 and the Options expire on December 30, 2026. The
options vest as to 25,000 of such shares on December 30, 2015, 25,000 options vest on December 30, 2016 and for each year thereafter
through December 30, 2026. The fair value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: dividend yield of 0%; expected volatility of 120%; risk-free interest rate
of 2.31%; and, an estimated holding period of 10 years. In connection with these options, the Company valued these options at
a fair value of $237,150 and will record stock-based consulting expense over the vesting period. For the year ended December 31,
2015, the Company recorded stock-based compensation expense of $23,715.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
8 –
STOCKHOLDERS’ EQUITY (continued)
(I)
Stock options granted pursuant to consulting and employment agreements (continued)
At
December 31, 2015, there were 1,550,000 options granted and 325,000 options vested and exercisable. As of December 31, 2015, there
was $651,587 unvested stock-based compensation expense to be recognized through December 2024. The aggregate intrinsic value at
December 31, 2015 was $0 and was calculated based on the difference between the Company’s share price established in its
most recent PPM and the exercise price of the underlying options.
Stock
option activities for the year ended December 31, 2015 and 2014 are summarized as follows:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
(Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance Outstanding December 31, 2014
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
1,550,000
|
|
|
|
1.00
|
|
|
|
-
|
|
|
|
-
|
|
Exercised/Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance Outstanding December 31, 2015
|
|
|
1,550,000
|
|
|
$
|
1.00
|
|
|
|
7.95
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2015
|
|
|
325,000
|
|
|
$
|
1.00
|
|
|
|
8.71
|
|
|
$
|
-
|
|
NOTE
9 -
INCOME TAXES
The
Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred
tax assets at December 31, 2015 and 2014 consist of net operating loss carryforwards. The net deferred tax asset has been fully
offset by a valuation allowance because of the uncertainty of the attainment of future taxable income. The items accounting for
the difference between income taxes at the effective statutory rate and the provision for income taxes for the years ended December
31, 2015 and 2014 were as follows:
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Income tax expense (benefit) at U.S. statutory rate of 34%
|
|
$
|
(584,775
|
)
|
|
$
|
(1,961,253
|
)
|
Income tax benefit – state
|
|
|
(111,795
|
)
|
|
|
(374,946
|
)
|
Non-deductible expenses
|
|
|
316,736
|
|
|
|
1,718,378
|
|
Change in valuation allowance
|
|
|
379,834
|
|
|
|
617,821
|
|
Total provision for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company’s approximate net deferred tax asset as of December 31, 2015 and 2014 was as follows:
Deferred Tax Asset:
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
Net operating loss carryforward
|
|
$
|
1,057,973
|
|
|
$
|
678,139
|
|
Total deferred tax asset
|
|
|
1,057,973
|
|
|
|
678,139
|
|
Less: deferred tax liability: deferred rent receivable
|
|
|
(152,248
|
)
|
|
|
(11,351
|
)
|
Net deferred tax assets before valuation allowance
|
|
|
905,725
|
|
|
|
666,788
|
|
Valuation allowance
|
|
|
(905,725
|
)
|
|
|
(666,788
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
9 -
INCOME TAXES (continued)
The
net operating loss carryforward was approximately $2,612,280 at December 31, 2015. The Company provided a valuation allowance
equal to the deferred income tax asset for the years ended December 31, 2015 and 2014 because it was not known whether future
taxable income will be sufficient to utilize the loss carryforward. The increase in the allowance was $238,937 in 2015. The potential
tax benefit arising from the loss carryforward will expire in 2035.
Additionally,
the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation
as a result of ownership changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any
carryforward that expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation
allowance.
The
Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2015
and 2014 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
Interest
and penalties associated with unrecognized tax benefits, if any, are classified as additional income taxes in the statement of
operations.
NOTE
10 –
COMMITMENTS AND CONTINGENCIES
Legal
matters
Holistic
Patient Wellness Group, LLC v. Zoned Properties, Inc.; Court Filed: Maricopa County Superior Court, Arizona; Case Number: CV2014-003047,
which has been consolidated with CV2014-005642; Date Filed: March 14, 2014
Holistic
Patient Wellness Group, LLC (“HPWG”) leased from the Company retail space in Tempe, Arizona to operate a medical marijuana
dispensary. HPWG claims that the Company violated the terms of the lease for various reasons. On May 23, 2014, the Company concluded
that HPWG had breached the lease, and terminated the lease and retook possession of the property. On May 27, 2014, HPWG filed
a petition for an order to show cause, seeking an expedited ruling on its claim that Zoned violated the terms of the stipulated
preliminary injunction. The court re-set the hearing multiple times, ultimately continuing it until March 17, 2015. On April 27,
2015, two entities related to HPWG moved for leave to amend their answer and counterclaim to assert several new claims against
new parties, including the Company. On June 2, 2015, the court
sua sponte
denied the motion. On August 17, 2015, the court
granted a renewed request made by the two entities related to HPWG to move for leave to amend their answer and counterclaim, but
expressly afforded us an opportunity to respond in opposition to such a motion. On October 20, 2015, HPWG filed a motion to enforce
a purported settlement agreement with us and to dismiss its claims against us. We responded in opposition to the motion, because
(i) the mutual release in the purported settlement agreement was too broad in its scope, and (ii) we want to preserve our right
to seek an award of attorney’s fees and costs against HPWG. On February 1, 2016, the Court granted HPWG’s motion to
enforce the settlement agreement and to dismiss the claims against the Company, each party to bear its own attorneys’ fees
and costs. As of February 25, 2016, the parties had submitted proposed forms of judgment and are waiting for the Court to enter
final judgment dismissing the Company from the lawsuit. The Company has no financial obligations to HPWG as result of the settlement
and dismissal.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
10 –
COMMITMENTS AND CONTINGENCIES (continued)
Healing
Healthcare 3, Inc.; Xingang, LLC v. v. Zoned Properties, Inc., et al.; Court Filed: Maricopa County Superior Court, Arizona; Case
Number: CV2015-012264; Date Filed: October 21, 2015.
In lieu of filing an amended complaint in
Holistic Patient Wellness Group, LLC v. Zoned Properties, Inc.; Court Filed: Maricopa County Superior Court, Arizona; Case
Number: CV2014-00304
(see above), Healing Healthcare 3, Inc. (“HH3”) and Xingang, LLC filed a new complaint against
the Company, our President and CEO Bryan McLaren, Board Member Alex McLaren, and our wholly-owned subsidiary Tempe Industrial
Properties, LLC, among others. As in the prior action, the complaint concerns the Company’s lease of retail space in Tempe,
Arizona to operate a medical marijuana dispensary. HH3 and Xingang claim that the Company and its related parties violated the
terms of the lease for various reasons. On May 23, 2014, the Company concluded that the lease had been breached, and terminated
the lease and retook possession of the property. Plaintiffs have asserted various contract and tort claims against the Company
and its related parties, and seek $10,000 per day “for each day that [the Company] remained in possession of the Tempe Property
in violation of the Lease,” attorneys’ fees and costs, treble damages, punitive damages, and interest. The complaint
was served on the Company and its related parties on February 17, 2016, and is still being evaluated. It is anticipated that a
timely response will be filed on or before March 15, 2016.
In a letter dated February 4, 2016, the
Company’s former Chief Operating Officer (“Former COO”), through legal counsel, made a written demand on the
Company related to her resignation on December 29, 2015. In her letter, the Former COO alleges, among other things, that the Company
refused to establish a bonus program for her, as had been represented to her before she joined the Company, that she was not allowed
to perform her duties, and that she was subject to “mistreatment” by the Chief Executive Officer. The Former COO has
demanded $500,000 to settle her purported claims. On February 18, 2016, the Company responded to the Former COO’s written
demand, denied all liability, and offered an additional one-month of severance pay (approximately $8,350) in exchange for a full
release to settle the dispute. As of March 9, 2016, the Former COO has not responded. The Company believe that the Former
COO’s allegations are without merit and will vigorously defend against any claims or a lawsuit.
Litigation
settlement
Zoned
Properties, Inc. v. Duke Rodriguez, Ultra Health, LLC and Cumbre Investment, LLC
On
April 10, 2015, the Company became a party to a certain case pending in the Superior Court of the State of Arizona in and for
Maricopa County, Arizona styled,
Zoned Properties, Inc. v. Duke Rodriguez, Ultra Health, LLC and Cumbre Investment, LLC (“The
Defendants”)
, Case No. CV-2015-004225, wherein the Company alleges, among other things, that the Defendants, alone or
in collusion with one another, breached a certain contract for the construction of the Gilbert building, and had made material
misrepresentations or had negligently misrepresented certain material elements upon which the Company relied in purchasing the
land upon which that building was to be constructed, which the Defendants failed to deliver (See Note 3). On June 8, 2015, the
Company filed a motion to dismiss the counterclaim. The motion to dismiss has been fully-briefed and was set for oral argument
on August 7, 2015. On July 9, 2015 and effective August 1, 2015, the Company entered into a settlement agreement with the Defendants
that, among other things, settles the pending claims and grants mutual general releases. Under the terms of the settlement:
|
1.
|
On
August 1, 2015, the Company transferred title to its Bernalillo, New Mexico property
to Defendants. At June 30, 2015 and December 31, 2014, the carrying value of this property
was $2,719,658 and $2,737,863, respectively. In connection with such property, the Company
forfeited quarterly straight-lined rental revenue of approximately of $287,000 through
September 2024. For the years ended December 31, 2015, rental revenues from this property
amounted to $150,000 and $30,000, respectively.
|
|
2.
|
The
Defendants returned 2,496,054 shares of common stock to the Company and the Company cancelled
such shares. On the Settlement Date, such shares were valued at $1,406,603 or $0.5635
per common share which represents the cost of the treasury shares purchased and retired.
|
|
3.
|
The
Defendants effectuated the transfer of four parcels of property in Chino Valley, Arizona
to the Company which consists of approximately 48 Acres of land and the Company acquired
an additional parcel in Chino Valley for $200,000 in cash. Based on an independent appraisal,
on the Settlement Date, the fair value of property obtained, consisting of land, buildings
and improvements, amounted to approximately $1,528,000.
|
|
4.
|
The
Company obtained water rights associated with property in Chino Valley, Arizona effective
December 31, 2015.
|
In
connection with the settlement, on the Settlement Date, the Company did not record any settlement gain or loss.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
10 –
COMMITMENTS AND CONTINGENCIES (continued)
Lease
On
February 1, 2014 the Company executed a 39-months operating lease for its office space. The annual rent during year one is $31,302,
year two is $32,241 and year three $33,215. The Company also paid a security deposit of $3,267. In August 2015, the Company subleased
this property for the remainder of the lease term.
For
the years ended December 31, 2015 and 2014, rent expense, net of sublease income of $10,662 and $0, was $45,357 and $21,313, respectively.
Future
minimum lease payments under non-cancelable operating leases at December 31, 2015 are as follows:
Years ending December 31,
|
|
|
|
2016
|
|
$
|
33,721
|
|
2017
|
|
|
8,554
|
|
Total minimum non-cancelable operating lease payments
|
|
$
|
42,275
|
|
NOTE
11 –
CONCENTRATIONS
Rental
income and rent receivable – related parties
During
2014, the Company entered into lease agreements with non-profit companies whose director is a beneficial stockholder of the Company.
Additionally, during year ended December 31, 2015, the Company entered into lease agreements with companies owned by this beneficial
stockholder of the Company. For the years ended December 31, 2015 and 2014, rental revenue associated with these leases amounted
to $980,509 and $140,527, respectively. For the years ended December 31, 2015 and 2014, rental income - related parties represents
70.3% and 30.0% of total revenues, respectively. At December 31, 2015 and 2014, deferred rent receivable – related parties
amounted to $367,013 and $28,027, respectively. A reduction in sales from or loss of such related party leases would have a material
adverse effect on our consolidated results of operations and financial condition.
NOTE
12 –
SUBSEQUENT EVENTS
Rental
property acquisitions
On February 16, 2016, Chino Valley entered
into a letter of intent (the “Chino Valley LOI”) with C3C3 Group, LLC (the “Tenant”) and Broken Arrow
Herbal Center, Inc. (“Broken Arrow”). Each of the Tenant and Broken Arrow are owned by Alan Abrams, a significant
stockholder of the Company.
Pursuant to the terms of the Chino Valley
LOI, the parties agreed to amend the existing lease agreement, dated August 6, 2015, to provide for the lease by Chino Valley
to Tenant of approximately 45,000 square feet of space in Chino Valley, Arizona. The monthly rent due, pursuant to the terms of
the Chino Valley LOI, will be $70,833 beginning June 1, 2016 and $127,500 beginning August 1, 2016; however, the increased rental
revenue will be contingent upon the completion of the constructed expansion at the facility. In subsequent years beginning August
1, 2017, there will be a 5% annual increase in the monthly rent. The parties identified a budget of $2,000,000 for developing
the property and constructing the tenant improvements. The Chino Valley LOI and the Amendment to the lease agreement shall be
contingent upon: (a) the Company obtaining financing for the development of the premises and the construction of the tenant improvements
in such amount and on such terms and provisions as are acceptable to the Company in our sole and absolute discretion from a lender
approved by us in our sole discretion, and (b) approval by the Town of Chino Valley of the Phased Protected Development Rights
Plan. In the event that the contingencies have not been satisfied, this LOI shall terminate, and all of the deposits, except for
$100.00, shall be returned to Tenant.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2015 and 2014
NOTE
12 –
SUBSEQUENT EVENTS (continued)
Rental
property acquisitions (continued)
On February 17, 2016, Zoned Colorado Properties,
LLC (“Zoned Colorado”), a wholly owned subsidiary of the Company, entered into a letter of intent (the “Parachute
LOI”) with Parachute Development Corporation (“Parachute”) pursuant to which the parties agreed to the material
terms of a purchase agreement to be entered into by the parties.
Pursuant to the terms of the Parachute LOI,
the parties will have the option to execute a purchase agreement consistent with the terms of the Parachute LOI no later than
45 business days after execution of the Parachute LOI. The purchase agreement will provide for the purchase of property in Parachute,
Colorado, by Zoned Colorado and the sale of such property by Parachute. The purchase price of the property will be $499,857. Zoned
Colorado will pay 55% of the purchase price in cash. Parachute will finance 45% of the purchase price at an interest rate of 6.5%
amortized over a five-year period, with a balloon payment at the end of the fifth year. Payments will be made monthly and there
will be no pre-payment penalty. Zoned Colorado will have a right of first refusal on three additional lots owned by Parachute
in Parachute, Colorado. The Parachute LOI provides that the purchase agreement will be subject to certain contingencies, including
that Zoned Colorado must obtain financing for the purchase and development of the property, the grant of a special use permit
by the Town of Parachute, and the tenant’s obtaining a license to cultivate on the property.
Common
shares issued
On
January 1, 2016, pursuant to an engagement letter dated in October 2015, the Company issued 3,750 shares of its common stock to
a Company majority owned by the Company’s CFO for services rendered. The shares were valued at their fair value of $10,500
or $2.80 per common share which was the fair value on the date of grant based on the value of services to be rendered. In connection
with these shares, in January 2016, the Company recorded stock-based compensation expense of $10,500.
On
January 27, 2016, the Company issued an aggregate of 30,000 shares of common stock to three members of the Company’s board
of directors (10,000 each) for services rendered. The shares were valued at their fair value of $135,000 using the quoted share
price on the dates of grant of $4.50 per common share. In connection with these shares, in January 2016, the Company recorded
stock-based compensation expense of $135,000.
On
February 1, 2016, pursuant to an engagement letter effective January 28, 2016, the Company agreed to issue an aggregate of 30,000
shares of its common stock to a company for architectural and design services to be rendered. Pursuant to the agreement, the Company
shall issue 10,000 shares of common stock immediately and 20,000 shares of common stock at the completion of the engagement. The
initial shares were valued at their fair value of $45,000 using the quoted share price on the dates of grant of $4.50 per common
share. In connection with these shares, on February 1, 2016, the Company shall capitalize such costs of $45,000 as part of construction
in process to be depreciated over the life of the building improvements. The Company shall value the remaining 20,000 shares when
issued using the quoted share price on the measurement date, which shall be the date that the services are completed.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
1,052,504
|
|
|
$
|
1,281,464
|
|
Rental properties, net (See Note 3)
|
|
|
7,436,771
|
|
|
|
7,224,593
|
|
Deferred rent receivable
|
|
|
11,879
|
|
|
|
8,909
|
|
Deferred rent receivable - related parties
|
|
|
493,375
|
|
|
|
367,013
|
|
Real estate tax escrow
|
|
|
18,471
|
|
|
|
46,072
|
|
Prepaid expenses and other current assets
|
|
|
98,933
|
|
|
|
105,684
|
|
Property and equipment, net
|
|
|
44,791
|
|
|
|
46,488
|
|
Security deposits
|
|
|
8,158
|
|
|
|
8,158
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
9,164,882
|
|
|
$
|
9,088,381
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Mortgage payable
|
|
$
|
2,100,000
|
|
|
$
|
2,100,000
|
|
Convertible note payable
|
|
|
500,000
|
|
|
|
500,000
|
|
Convertible note payable - related party
|
|
|
500,000
|
|
|
|
500,000
|
|
Accounts payable
|
|
|
68,296
|
|
|
|
36,797
|
|
Accrued expenses
|
|
|
69,896
|
|
|
|
92,044
|
|
Accrued expenses - related parties
|
|
|
59,292
|
|
|
|
56,542
|
|
Security deposits payable
|
|
|
67,214
|
|
|
|
62,440
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
3,364,698
|
|
|
|
3,347,823
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (See Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 5,000,000 shares authorized; 2,000,000
shares issued and outstanding at March 31, 2016 and December 31, 2015 ($1.00 per share liquidation preference)
|
|
|
2,000
|
|
|
|
2,000
|
|
Common stock: $.001 par value, 100,000,000 shares
authorized; 17,132,100 and 17,080,850 issued and outstanding at March 31, 2016 and December 31, 2015, respectively
|
|
|
17,132
|
|
|
|
17,081
|
|
Additional paid-in capital
|
|
|
19,709,182
|
|
|
|
19,412,954
|
|
Accumulated deficit
|
|
|
(13,928,130
|
)
|
|
|
(13,691,477
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
5,800,184
|
|
|
|
5,740,558
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders'
Equity
|
|
$
|
9,164,882
|
|
|
$
|
9,088,381
|
|
See
accompanying condensed notes to unaudited consolidated financial statements.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For the
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
REVENUES:
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
60,880
|
|
|
$
|
82,175
|
|
Rental revenues - related parties
|
|
|
345,526
|
|
|
|
145,111
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
406,406
|
|
|
|
227,286
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
179,824
|
|
|
|
66,926
|
|
Professional fees
|
|
|
276,522
|
|
|
|
121,005
|
|
General and administrative expenses
|
|
|
51,621
|
|
|
|
62,171
|
|
Depreciation and amortization
|
|
|
41,098
|
|
|
|
37,186
|
|
Property operating expenses
|
|
|
15,460
|
|
|
|
14,557
|
|
Real estate taxes
|
|
|
21,661
|
|
|
|
14,667
|
|
Consulting fees - related parties
|
|
|
-
|
|
|
|
21,250
|
|
Settlement expense
|
|
|
-
|
|
|
|
17,500
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
586,186
|
|
|
|
355,262
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(179,780
|
)
|
|
|
(127,976
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
(48,123
|
)
|
|
|
(48,123
|
)
|
Interest expenses - related parties
|
|
|
(8,750
|
)
|
|
|
(8,750
|
)
|
Interest income
|
|
|
-
|
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
Total Other Expenses, net
|
|
|
(56,873
|
)
|
|
|
(56,590
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
|
(236,653
|
)
|
|
|
(184,566
|
)
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(236,653
|
)
|
|
$
|
(184,566
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
17,112,141
|
|
|
|
18,527,971
|
|
See
accompanying condensed notes to unaudited consolidated financial statements.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(236,653
|
)
|
|
$
|
(184,566
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
41,098
|
|
|
|
37,186
|
|
Stock-based compensation
|
|
|
185,550
|
|
|
|
30,000
|
|
Accretion of stock-based stock option expense
|
|
|
65,729
|
|
|
|
-
|
|
Deferred rent receivable
|
|
|
(2,970
|
)
|
|
|
-
|
|
Deferred rent receivable - related parties
|
|
|
(126,362
|
)
|
|
|
(28,027
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Real estate tax escrow
|
|
|
27,601
|
|
|
|
(11,844
|
)
|
Prepaid expenses and other assets
|
|
|
6,751
|
|
|
|
(29,415
|
)
|
Security deposits
|
|
|
-
|
|
|
|
(1,860
|
)
|
Accounts payable
|
|
|
31,499
|
|
|
|
30,279
|
|
Accrued expenses
|
|
|
(22,148
|
)
|
|
|
34,502
|
|
Accrued expenses - related parties
|
|
|
2,750
|
|
|
|
33,000
|
|
Security deposits payable
|
|
|
4,774
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(22,381
|
)
|
|
|
(90,745
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Acquisition of buildings and improvements
|
|
|
(206,579
|
)
|
|
|
-
|
|
Acquisition of property and equipment
|
|
|
-
|
|
|
|
(2,491
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(206,579
|
)
|
|
|
(2,491
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Redemption of common stock
|
|
|
-
|
|
|
|
(2,250
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
|
-
|
|
|
|
(2,250
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(228,960
|
)
|
|
|
(95,486
|
)
|
|
|
|
|
|
|
|
|
|
CASH, beginning of period
|
|
|
1,281,464
|
|
|
|
1,066,377
|
|
|
|
|
|
|
|
|
|
|
CASH, end of period
|
|
$
|
1,052,504
|
|
|
$
|
970,891
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
48,123
|
|
|
$
|
48,123
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Common stock issued for buildings and improvements
|
|
$
|
45,000
|
|
|
$
|
-
|
|
See
accompanying condensed notes to unaudited consolidated financial statements.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
1 –
ORGANIZATION AND NATURE OF OPERATIONS
Organization
Zoned
Properties, Inc., formerly Vanguard Minerals Corporation (“Zoned Properties” or the “Company”), was incorporated
in the State of Nevada on August 25, 2003. On May 2, 2006, the Company changed its name to Knewtrino, Inc. On August 10, 2007,
the Company changed its name to Vanguard Minerals Corporation. On October 2, 2013, the Company changed its name to Zoned Properties,
Inc. to reflect its maturing business model that focuses on commercial property acquisition and development.
The Company is a strategic real
estate development firm whose primary mission is to identify, develop, and lease sophisticated, safe, and sustainable properties
in emerging industries, including the licensed medical marijuana industry. The Company acquires commercial properties that face
unique zoning challenges and identifies solutions that can potentially have a major impact on the cash flow and value generated.
Zoned Properties targets commercial properties that can be acquired and potentially re-zoned for specific purposes. Zoned Properties
does not grow, harvest, sell or distribute cannabis or any substances regulated under United States law such as the Controlled
Substances Act.
The
Company has the following wholly-owned subsidiaries:
|
●
|
Gilbert
Property Management, LLC was organized in the State of Arizona on February 10, 2014.
|
|
|
|
|
●
|
Tempe
Industrial Properties, LLC was organized in the State of Arizona on February 19, 2014.
|
|
|
|
|
●
|
Chino
Valley Properties, LLC (“Chino Valley”) was organized in the State of Arizona
on April 15, 2014.
|
|
|
|
|
●
|
Kingman
Property Group, LLC was organized in the State of Arizona on April 15, 2014.
|
|
|
|
|
●
|
Green
Valley Group, LLC (“Green Valley”) organized in the State of Arizona on April
15, 2014.
|
|
|
|
|
●
|
Zoned
Oregon Properties, LLC was organized in the State of Oregon on June 16, 2015.
|
|
|
|
|
●
|
Zoned
Colorado Properties, LLC was organized in the State of Colorado on September 17, 2015.
|
|
|
|
|
●
|
Zoned
Illinois Properties, LLC was organized in the State of Illinois on July 15, 2015.
|
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of presentation and principals of consolidation
The
accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated upon consolidation.
The
condensed consolidated financial statements for the three months ended March 31, 2016 and 2015 have been prepared by us without
audit, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments
necessary to present fairly our financial position, results of operations, and cash flows as of March 31, 2016 and 2015, and for
the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments.
Use
of estimates
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates for
the three months ended March 31, 2016 and 2015 include the collectability of rent, the useful life of rental properties and property
and equipment, assumptions used in assessing impairment of long-term assets, valuation allowances for deferred tax assets, and
the fair value of non-cash equity transactions, including options and stock-based compensation.
Risks
and uncertainties
The
Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks
including the potential risk of business failure. The Company conducts a significant portion of its business in Arizona. Consequently,
any significant economic downturn in the Arizona market could potentially have an effect on the Company’s business, results
of operations and financial condition.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair
value of financial instruments
The
carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, note receivable, deferred rent receivable,
prepaid expenses and other current assets, real estate tax escrow, short-term notes payable, mortgages payable, convertible notes
payable, accounts payable, accrued expenses, and other payables approximate their fair market value based on the short-term maturity
of these instruments.
The
Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard
Board’s (the “FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities
are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company
did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance
with ASC Topic 820.
ASC
825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value
option to any outstanding instruments.
Cash
and cash equivalents
Cash
and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions
and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
The majority of the Company’s cash and cash equivalents are held at major commercial banks, which may at times exceed the
Federal Deposit Insurance Corporation (“FDIC”) limit. To date, the Company has not experienced any losses on its invested
cash. The Company had no cash equivalents at March 31, 2016 and December 31, 2015. At March 31, 2016, the Company had approximately
$802,500 of cash in excess of FDIC limits.
Accounts
receivable
The
Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries.
The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs,
as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. The expense associated
with the allowance for doubtful accounts is recognized in general and administrative expense.
Real
estate tax escrow
Real
estate tax escrow consists of funds held for the purpose of real estate taxes owed. These funds will be released as required to
satisfy tax payments as due.
Rental
properties
Rental
properties are carried at cost less accumulated depreciation and amortization. Betterments, major renovations and certain costs
directly related to the improvement of rental properties are capitalized. Maintenance and repair expenses are charged to expense
as incurred. Depreciation is recognized on a straight-line basis over estimated useful lives of the assets, which range from 7
to 39 years. Tenant improvements are amortized on a straight-line basis over the lives of the related leases, which approximate
the useful lives of the assets.
Upon
the acquisition of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified
intangibles, such as acquired above-market leases and acquired in-place leases) and acquired liabilities (such as acquired below-market
leases) and allocate the purchase price based on these assessments. The Company assesses fair value based on estimated cash flow
projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash
flows are based on a number of factors including historical operating results, known trends, and market/economic conditions. The
Company records acquired intangible assets (including acquired above-market leases and acquired in-place leases) and acquired
intangible liabilities (including below-market leases) at their estimated fair value. The Company amortizes acquired above-and
below-market leases as a decrease or increase to rental income, respectively, over the lives of the respective leases. Amortization
of acquired in-place leases is included as a component of depreciation and amortization. For the three months ended March 31,
2016 and 2015, there were no acquired in-place leases.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Rental
properties (continued)
The
Company’s properties, including any related intangible assets, are individually reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment exists when the
carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted
basis. An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value.
Impairment analyses are based on our current plans, intended holding periods and available market information at the time the
analyses are prepared. If the Company’s estimates of the projected future cash flows, anticipated holding periods, or market
conditions change, the Company’s evaluation of impairment losses may be different and such differences could be material
to its consolidated financial statements. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions
regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Plans to hold
properties over longer periods decrease the likelihood of recording impairment losses. For the three months ended March 31, 2016
and 2015, the Company did not record any impairment losses.
The
Company has capitalized land, which is not subject to depreciation.
Property
and equipment
Property
and equipment is stated at cost, less accumulated depreciation. Depreciation of property and equipment is provided utilizing the
straight-line method over the estimated useful lives. The Company uses a five year life for office equipment, seven years for
furniture and fixtures, and 5 to 10 years for vehicles. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in statements of operations.
The
Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the
fact that their recorded value may not be recoverable.
R
evenue
recognition
Rental
income includes base rents that each tenant pays in accordance with the terms of its respective lease and is reported on a straight-line
basis over the non-cancellable term of the lease, which includes the effects of rent steps and rent abatements under the leases.
We commence rental revenue recognition when the tenant takes possession of the leased space or controls the physical use of the
leased space and the leased space is substantially ready for its intended use. Rental income also includes the amortization of
acquired above-and below-market leases, net. Beginning in 2014, the Company began generating revenues from the non-residential
rental properties.
Certain
of the Company’s leases currently contain rental increases at specified intervals. The Company records as an asset, and
include in revenue, rents receivable that will be received if the tenant makes all rent payments required through the expiration
of the initial term of the lease. Deferred rents receivable in the accompanying balance sheets includes the cumulative difference
between rental revenue recorded on a straight-line basis and rents received from the tenants in accordance with the lease terms.
Accordingly, management determines to what extent the deferred rent receivable applicable to each specific tenant is collectible.
The Company reviews material rents receivable and takes into consideration the tenant’s payment history, the financial condition
of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the
property is located. In the event that the collectability of rent receivable with respect to any given tenant is in doubt, we
record an increase in the allowance for uncollectible accounts or the Company records a direct write-off of the specific rent
receivable. No such reserves related to deferred rent receivable have been recorded as of March 31, 2016 and December 31, 2015.
For the three months ended March 31, 2015, in connection with certain related party leases, the Company only included in revenues
the amount of rents received from the related parties in accordance with the lease terms since on August 1, 2015, the Company
transferred title to its Bernalillo, New Mexico property and the respective related party lease as part of a settlement agreement,
and cancelled a related party lease in June 2015.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basic
income (loss) per share
Basic
income (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding
during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. All potentially
dilutive common shares were excluded from the computation of diluted shares outstanding as they would have an anti-dilutive impact
on the Company’s net losses and consisted of the following:
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Convertible debt
|
|
|
200,000
|
|
|
|
200,000
|
|
Stock options
|
|
|
1,300,000
|
|
|
|
0
|
|
Segment
reporting
The
Company’s business is comprised of one reportable segment. The Company has determined that its properties have similar economic
characteristics to be aggregated into one reportable segment (operating, leasing and managing commercial properties). The Company’s
determination was based primarily on its method of internal reporting.
Income
tax
Deferred
income tax assets and liabilities arise from temporary differences between the financial statements and tax basis of assets and
liabilities, as measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred
tax assets and liabilities are classified as current or non-current, depending upon the classification of the asset or liabilities
to which they relate. Deferred tax assets and liabilities not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
The
Company follows the provisions of FASB ASC 740-10 “Uncertainty in Income Taxes” (ASC 740-10). Certain recognition
thresholds must be met before a tax position is recognized in the financial statements. An entity may only recognize or continue
to recognize tax positions that meet a “more-likely-than-not” threshold.
The
Company does not believe it has any uncertain tax positions as of March 31, 2016 and 2015 that would require either recognition
or disclosure in the accompanying consolidated financial statements.
Stock-based
compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based
on the grant-date fair value of the award.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the
“measurement date.” The expense is recognized over the service period of the award. Until the measurement date is
reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based
on the fair value of the award at the reporting date.
Related
parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
issued accounting pronouncements
In
May 2014, the FASB issued an update (“ASU 2014-09”)
Revenue from Contracts with Customers.
ASU 2014-09 establishes
a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes
most of the existing revenue recognition guidance and notes that lease contracts with customers are a scope exception. ASU 2014-09
requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional
disclosures. On August 12, 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09. Public business
entities may elect to adopt the amendments as of the original effective date; however, adoption is required for annual reporting
periods beginning after December 15, 2017. The Company is currently assessing the impact of the guidance on our consolidated financial
statements and notes to our consolidated financial statements.
In
June 2014, the FASB issued an update (“ASU 2014-12”) to ASC Topic 718,
Compensation – Stock Compensation
.
ASU 2014-12 requires an entity to treat performance targets that can be met after the requisite service period of a share based
award has ended, as a performance condition that affects vesting. ASU 2014-12 is effective for interim and annual reporting periods
in fiscal years that begin after December 15, 2015. The adoption of ASU 2014-12 did not have a material effect on the Company’s
financial position, results of operations and cash flows.
In
August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going
Concern,
that will require management to assess an entity’s ability to continue as a going concern, and to provide related
footnote disclosures in certain circumstances. In connection with each annual and interim period, management will assess if there
is substantial doubt about an entity’s ability to continue as a going concern within one year after the issuance date. Substantial
doubt exists if it is probable that the entity will be unable to meet its obligations within one year after the issuance date.
The new standard defines substantial doubt and provides example indicators. Disclosures will be required if conditions give rise
to substantial doubt. However, management will need to assess if its plans will alleviate substantial doubt to determine the specific
disclosures. This standard is effective for public entities for annual periods ending after December 15, 2016. Earlier application
of this standard is permitted. This standard is not expected to have a material effect on the Company’s financial position,
results of operations and cash flows.
In
November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
(“ASU 2015-17”),
which requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet.
The ASU simplifies the current guidance in ASC Topic 740,
Income Taxes
, which requires entities to separately present deferred
tax assets and liabilities as current and noncurrent in a classified balance sheet. ASU 2015-17 is effective for fiscal years
beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities
as of the beginning of an interim or annual reporting period. The Company does not expect the impact of ASU 2015-17 to be material
to its consolidated financial statements.
On
January 5, 2016, the FASB issued ASU No. 2016-01 to amend the accounting guidance on the classification and measurement of financial
instruments. The standard requires that all investments in equity securities, including other ownership interests, are carried
at fair value through net income. This requirement does not apply to investments that qualify for equity method accounting or
to those that result in consolidation of the investee or for which the entity has elected the predictability exception to fair
value measurement. Additionally, the standard requires that the portion of the total fair value change caused by a change in instrument-specific
credit risk for financial liabilities for which the fair value option has been elected would be recognized in other comprehensive
income. Any accumulated amount remaining in other comprehensive income is reclassified to earnings when the liability is extinguished.
The Company does not anticipate the guidance to have a material impact on its consolidated financial statements or notes to its
consolidated financial statements.
On
February 25, 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”) to amend the accounting guidance for leases. The
accounting applied by a lessor is largely unchanged under ASU 2016-02. However, the standard requires lessees to recognize lease
assets and lease liabilities for leases classified as operating leases on the balance sheet. Lessees will recognize in the statement
of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying
asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election
by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it will recognize
lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years
beginning after December 15, 2018 and early adoption is permitted. The Company is currently assessing the impact of the guidance
on its consolidated financial statements and notes to its consolidated financial statements.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently
issued accounting pronouncements (continued)
On
March 30, 2016, the FASB issued ASU No. 2016-09 (“ASU 2016-09”) to amend the accounting guidance for share-based payment
accounting. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions,
including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification
on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and early adoption
is permitted.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
NOTE
3 –
RENTAL PROPERTIES
On
February 16, 2016, Chino Valley entered into a letter of intent (the “Chino Valley LOI”) with C3C3 Group, LLC (the
“Tenant”) and Broken Arrow Herbal Center, Inc. (“Broken Arrow”). Each of the Tenant and Broken Arrow are
owned by a significant stockholder of the Company.
Pursuant
to the terms of the Chino Valley LOI, the parties agreed to amend the existing lease agreement, dated August 6, 2015, to provide
for the lease by Chino Valley to Tenant of approximately 45,000 square feet of space in Chino Valley, Arizona. The monthly rent
due, pursuant to the terms of the Chino Valley LOI, will be $70,833 beginning June 1, 2016 and $127,500 beginning August 1, 2016;
however, the increased rental revenue will be contingent upon the completion of the constructed expansion at the facility. In
subsequent years beginning August 1, 2017, there will be a 5% annual increase in the monthly rent. The parties identified a budget
of $2,000,000 for developing the property and constructing the tenant improvements. Through March 31, 2016, capitalized construction
in progress costs related to the China Valley LOI amounted to $146,166. The Chino Valley LOI and the Amendment to the lease agreement
shall be contingent upon: (a) the Company obtaining financing for the development of the premises and the construction of the
tenant improvements in such amount and on such terms and provisions as are acceptable to the Company in our sole and absolute
discretion from a lender approved by us in our sole discretion, and (b) approval by the Town of Chino Valley of the Phased Protected
Development Rights Plan. In the event that the contingencies have not been satisfied, this LOI shall terminate, and all of the
deposits, except for $100, shall be returned to Tenant.
At
March 31, 2016 and December 31, 2015, rental properties, net consisted of the following:
Description
|
|
Useful Life (Years)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Building and building improvements
|
|
39
|
|
$
|
4,844,741
|
|
|
$
|
4,823,318
|
|
Construction in progress
|
|
-
|
|
|
230,156
|
|
|
|
-
|
|
Land
|
|
-
|
|
|
2,589,667
|
|
|
|
2,589,667
|
|
Equipment
|
|
7
|
|
|
23,164
|
|
|
|
23,164
|
|
Rental properties, at cost
|
|
|
|
|
7,687,728
|
|
|
|
7,436,149
|
|
Less: accumulated depreciation
|
|
|
|
|
(250,957
|
)
|
|
|
(211,556
|
)
|
Rental properties, net
|
|
|
|
$
|
7,436,771
|
|
|
$
|
7,224,593
|
|
For
the three months ended March 31, 2016 and 2015, depreciation and amortization of rental properties amounted to $39,401 and $35,722,
respectively.
NOTE
4 –
PROPERTY AND EQUIPMENT
At
March 31, 2016 and December 31, 2015, property and equipment consisted of the following:
Description
|
|
Useful Life (Years)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Vehicle and site trailers
|
|
5 – 10
|
|
$
|
42,555
|
|
|
$
|
42,555
|
|
Office furniture and equipment
|
|
5 - 7
|
|
|
12,225
|
|
|
|
12,225
|
|
|
|
|
|
|
54,780
|
|
|
|
54,780
|
|
Less: accumulated depreciation
|
|
|
|
|
(9,989
|
)
|
|
|
(8,292
|
)
|
Property and equipment, net
|
|
|
|
$
|
44,791
|
|
|
$
|
46,488
|
|
For
the three months ended March 31, 2016 and 2015, depreciation expense amounted to $1,697 and $1,464, respectively.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
5 –
RELATED PARTY TRANSACTIONS
(A)
Convertible notes payable – related parties
On
August 20, 2014, the Company received, pursuant to the terms of a Senior Convertible Debenture, $500,000 from a beneficial common
stockholder who also holds 50% of the issued preferred stock. The Debenture bears interest at 7% and the principal balance and
all accrued interest is due on the maturity date of August 20, 2017. The holder has the option after 12 months to convert all
or a portion of the Debenture into shares of the Company’s common stock at the conversion price of $5.00 per share. As of
March 31, 2016 and December 31, 2015, the principal balance due and owing under this Debenture is $500,000. As of March 31, 2016
and December 31, 2015, accrued interest payable amounted to $56,292 and $47,542, respectively, and is included in accrued expenses
– related parties on the accompanying consolidated balance sheets. For the three months ended March 31, 2016 and 2015, interest
expenses – related party amounted to $8,750 and $8,750, respectively.
(B)
Employment agreement
On
October 26, 2015, the Company entered into an engagement letter with a Company majority owned by the Company’s chief financial
officer (“CFO”). Pursuant to the engagement letter, the Company shall pay to a base fee of $6,500 in cash per month
of which $2,000 shall be deferred and paid upon the earlier of six months or a capital raise, and $3,500 per month payable quarterly
in advance in common shares of the Company valued at the lower of the share price from the most recent capital raise or 60% of
the bid price of the Company’s common stock at the last trading day of the previous quarter with a minimum number of common
shares issuable per month of 1,250 shares.
(C)
Related party lease agreements
During
2014, the Company entered into lease agreements with non-profit companies and other companies whose director is a beneficial stockholder
of the Company. Additionally, i
n August 2015, the
Company entered into two lease
agreements with a company owned by this beneficial shareholder of the Company to lease space in Tempe, Arizona and Chino Valley,
Arizona. The Tempe lease commenced on September 1, 2015 and expires on August 31, 2035 with base monthly rent $13,500, subject
to a 5% annual increase. The Chino Valley lease commenced on August 1, 2015 and expires on July 31, 2035 with base monthly rent
$30,000, subject to a 5% annual increase. For the three months ended March 31, 2016 and 2015, rental income associated with these
related party leases amounted to $345,526 and $145,111, respectively. At March 31, 2016 and December 31, 2015, deferred rent receivable
– related party amounted to $493,375 and $367,013, respectively. In connection with these leases, the related party tenants
shall pay security deposits aggregating $60,000 payable in twelve monthly installments of $5,000 beginning September 1, 2015.
At March 31, 2016 and December 31, 2015, security deposits payable to related parties amounted to $45,000 and $26,250, respectively.
On February 16, 2016, the Company entered into a letter of intent to amend these related party leases (see Note 9).
(D)
Related party letter of intent
On
February 16, 2016, Chino Valley entered into the “Chino Valley LOI with C3C3 Group, LLC (the “Tenant”) and Broken
Arrow. Each of the Tenant and Broken Arrow are owned by a significant stockholder of the Company.
Pursuant
to the terms of the Chino Valley LOI, the parties agreed to amend the existing lease agreement, dated August 6, 2015, to provide
for the lease by Chino Valley to Tenant of approximately 45,000 square feet of space in Chino Valley, Arizona. The monthly rent
due, pursuant to the terms of the Chino Valley LOI, will be $70,833 beginning June 1, 2016 and $127,500 beginning August 1, 2016;
however, the increased rental revenue will be contingent upon the completion of the constructed expansion at the facility. In
subsequent years beginning August 1, 2017, there will be a 5% annual increase in the monthly rent. The parties identified a budget
of $2,000,000 for developing the property and constructing the tenant improvements. Through March 31, 2016, capitalized construction
in progress costs related to the China Valley LOI amounted to $146,166. The Chino Valley LOI and the Amendment to the lease agreement
shall be contingent upon: (a) the Company obtaining financing for the development of the premises and the construction of the
tenant improvements in such amount and on such terms and provisions as are acceptable to the Company in our sole and absolute
discretion from a lender approved by us in our sole discretion, and (b) approval by the Town of Chino Valley of the Phased Protected
Development Rights Plan. In the event that the contingencies have not been satisfied, this LOI shall terminate, and all of the
deposits, except for $100, shall be returned to Tenant.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
6 –
CONVERTIBLE NOTE PAYABLE
On
August 20, 2014, the Company received $500,000 from a stockholder pursuant to the terms of a Senior Convertible Debenture. The
Debenture bears interest at 7% and is payable monthly and the principal balance and any remaining unpaid interest is due on the
maturity date of August 20, 2017. The holder has the option after 12 months to convert all or a portion of the Debenture into
shares of the Company’s common stock at the conversion price of $5.00 per share. As of March 31, 2016 and December 31, 2015,
the principal balance due and owing under this Debenture is $500,000.
NOTE
7 –
MORTGAGE PAYABLE
On
March 7, 2014, the Company executed a $2,100,000 mortgage payable to acquire real estate having a carrying value of approximately
$4,600,000. The mortgage bears interest at 7.5%. Monthly interest only payments began April 7, 2014 and continue each month thereafter
until paid. The entire unpaid balance and accrued interest is due on March 7, 2019, the maturity date of the mortgage and is secured
by the underlying property. The mortgage terms do not allow participations by the lender in either the appreciation in the fair
value of the mortgaged real estate project or the results of operations of the mortgaged real estate project.
NOTE
8 –
STOCKHOLDERS’ EQUITY
(A)
Preferred Stock
On
December 13, 2013, the Board of Directors of the Company authorized and approved the creation of a new class of Preferred Stock
consisting of 5,000,000 shares authorized, $.001 par value. The preferred stock is not convertible into any other class or series
of stock. The holders of the preferred stock are entitled to fifty (50) votes for each share held. Voting rights are not subject
to adjustment for splits that increase or decrease the common shares outstanding. Upon liquidation, the holders of the shares
will be entitled to receive $1.00 per share plus redemption provision before assets distributed to other shareholders. The holders
of the shares are entitled to dividends equal to common share dividends. Once any shares of Preferred Stock are outstanding, at
least 51% of the total number of shares of Preferred Stock outstanding must approve the following transactions:
|
a.
|
Alter
or change the rights, preferences or privileges of the Preferred Stock.
|
|
|
|
|
b.
|
Create
any new class of stock having preferences over the Preferred Stock.
|
|
|
|
|
c.
|
Repurchase
any of our common stock.
|
|
|
|
|
d.
|
Merge
or consolidate with any other company, except our wholly-owned subsidiaries.
|
|
|
|
|
e.
|
Sell,
convey or otherwise dispose of, or create or incur any mortgage, lien, or charge or encumbrance
or security interest in or pledge of, or sell and leaseback, in all or substantially
all of our property or business.
|
|
|
|
|
f.
|
Incur,
assume or guarantee any indebtedness maturing more than 18 months after the date on which
it is incurred, assumed or guaranteed by us, except for operating leases and obligations
assumed as part of the purchase price of property.
|
(B)
Common stock issued for services
On
January 1, 2016, pursuant to an engagement letter dated in October 2015, the Company issued 3,750 shares of its common stock to
a Company majority owned by the Company’s CFO for services rendered. The shares were valued at their fair value of $10,500
or $2.80 per common share which was the fair value on the date of grant based on the value of services to be rendered. In connection
with these shares, in January 2016, the Company recorded stock-based compensation expense of $10,500.
On
January 27, 2016, the Company issued an aggregate of 30,000 shares of common stock to three members of the Company’s board
of directors (10,000 each) for services rendered. The shares were valued at their fair value of $135,000 using the quoted share
price on the dates of grant of $4.50 per common share. In connection with these shares, in January 2016, the Company recorded
stock-based compensation expense of $135,000.
On
February 1, 2016, pursuant to an engagement letter effective January 28, 2016, the Company agreed to issue an aggregate of 30,000
shares of its common stock to a company for architectural and design services to be rendered. Pursuant to the agreement, the Company
shall issue 10,000 shares of common stock immediately and 20,000 shares of common stock at the completion of the engagement. The
initial shares were valued at their aggregate fair value of $45,000 using the quoted share price on the date of grant of $4.50
per common share. In connection with the issuance of these shares, on February 1, 2016, the Company capitalized costs of $45,000
as part of construction in progress to be depreciated over the life of the building improvements. The Company shall value the
remaining 20,000 shares when issued using the quoted share price on the measurement date, which shall be the date that the services
are completed.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
8 –
STOCKHOLDERS’ EQUITY (continued)
(B)
Common stock issued for services (continued)
Effective
September 1, 2015, the Company entered into a one year consulting agreement with an investor relations firm for investor relations
services. In connection with this consulting agreement, the Company shall compensate the consultant for services rendered 1) cash
of $5,000 per month and 2) 7,500 restricted shares to be issued within the first thirty days of the contractual period and an
additional 7,500 shares of restricted stock to be issued at the end of month seven. In connection with this agreement, on March
31, 2016, the Company issued 7,500 shares of restricted stock. The shares were valued at their aggregate fair value of $40,050
using the quoted share price on the dates of grant of $5.34 per common share. Accordingly, the Company recorded consulting fees
of $40,050.
(C)
Equity Incentive Plan
On
October 1, 2014, the Board of Directors authorized the 2014 Equity Compensation Plan the (“Plan”), pursuant to which
the Company reserved 10,000,000 shares of common stock for issuance under the Plan. The number of shares of common stock available
for issuance under the Plan shall automatically increase on the first trading day of January each calendar year during the term
of the Plan, beginning with calendar year 2015, by an amount equal to one and one-half percent (1.5%) of the total number of shares
of common stock outstanding on the last trading day in December of the immediately preceding calendar year, but in no event shall
any such annual increase exceed 400,000 shares of common stock. If any shares of common stock that have been granted pursuant
to a stock option cease to be subject to a stock option, or if any shares of common stock that are subject to any other stock-based
award granted are forfeited or terminate, such shares shall again be available for distribution in connection with future grants
and awards under the Plan, The Plan’s purpose is to enable the Company to offer its employees, officers, directors and consultants
an opportunity to acquire a proprietary interest in the Company for their contributions. As of March 31, 2016, 1,550,000 options
have been granted pursuant to the Plan and 8,450,000 shares are available for future issuance.
(D)
Stock options granted pursuant to consulting and employment agreements
On
May 6, 2015, the Company entered into a 36-month consulting agreement with a stockholder for business advisory services. In connection
with this consulting agreement, the Company granted options to purchase 1,000,000 shares of the Company’s common stock at
an exercise price of $1.00 per share under the Plan. The options vest as to 125,000 of such shares on July 1, 2015 and for each
quarter thereafter through April 1, 2017, and expire on May 5, 2025 or earlier due to employment termination. The fair value of
this option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 0%; expected volatility of 120%; risk-free interest rate of 2.25%; and, an estimated holding period
of 10 years. In connection with these options, the Company valued these options at a fair value of $948,400 and will record stock-based
consulting expense over the vesting period. For the three months ended March 31, 2016 and 2015, the Company recorded consulting
expense of $111,901 and zero, respectively, related to these options.
In
connection with an employment agreement with a former officer of the Company, the Company granted options to purchase 300,000
shares of the Company’s common stock at an exercise price of $1.00 per share to the employee under the Plan. The options
vested as to 50,000 of such shares on August 1, 2015, and 50,000 options were to vest on May 1, 2016 and for each year thereafter
through May 1, 2020, and expire five years from the date of grant or earlier due to employment termination. The fair value of
these option grants was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 0%; expected volatility of 120%; risk-free interest rate of 1.50%; and, an estimated holding period
of 5 years. In connection with these options, the Company valued these options at a fair value of $248,100 and was recording stock-based
consulting expense over the vesting period. In January 2016, the employee resigned and the employment agreement was terminated.
Accordingly, on January 8, 2016, 250,000 non-vested options were cancelled. Accordingly upon termination, the Company reversed
all stock-based compensation previously recognized on the non-vested stock options of $62,944 which was reflected as a reduction
of compensation and benefits expense.
On
December 30, 2015, the Company granted the Company’s Chief Executive Officer and President an option (the “Option”),
pursuant to the Plan, to purchase 250,000 of the Company’s common stock at an exercise price of $1.00 per share. The grant
date of the Option was December 30, 2015 and the Options expire on December 30, 2026. The options vest as to 25,000 of such shares
on December 30, 2015, 25,000 options vest on December 30, 2016 and for each year thereafter through December 30, 2026. The fair
value of this option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0%; expected volatility of 120%; risk-free interest rate of 2.31%; and, an estimated
holding period of 10 years. In connection with these options, the Company valued these options at a fair value of $237,150 and
will record stock-based compensation expense over the vesting period. For the three months ended March 31, 2016 and 2015, the
Company recorded stock-based compensation expense of $16,772 and zero, respectively.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
8 –
STOCKHOLDERS’ EQUITY (continued)
(D)
Stock options granted pursuant to consulting and employment agreements (continued)
At
March 31, 2016, there were 1,300,000 options granted and 450,000 options vested and exercisable. As of March 31, 2016, there was
$379,107 of unvested stock-based compensation expense to be recognized through December 2024. The aggregate intrinsic value at
March 31, 2016 was approximately $5,642,000 and was calculated based on the difference between the quoted share price on March
31, 2016 and the exercise price of the underlying options.
Stock
option activities for the three months ended March 31, 2016 are summarized as follows:
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
(Years)
|
|
|
Aggregate Intrinsic Value
|
|
Balance Outstanding December 31, 2015
|
|
|
1,550,000
|
|
|
$
|
1.00
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(250,000
|
)
|
|
|
1,00
|
|
|
|
-
|
|
|
|
-
|
|
Balance Outstanding March 31, 2016
|
|
|
1,300,000
|
|
|
$
|
1.00
|
|
|
|
9.07
|
|
|
$
|
5,642,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2016
|
|
|
450,000
|
|
|
$
|
1.00
|
|
|
|
9.07
|
|
|
$
|
1,953,000
|
|
NOTE
9 –
COMMITMENTS AND CONTINGENCIES
Legal
matters
Holistic
Patient Wellness Group, LLC v. Zoned Properties, Inc.; Court Filed: Maricopa County Superior Court, Arizona; Case Number: CV2014-003047,
which has been consolidated with CV2014-005642; Date Filed: March 14, 2014
Holistic
Patient Wellness Group, LLC (“HPWG”) leased from the Company retail space in Tempe, Arizona to operate a medical marijuana
cultivation site. HPWG claims that we violated the terms of the lease for various reasons. On May 23, 2014, we concluded that
HPWG had breached the lease, and terminated the lease and retook possession of the property. On May 27, 2014, HPWG filed a petition
for an order to show cause, seeking an expedited ruling on its claim that we violated the terms of the stipulated preliminary
injunction. The court re-set the hearing multiple times, ultimately continuing it until March 17, 2015. On April 27, 2015, two
entities related to HPWG moved for leave to amend their answer and counterclaim to assert several new claims against new parties,
including us. On June 2, 2015, the court
sua sponte
denied the motion. On August 17, 2015, the court granted a renewed
request made by the two entities related to HPWG to move for leave to amend their answer and counterclaim, but expressly afforded
us an opportunity to respond in opposition to such a motion. On October 20, 2015, HPWG filed a motion to enforce a purported settlement
agreement with the Company and to dismiss its claims against us. The Company responded in opposition to the motion, because (i)
the mutual release in the purported settlement agreement was too broad in its scope, and (ii) the Company wanted to preserve its
right to seek an award of attorney’s fees and costs against HPWG. On February 1, 2016, the Court granted HPWG’s motion
to enforce the settlement agreement and to dismiss the claims against the Company, each party to bear its own attorneys’
fees and costs. As of March 17, 2016, the Company submitted its proposed form of judgment, which was accepted by the Court dismissing
the Company from the lawsuit. The Company has no financial obligations to HPWG as result of the settlement and dismissal. While
the Company no longer is a party to the lawsuit, related claims are still pending among other parties in the lawsuit.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
9 –
COMMITMENTS AND CONTINGENCIES (continued)
Legal
matters (continued)
Healing
Healthcare 3, Inc.; Xingang, LLC v. v. Zoned Properties, Inc., et al.; Court Filed: Maricopa County Superior Court, Arizona; Case
Number: CV2015-012264; Date Filed: October 21, 2015.
In
lieu of filing an amended complaint in
Holistic Patient Wellness Group, LLC v. Zoned Properties, Inc.; Court Filed: Maricopa
County Superior Court, Arizona; Case Number: CV2014-00304
(see above), Healing Healthcare 3, Inc. (“HH3”) and
Xingang, LLC filed a new complaint against the Company, President and CEO Bryan McLaren, Board member Alex McLaren, and wholly-owned
subsidiary Tempe Industrial Properties, LLC, among others. As in the prior action, the complaint concerns the Company’s
lease of space in Tempe, Arizona to operate a medical marijuana cultivation site. HH3 and Xingang claim that the Company and its
related parties violated the terms of the lease for various reasons. On May 23, 2014, the Company concluded that the lease had
been breached, and terminated the lease and retook possession of the property. Plaintiffs have asserted various contract and tort
claims against the Company and its related parties, and seeks $10,000 per day “for each day that the Company remained in
possession of the Tempe Property in violation of the Lease,” attorneys’ fees and costs, treble damages, punitive damages,
and interest. The complaint was served on the Company and its related parties on February 17, 2016. On March 8, 2016, the Company
filed a motion to transfer the lawsuit to the Honorable Judge James T. Blomo, and to consolidate the lawsuit with the First Lawsuit,
because: (i) Judge Blomo has presided over the First Lawsuit and is familiar with the issues raised by the complaint; and (ii)
related claims still are pending in the First Lawsuit. On the same day, the Company, Bryan McLaren, Alex McLaren, and TIP (the
“Moving Parties”) also filed a motion to dismiss the claims asserted against them in the complaint, with prejudice,
on various grounds. On March 23, 2016, Judge Blomo denied the Company’s motion to transfer and consolidate. On April 14,
2016, Judge Brodman granted in part, and denied in part, the motion to dismiss. In sum, the court granted the dismissal of the
contract claims against the McLarens without leave to amend; denied the dismissal of the two contract claims against the Company
and TIP; and granted the dismissal of the remaining tort claims, subject to leave to amend the complaint within 20 days of the
order. If an amended complaint is not filed within 20 days, the tort claims are dismissed with prejudice. On May 5, 2016, HH3
and Xingang filed an amended complaint, which no longer names Alex McLaren as a defendant but otherwise purports to maintain the
same claims. The Company’s response to the amended complaint is due May 24, 2016.
In
a letter dated February 4, 2016, the Company’s former Chief Operating Officer (“COO”), through legal counsel,
made a written demand on the Company related to her resignation on December 29, 2015. In her letter, the COO alleges, among other
things, that we refused to establish a bonus program for the COO as had been represented to her before she joined the Company,
that she was not allowed to perform her duties, and that she was subject to “mistreatment” by the Chief Executive
Officer. The COO has demanded $500,000 to settle her purported claims. On February 18, 2016, the Company responded to the COO’s
written demand, denied all liability, and offered an additional one-month of severance pay (approximately $8,350) in exchange
for a full release to settle the dispute. On March 29, 2016, Ms. Haugland rejected the Company’s settlement offer without
making a counter-offer, and proposed that the parties participate in mediation. On April 8, 2016, the Company rejected Ms. Haugland’s
proposal for mediation, and re-urged its original settlement offer. Ms. Haugland’s deadline to respond was April 15, 2016.
As of the date of this report, no response has been received by Ms. Haugland.
In
a letter dated April 4, 2016, a shareholder of the Company, Greentree Financial Group, Inc. (“Greentree”), through
legal counsel, made a demand on the Company related to a certain reverse-stock split that occurred following changes in the composition
of the Company’s officers and directors in 2014. In its letter, Greentree alleges, among other things, that: the reverse-stock
split was designed to dilute existing Company interests of existing shareholders and to further entrench new management’s
control over the Company. Greentree has demanded that the board of directors bring a legal action against certain officers and
directors and against the Company’s transfer agent for various alleged violations of federal and state law. Greentree has
indicated its intent to file a putative shareholder derivative action if its demand is not accepted. The Company is in the process
of evaluating Greentree’s demand and formulating a response.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
9 –
COMMITMENTS AND CONTINGENCIES (continued)
Rental
property acquisitions
On
March 15, 2016, the Company entered into a letter of intent (the “Catalina Partners LOI”) with Catalina Partners III
LLC (“Catalina Partners”) and Catalina Hills Botanical Care, Inc. (“Catalina Hills”) pursuant to which
the parties agreed to work together in good faith to mutually agree on the terms of a lease agreement to be entered into by the
parties. Pursuant to the terms of the Catalina Partners LOI, the parties will execute a lease agreement consistent with the terms
of the Catalina Partners LOI no later than 90 days after execution of the Catalina Partners LOI. The lease agreement will provide
for the lease of approximately 25,000 square feet of space (the “Premises”) by us to Catalina Partners. The Company
agreed to grant Catalina Partners an option to lease an additional 15,000 square feet of adjacent space. The parties agreed that
our total projected budget for constructing Catalina Partners’ improvements and developing the Premises is an amount equal
to or less than $2,500,000, with such additional amounts subject to approval by Catalina Partners. The cost of Catalina Partners’
improvements will be paid by the Company. The Catalina Partners LOI and execution of the lease agreement are subject to certain
contingencies, including that the Company must obtain commercially reasonable financing for the development of the Premises and
the construction of Catalina Partners’ improvements, acquisition by the Company of written approval of all due diligence
and underwriting matters required by the Company and/or the Company’s lender, acquisition of necessary zoning and land use
entitlements, and Catalina Partners’ obtaining written approval from AZDHS of approval to operate the Premises as a medical
marijuana cultivation and production facility on behalf of Catalina Hills. Certain individuals agreed to personally guarantee
the Catalina Partners lease agreement.
NOTE
10 –
CONCENTRATIONS
Rental
income and rent receivable – related parties
During
2014, the Company entered into lease agreements with non-profit companies whose director is a beneficial stockholder of the Company.
Additionally, during year ended December 31, 2015, the Company entered into lease agreements with companies owned by this beneficial
stockholder of the Company. For the three months ended March 31, 2016 and 2015, rental revenue associated with these leases amounted
to $345,526 and $145,111, respectively. For the three months ended March 31, 2016 and 2015, rental income - related parties represents
85.0% and 63.8% of total revenues, respectively. At March 31, 2016 and December 31, 2015, deferred rent receivable – related
parties amounted to $129,333 and $367,013, respectively. A reduction in sales from or loss of such related party leases would
have a material adverse effect on our consolidated results of operations and financial condition.
NOTE
11 –
SUBSEQUENT EVENTS
Rental
property acquisitions
On
April 22, 2016, Zoned Colorado Properties, LLC (“Zoned Colorado”), a wholly owned subsidiary of the Company, entered
into a Contract to Buy and Sell Real Estate (Commercial) (the “Agreement”) with Parachute Development Corporation
(“Seller”) pursuant to which Zoned Colorado agreed to purchase, and Seller agreed to sell, property in Parachute,
Colorado (the “Property”) for a purchase price of $499,857. Of the total purchase price, $274,857, or 55%, will be
paid in cash at closing and $225,000, or 45%, will be financed by Seller at an interest rate of 6.5%, amortized over a five-year
period, with a balloon payment at the end of the fifth year. Payments will be made monthly and there will be no pre-payment penalty.
Pursuant
to the terms of the Agreement, the parties will cooperate in good faith to complete due diligence during a period of 45 days following
execution of the Agreement. The closing is subject to certain contingencies, including that Zoned Colorado must obtain acceptable
financing for the purchase and development of the property, the grant of a special use permit by the Town of Parachute, approval
of a protected development deal or equivalent agreement by the Town of Parachute, execution of a lease agreement by a prospective
tenant and the prospective tenant’s obtaining a license to cultivate on the property. Pursuant to the terms of the Agreement,
Zoned Colorado will have a right of first refusal on eleven additional lots owned by Seller in Parachute, Colorado. In April 2016,
we paid a refundable deposit of $45,000 into escrow in connection with the Agreement.
ZONED
PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2016
NOTE
11 –
SUBSEQUENT EVENTS (continued)
Common
shares issued
On
April 1, 2016, pursuant to an engagement letter dated in October 2015, the Company issued 3,750 shares of its common stock to
a Company majority owned by the Company’s CFO for services rendered. The shares were valued at their fair value of $20,025
using the quoted share price on the dates of grant of $5.34 per common share. Accordingly, the Company recorded compensation expense
of $20,025.
Legal
matters
In
a letter dated April 4, 2016, a shareholder of the Company, Greentree Financial Group, Inc. (“Greentree”), through
legal counsel, made a demand on the Company related to a certain reverse-stock split that occurred following changes in the composition
of the Company’s officers and directors in 2014. In its letter, Greentree alleges, among other things, that: the reverse-stock
split was designed to dilute existing Company interests of existing shareholders and to further entrench new management’s
control over the Company. Greentree has demanded that the board of directors bring a legal action against certain officers and
directors and against the Company’s transfer agent for various alleged violations of federal and state law. Greentree has
indicated its intent to file a putative shareholder derivative action if its demand is not accepted. The Company is in the process
of evaluating Greentree’s demand and formulating a response.
ZONED
PROPERTIES, INC.
1,185,012 Shares of
Common
Stock
PROSPECTUS
May 27, 2016
Until June 21, 2016 (the
25
th
day after the date of this prospectus), all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’
obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or
subscriptions.
PART
II - INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses
incurred or expected relating to this prospectus and distribution are as follows:
|
|
Amount to be Paid
|
|
Securities and Exchange Commission registration fee
|
|
$
|
431
|
|
Transfer agent fees
|
|
|
-
|
|
Printing and engraving expenses
|
|
|
-
|
|
Accounting fees and expenses
|
|
|
-
|
|
Legal fees and expenses
|
|
|
20,000
|
|
Blue sky fees and expenses
|
|
|
-
|
|
Miscellaneous
|
|
|
-
|
|
Total
|
|
$
|
20,431
|
|
All
amounts are estimates, except the Securities and Exchange Commission (“SEC”) registration fee. We are paying all expenses
of the offering listed above.
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
only statue, charter provision, by-law, contract, or other arrangement under which any controlling person, director or officers
of the Registrant is insured or indemnified in any manner against any liability which he may incur in his capacity as such, is
as follows:
Our
certificate of incorporation limits the liability of our directors and officers to the maximum extent permitted by Nevada law.
Nevada law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary
duties as directors, except liability for: (i) breach of the directors’ duty of loyalty; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law, (iii) the unlawful payment of a dividend or unlawful
stock purchase or redemption, and (iv) any transaction from which the director derives an improper personal benefit. Nevada law
does not permit a corporation to eliminate a director’s duty of care, and this provision of our certificate of incorporation
has no effect on the availability of equitable remedies, such as injunction or rescission, based upon a director’s breach
of the duty of care.
The
effect of the foregoing is to require us to indemnify our officers and directors for any claim arising against such persons in
their official capacities if such person acted in good faith and in a manner that he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful. At present, the Company does not maintain any officers’ and directors’
liability insurance coverage.
Insofar
as indemnification for liabilities may be permitted to our directors, officers and controlling persons pursuant to the foregoing
provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy and
is, therefore, unenforceable.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES
Date
|
|
Name
of Person or Entity
|
|
Nature
of Each Offering
|
|
Juris-diction
|
|
Number
of shares offered
|
|
Number
of Shares sold
|
|
Price
shares were offered
|
|
Amount
paid to the Issuer
|
|
Trading
Status of the shares
|
|
Legend
|
1/8/14
|
|
5 investors
|
|
Section 4(a)2
|
|
AZ
|
|
8,333
|
|
8,333
|
|
Mortgage receivables
|
|
Mortgage receivables
|
|
Restricted
|
|
Yes
|
1/8/14
|
|
Consultant
|
|
Rule 144
|
|
AZ
|
|
83
|
|
83
|
|
For Services
|
|
For Services
|
|
Restricted
|
|
Yes
|
1/22/14
|
|
Individual Resident
|
|
Rule 144
|
|
AZ
|
|
139
|
|
139
|
|
For land
|
|
For land
|
|
Restricted
|
|
Yes
|
3/4/14
|
|
Multiple Parties
(1)
|
|
Rule 506
|
|
N/A
|
|
48,808
|
|
48,808
|
|
$120.00
|
|
$5,857,000
|
|
Restricted
|
|
Yes
|
3/4/14
|
|
Consultants
|
|
Rule 144
|
|
N/A
|
|
11.750
|
|
11,750
|
|
For Services
|
|
For Services
|
|
Restricted
|
|
Yes
|
7/28/14
|
|
Multiple Parties
(1)
|
|
Rule 506
|
|
N/A
|
|
16,637,000
|
|
16,637,000
|
|
$.01
|
|
$166,370
|
|
Restricted
|
|
Yes
|
5/27/14
|
|
Paris Balaouras
|
|
Section 4(a)(2)
|
|
NV
|
|
2,083
|
|
2,083
|
|
N/A
|
|
N/A
|
|
Restricted
|
|
Yes
|
7/22/14
|
|
Gregory Johnston
|
|
Rule 506
|
|
WA
|
|
1,000,000
Preferred
|
|
1,000,000 Preferred
|
|
.001
|
|
$1,000
|
|
Restricted
|
|
Yes
|
7/22/14
|
|
McLaren Family LLLP
(2)
|
|
Rule 506
|
|
AZ
|
|
1,000,000
Preferred
|
|
1,000,000 Preferred
|
|
.001
|
|
$1,000
|
|
Restricted
|
|
Yes
|
8/22/14
|
|
Multiple Parties
(3)
|
|
Rule 506
|
|
N/A
|
|
1,700,000
|
|
1,700,000
|
|
$1.00
|
|
$1,700,000
|
|
Restricted
|
|
Yes
|
12/15/14
|
|
Multiple Parties
(4)
|
|
Rule 506
|
|
N/A
|
|
150,000
|
|
150,000
|
|
$1.00
|
|
$150,000
|
|
Restricted
|
|
Yes
|
1/10/15
|
|
Multiple Parties
(5)
|
|
Section 4(a)(2)
|
|
N/A
|
|
30,000
|
|
30,000
|
|
$1.00
|
|
For Services
|
|
Restricted
|
|
Yes
|
5/1/15
|
|
Patricia Haugland
|
|
Section 4(a)(2)
|
|
N/A
|
|
15,000
|
|
15,000
|
|
$1.00
|
|
For Services
|
|
Restricted
|
|
Yes
|
5/6/15
|
|
Newbridge Financial,
Inc.
(6)
|
|
Rule 506
|
|
N/A
|
|
500,000
|
|
500,000
|
|
$1.00
|
|
$500,000
|
|
Restricted
|
|
Yes
|
5/6/15
|
|
Phillip B. Kenny Trust
|
|
Rule 506
|
|
N/A
|
|
500,000
|
|
500,000
|
|
$1.00
|
|
$500,000
|
|
Restricted
|
|
Yes
|
6/16/15
|
|
Vincent Cunzio
|
|
Rule 506
|
|
N/A
|
|
45,000
|
|
45,000
|
|
$1.00
|
|
Settlement
|
|
Restricted
|
|
Yes
|
6/16/15
|
|
PCSR&P Holdings, LLC
|
|
Rule 506
|
|
N/A
|
|
5,000
|
|
5,000
|
|
$1.00
|
|
Settlement
|
|
Restricted
|
|
Yes
|
7/31/15
|
|
Kimberly Anderson
|
|
Section 4(a)(2)
|
|
N/A
|
|
2,500
|
|
2,500
|
|
$1,00
|
|
For Services
|
|
Restricted
|
|
Yes
|
9/30/15
|
|
Hayden IR
|
|
Section 4(a)(2)
|
|
N/A
|
|
7,500
|
|
7,500
|
|
$1,00
|
|
For Services
|
|
Restricted
|
|
Yes
|
10/20/15
|
|
Doug Reed
|
|
Section 4(a)(2)
|
|
N/A
|
|
1,000
|
|
1,000
|
|
$1.00
|
|
For Services
|
|
Restricted
|
|
Yes
|
10/20/2015
|
|
CFO Oncall, Inc.
|
|
Section 4(a)(2)
|
|
N/A
|
|
19,600
|
|
19,600
|
|
$1.00
|
|
For Services
|
|
Restricted
|
|
Yes
|
2/15/2016
|
|
CFO OnCall, Inc.
|
|
Section 4(a)(2)
|
|
N/A
|
|
3,750
|
|
3,750
|
|
$1.00
|
|
For Services
|
|
Restricted
|
|
Yes
|
1/27/2016
|
|
Members of Board of Directors
(Messrs. McLaren, Rosenfeld and Friedman)
|
|
Section 4(a)(2)
|
|
N/A
|
|
30,000 (10,000 shares each)
|
|
30,000 (10,000 shares each)
|
|
$1.00
|
|
For Services
|
|
Restricted
|
|
Yes
|
2/10/2016
|
|
Unrelated third party
|
|
Section 4(a)(2)
|
|
N/A
|
|
10,000
|
|
10,000
|
|
$2.17
|
|
For Services
|
|
Restricted
|
|
Yes
|
4/1/2016
|
|
Hayden IR
|
|
Section 4(a)(2)
|
|
N/A
|
|
7,500
|
|
7,500
|
|
$1.00
|
|
For Services
|
|
Restricted
|
|
Yes
|
4/1/2016
|
|
CFO OnCall, Inc.
|
|
Section 4(a)(2)
|
|
N/A
|
|
3,750
|
|
3,750
|
|
$1.00
|
|
For Services
|
|
Restricted
|
|
Yes
|
(1)
|
Company issued stock to
52 investors under a rule 506(b) private placement offering.
|
(2)
|
McLaren Family LLLP’s general partner is Alex C. McLaren, a director and the father of the Company’s President
and CEO, Bryan McLaren.
|
(3)
|
Company issued stock to four investors under a rule 506(b) private placement offering.
|
(4)
|
Company issued stock to three investors under rule 506(b) private placement offering.
|
(5)
|
Company issued stock to three board members as compensation for services.
|
(6)
|
Newbridge Financial, Inc.’s Executive Chairman is Guy Amico.
|
ITEM
16. EXHIBITS.
See
the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement
on Form S-1, which Exhibit Index is incorporated herein by reference.
|
(b)
|
Financial
Statement Schedules.
|
None.
ITEM
17. Undertakings.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
(a)
Rule 415 Offering. The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-1 and has caused this registration statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale, State of Arizona, on May 27, 2016.
|
Zoned
Properties, Inc.
|
|
|
|
|
By:
|
/s/
Bryan McLaren
|
|
|
Bryan
McLaren
|
|
|
President
|
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the
capacities indicated on May 27, 2016.
Signature
|
|
Title
|
|
|
|
/s/
Bryan McLaren
|
|
President
and Director
|
Bryan
McLaren
|
|
(principal
executive officer)
|
|
|
|
*
|
|
Chief
Financial Officer
|
Adam
Wasserman
|
|
(principal
financial and accounting officer)
|
|
|
|
*
|
|
Director
|
Irvin
Rosenfeld
|
|
|
|
|
|
*
|
|
Director
|
Art
Friedman
|
|
|
|
|
|
*
|
|
Director
|
Alex
McLaren
|
|
|
*
|
By:
|
/s/ Bryan McLaren
|
|
|
|
Bryan McLaren
|
|
|
|
Attorney-in-fact
|
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
of Exhibit
|
3.1
|
|
Articles
of Incorporation, as amended, of Zoned Properties, Inc. (incorporated by reference to Exhibit 3.1 to the registrant’s
registrant statement on Form S-1 filed with the Securities and Exchange Act Commission (the “Commission”) on November
25, 2015).
|
3.2
|
|
Bylaws
of Zoned Properties, Inc. (incorporated by reference to Exhibit 3.2 to the registrant’s registrant statement on Form
S-1 filed with the Commission on November 25, 2015).
|
5.1*
|
|
Opinion
of the Law Office of Legal & Compliance, LLC.
|
10.1+
|
|
Employment
Agreement dated as of July 31, 2014 by and between the registrant and Bryan McLaren (incorporated by reference to Exhibit
10.1 to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.2+
|
|
Board
Member Agreement dated as of October 1, 2014 by and between the registrant and Alex McLaren (incorporated by reference to
Exhibit 10.3 to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.3+
|
|
Board
Member Agreement dated as of October 1, 2014 by and between the registrant and Art Friedman (incorporated by reference to
Exhibit 10.4 to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.4+
|
|
Board
Member Agreement dated as of August 1, 2014 by and between the registrant and Irvin Rosenfeld (incorporated by reference to
Exhibit 10.5 to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.5
|
|
Standard
Industrial Commercial Multi-Tenant Lease - Gross dated as of April 1, 2015 by and between the registrant and Tech Group North
America, Inc. (incorporated by reference to Exhibit 10.6 to the registrant’s registrant statement on Form S-1 filed
with the Commission on November 25, 2015).
|
10.6
|
|
Lease
dated as of August 6, 2015 by and between Chino Valley Properties, LLC and CCC Holdings, LLC (incorporated by reference to
Exhibit 10.7 to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.7
|
|
First
Amendment to Commercial Lease Agreement dated September 25, 2015 by and among Chino Valley Properties, LLC, CCC Holdings,
LLC and Alan Abrams (incorporated by reference to Exhibit 10.8 to the registrant’s registrant statement on Form S-1
filed with the Commission on November 25, 2015).
|
10.8
|
|
Lease
dated as of August 15, 2015 by and between the registrant and CCC Holdings, LLC (incorporated by reference to Exhibit 10.9
to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.9
|
|
First
Amendment to Commercial Lease Agreement dated September 25, 2015 by and among the registrant, CCC Holdings, LLC and Alan Abrams
(incorporated by reference to Exhibit 10.10 to the registrant’s registrant statement on Form S-1 filed with the Commission
on November 25, 2015).
|
10.10
|
|
Lease
Agreement dated as of October 1, 2014 by and between Green Valley Group, LLC and Broken Arrow Herbal Center, Inc. (incorporated
by reference to Exhibit 10.11 to the registrant’s registrant statement on Form S-1 filed with the Commission on November
25, 2015).
|
10.11
|
|
Lease
dated as of October 1, 2014 by and between Kingman Property Group, LLC and CJK, Inc. (incorporated by reference to Exhibit
10.12 to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.12+
|
|
Agreement
dated as of October 1, 2015 by and between the registrant and CFO Oncall, Inc. (incorporated by reference to Exhibit 10.13
to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.13
|
|
$2.1
Million Promissory Note dated March 7, 2014 in favor of Investment Property Exchange Services, Inc. (incorporated by reference
to Exhibit 10.14 to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.14
|
|
Consulting
Service Agreement dated May 6, 2015 between registrant and Newbridge Financial, Inc. (incorporated by reference to Exhibit
10.15 to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.15
|
|
Stock
Option Grant Notice and Agreement between registrant and Newbridge Financial, Inc. (incorporated by reference to Exhibit 10.16
to the registrant’s registrant statement on Form S-1 filed with the Commission on November 25, 2015).
|
10.16
|
|
Deed
of Trust dated March 7, 2015 in favor of Investment Property Exchange Services, Inc. covering Tempe, AZ property (incorporated
by reference to Exhibit 10.17 to the registrant’s registrant statement on Form S-1 filed with the Commission on November
25, 2015).
|
10.17+
|
|
Stock
Option Grant Notice and Agreement dated December 20, 2015 between Zoned Properties, Inc. and Bryan McLaren (incorporated by
reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the Commission on January 7, 2016).
|
10.18
|
|
Binding
Letter of Intent dated as of February 16, 2016 between Chino Valley Properties, LLC, C3C3 Group, LLC and Broken Arrow Herbal
Center, Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the
Commission on February 18, 2016).
|
10.19
|
|
Binding
Letter of Intent dated as of February 17, 2016 between Zoned Colorado Properties, LLC and Parachute Development Corporation
(incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K filed with the Commission
on February 18, 2016).
|
10.20
|
|
Binding
Letter of Intent dated as of March 15, 2016 between Zoned Properties, Inc., Catalina Partners III LLC and Catalina Hills Botanical
Care, Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the
Commission on March 17, 2016).
|
10.21
|
|
Contract to Buy and Sell Real Estate (Commercial) entered into on April 21, 2016 between Zoned Colorado Properties, LLC and Parachute Development Corporation (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the Commission on April 22, 2016).
|
10.22
|
|
Binding Letter of Intent entered into on May 17, 2016 between Zoned Colorado Properties, LLC, American Green, Inc. and Herbal Elements, LLC (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the Commission on May 19, 2016).
|
23.1*
|
|
Consent
of Independent Registered Public Accounting Firm.
|
23.2*
|
|
Consent
of the Law Office of Legal & Compliance, LLC (included in Exhibit 5.1).
|
+
|
Management
contract or compensatory plan or arrangement.
|
*
|
Filed
herewith
|
II-5
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