What changed in this filing

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Item 9A. Controls and Procedures

2021-03-31 compared with 2020-03-26 · 876 added, 1002 removed, 1215 unchanged (61% of the section changed)

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over financial reporting was not effective.

The ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses which we identified

in our internal control over financial reporting:

(1) the lack of multiples levels of management review on complex accounting

and financial reporting issues, (2) we had not implemented adequate system and manual controls, and (3) a lack of adequate segregation

ineffectiveness of our disclosure controls and procedures was due to the following material weaknesses which we identified in

our internal control over financial reporting:

(1) the lack of multiples levels of management review on complex accounting and

financial reporting issues, (2) we had not implemented adequate system and manual controls, and (3) a lack of adequate segregation

of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result

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terms expire as of

the Annual Meeting and will serve until the 2020 Annual Meeting of Stockholders or until their successors are duly elected and

the Annual Meeting and will serve until their successors are duly elected and qualified.

forth below is certain information regarding our executive officers and directors.

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McLaren has a dedicated history of work in the sustainability industry and in business development.

to his appointment as President, CEO and a director of our company in 2014, Mr.

his appointment as President, CEO and a director of our company in 2014, Mr.

McLaren was recruited as our Chief Sustainability

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his current roles.

Friedman, who was appointed as a director in 2014, has served as Owner/Principal of Triple J Management

Services, which specializes in consulting and professional services for the alcoholic beverage industry.

recently President and CEO of Gold Coast Beverage Distributors, a position he held for the last 10 years of his 23 years with

During his tenure as President/CEO, Gold Coast more than tripled sales revenue and increased EBITDA by more than

Over the same period, Mr.

Friedman led significant market share gains through organic growth as well as

consolidating wholesaler acquisitions.

Friedman, who was appointed as a director in 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.

his tenure as President/CEO, Gold Coast more than tripled sales revenue and increased EBITDA by more than five-fold.

same period, Mr.

Friedman led significant market share gains through organic growth as well as consolidating wholesaler acquisitions.

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.

graduation Cum Laude with a Bachelor of Science in Business Management from the University of Florida, Warrington School of

He has served on the distributor advisory

councils of Diageo-Guinness, Heineken USA, InBev and Miller-Coors.

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.

Friedman’s service as a director at the Company since 2014 together with his business background, provides

business, governance, organizational and strategic planning expertise to our Board and makes him a valued member of the Audit

Committee, the Compensation Committee, which he chairs, and the Strategic Committee.

McLaren, who has served as a director since 2014, is an accomplished and well-known orthopedic surgeon,

professor and researcher.

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.

Friedman’s service as a director at the Company since

2014 together with his business background, provides business, governance, organizational and strategic planning expertise to

our Board and makes him a valued member of the Audit Committee, the Compensation Committee, which he chairs, and the Strategic

McLaren, who has served as a director since 2014, is an accomplished and well-known orthopedic surgeon, professor

and researcher.

He joined SharedClarity, LLC as Vice President of Clinical Outcomes in 2016.

From 2006 until 2016, Dr.

McLaren served as program director of the Banner University Medical Center-Phoenix (Ariz.) Residency Program in Orthopaedic Surgery.

He is the former director of Orthopaedic Education for Banner Good Samaritan Medical Center in Phoenix.

He was also the program

director of the Phoenix Orthopedic Residency Program at Maricopa County Medical Center between 1998 and 2000.

He has been in private

orthopedic surgery practice twice during his career in Phoenix.

After graduating from Queen’s University School of Medicine,

Kingston, Ontario, Canada in 1977, Dr.

McLaren completed an orthopedic residency at the University of Western Ontario in 1982

and a fellowship at the University of Southern California in 1983.

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.

served as program director of the Banner University Medical Center-Phoenix (Ariz.) Residency Program in Orthopaedic Surgery.

is the former director of Orthopaedic Education for Banner Good Samaritan Medical Center in Phoenix.

He was also the program director

of the Phoenix Orthopedic Residency Program at Maricopa County Medical Center between 1998 and 2000.

He has been in private orthopedic

surgery practice twice during his career in Phoenix.

After graduating from Queen’s University School of Medicine, Kingston,

Ontario, Canada in 1977, Dr.

McLaren completed an orthopedic residency at the University of Western Ontario in 1982 and a fellowship

at the University of Southern California in 1983.

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.

McLaren’s services provided to numerous organizations provides us with the requisite skills and qualifications

to serve on our board and as a member of the Compensation Committee and the Strategic Committee.

Honaman, who has served as a director since 2016, has served as Principal and CFO of Advanced Benefit

Solutions, Inc.

We believe that Dr.

McLaren’s

services provided to numerous organizations provides us with the requisite skills and qualifications to serve on our board and

as a member of the Compensation Committee and the Strategic Committee, which he chairs.

Honaman, who has served as a director since 2016, has served as Principal and CFO of Advanced Benefit Solutions,

(d/b/a 44 North), an insurance agent and consultant, since 2010.

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With his substantial business and management experience

for five years as a certified public accountant and an auditor at Ernst & Young LLP serving numerous public companies in various

business sectors, including insurance agencies, Mr.

Honaman provides relevant expertise on accounting, investment and financial

for five years as a certified public accountant and an auditor at Ernst & Young LLP serving numerous public companies

in various business sectors, including insurance agencies, Mr.

Honaman provides relevant expertise on accounting, investment and

financial matters.

His service as a chief financial officer at Advanced Benefit Solutions, Inc.

(d/b/a 44 North), Wilcox Associates, Inc.

(d/b/a 44 North), Wilcox Associates,

and Wolohan Lumber Co., together with his accounting and management experience, make him a valued member of our Board, Compensation

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Overstreet has served as a director since April 2017.

Overstreet co-founded Sonoran

Biosciences, Inc.

Overstreet co-founded Sonoran Biosciences,

and has served as its CEO since that time.

Sonoran Biosciences, Inc.

develops new sustained-release pharmaceutical

formulations for applications including orthopedic infection and postoperative pain management.

Overstreet holds a Bachelor’s

degree in Biomedical Engineering from Case Western Reserve University and a Doctoral degree in Biomedical Engineering from Arizona

State University.

His expertise is in the development of novel polymer-based materials for medical applications including drug

develops new sustained-release pharmaceutical formulations

for applications including orthopedic infection and postoperative pain management.

Overstreet holds a Bachelor’s degree

in Biomedical Engineering from Case Western Reserve University and a Doctoral degree in Biomedical Engineering from Arizona State

His expertise is in the development of novel polymer-based materials for medical applications including drug delivery.

He has authored 11 peer-reviewed scientific publications and two patent applications.

We believe that Dr.

Overstreet’s

experience navigating the scientific field of pharmaceuticals and drug delivery can be instrumental in assisting the strategic

development and implementation of the Zoned Properties’

Overstreet’s experience

navigating the scientific field of pharmaceuticals and drug delivery can be instrumental in assisting the strategic development

and implementation of the Zoned Properties’

business model.

Prior to 2012, Dr.

Overstreet was a post-doctoral

fellow at the Laboratory for Nanomedicine at the Barrow Neurological Institute.

Overstreet was a post-doctoral fellow at

the Laboratory for Nanomedicine at the Barrow Neurological Institute.

in Certain Legal Proceedings

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over its members or persons associated with a member.

Section 16(a) Reports

16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock

to file reports regarding ownership of, and transactions in, our securities with the SEC and to provide us with copies of those

Based solely on our review of the copies of such forms received by us, or written representations from certain reporting

persons we believe that during year ended December 31, 2019, all filing requirements applicable to our executive officers and

directors, and persons who own more than 10% of our common stock were complied with, except as follows:

Each of Messrs.

and Honaman, Dr.

McLaren and Dr.

Overstreet failed to file timely one Form 4 with respect to one transaction.

have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those

employees responsible for financial reporting.

The code of business conduct and ethics is available on our corporate website,

www.zonedproperties.com.

We intend to disclose any amendments to our code of business conduct and ethics, or waivers of its requirements,

on our website or in filings under the Exchange Act to the extent required by applicable rules and exchange requirements.

of our five board members are independent.

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30, 2021, the members and Chairs of our standing Board committees were:

Derek Overstreet

Non-Independent

Alex McLaren, MD

Audit Committee members are “independent”

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responsibilities of the Audit Committee are more fully described in the Audit Committee’s charter.

Audit Committee held four meetings during 2019.

Audit Committee held four meetings during the fiscal year ended December 31, 2020.

Compensation Committee members (except for Dr.

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business strategy analyses to the Board.

The Strategic Committee held one meeting during the fiscal year ended December 31, 2020.

the fourth quarter of the fiscal year ended December 31, 2020, there were no material changes to the procedures by which stockholders

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Summary Compensation Table

Name and principal position

Option Awards

and principal position

Incentive Plan

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Compensation $

Bryan McLaren,

Chief Executive Officer,

President and Chief Financial Officer (1)

December 30, 2015, we granted 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 Option expires on December 30, 2026.

vests as to 25,000 of such shares on December 30 th of each year beginning in 2015 and through 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

dividend yield of 0%;

expected volatility of 120%;

risk-free interest rate of 2.31%;

and, an estimated holding

period of 10 years.

The Company valued this option at a fair value of $237,150 and records stock-based compensation expense

over the vesting period.

For the years ended December 31, 2019 and 2018, we recorded stock-based compensation expense of $23,612

and $31,516, respectively.

Disclosure to Summary Compensation Table

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responsibilities following a change in control of the Company.

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 relative experience, qualifications, and growth with the Company.

McLaren’s

current salary is $214,500 per year.

May 23, 2018, the Company and Mr.

McLaren agreed to replace Mr.

McLaren’s 2014 employment agreement with a new employment

agreement dated May 23, 2018 (the “2018 Employment Agreement”).

Pursuant to the terms of the 2018 Employment Agreement,

the Company agreed to continue to pay Mr.

McLaren his current base annual salary of $214,500, and to award Mr.

McLaren with an

annual and/or quarterly bonus payable in either cash and/or equity of no less than 2% of the Company’s net income for the

associated period.

May 23, 2018, we entered into an employment agreement with Mr.

McLaren (the “2018 Employment Agreement”).

to the terms of the 2018 Employment Agreement, the Company agreed to continue to pay Mr.

McLaren a base annual salary of $214,500,

and to award Mr.

McLaren with an annual and/or quarterly bonus payable in either cash and/or equity of no less than 2% of the

Company’s net income for the associated period.

2018 Employment Agreement has a term of 10 years.

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following table sets forth information as options outstanding on December 31, 2020.

OUTSTANDING EQUITY AWARDS AT 2019 FISCAL YEAR-END

OPTION AWARDS

Number of Securities Underlying Unexercised options (#) Exercisable

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 ($)

EQUITY AWARDS AT 2020 FISCAL YEAR-END

Incentive Plan

Unexercisable

Incentive Plan

that have not

Bryan McLaren

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table below sets forth information as of December 31, 2020.

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))

Equity compensation plans approved by security holders

Equity compensation plans not approved by security holders

securities to

be issued upon

Weighted-average

exercise price of

outstanding options,

warrants and rights

available for

future issuance

compensation plans approved by security holders

compensation plans not approved by security holders

following table sets forth compensation paid, earned or awarded during 2020 to each of our directors, other than Bryan McLaren,

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Deficit”.

In January 2019, each of Mr.

Freidman and Dr.

In January 2020, Mr.

Freidman received 30,000

shares of restricted stock, Dr.

Overstreet received 20,000 shares of restricted stock, Dr.

McLaren received 35,000 shares of restricted stock and Mr.

received 25,000 shares of restricted stock.

McLaren received 35,000 shares

of restricted stock and Mr.

Honaman received 25,000 shares of restricted stock.

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

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person known by us to be the beneficial owner of more than 5% of our outstanding common stock.

As of March 26, 2020, there were 12,011,548

shares of our common stock outstanding and 2,000,000 shares of Preferred Stock outstanding.

of March 30, 2021, there were 12,141,548 shares of our common stock outstanding and 2,000,000 shares of Preferred Stock outstanding.

number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information

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an admission of beneficial ownership of those shares.

Name and Address of Beneficial Owner

Amount and Nature of

and Address of Beneficial Owner

Beneficial Ownership

Percent of Class

Named Executive Officers and Directors:

Bryan McLaren

Alex McLaren, MD

1,641,667 (2)

Derek Overstreet, PhD

All executive officers and directors as a group (five persons)

2,016,667 (5)

Other 5% Stockholders:

Named Executive Officers and

Alex McLaren,

Derek Overstreet,

All executive

officers and directors as a group (five persons)

Stockholders:

Greg Johnston

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190,000 vested stock options.

Name and Address of Beneficial Owner

Shares of Preferred Stock Beneficially Owned

Percent of Class Beneficially Owned

Percent of Voting Power (1)

and Address of Beneficial Owner

Preferred Stock

Percent of Class

Greg Johnston

c/o Zoned Properties, Inc.

87 th Street, #205

Scottsdale, AZ 85260

c/o Zoned Properties, Inc.

87 th Street, #205

Scottsdale, AZ 85260

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Johnston and Dr.

the ability to control the outcome of all matters submitted to a vote of stockholders, including the election of directors.

percent of voting power in the table gives effect to the holder’s beneficial ownership of common stock and preferred stock.

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

Johnston’s common stockholdings, Mr.

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are held by McLaren Family LLLP.

McLaren is the general partner of McLaren Family LLLP and has voting and dispositive power

over such shares.

McLaren is the general partner of McLaren Family LLLP and has voting and dispositive

power over such shares.

McLaren’s common stockholdings, Dr.

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the maturity date of the Abrams Debenture from January 9, 2022 until January 9, 2030.

Related Party Lease Agreements

2014, the Company entered into lease agreements with non-profit companies, CJK and Broken Arrow for its properties located in

Kingman, AZ and Green Valley, AZ, respectively.

CJK and Broken Arrow, which was owned at the time of the transaction, in whole

or in part, directly or indirectly, by Messrs.

Abrams and Carra, each of whom was a significant stockholder of the Company.

Kingman, AZ lease commenced on October 1, 2014 and was to expire on September 30, 2024 with a base monthly rent of $10,000, subject

to a 5% annual increases during the lease term (the “Prior Kingman Lease”).

The Green Valley, AZ lease commenced on

October 1, 2014 and was to expire on September 30, 2024 with a base monthly rent of $7,500, subject to a 5% annual increases during

the lease term (the “Prior Green Valley Lease”).

These leases were cancelled and new leases were executed on May 1,

August 2015, the Company entered into a lease agreement with C3C3 to lease space in Tempe, Arizona.

The Tempe lease commenced

on September 1, 2015, was amended on September 1, 2016 and October 1, 2017, and was to expire on July 31, 2035 with base monthly

rent of $13,500, subject to a 5% annual increase through July 31, 2023 and base rent of $67,460 per month from August 1, 2023

to the end of the lease term, and increases in rental area up to 30,000 square feet (together, the “Prior Tempe Leases”).

This lease was cancelled and a new lease was executed on May 1, 2018.

August 2015, the Company entered into a lease agreement with C3C3 to lease space in Chino Valley, Arizona (the “Prior Chino

Valley Lease”).

The Prior Chino Valley Lease commenced on August 1, 2015, was amended on October 10, 2016 and on March 31,

2017, and was to expire on July 31, 2035 with an initial base monthly rent of $30,000, subject to an annual increase and other

base rent increases due to the expansion of leased space through July 2024 and base rent of $91,462 per month from August 2024

to the end of the lease term, and increases in rental area to 35,000 square feet.

Additionally, pursuant to the March 30, 2017

amendment, the Company agreed to defer rent and applicable taxes due for March, April and May 2017 in the form of a note receivable

to C3C3 at an 8% interest rate commencing March 1, 2017 and payable over 12 months commencing January 1, 2018.

This lease was

cancelled and a new lease was executed on May 1, 2018.

June 15, 2017 and effective July 1, 2017, the Company entered into a lease agreement with AC Management Group, LLC (also known

as Hana Meds and who has an exclusive management agreement with Broken Arrow and CJK) to lease office space in Tempe, Arizona

(the “Hana Meds Lease”).

The Hana Meds Lease commenced on July 1, 2017 and was to expire on June 30, 2022 with a base

monthly rent of $1,800 starting on October 1, 2017.

This lease was cancelled on May 1, 2018.

March 1, 2018, the Company and Alan Abrams entered into a Reaffirmation Agreement related to the personal guarantee.

Related Party & Significant Tenant Lease Agreements

May 1, 2018, the Company and C3C3, Hana Meds, CJK and Broken Arrow cancelled their existing lease agreements.

Also on May 1, 2018,

the Company entered into new lease agreements relating to the same properties and confidential advisory services agreements with

CJK and Broken Arrow.

Each of the new lease agreements include a Guarantee of Payment and Performance by Alan Abrams and the respective

tenant entities.

May 1, 2018, Chino Valley, a wholly owned subsidiary of the Company, and Broken Arrow agreed to terminate the Prior Chino Valley

Lease dated April 6, 2015, as amended, in consideration of (i) entry into that certain Licensed Medical Marijuana Facility Triple

Net (NNN) Lease Agreement dated May 1, 2018 between Chino Valley and Broken Arrow (the “New Chino Valley Lease”),

with a term of 22 years, expiring April 30, 2040, and (ii) abatement of rent that would otherwise have been due for the month

of April under the Prior Chino Valley Lease.

The New Chino Valley Lease provides for payment by Broken Arrow of a fixed monthly

base rent of $35,000, as well as real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or other

taxes (excluding income or estate taxes) levied upon or assessed against Chino Valley.

In addition, pursuant to the terms of the

New Chino Valley Lease, Broken Arrow agreed to maintain insurance in full force during the term of the New Chino Valley Lease

and any other period of occupancy of the premises by Broken Arrow.

Broken Arrow, which was owned at the time of the transaction,

in whole or in part, directly or indirectly, by Messrs.

Abrams and Carra, each of whom was a significant stockholder of the Company

through December 31, 2018.

May 1, 2018, Green Valley, a wholly owned subsidiary of the Company, and Broken Arrow agreed to terminate the Prior Green Valley

Lease dated October 1, 2014, in consideration of (i) entry into that certain Licensed Medical Marijuana Facility Triple Net (NNN)

Lease Agreement dated May 1, 2018 between Green Valley and Broken Arrow (the “New Green Valley Lease”), with a term

of 22 years, expiring April 30, 2040, and (ii) abatement of rent that would otherwise have been due for the month of April under

the Prior Green Valley Lease.

The New Green Valley Lease provides for payment by Broken Arrow of a fixed monthly base rent of

$3,500, as well as real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or other taxes (excluding

income or estate taxes) levied upon or assessed against Chino Valley.

In addition, pursuant to the terms of the New Green Valley

Lease, Broken Arrow agreed to maintain insurance in full force during the term of the New Green Valley Lease and any other period

of occupancy of the premises by Broken Arrow.

May 1, 2018, Zoned Arizona, a wholly owned subsidiary of the Company, Hana Meds and CJK agreed to terminate the Prior Tempe Leases

dated August 15, 2015, as amended, and June 15, 2017, in consideration of (i) entry into that certain Licensed Medical Marijuana

Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 between Zoned Arizona and CJK (the “New Tempe Lease”),

with a term of 22 years, expiring April 30, 2040, and (ii) abatement of rent that would otherwise have been due for the month

of April under the Prior Tempe Leases.

The New Tempe Lease provides for payment by CJK of a fixed monthly base rent of $33,500,

as well as real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or other taxes (excluding income

or estate taxes) levied upon or assessed against Zoned Arizona.

In addition, pursuant to the terms of the New Tempe Lease, CJK

agreed to maintain insurance in full force during the term of the New Tempe Lease and any other period of occupancy of the premises

CJK, which was owned at the time of the transaction, in whole or in part, directly or indirectly, by Messrs.

Carra, each of whom was a significant stockholder of the Company through December 31, 2018.

May 1, 2018, Kingman, a wholly owned subsidiary of the Company, and CJK agreed to terminate the Prior Kingman Lease dated October

1, 2014, in consideration of (i) entry into that certain Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement

dated May 1, 2018 between Kingman and CJK (the “New Kingman Lease”), with a term of 22 years, expiring April 30, 2040,

and (ii) abatement of rent that would otherwise have been due for the month of April under the Prior Kingman Lease.

The New Kingman

Lease provides for payment by CJK of a fixed monthly base rent of $4,000, as well as real property taxes, personal property taxes,

privilege, sales, rental, excise, use and/or other taxes (excluding income or estate taxes) levied upon or assessed against Kingman.

In addition, pursuant to the terms of the New Kingman Lease, CJK agreed to maintain insurance in full force during the term of

the New Kingman Lease and any other period of occupancy of the premises by CJK.

New Tempe Lease, New Kingman Lease, New Chino Valley Lease and New Green Valley includes a Guarantee of Payment and Performance

Abrams and the respective tenant entities.

December 31, 2018, each of Messrs.

Abrams and Carra was a significant stockholder of the Company.

Company’s Prior Leases contained rental increases at specified intervals.

Accordingly, through April 30, 2018, rental income

includes base rents that each tenant pays in accordance with the terms of its respective lease and was reported on a straight-line

basis over the term of the Old Lease, which included the effects of rent abatements under the leases.

Through April 30, 2018,

the Company recorded as an asset, and included 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.

At December 31, 2017, deferred rents receivable in

the accompanying consolidated balance sheets include the cumulative difference between rental revenue recorded on a straight-line

basis and rents received from the tenants in accordance with the lease terms.

Based on the terms in the New Lease agreements discussed

above, the New Leases do not contain rental increases at specified intervals and base rent revenue will be constant over the New

Accordingly, on May 1, 2018, the Company wrote off its deferred rent receivable in the amounts of $1,853,539 and

recorded a write-off of deferred rent receivable –

related parties of $1,853,539.

the years ended December 31, 2018, rental income associated with all related party leases amounted to $1,186,775.

January 1, 2019, the Company, Christopher Carra, Alan Abrams, Clayton Abrams Revocable Trust (the “Clayton Abrams Trust”),

and Kyle Abrams Revocable Trust (the “Kyle Abrams Trust”

and together with the Clayton Abrams Trust, the “Trusts”)

entered into a Stock Redemption Agreement (the “Stock Redemption Agreement”).

Prior to entry into the Stock Redemption

Agreement, (i) Mr.

Carra was the owner 2,028,335 shares of the Company’s common stock, representing approximately 11.6%

of the Company’s outstanding shares as of January 1, 2019, and (ii) Mr.

Abrams, together with the Trusts (collectively,

the “Abrams Affiliates”), owned 3,611,669 shares of the Company’s common stock, representing approximately 20.7%

of the Company’s outstanding common stock as of January 1, 2019.

Pursuant to Securities and Exchange Commission (the “SEC”)

rules, each of Messrs.

Carra and Abrams was deemed to be a “related person”

due solely to their status as significant

stockholders of the Company.

Pursuant to the terms of the Stock Redemption Agreement, the parties agreed that the Company would

redeem an aggregate of 5,640,004 owned by Mr.

Carra and the Abrams Affiliates (the “Stock Redemption”) such that Messrs.

Carra and Abrams would no longer be significant and stockholders of the Company and would no longer be deemed to be “related

persons”

under SEC rules.

In exchange for the Stock Redemption, the parties agreed that:

Company and Broken Arrow, which was owned at the time of the transaction, in whole or in part, directly or indirectly, by

Abrams and Carra, amended the Broken Arrow CASA to reduce the gross revenue fee payable by Broken Arrow from 10% of

gross revenue to 0% of gross revenue,

Company and CJK, which was owned at the time of the transaction, in whole or in part, directly or indirectly, by Messrs.

and Carra, amended the CJK CASA to reduce the gross revenue fee payable by CJK from 10% of gross revenue to 0% of gross revenue,

Company and Mr.

Abrams amended the convertible debenture dated January 9, 2017 (the “Abrams Debenture”) to extend

the maturity date of the Abrams Debenture from January 9, 2022 until January 9, 2030, and

Valley and Broken Arrow amended the Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018

(the “Chino Valley Lease”) to increase the monthly base rent payable by Broken Arrow from $35,000 to $40,000.

effectiveness of the Stock Redemption and the transactions set forth above:

Carra and Abrams will no longer beneficially own any shares of the Company’s common stock.

Accordingly, they will no

longer be significant stockholders of the Company or “related persons”

under the SEC rules.

Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 between Chino Valley and Broken Arrow

will continue in full force and effect, except as amended by the Chino Valley Lease Amendment to increase the monthly base

rent payable by Broken Arrow from $35,000 to $40,000.

Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 between Green Valley and Broken Arrow

will continue in full force and effect.

Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement (concerning the Company’s Tempe, Arizona property)

dated May 1, 2018 between Zoned Arizona and CJK will continue in full force and effect.

Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 between Kingman and CJK will continue

in full force and effect.

of our five board members are independent.

The Board has determined that each of Messrs.

Friedman and Honaman and Dr.

is an independent director pursuant to the NASDAQ listing standards.

Under the NASDAQ rules, no director qualifies as independent

unless the Board affirmatively determines that the director has no material relationship with us (directly, or as a partner, stockholder

or officer of an organization that has a relationship with us).

assessing the independence of our directors, the Board considers all of the business relationships between the Company and our

directors and their respective affiliated companies.

This review is based primarily on the Company’s review of its own records

and on responses of the directors to questions in a questionnaire regarding employment, business, familial, compensation and other

relationships with the Company and our management.

Where relationships exist, the Board determines whether the relationship between

the Company and the directors or the directors’

affiliated companies impairs the directors’

independence.

After consideration

of the directors’

relationships with the Company, the Board has affirmatively determined that none of the individuals serving

as non-employee directors during the fiscal year ended December 31, 2020 had a material relationship with us and that each of

such non-employee directors is independent.

McLaren was not considered an independent director during his service on the Board during the fiscal year ended December 31, 2020

because of his employment as our CEO, President, Treasurer, Secretary and Chairman of the Board.

Alex McLaren, MD was not considered

an independent director during his service on the Board during the fiscal year ended December 31, 2020 because Bryan McLaren is

the son of Dr.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

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and 2019 for professional services rendered by D.

Brooks and Associates CPA’s, P.A.:

Brooks and Associates CPAs, P.A.:

Audit-Related Fees

15 unchanged sentences

required by Item 601 of Regulation S-K:

Articles of Incorporation, as amended, of Zoned Properties, Inc.

Bylaws of Zoned Properties, Inc.

Employment Agreement dated as of July 31, 2014 by and between the registrant and Bryan McLaren.

Board Member Agreement dated as of October 1, 2014 by and between the registrant and Alex McLaren.

Board Member Agreement dated as of October 1, 2014 by and between the registrant and Art Friedman.

Board Member Agreement dated as of September 26, 2016 by and between the registrant and David G, Honaman.

Board Member Agreement effective April 1, 2017 by and between Zoned Properties, Inc.

of Incorporation, as amended, of Zoned Properties, Inc.

of Zoned Properties, Inc.

Member Agreement dated as of October 1, 2014 by and between the registrant and Alex McLaren.

Member Agreement dated as of October 1, 2014 by and between the registrant and Art Friedman.

Member Agreement dated as of September 26, 2016 by and between the registrant and David G, Honaman.

Member Agreement effective April 1, 2017 by and between Zoned Properties, Inc.

and Derek Overstreet.

Lease dated as of August 6, 2015 by and between Chino Valley Properties, LLC and CCC Holdings, LLC.

First Amendment to Commercial Lease Agreement dated September 25, 2015 by and among Chino Valley Properties, LLC, CCC Holdings, LLC and Alan Abrams.

Lease dated as of August 15, 2015 by and between the registrant and CCC Holdings, LLC.

First Amendment to Commercial Lease Agreement dated September 25, 2015 by and among the registrant, CCC Holdings, LLC and Alan Abrams.

Lease Agreement dated as of October 1, 2014 by and between Green Valley Group, LLC and Broken Arrow Herbal Center, Inc.

Lease dated as of October 1, 2014 by and between Kingman Property Group, LLC and CJK, Inc.

Agreement dated as of October 1, 2015 by and between the registrant and CFO Oncall, Inc.

Stock Option Grant Notice and Agreement between registrant and Newbridge Financial, Inc.

Deed of Trust dated March 7, 2015 in favor of Investment Property Exchange Services, Inc.

dated as of August 6, 2015 by and between Chino Valley Properties, LLC and CCC Holdings, LLC.

Amendment to Commercial Lease Agreement dated September 25, 2015 by and among Chino Valley Properties, LLC, CCC Holdings,

LLC and Alan Abrams.

dated as of August 15, 2015 by and between the registrant and CCC Holdings, LLC.

Amendment to Commercial Lease Agreement dated September 25, 2015 by and among the registrant, CCC Holdings, LLC and Alan Abrams.

Agreement dated as of October 1, 2014 by and between Green Valley Group, LLC and Broken Arrow Herbal Center, Inc.

dated as of October 1, 2014 by and between Kingman Property Group, LLC and CJK, Inc.

dated as of October 1, 2015 by and between the registrant and CFO Oncall, Inc.

Option Grant Notice and Agreement between registrant and Newbridge Financial, Inc.

of Trust dated March 7, 2015 in favor of Investment Property Exchange Services, Inc.

covering Tempe, AZ property.

Stock Option Grant Notice and Agreement dated December 20, 2015 between Zoned Properties, Inc.

Option Grant Notice and Agreement dated December 20, 2015 between Zoned Properties, Inc.

and Bryan McLaren.

Contract to Buy and Sell Real Estate (Commercial) entered into on April 21, 2016 between Zoned Colorado Properties, LLC and Parachute Development Corporation.

Second Amendment to Commercial Lease by and between Zoned Properties, Inc., C3C3 Group, LLC and Alan Abrams.

Third Amendment to Commercial Lease by and between Chino Valley Properties, LLC, C3C3 Group, LLC and Alan Abrams.

Commercial Real Estate Purchase Contract dated December 22, 2016 by and between Zoned Properties, Inc.

to Buy and Sell Real Estate (Commercial) entered into on April 21, 2016 between Zoned Colorado Properties, LLC and Parachute

Development Corporation.

Amendment to Commercial Lease by and between Zoned Properties, Inc., C3C3 Group, LLC and Alan Abrams.

Amendment to Commercial Lease by and between Chino Valley Properties, LLC, C3C3 Group, LLC and Alan Abrams.

Real Estate Purchase Contract dated December 22, 2016 by and between Zoned Properties, Inc.

and Big Lake Estates, LLC.

Convertible Debenture dated January 9, 2017 Issued by Zoned Properties, Inc.

Debenture dated January 9, 2017 Issued by Zoned Properties, Inc.

in Favor of Alan Abrams.

Convertible Debenture dated January 9, 2017 Issued by Zoned Properties, Inc.

Debenture dated January 9, 2017 Issued by Zoned Properties, Inc.

in Favor of Bryan McLaren .

Fourth Amendment to Commercial Lease by and between Chino Valley Properties, LLC, C3C3 Group, LLC and Alan Abrams.

Third Amendment to Commercial Lease by and between Zoned Properties, Inc., C3C3 Group, LLC and Alan Abrams, and Zoned Arizona Properties, LLC, dated as of October 1, 2017.

Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Chino Valley Properties, LLC and Broken Arrow Herbal Center, Inc.

Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Green Valley Group, LLC and Broken Arrow Herbal Center, Inc.

Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Zoned Arizona Properties, LLC and CJK, Inc.

Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Kingman Property Group, LLC and CJK, Inc.

Confidential Advisory Services Agreement dated May 1, 2018 by and between Zoned Properties, Inc.

Amendment to Commercial Lease by and between Chino Valley Properties, LLC, C3C3 Group, LLC and Alan Abrams.

Amendment to Commercial Lease by and between Zoned Properties, Inc., C3C3 Group, LLC and Alan Abrams, and Zoned Arizona Properties,

LLC, dated as of October 1, 2017.

Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Chino Valley Properties, LLC

and Broken Arrow Herbal Center, Inc.

Confidential Advisory Services Agreement dated May 1, 2018 by and between Zoned Properties, Inc.

Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Green Valley Group, LLC and Broken

Arrow Herbal Center, Inc.

Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Zoned Arizona Properties, LLC

and CJK, Inc.

Employment Agreement by and between the registrant and Bryan McLaren dated May 23, 2018.

Golden Parachute Agreement by and between the registrant and Bryan McLaren dated May 23, 2018.

Stock Redemption Agreement effective January 1, 2019 by and among Zoned Properties, Inc., Christopher Carra, Alan B.

Abrams, Clayton Abrams Revocable Trust and Kyle Abrams Revocable Trust.

First Amendment to Confidential Advisory Services Agreement dated January 1, 2019 by and between Zoned Properties, Inc., on behalf of Chino Valley Properties, LLC and Broken Arrow Herbal Center, Inc.

First Amendment to Confidential Advisory Services Agreement dated January 1, 2019 by and between Zoned Properties, Inc., on behalf of Zoned Arizona Properties, LLC and CJK, Inc.

Amendment to Convertible Debenture entered into as of January 2, 2019 by and between Zoned Properties, Inc.

Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 by and between Kingman Property Group, LLC and

Advisory Services Agreement dated May 1, 2018 by and between Zoned Properties, Inc.

and Broken Arrow Herbal Center, Inc.

Advisory Services Agreement dated May 1, 2018 by and between Zoned Properties, Inc.

and CJK, Inc.

Agreement by and between the registrant and Bryan McLaren dated May 23, 2018.

Parachute Agreement by and between the registrant and Bryan McLaren dated May 23, 2018.

Redemption Agreement effective January 1, 2019 by and among Zoned Properties, Inc., Christopher Carra, Alan B.

Abrams, Clayton

Abrams Revocable Trust and Kyle Abrams Revocable Trust.

Amendment to Confidential Advisory Services Agreement dated January 1, 2019 by and between Zoned Properties, Inc., on behalf

of Chino Valley Properties, LLC and Broken Arrow Herbal Center, Inc.

Amendment to Confidential Advisory Services Agreement dated January 1, 2019 by and between Zoned Properties, Inc., on behalf

of Zoned Arizona Properties, LLC and CJK, Inc.

to Convertible Debenture entered into as of January 2, 2019 by and between Zoned Properties, Inc.

and Alan Abrams.

First Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated January 1, 2019 by and between Chino Valley Properties, LLC and Broken Arrow Herbal Center, Inc.

Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated January 1, 2019 by and between Chino

Valley Properties, LLC and Broken Arrow Herbal Center, Inc.

Debenture issued March 19, 2020 from KCB Jade Holdings, LLC.

Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated as of May 31, 2020, by and between

Zoned Arizona Properties, LLC and CJK, Inc.

Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated as of May 31, 2020, by and between

Chino Valley Properties, LLC and Broken Arrow Herbal Center, Inc.

Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated as of May 31, 2020, by and between

Green Valley Properties, LLC and Broken Arrow Herbal Center, Inc.

Amendment to Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated as of May 31, 2020, by and between

Kingman Property Group, LLC and CJK, Inc.

and Restated Convertible Debenture issued February 19, 2021 from KCB Jade Holdings, LLC.

Lease Agreement entered into on March 3, 2021, and dated as of February 26, 2021, between Gilbert Property Management, LLC

and AZ2CAL Enterprises, LLC.

List of Subsidiaries.

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D, Brooks and Associates CPA’s P.A.

Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.

Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.

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

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

Audited financial statements of CJK, Inc.

dba Hana Meds for the year ended December 31, 2019.

Audited financial statements of Broken Arrow Herbal Center, Inc.

dba Hana Meds for the year ended December 31, 2019.

INSTANCE DOCUMENT

TAXONOMY EXTENSION SCHEMA

TAXONOMY EXTENSION CALCULATION LINKBASE

TAXONOMY EXTENSION DEFINITION LINKBASE

TAXONOMY EXTENSION LABEL LINKBASE

TAXONOMY EXTENSION PRESENTATION LINKBASE

contract or compensatory plan or arrangement.

Certification

of Chief Executive Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.

Certification

of Chief Financial Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.

Certification

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

Section 1350, as adopted pursuant to Section

906 of the Sarbanes-Oxley Act of 2002.

Audited financial statements of AC Management Group, LLC for the year ended December 31, 2020.

XBRL INSTANCE

XBRL TAXONOMY

EXTENSION SCHEMA

XBRL TAXONOMY

EXTENSION CALCULATION LINKBASE

XBRL TAXONOMY

EXTENSION DEFINITION LINKBASE

XBRL TAXONOMY

EXTENSION LABEL LINKBASE

XBRL TAXONOMY

EXTENSION PRESENTATION LINKBASE

Management contract

or compensatory plan or arrangement.

Filed herewith

by reference to exhibit to Registration Statement on Form S-1 filed by the Company on November 25, 2015.

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by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on January 3, 2019.

by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on March 23, 2020.

by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on June 4, 2020.

by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on February 19, 2021.

by reference to exhibit to Current Report on Form 8-K filed with the SEC by the Company on March 8, 2021.

permitted, the registrant has elected not to supply a summary of information required by Form 10-K.

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to be signed on its behalf by the undersigned, thereunto duly authorized.

Properties, Inc.

Zoned Properties,

March 31, 2021

Bryan McLaren

Executive Officer, President and

Financial Officer

Bryan McLaren

Chief Executive Officer, President

Chief Financial Officer

person whose signature appears below hereby appoints Bryan McLaren as attorney-in-fact with full power of substitution to execute

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Executive Officer, Chief Financial Officer,

Treasurer, Secretary and Director

President, Treasurer, Secretary and

Bryan McLaren

executive officer, principal financial officer and

principal accounting officer)

accounting officer)

Derek Overstreet

PROPERTIES, INC.

AND SUBSIDIARIES

FINANCIAL STATEMENTS

ENDED DECEMBER 31, 2019 AND 2018

CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2020 AND 2019

PROPERTIES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2019 AND 2018

Report of Independent Registered Public Accounting Firm

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

of Independent Registered Public Accounting Firm

Financial Statements:

Consolidated Balance Sheets as of December 31, 2019 and 2018

Consolidated Statements of Operations –

Balance Sheets as of December 31, 2020 and 2019

Statements of Operations –

For the Years Ended December 31, 2020 and 2019

Consolidated Statements of Changes in Stockholders’

Statements of Changes in Stockholders’

Equity - For the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows –

Statements of Cash Flows –

For the Years Ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements

to Consolidated Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Stockholders of Zoned Properties, Inc.

on the Financial Statements

on the Consolidated Financial Statements

have audited the accompanying consolidated balance sheets of Zoned Properties, Inc.

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in conformity with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the Company’s management.

consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on

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Those standards require that we plan and perform the audit

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

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Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Audit Matters

audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required

to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements

and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there were no critical audit

Brooks and Associates CPAs, P.A.

1 unchanged sentence

Beach Gardens, Florida

ZONED PROPERTIES, INC.

PROPERTIES, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Accounts receivable

Rental properties, net

Prepaid expenses and other assets

Property and equipment, net

Security deposits

LIABILITIES AND STOCKHOLDERS’

Convertible note payable

Convertible note payable - related party

Accounts payable

Accrued expenses

Accrued expenses - related parties

Deferred revenues

Security deposits payable - related parties

Security deposits payable

Total Liabilities

Commitments and Contingencies

rent receivable

properties, net

expenses and other assets

note receivable

and equipment, net

AND STOCKHOLDERS’

note payable - related party

expenses - related party

deposits payable

and Contingencies (Note 11)

STOCKHOLDERS’

Preferred stock, $0.001 par value, 5,000,000 shares authorized;

2,000,000 shares issued and outstanding at December 31,

2019 and 2018 ($1.00 per share liquidation preference)

Common stock:

Preferred stock,

$0.001 par value, 5,000,000 shares authorized;

11,901,548 and 17,441,552 issued

and outstanding at December 31, 2019 and 2018, respectively

Additional paid-in capital

Accumulated deficit

2,000,000 shares issued and outstanding at December 31, 2020 and 2019 ($1.00

per share liquidation preference)

$0.001 par value, 100,000,000 shares authorized;

12,011,548 and 11,901,548 issued and outstanding at December 31, 2020

and 2019, respectively

paid-in capital

(14,933,048 )

(14,854,710 )

Total Stockholders’

Total Liabilities and Stockholders’

See accompanying notes to consolidated financial statements.

ZONED PROPERTIES, INC.

Stockholders’

Liabilities and Stockholders’

accompanying notes to consolidated financial statements.

PROPERTIES, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Year Ended

Rental revenues

Rental revenues - related parties

Advisory revenues

Total revenues

STATEMENTS OF OPERATIONS

OPERATING EXPENSES:

Compensation and benefits

Professional fees

General and administrative expenses

Depreciation and amortization

Property operating expenses

Real estate taxes

Impairment loss

Total operating expenses

INCOME (LOSS) FROM OPERATIONS

and administrative expenses

and amortization

operating expenses

FROM OPERATIONS

OTHER (EXPENSES) INCOME:

Interest expenses

Interest expenses - related parties

Interest income

Total expenses, net

expenses - related party

other expenses, net

LOSS BEFORE INCOME TAXES

PROVISION FOR INCOME TAXES

$ (2,027,278 )

FOR INCOME TAXES

NET LOSS PER COMMON SHARE:

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accompanying notes to consolidated financial statements.

ZONED PROPERTIES, INC.

PROPERTIES, INC.

AND SUBSIDIARIES

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FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Preferred Stock

Stockholders'

Balance, December 31, 2017

Stockholders’

December 31, 2018

$ (14,842,429 )

Common stock issued for services and future services

Accretion of stock based compensation related to stock options issued

Balance, December 31, 2018

redemption and cencellation

stock issued for services

of stock based compensation related to stock options issued

December 31, 2019

(14,854,710 )

Stock redemption and cencellation

Common stock issued for services

Accretion of stock based compensation related to stock options issued

Balance, December 31, 2019

stock issued for services

of stock based compensation related to stock options issued

December 31, 2020

$ (14,933,048 )

See accompanying notes to consolidated financial statements.

accompanying notes to consolidated financial statements.

PROPERTIES, INC.

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CASH FLOWS FROM OPERATING ACTIVITIES:

$ (2,027,278 )

to reconcile net loss to net cash provided by operating activities:

and amortization expense

option expense

of deferred rent receivable - related parties

in operating assets and liabilities:

rent receivable - related parties

expenses and other assets

expenses - related parties

Adjustments to

reconcile net loss to net cash provided by operating activities:

Depreciation expense

Stock-based compensation

Stock option expense

Change in operating

assets and liabilities:

Accounts receivable

Deferred rent

Prepaid expenses

and other assets

Security deposits

Accounts payable

Accrued expenses

Accrued expenses -

related parties

Deferred revenues

deposits payable

CASH PROVIDED BY OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING

of buildings and improvements

CASH USED IN INVESTING ACTIVITIES

NET INCREASE (DECREASE)

beginning of year

SUPPLEMENTAL DISCLOSURE

OF CASH FLOW INFORMATION

SUPPLEMENTAL DISCLOSURE

OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

NET CASH PROVIDED

BY OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of convertible

note receivable

rental property improvements

of property and equipment

NET CASH USED

IN INVESTING ACTIVITIES

NET INCREASE IN CASH

CASH, beginning

CASH, end of year

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

SUPPLEMENTAL DISCLOSURE OF NON-CASH

INVESTING AND FINANCING ACTIVITIES:

Reclassification

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accompanying notes to consolidated financial statements.

ZONED PROPERTIES, INC.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

DECEMBER 31, 2020 AND 2019

ORGANIZATION AND NATURE OF OPERATIONS

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Advisory Services, LLC (“Zoned Advisory”) was organized in the State of Arizona on July 27, 2018.

January 1, 2019, the Company and certain beneficial shareholders of the Company entered into a Stock Redemption Agreement (the

“Stock Redemption Agreement”).

Pursuant to the terms of the Stock Redemption Agreement, the parties agreed that the

Company would redeem an aggregate of 5,640,004 shares of common stock owned by such beneficial shareholders (See Note 8).

for the Stock Redemption, in addition to other terms, the parties amended the May 1, 2018 leases to reduce the gross revenue fee

payable by related party tenants from 10% of gross revenue to 0% of gross revenue (See Note 3).

March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures

The Company is monitoring this closely, and although operations have not been materially affected by the COVID-19 outbreak

to date, the ultimate duration and severity of the outbreak and its impact on the economic environment and our business is uncertain.

Currently, all of the properties in the Company’s portfolio are open to its Significant Tenants and their customers and

will remain open pursuant to state and local government requirements.

At this time, the Company does not foresee any material

changes to its operations from COVID-19.

The Company’s tenants are continuing to generate revenue at these properties, and

they have continued to make rental payments in full and on time and we believe the tenants’

liquidity position is sufficient

to cover its expected rental obligations.

Accordingly, while the Company does not anticipate an impact on its operations, it cannot

estimate the duration of the pandemic and potential impact on its business if the properties must close or if the tenants are

otherwise unable or unwilling to make rental payments.

In addition, a severe or prolonged economic downturn could result in a

variety of risks to the Company’s business, including weakened demand for its properties and a decreased ability to raise

additional capital when needed on acceptable terms, if at all.

At this time, the Company is unable to estimate the impact of this

event on its operations.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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All intercompany balances and transactions have been eliminated upon consolidation.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

January 1, 2019, the Company and certain beneficial shareholders entered into a Stock Redemption Agreement (See Note 8).

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and balances related to these beneficial shareholders as related party transactions.

Prior to January 1, 2019, transactions with

these beneficial shareholders have been reflected as related party transactions on the accompanying consolidated financial statements.

ZONED PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2018

Use of estimates

The preparation of consolidated financial

statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets

and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the

reported amounts of revenue and expenses during the reporting period.

Actual results could differ from those estimates.

estimates for the years ended December 31, 2019 and 2018 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.

preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions

that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of

the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Actual results

could differ from those estimates.

Significant estimates for the years ended December 31, 2020 and 2019 include the collectability

of accounts and note receivable, 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.

and uncertainties

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substantially all of the Company’s real estate properties are leased under triple-net leases to tenants that are controlled

by one entity, majority owned by former beneficial owners of the Company (each, a “Significant Tenant”

and collectively,

the “Significant Tenants”).

For the years ended December 31, 2019 and 2018, rental and advisory revenue associated

with the Significant Tenants amounted to $1,146,654 and $1,186,775, which represents 91.0% and 96.0% of the Company’s total

revenues, respectively.

For the year ended December 31, 2018, rental revenues from Significant Tenants was classified as rental

revenues –

related parties (see Note 3).

by one entity (each, a “Significant Tenant”

and collectively, the “Significant Tenants”).

For the years

ended December 31, 2020 and 2019, rental and advisory revenue associated with the Significant Tenants amounted to $1,176,666 and

$1,146,654, which represents 96.8% and 91.0% of the Company’s total revenues, respectively (see Note 3).

value of financial instruments

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liquid investments with an original maturity of three months or less as of the purchase date of such investments.

had no cash equivalents at December 31, 2019 and 2018.

had no cash equivalents on December 31, 2020 and 2019.

The majority of the Company’s cash is held at major commercial banks,

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any losses on its invested cash.

At December 31, 2019 and 2018, the Company had approximately $390,000 and $105,000, respectively,

On December 31, 2020 and 2019, the Company had approximately $449,000 and $390,000, respectively,

of cash in excess of FDIC limits of $250,000.

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2020 and 2019, the Company did not record any allowances for doubtful accounts.

ZONED PROPERTIES, INC.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

DECEMBER 31, 2020 AND 2019

properties are carried at cost, less accumulated depreciation and amortization.

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rental rates and capital requirements that could differ materially from actual results.

For the year ended December 31, 2019,

the Company did not record any impairment losses.

As discussed below under “revenue recognition”, for the year ended

December 31, 2018, the Company recorded an impairment loss related to the write-off of deferred rent –

related parties of

For the years ended December 31, 2020

and 2019, the Company did not record any impairment losses.

Company has capitalized land, which is not subject to depreciation.

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fact that their recorded value may not be recoverable.

on January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 and ASC Topic 606, Revenue

from Contracts with Customers (“ASC 606”).

ASU 2014-09, as amended by subsequent ASUs on the topic, 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.

This standard requires an entity to recognize revenue to depict the transfer

of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled

in exchange for those goods or services and also requires certain additional disclosures.

The Company adopted this standard using

the modified retrospective approach, which requires applying the new standard to all existing contracts not yet completed as of

the effective date and recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of

The adoption of ASU 2014-09 did not have any impact on the process for, timing of, and presentation and disclosure of

revenue recognition from contracts with tenants.

Company follows Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers

(“ASC 606”).

This standard establishes a single comprehensive model for entities to use in accounting for revenue

arising from contracts with customers and supersedes most of the existing revenue recognition guidance.

ASC 606 requires an entity

to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration

to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.

income includes base rents that each tenant pays in accordance with the terms of its respective lease and is reported on a straight-line

2 unchanged sentences

leased space and the leased space is substantially ready for its intended use.

ZONED PROPERTIES, INC.

the Company’s leases provide for payments with fixed monthly base rents over the term of the leases.

The leases also require

the tenant to remit estimated monthly payments to the Company for property taxes.

These payments are recorded as rental income

and the related property tax expense reflected separately on the statements of operations.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

April 30, 2018, certain of the Company’s leases contained rental increases at specified intervals.

The Company recorded

as an asset, and included in revenue, deferred rents receivable that were to be received if the tenant made all rent payments

required through the expiration of the initial term of the lease.

May 1, 2018, the Company and the related party tenants cancelled their existing lease agreements.

Also on May 1, 2018, the Company

entered into new lease agreements relating to the same properties (See Note 3).

These leases provide for payments with fixed monthly

base rents over the term of the leases.

The leases also require the tenant to remit estimated monthly payments to the Company

for property taxes.

These payments are recorded as rental income and the related property tax expense reflected separately on

the statements of operations.

During 2018, the Company reviewed its deferred rent receivable and determined that the deferred

rent receivable of $1,853,539 should be written off since, pursuant to the new lease terms, the deferred rent receivable was not

Accordingly, on May 1, 2018, the Company recorded an impairment loss related to the write-off of deferred rent receivable

related parties of $1,853,539 in operating expenses on the accompanying consolidated statements of operations.

DECEMBER 31, 2020 AND 2019

below for the adoption of ASU 2016-02, “Leases (Topic 842)”

4 unchanged sentences

and diluted income (loss) per share

income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number

(loss) income per share is computed by dividing net (loss) income available to common shareholders by the weighted average number

of shares of common stock outstanding during each period.

Diluted earnings per share is computed by dividing net income available

to common shareholders by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive

securities outstanding during the period using the treasury stock method and as-if converted method.

Potentially dilutive common

shares and participating securities are excluded from the computation of diluted shares outstanding if they would have an anti-dilutive

impact on the Company’s net losses.

The Company’s preferred stock is considered a participating security since the

preferred shares are entitled to dividends equal to common share dividends and accordingly, are included in the computation of

earnings per share pursuant to the two-class method.

The two-class method of computing earnings (loss) per share is an earnings

allocation formula that determines earnings (loss) per share for common stock and any participating securities according to dividends

Diluted (loss) income per share is computed by dividing net (loss) income

available to common shareholders by the weighted average number of shares of common stock, common stock equivalents and potentially

dilutive securities outstanding during the period using the treasury stock method and as-if converted method.

Potentially dilutive

common shares and participating securities are excluded from the computation of diluted shares outstanding if they would have

an anti-dilutive impact on the Company’s net losses.

The Company’s preferred stock is considered a participating security

since the preferred shares are entitled to dividends equal to common share dividends and accordingly, are included in the computation

of earnings per share pursuant to the two-class method.

The two-class method of computing (loss) income per share is an earnings

allocation formula that determines (loss) income per share for common stock and any participating securities according to dividends

declared (whether paid or unpaid) and participation rights in undistributed earnings.

1 unchanged sentence

be anti-dilutive for the years ended December 31, 2020 and 2019.

Convertible debt

Stock options

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.

characteristics to be aggregated into one reportable segment (operating, leasing and managing commercial properties, and advisory

services related to commercial properties).

The Company’s determination was based primarily on its method of internal reporting.

income tax assets and liabilities arise from temporary differences between the financial statements and tax basis of assets and

6 unchanged sentences

necessary to reduce deferred tax assets to the amount expected to be realized.

ZONED PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

Company follows the provisions of FASB ASC 740-10, “Uncertainty in Income Taxes”.

3 unchanged sentences

tax positions that meet a “more-likely-than-not”

The Company does not believe it has any uncertain

tax positions as of December 31, 2019 and 2018 that would require either recognition or disclosure in the accompanying consolidated

The Company does not believe it has any uncertain tax

positions as of December 31, 2020 and 2019 that would require either recognition or disclosure in the accompanying consolidated

financial statements.

compensation is accounted for based on the requirements of ASC 718 –

“Compensation –Stock Compensation

”, which requires recognition in the financial statements of the cost of employee 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.

Additionally, effective January 1, 2017, the

Company adopted the ASU No.

2016-09 (“ASU 2016-09 ”), Improvements to Employee Share-Based Payment Accounting .

ASU 2016-09 permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures

as they occur or estimate forfeitures over the vesting period of the award.

The Company has elected to recognize forfeitures as

they occur and the cumulative impact of this change did not have any effect on the Company’s consolidated financial statements

and related disclosures.

March 31, 2018, pursuant to ASC 505-50 –

“Equity-Based Payments to Non-Employees”

, all share-based payments

to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation

expense over the service period of the consulting arrangement or until performance conditions were expected to be met.

a Black-Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions

were met, which generally aligns with the vesting period of the options, and the Company adjusted the expense recognized in the

consolidated financial statements accordingly.

In June 2018, the FASB issued ASU No.

2018-07, Improvements to Nonemployee Share-Based

Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by

expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring

goods and services from non-employees.

2018-07 is effective for annual periods beginning after December 15, 2018, including

interim periods within those annual periods.

Early adoption is permitted, but entities may not adopt prior to adopting the new

revenue recognition guidance in ASC 606.

The Company early adopted ASU No.

2018-07 in the second quarter of 2018, and the adoption

did not have any impact on its consolidated financial statements.

“Compensation –Stock Compensation ”,

which requires recognition in the financial statements of the cost of employee, director, and non-employee services received in

exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the

services in exchange for the award (presumptively, the vesting period).

The ASC also requires measurement of the cost of employee,

director, and non-employee services received in exchange for an award based on the grant-date fair value of the award.

has elected to recognize forfeitures as they occur as permitted under ASU 2016-09 Improvements to Employee Share-Based Payment .

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

adopted accounting pronouncements

38 unchanged sentences

if the lessee obtains control of the underlying asset implicitly or explicitly.

ZONED PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

a change to a pre-existing lease occurs, we evaluate if the modification results in a separate new lease or a modified lease.

2 unchanged sentences

determine its classification based on the modified terms.

As disclosed in Note 3, the Chino Valley lease was modified on January

1, 2019 increasing the monthly base rent from $35,000 to $40,000.

At the commencement of the modified terms, the Company reassessed

its lease classification and concluded it remained properly classified as an operating lease.

As disclosed in Note 3, on January 1, 2019, the Chino Valley lease was

modified to increase the monthly base rent from $35,000 to $40,000.

Additionally, on May 31, 2020, the Chino Valley lease was

modified to decrease the monthly base rent from $40,000 to $32,800 and the Tempe lease was modified to increase the monthly base

rent from $33,500 to $49,200.

At the commencement of the modified terms, the Company reassessed its lease classification and concluded

it remained properly classified as an operating lease.

adoption of ASU 2016-02 did not have a material impact on the operating leases where the Company is a lessor.

1 unchanged sentence

continue to record revenues from rental properties for its operating leases on a straight-line basis.

For leases where the Company

is a lessee, primarily for the Company’s administrative office lease, the Company analyzed if it would be required to record

a lease liability and a right of use asset on its consolidated balance sheets at fair value upon adoption of ASU 2016-02.

the terms of the Company’s operating lease for its office space is 12 months or less, pursuant to ASC 842, the Company determined

that the lease meets the definition of a short-term lease and the Company did not recognize the right-of use asset and lease liability

arising from this lease.

Any revenue on the straight-line

basis exceeding the monthly payment amount required on the operating lease is reflected as a deferred rent receivable.

May 31, 2020, the Company amended its leases for which it is the lessor on its Chino Valley, Tempe, Kingman and Green Valley properties.

The amendments resulted in an abatement of rent for the months of June and July 2020.

This rent abatement resulted in a deferred

rent receivable as of December 31, 2020 of $173,757 (see Note 3).

leases where the Company is a lessee, primarily for the Company’s administrative office lease, the Company analyzed if it

would be required to record a lease liability and a right of use asset on its consolidated balance sheets at fair value upon adoption

of ASU 2016-02.

Since the terms of the Company’s operating lease for its office space is 12 months or less, pursuant to

ASC 842, the Company determined that the lease meets the definition of a short-term lease and the Company did not recognize a

right-of use asset and lease liability arising from this lease.

issued accounting pronouncements

1 unchanged sentence

effect on the accompanying consolidated financial statements.

CONCENTRATIONS AND RISKS

Restructuring

of Lease Agreements with Significant Tenants

2014, the Company entered into lease agreements with non-profit companies, CJK, Inc.

(“CJK”) and Broken Arrow Herbal

(“Broken Arrow”), for its properties located in Kingman, AZ and Green Valley, AZ, respectively.

time of the transaction, CJK and Broken Arrow were owned, in whole or in part, directly or indirectly, by Alan Abrams and Chris

Carra, each of whom was a significant stockholder of the Company through December 31, 2018.

The Kingman, AZ lease commenced on

October 1, 2014 and was to expire on September 30, 2024 (the “Prior Kingman Lease”).

The Green Valley, AZ lease commenced

on October 1, 2014 and was to expire on September 30, 2024 with base monthly rent subject to a 5% annual increases during the

lease term (the “Prior Green Valley Lease”).

These leases were cancelled and new leases were executed on May 1, 2018.

August 2015, the Company entered into a lease agreement with C3C3 Group, LLC (“C3C3”), a wholly owned subsidiary of

a company that, at the time of the transaction, was owned by Messrs.

Abrams and Carra, each of whom was a significant stockholder

of the Company through December 31, 2018, to lease space in Tempe, Arizona.

The Tempe lease commenced on September 1, 2015, was

amended on September 1, 2016 and October 1, 2017, and was to expire on July 31, 2035 (the “Prior Tempe Leases”).

lease was cancelled and a new lease was executed on May 1, 2018.

August 2015, the Company entered into a lease agreement with C3C3 to lease space in Chino Valley, Arizona (the “Prior Chino

Valley Lease”).

The Prior Chino Valley Lease commenced on August 1, 2015, was amended on October 10, 2016 and on March 30,

2017, and was to expire on July 31, 2035.

Additionally, pursuant to the March 30, 2017 amendment, the Company agreed to defer

rent and applicable taxes due for March, April and May 2017 in the form of a note receivable to C3C3 at an 8% interest rate commencing

March 1, 2017 and was paid in full over 12 months commencing January 1, 2018.

This lease was cancelled and a new lease was executed

on May 1, 2018.

June 15, 2017 and effective July 1, 2017, the Company entered into a lease agreement with AC Management Group, LLC (also known

as Hana Meds and who was the sole member and manager of C3C3), whose directors/owners, at the time of the transaction, were significant

stockholders of the Company through December 31, 2018, to lease office space in Tempe, Arizona (the “Hana Meds Lease”).

The Hana Meds Lease commenced on July 1, 2017 and was to expire on June 30, 2022 with base monthly rent of $1,800 starting on

October 1, 2017.

This lease was cancelled on May 1, 2018.

March 1, 2018, the Company and Alan Abrams entered into a Reaffirmation Agreement related to the personal guarantee.

Lease Agreements with Significant Tenants

May 1, 2018, the Company and C3C3, CJK, and Broken Arrow cancelled their existing lease agreements and entered into new lease

agreements relating to the same properties.

Additionally, the Company entered into confidential advisory services agreements with

CJK and Broken Arrow.

ZONED PROPERTIES, INC.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

May 1, 2018, Chino Valley, a wholly owned subsidiary of the Company, and Broken Arrow agreed to terminate the Prior Chino Valley

Lease dated April 6, 2015, as amended, in consideration of (i) entry into that certain Licensed Medical Marijuana Facility Triple

Net (NNN) Lease Agreement dated May 1, 2018 between Chino Valley and Broken Arrow (the “New Chino Valley Lease”),

DECEMBER 31, 2020 AND 2019

CONCENTRATIONS AND RISKS

Agreements with Significant Tenants

May 1, 2018, Chino Valley and Broken Arrow Herbal Center, Inc.

(“Broken Arrow”) agreed to terminate the prior Chino

Valley Lease dated April 6, 2015, as amended, in consideration of (i) entry into that certain Licensed Medical Marijuana Facility

Triple Net (NNN) Lease Agreement dated May 1, 2018 between Chino Valley and Broken Arrow (the “2018 Chino Valley Lease”),

with a term of 22 years, expiring April 30, 2040, and (ii) abatement of rent that would otherwise have been due for the month

of April 2018 under the prior Chino Valley Lease.

The New Chino Valley Lease provides for payment by Broken Arrow of a fixed monthly

base rent of $35,000, as well as real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or other

taxes (excluding income or estate taxes) levied upon or assessed against Chino Valley.

In addition, pursuant to the terms of the

New Chino Valley Lease, Broken Arrow agreed to maintain insurance in full force during the term of the New Chino Valley Lease

and any other period of occupancy of the premises by Broken Arrow.

Broken Arrow was owned at the time of the transaction, in whole

or in part, directly or indirectly, by Messrs.

Abrams and Carra, each of whom was a significant stockholder of the Company through

December 31, 2018.

On January 1, 2019, Chino Valley and Broken Arrow entered into that the First Amendment to the Chino Valley

Lease (the “Chino Valley Lease Amendment”), pursuant to which the monthly base rent was increased from $35,000 to

Except for the increase in base rent, the terms of the New Chino Valley Lease remain in full force and effect.

May 1, 2018, Green Valley, a wholly owned subsidiary of the Company, and Broken Arrow agreed to terminate the Prior Green Valley

Lease dated October 1, 2014, in consideration of (i) entry into that certain Licensed Medical Marijuana Facility Triple Net (NNN)

Lease Agreement dated May 1, 2018 between Green Valley and Broken Arrow (the “New Green Valley Lease”), with a term

of 22 years, expiring April 30, 2040, and (ii) abatement of rent that would otherwise have been due for the month of April 2018

under the Prior Green Valley Lease.

The New Green Valley Lease provides for payment by Broken Arrow of a fixed monthly base rent

of $3,500, as well as real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or other taxes (excluding

income or estate taxes) levied upon or assessed against Chino Valley.

In addition, pursuant to the terms of the New Green Valley

Lease, Broken Arrow agreed to maintain insurance in full force during the term of the New Green Valley Lease and any other period

of occupancy of the premises by Broken Arrow.

May 1, 2018, Zoned Arizona, a wholly owned subsidiary of the Company, and CJK agreed to terminate the Prior Tempe Leases dated

August 15, 2015, as amended, and June 15, 2017, in consideration of (i) entry into that certain Licensed Medical Marijuana Facility

Triple Net (NNN) Lease Agreement dated May 1, 2018 between Zoned Arizona and CJK (the “New Tempe Lease”), with a term

of 22 years, expiring April 30, 2040, and (ii) abatement of rent that would otherwise have been due for the month of April 2018

under the Prior Tempe Leases.

The New Tempe Lease provides for payment by CJK of a fixed monthly base rent of $33,500, as well

as real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or other taxes (excluding income or

estate taxes) levied upon or assessed against Zoned Arizona.

In addition, pursuant to the terms of the New Tempe Lease, CJK agreed

to maintain insurance in full force during the term of the New Tempe Lease and any other period of occupancy of the premises by

May 1, 2018, Kingman, a wholly owned subsidiary of the Company, and CJK agreed to terminate the Prior Kingman Lease dated October

1, 2014, in consideration of (i) entry into that certain Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement

dated May 1, 2018 between Kingman and CJK (the “New Kingman Lease”), with a term of 22 years, expiring April 30, 2040,

and (ii) abatement of rent that would otherwise have been due for the month of April 2018 under the Prior Kingman Lease.

Kingman Lease provides for payment by CJK of a fixed monthly base rent of $4,000, as well as real property taxes, personal property

taxes, privilege, sales, rental, excise, use and/or other taxes (excluding income or estate taxes) levied upon or assessed against

In addition, pursuant to the terms of the New Kingman Lease, CJK agreed to maintain insurance in full force during the

term of the New Kingman Lease and any other period of occupancy of the premises by CJK.

and Broken Arrow were owned, in whole or in part, directly or indirectly, by Messrs.

Abrams and Carra, each of whom was a significant

stockholder of the Company through December 31, 2018 (see Note 3).

CJK and Broken Arrow, together, are referred to as the Company’s

The 2018 Chino Valley Lease provided for payment by Broken Arrow of a fixed

monthly base rent of $35,000, as well as real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or

other taxes (excluding income or estate taxes) levied upon or assessed against Chino Valley.

In addition, pursuant to the terms

of the 2018 Chino Valley Lease, Broken Arrow agreed to maintain insurance in full force during the term of the 2018 Chino Valley

Lease and any other period of occupancy of the premises by Broken Arrow.

On January 1, 2019, Chino Valley and Broken Arrow entered

into that the First Amendment to the 2018 Chino Valley Lease (the “2019 Chino Valley Lease Amendment”), pursuant to

which the monthly base rent was increased from $35,000 to $40,000.

Except for the increase in base rent, the terms of the 2018

Chino Valley Lease remain in full force and effect.

May 29, 2020, Chino Valley and Broken Arrow entered into a second amendment to the 2018 Chino Valley Lease, as amended (the “2020

Chino Valley Amendment”), effective May 31, 2020 (“Effective Date”).

Pursuant to the terms of the 2020 Chino

Valley Amendment, among other things, the base rent was adjusted to $32,800 per month, and the base rent was abated from June

1, 2020 to July 31, 2020.

Any increase in the rentable area of the leased premises will result in an increase in all amounts calculated

based on the same, including, without limitation, base rent.

Pursuant to the terms of the 2020 Chino Valley Amendment, the parties

agreed that if there is any change in laws such that the dispensing, sale or cultivation of marijuana upon the premises is prohibited

or materially and adversely affected as mutually and reasonably determined by Chino Valley and Broken Arrow, Broken Arrow may

terminate the 2018 Chino Valley Lease, as amended, by delivering written notice to Chino Valley, together with a termination payment

which shall be the sum of (i) any unpaid rent and interest, plus (ii) 5% of the base rent which would have been earned after termination

for the balance of the term.

addition, the parties agreed that from the period from the Effective Date to June 30, 2022 (the “Improvement Period”),

Broken Arrow will and/or Broken Arrow will cause its affiliate, CJK, to invest a combined total of at least $8,000,000 of improvements

(“Investment by Tenants”) in and to the property that is the subject of the Chino Valley Lease and the property that

is the subject of the Tempe Lease (discussed below, and collectively referred to as the “Facilities”).

If Broken Arrow

and/or CJK fails to deliver to the Company receipted bills for hard and soft costs of improvements to the Facilities totaling

at least $8,000,000 on or before June 30, 2022, Broken Arrow will be in default under the Chino Valley Lease and Tempe Lease,

May 1, 2018, Green Valley and Broken Arrow agreed to terminate the prior Green Valley Lease dated October 1, 2014, in consideration

of (i) entry into that certain Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 between

Green Valley and Broken Arrow (the “Green Valley Lease”), with a term of 22 years, expiring April 30, 2040, and (ii)

abatement of rent that would otherwise have been due for the month of April 2018 under the prior Green Valley Lease.

Valley Lease provided for payment by Broken Arrow of a fixed monthly base rent of $3,500, as well as real property taxes, personal

property taxes, privilege, sales, rental, excise, use and/or other taxes (excluding income or estate taxes) levied upon or assessed

against Chino Valley.

In addition, pursuant to the terms of the Green Valley Lease, Broken Arrow agreed to maintain insurance

in full force during the term of the Green Valley Lease and any other period of occupancy of the premises by Broken Arrow.

May 29, 2020, Green Valley and Broken Arrow entered into the First Amendment (the “Green Valley Amendment”) to the

Green Valley Lease, effective May 31, 2020.

Pursuant to the terms of the Green Valley Amendment, among other things, the parties

agreed to abate the fixed base rent of $3,500 from June 1, 2020 to July 31, 2020.

In addition, the Green Valley Amendment provides

that any increase in the rentable area of the leases premises will result in an increase in all amounts calculated based on the

same, including, without limitation, base rent.

The parties also agreed that if there is any change in laws such that the dispensing,

sale or cultivation of marijuana upon the premises is prohibited or materially and adversely affected as mutually and reasonably

determined by Green Valley and Broken Arrow, Broken Arrow may terminate the Green Valley Lease by delivering written notice to

Green Valley, together with a termination payment which shall be the sum of (i) any unpaid rent and interest, plus (ii) 5% of

the base rent which would have been earned after termination for the balance of the term.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

May 1, 2018, Zoned Arizona and CJK, Inc.

(“CJK”) agreed to terminate the prior Tempe Leases dated August 15, 2015,

as amended, and June 15, 2017, in consideration of (i) entry into that certain Licensed Medical Marijuana Facility Triple Net

(NNN) Lease Agreement dated May 1, 2018 between Zoned Arizona and CJK (the “Tempe Lease”), with a term of 22 years,

expiring April 30, 2040, and (ii) abatement of rent that would otherwise have been due for the month of April 2018 under the prior

Tempe Leases.

The Tempe Lease provided for payment by CJK of a fixed monthly base rent of $33,500, as well as real property taxes,

personal property taxes, privilege, sales, rental, excise, use and/or other taxes (excluding income or estate taxes) levied upon

or assessed against Zoned Arizona.

In addition, pursuant to the terms of the Tempe Lease, CJK agreed to maintain insurance in

full force during the term of the Tempe Lease and any other period of occupancy of the premises by CJK.

May 29, 2020, Zoned Arizona and CJK entered into the First Amendment (the “Tempe Amendment”) to the Tempe Lease, effective

May 31, 2020.

Pursuant to the terms of the Tempe Amendment, among other things, the base rent was increased to $49,200 per month,

and the base rent was abated from June 1, 2020 to July 31, 2020.

Any increase in the rentable area of the leased premises will

result in an increase in all amounts calculated based on the same, including, without limitation, base rent.

Pursuant to the terms

of the Tempe Amendment, the parties agreed that if there is any change in laws such that the dispensing, sale or cultivation of

marijuana upon the premises is prohibited or materially and adversely affected as mutually and reasonably determined by Zoned

Arizona and CJK, CJK may terminate the Tempe Lease by delivering written notice to Zoned Arizona, together with a termination

payment which shall be the sum of (i) any unpaid rent and interest, plus (ii) 5% of the base rent which would have been earned

after termination for the balance of the term.

addition, under the Tempe Amendment the parties agreed to an Investment by Tenant (as defined above in the subheading Chino

Valley ) to the property that is the subject of the Chino Valley Lease and the property that is the subject of the Tempe Lease.

If Broken Arrow and/or CJK fails to deliver to the Company receipted bills for hard and soft costs of improvements to the Facilities

totaling at least $8,000,000 on or before June 30, 2022, Broken Arrow and CJK will be in default under the Chino Valley Lease

and Tempe Lease, as amended.

May 1, 2018, Kingman and CJK agreed to terminate the prior Kingman Lease dated October 1, 2014, in consideration of (i) entry

into that certain Licensed Medical Marijuana Facility Triple Net (NNN) Lease Agreement dated May 1, 2018 between Kingman and CJK

(the “Kingman Lease”), with a term of 22 years, expiring April 30, 2040, and (ii) abatement of rent that would otherwise

have been due for the month of April 2018 under the Prior Kingman Lease.

The Kingman Lease provides for payment by CJK of a fixed

monthly base rent of $4,000, as well as real property taxes, personal property taxes, privilege, sales, rental, excise, use and/or

other taxes (excluding income or estate taxes) levied upon or assessed against Kingman.

In addition, pursuant to the terms of

the Kingman Lease, CJK agreed to maintain insurance in full force during the term of the Kingman Lease and any other period of

occupancy of the premises by CJK.

May 29, 2020, Kingman and CJK entered into the First Amendment (the “Kingman Amendment”) to the Kingman Lease, effective

May 31, 2020.

Pursuant to the terms of the Kingman Amendment, among other things, the parties agreed to abate the $4,000 base

rent from June 1, 2020 to July 31, 2020.

In addition, the Kingman Amendment provides that any increase in the rentable area of

the leases premises will result in an increase in all amounts calculated based on the same, including, without limitation, base

The parties also agreed that if there is any change in laws such that the dispensing, sale or cultivation of marijuana upon

the premises is prohibited or materially and adversely affected as mutually and reasonably determined by Kingman and CJK, CJK

may terminate the Kingman Lease by delivering written notice to Kingman, together with a termination payment which shall be the

sum of (i) any unpaid rent and interest, plus (ii) 5% of the base rent which would have been earned after termination for the

balance of the term.

and Broken Arrow, together, operate under the company brand, “Hana Meds”, and are referred to as the Company’s

Significant Tenants.

New Tempe Lease, New Kingman Lease, New Chino Valley Lease and New Green Valley Lease (together referred to as the “New

Leases”) includes a Guarantee of Payment and Performance by Mr.

Tempe Lease, Kingman Lease, Chino Valley Lease and Green Valley Lease (together referred to as the “New Leases”) includes

a Guarantee of Payment and Performance by Mr.

Abrams and the Company’s Significant Tenants.

to May 1, 2018, the Company’s leases contained rental increases at specified intervals.

Accordingly, during the year ended

December 31, 2018, rental income included base rents that each tenant paid in accordance with the terms of its respective lease

and was reported on a straight-line basis over the term of the respective lease, which included the effects of rent abatements

under the leases.

During the year ended December 31, 2018, the Company recorded as an asset, and included in revenue, rents receivable

that would be received if the tenant made all rent payments required through the expiration of the initial term of the lease.

Based on the terms in the New Lease agreements discussed above, the New Leases do not contain rental increases at specified intervals

and base rent revenue will be constant over the New Lease terms.

For the year ended December 31, 2018, the Company recorded an

impairment loss related to the write-off of deferred rent –

related parties of $1,853,539 due to the fixed rental rates

in the New Lease terms.

ZONED PROPERTIES, INC.

Abrams guarantee is collateralized

by the convertible debt of $2,000,000 owed to him (see Note 7).

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

of December 31, 2019 and 2018, security deposits payable to the Significant Tenants amounted to $71,800.

No additional deposits

were required on the New Leases.

minimum lease payments primarily consist of minimum base rent payments from Significant Tenants.

Future minimum lease payments

to be received for each of the five succeeding calendar years and thereafter as of December 31, 2019 consists of the following:

Future annual base rent:

and advisory revenue and rent receivable –Significant Tenants

May 1, 2018, the Company and C3C3, CJK, and Broken Arrow cancelled their existing lease agreements.

Also on May 1, 2018, the Company

entered into new lease agreements relating to the same properties.

This lease restructuring caused a reduction in the Company’s

revenue in 2018 and beyond.

Additionally, effective January 1, 2019, the Company entered into the Stock Redemption Agreement with

certain beneficial shareholders of the Company (see Note 8) and as such, the Company’s May 1, 2018 advisory agreements were

amended to reduce the gross revenue fee payable by the Significant Tenants from 10% of gross revenue to 0% of gross revenue.

additional reduction in revenue from or loss of such Significant Tenants leases would have a material adverse effect on the Company’s

consolidated results of operations and financial condition.

DECEMBER 31, 2020 AND 2019

of December 31, 2020 and 2019, security deposits payable to the Significant Tenants amounted to $71,800 in both periods.

minimum lease payments primarily consist of minimum base rent payments from Significant Tenants and the Commercial Lease Agreement

executed by Gilbert subsequent to December 31, 2020 (see Note 12).

Future minimum lease payments to be received, on all leased

properties, for each of the five succeeding calendar years and thereafter as of December 31, 2020 consists of the following:

annual base rent:

and advisory revenue and receivable –Significant Tenants

the years ended December 31, 2020 and 2019, rental and advisory revenue associated with the Significant Tenant leases described

above amounted to $1,176,666 and $1,146,654, which represents 96.8% and 91.0% of the Company’s total revenues, respectively.

For the year ended December 31, 2018, rental revenues from Significant Tenants was classified as rental revenues –

parties (see Note 3).

December 31, 2020 and 2019, accounts receivable from advisory services provided to the Significant Tenant amounted to $2,375 and

$8,188, respectively.

Further, as of December 31, 2020 a deferred rent receivable of $173,757 is due from Significant Tenants

due to the abatement of rent in the months of June and July 2020 under the amendments executed effective May 31, 2020 discussed

concentration

4 unchanged sentences

that are provided to us upon request, and (2) monitoring the timeliness of rent collections.

As of December 31, 2019 and

2018, the Company had an asset concentration related to the Significant Tenants.

As of December 31, 2019 and 2018, the Significant

Tenants represented approximately 87.1% and 90.7% of the Company’s total assets, respectively.

Through December 31, 2019,

all rental payments have been made on a timely basis.

As of December 31, 2019, the lease agreements with the Significant Tenants

were personally guaranteed by Alan Abrams.

On March 1, 2018, the Company and Alan Abrams entered into a Reaffirmation Agreement

(See Note 6).

of December 31, 2020 and 2019, the Company had an asset concentration related to the Significant Tenants.

As of December 31, 2020

and 2019, the Significant Tenants represented approximately 83.2% and 87.1% of the Company’s total assets, respectively.

Through December 31, 2020, all rental payments have been made on a timely basis.

As of December 31, 2020, the lease agreements

with the Significant Tenants were personally guaranteed by Alan Abrams and are collateralized by convertibles notes of $2,000,000

Abrams (see Note 7).

On March 1, 2018, the Company and Alan Abrams entered into a Reaffirmation Agreement (See Note

advisory services agreements

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(b) by either party immediately upon the mutual agreement of the parties, evidenced by a writing signed by the parties;

negligence or willful misconduct of the other party in connection with these Agreements.

Pursuant to the terms of the Broken Arrow

CASA and CJK CASA, Broken Arrow and CJK engaged the Company to perform certain advisory services in exchange for a fee equal to

10% of Broken Arrow’s and CJK’s gross revenues (the (“Revenue Fee”), commencing January 2019.

ZONED PROPERTIES, INC.

immediately by either party in the event of an actual finding, by a court of competent jurisdiction, of fraud, gross negligence

or willful misconduct of the other party in connection with these Agreements.

Pursuant to the terms of the Broken Arrow CASA and

CJK CASA, Broken Arrow and CJK engaged the Company to perform certain advisory services in exchange for a fee equal to 10% of

Broken Arrow’s and CJK’s gross revenues (the (“Revenue Fee”), commencing January 2019.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

January 1, 2019, as part of the Stock Redemption Agreement, the Company, on behalf of Chino Valley, and Broken Arrow entered into

DECEMBER 31, 2020 AND 2019

January 1, 2019, as part of a Stock Redemption Agreement, the Company, on behalf of Chino Valley, and Broken Arrow entered into

the First Amendment to Confidential Advisory Services Agreement (the “Broken Arrow CASA Amendment”).

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December 31, 2020 and 2019, rental properties, net consisted of the following:

Building and building improvements

Construction in progress

Rental properties, at cost

and building improvements

properties, at cost

accumulated depreciation

Rental properties, net

the years ended December 31, 2019 and 2018, depreciation and amortization of rental properties amounted to $355,280 and $269,592,

respectively.

properties, net

the years ended December 31, 2020 and 2019, depreciation of rental properties amounted to $356,934 and $355,280, respectively.

PROPERTY AND EQUIPMENT

December 31, 2020 and 2019, property and equipment consisted of the following:

Vehicle and site trailers

Office furniture and equipment

and site trailers

furniture and equipment

accumulated depreciation

Property and equipment, net

and equipment, net

the years ended December 31, 2020 and 2019, depreciation expense amounted to $5,899 and $6,660, respectively.

CONVERTIBLE NOTE RECEIVABLE

March 19, 2020, the Company made an initial investment of $100,000 into KCB Jade Holdings, LLC (“KCB”).

for the investment, KCB issued to the Company a convertible debenture (the “KCB Debenture”) dated March 19, 2020 (the

“Issuance Date”) in the original principal amount of $100,000.

The KCB Debenture bears interest at the rate of 6.5%

per annum and matures on March 19, 2025 (the “Maturity Date”).

Interest on the outstanding principal sum of the KCB

Debenture commences accruing on the Issuance Date and is computed on the basis of a 365-day year and the actual number of days

elapsed and shall be payable annually due by the first day of each calendar anniversary following the Issuance Date.

KCB may prepay

the KCB Debenture at any point after 18 months following the Issuance Date, in whole or in part.

However, if KCB elects to prepay

the KCB Debenture prior to the Maturity Date or prior to any conversion as provided in the KCB Debenture in whole or in part,

the Company will be entitled to receive a number of KCB units, in addition to such prepayment amount, constituting 10% of the

total outstanding units and 10% of the total percentage interest following such issuance and at the time of such issuance.

or after six months from the Issuance Date, the Company may convert all or a portion of the principal balance and all accrued

and unpaid interest due into a number of units equal to the proportion of the outstanding amount being converted multiplied by

33% of the total number of units issued and outstanding at the time of conversion, constituting 33% of the total percentage interest

(the “Conversion Percentage”).

If KCB defaults on payment of the KCB Debenture, the Company may, at its option, extend

all conversion rights, through and including the date KCB tenders or attempts to tender payment in full of all amounts due under

the KCB Debenture.

Conversion rights terminate upon acceptance by the Company of payment in full of principal, accrued interest

and any other amounts due under the KCB Debenture.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

(i) KCB does not elect to exercise its rights of prepayment prior to the Maturity Date, (ii) the Company does not elect to exercise

its rights of conversion, and (iii) KCB pays to the Company all outstanding principal and interest accrued and due under the terms

of the KCB Debenture on the Maturity Date, the Company will still be entitled to receive a number of units, in addition to such

payment amount, constituting 8% of the total outstanding units and 8% of the total percentage interest following such issuance

and at the time of such issuance.

the occurrence of an Event of Default, as defined in the KCB Debenture, the entire principal balance and accrued and unpaid interest

outstanding under the KCB Debenture, and all other obligations of KCB under the KCB Debenture, will be immediately due and payable

and the Company may exercise any and all rights, power and remedies available to it at law or in equity or other appropriate proceeding,

whether for the specific performance of any covenant or agreement contained in the KCB Debenture and proceed to enforce the payment

thereof or any other legal or equitable right of the Company.

amount of principal or interest not paid when due will bear interest at the rate of 12% per annum from the due date thereof until

December 31, 2020, convertible note receivable and interest receivable amounted to $100,000 and $5,129, respectively.

February 19, 2021, the Company made an additional investment of $100,000 into KCB.

In exchange, the KCB issued to the Company

an amended and restated convertible debenture (the “A&R Debenture”) on February 19, 2021 (the “Amendment

Date”).

(See Note - 12 –

Subsequent Events).

CONVERTIBLE NOTE PAYABLE

January 9, 2017, the Company issued a convertible debenture (the “Abrams Debenture”) in the aggregate principal amount

of $2,000,000 in favor of Alan Abrams, who was a significant stockholder of the Company through December 31, 2018 (see Note 3),

in exchange for cash from Mr.

of $2,000,000 in favor of Alan Abrams, who was a significant stockholder of the Company through December 31, 2018, in exchange

for cash from Mr.

Abrams of $2,000,000.

The Abrams Debenture accrues interest at the rate of 6% per annum payable

quarterly by the 1 st of each quarter and was originally due on January 9, 2022.

On January 2, 2019, as part of the

Stock Redemption Agreement, the Company and Mr.

Abrams entered into an amendment of the Abrams Debenture (the “Debenture

Amendment”), pursuant to which the parties agreed to extend the maturity date of the Abrams Debenture from January 9, 2022

to January 9, 2030.

The Abrams Debenture accrues interest at the rate of 6% per annum payable quarterly by

the 1 st of each quarter and was originally due on January 9, 2022.

On January 2, 2019, as part of a Stock Redemption

Agreement, the Company and Mr.

Abrams entered into an amendment of the Abrams Debenture (the “Debenture Amendment”),

pursuant to which the parties agreed to extend the maturity date of the Abrams Debenture from January 9, 2022 to January 9, 2030.

Except as set forth herein, the terms of the Abrams Debenture remain in full force and effect.

Company may prepay this Debenture at any point after nine months, in whole or in part.

Pursuant to the terms of each of the Debentures,

the Holder is entitled to convert all or a portion of the principal balance and all accrued and unpaid interest due under the

Abrams Debenture into shares of the Company’s common stock at a conversion price of $5.00 per share.

ZONED PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

the Company defaults on payment, the Holder may at his option, extend all conversion rights, through and including the date the

Company tenders or attempts to tender payment in full of all amounts due under the Debenture.

Any amount of principal or interest,

which is not paid when due shall bear interest at the rate of 12% per annum.

Upon an Event of Default (as defined in each Debenture),

the Holder may (i) declare the entire principal amount and all accrued and unpaid interest under the Debenture immediately due

and payable, and (ii) exercise any and all rights, powers and remedies available to the Holder at law or in equity or other appropriate

proceeding, whether for the specific performance of any covenant or agreement contained in the Debenture and proceed to enforce

the payment thereof or any other legal or equitable right of the Holder.

On March 1, 2018, the Company and Alan Abrams

entered into a Reaffirmation Agreement whereby Mr.

Abrams reaffirmed his personal guarantee of his obligations under certain of

the Company’s commercial leases.

Company may prepay the Abrams Debenture at any point after nine months, in whole or in part.

Pursuant to the terms of the Abrams

Debenture, Mr.

Abrams is entitled to convert all or a portion of the principal balance and all accrued and unpaid interest due

under the Abrams Debenture into shares of the Company’s common stock at a conversion price of $5.00 per share.

the Company defaults on payment, Mr.

Abrams may at his option, extend all conversion rights, through and including the date the

Company tenders or attempts to tender payment in full of all amounts due under the Abrams Debenture.

Any amount of principal or

interest, which is not paid when due shall bear interest at the rate of 12% per annum.

Upon an Event of Default (as defined in

the Abrams Debenture), Mr.

Abrams may (i) declare the entire principal amount and all accrued and unpaid interest under the Abrams

Debenture immediately due and payable, and (ii) exercise any and all rights, powers and remedies available to Mr.

Abrams at law

or in equity or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in the

Abrams Debenture and proceed to enforce the payment thereof or any other legal or equitable right of Mr.

March 1, 2018, the Company and Alan Abrams entered into a Reaffirmation Agreement whereby Mr.

Abrams reaffirmed his personal guarantee

of his obligations under certain of the Company’s commercial leases.

Additionally, Mr.

Abrams affirmed that the principal of the Abrams Debenture in the principal

amount of $2,000,000 was acknowledged as collateral within the scope of the guaranty included in the commercial lease agreements.

Abrams affirmed that the principal

of the Abrams Debenture in the principal amount of $2,000,000 was acknowledged as collateral within the scope of the guaranty

included in the commercial lease agreements.

of December 31, 2020 and 2019, the principal balance due under the Abrams Debenture is $2,000,000.

of December 31, 2019 and 2018, accrued interest payable due under these Debentures was $30,000 and $30,000, respectively.

in Note 7, effective January 1, 2019, Mr.

Abrams is no longer a significant stockholder of the Company nor considered to be a

related party.

As such the convertible principal balance of $2,000,000 and related accrued interest of $30,000 has been reclassified

to convertible note payable and accrued expenses as of December 31, 2019, respectively, from Convertible debt –

parties and Accrued expenses –

related parties on the consolidated balance sheets.

the years ended December 31, 2019 and 2018, interest expense related to this debenture amounted to $120,000.

For the years ended

December 31, 2019 and 2018, interest expense of $120,000 related to this debenture was reflected as interest expense and interest

expense –

related parties, respectively, on the accompanying consolidated statements of operations.

of December 31, 2020 and 2019, accrued interest payable due under the Abrams Debenture was $30,000 which is included in accrued

expenses on the accompanying consolidated balance sheets.

the years ended December 31, 2020 and 2019, interest expense related to the Abrams Debenture amounted to $120,000.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

RELATED PARTY TRANSACTIONS

8 unchanged sentences

The Company may

prepay the Debenture at any point after nine months, in whole or in part.

Pursuant to the terms of the McLaren Debenture, the

Holder is entitled to convert all or a portion of the principal balance and all accrued and unpaid interest due under this Debenture

into shares of the Company’s common stock at a conversion price of $5.00 per share.

the Company defaults on payment, the Holder may at his option, extend all conversion rights, through and including the date the

Company tenders or attempts to tender payment in full of all amounts due under the Debenture.

Any amount of principal or interest,

which is not paid when due shall bear interest at the rate of 12% per annum.

Upon an Event of Default (as defined in the Debenture),

the Holder may (i) declare the entire principal amount and all accrued and unpaid interest under the Debenture immediately due

and payable, and (ii) exercise any and all rights, powers and remedies available to the Holder at law or in equity or other appropriate

proceeding, whether for the specific performance of any covenant or agreement contained in the Debenture and proceed to enforce

the payment thereof or any other legal or equitable right of the Holder.

prepay the McLaren Debenture at any point after nine months, in whole or in part.

Pursuant to the terms of the McLaren Debenture,

McLaren is entitled to convert all or a portion of the principal balance and all accrued and unpaid interest due under this

McLaren Debenture into shares of the Company’s common stock at a conversion price of $5.00 per share.

the Company defaults on payment, Mr.

McLaren may at his option, extend all conversion rights, through and including the date the

Company tenders or attempts to tender payment in full of all amounts due under the McLaren Debenture.

Any amount of principal

or interest, which is not paid when due shall bear interest at the rate of 12% per annum.

Upon an Event of Default (as defined

in the McLaren Debenture), Mr.

McLaren may (i) declare the entire principal amount and all accrued and unpaid interest under the

McLaren Debenture immediately due and payable, and (ii) exercise any and all rights, powers and remedies available to Mr.

at law or in equity or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained

in the McLaren Debenture and proceed to enforce the

of December 31, 2020 and 2019, the principal balance due under the McLaren Debenture is $20,000.

of December 31, 2019 and 2018, accrued interest payable due under these Debentures is $3,000 and $1,800, respectively, which is

included in accrued expenses –

of December 31, 2020 and 2019, accrued interest payable due under the McLaren Debenture was $4,200 and $3,000, respectively, which

is included in accrued expenses –

related parties on the accompanying consolidated balance sheets.

the years ended December 31, 2020 and 2019, interest expense –

related parties amounted to $1,200 and $121,200, respectively.

For the year ended December 31, 2018, interest expense - related parties included $120,000 of interest expense related to the

Abrams Debenture which is not considered a related party transaction subsequent to December 31, 2018.

ZONED PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

related parties amounted to $1,200.

redemption agreement

January 1, 2019, the Company and certain beneficial shareholders entered into a Stock Redemption Agreement (See Note 3 and Note

January 1, 2019, the Company and certain beneficial shareholders entered into a Stock Redemption Agreement (See Note 3 and 9).

Pursuant to SEC rules, each of these beneficial shareholders was deemed to be a “related person”

due solely to

their status as significant stockholders of the Company.

Pursuant to the terms of the Stock Redemption Agreement, these beneficial

shareholders would no longer be significant stockholders of the Company and would no longer be deemed to be “related persons”

under SEC rules.

Accordingly, as of January 1, 2019, the Company will no longer reflect transactions and balances related to these

beneficial shareholders as related party transactions.

Prior to January 1, 2019, transactions with these beneficial shareholders

have been reflected as related party transactions on the accompanying consolidated financial statements.

due solely to their

status as significant stockholders of the Company.

Pursuant to the terms of the Stock Redemption Agreement, these beneficial shareholders

would no longer be significant stockholders of the Company and would no longer be deemed to be “related persons”

Accordingly, as of January 1, 2019, the Company will no longer reflect transactions and balances related to these beneficial

shareholders as related party transactions.

Prior to January 1, 2019, transactions with these beneficial shareholders were reflected

as related party transactions on the Company’s consolidated financial statements.

STOCKHOLDERS’

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will be entitled to receive $1.00 per share plus redemption provision before assets distributed to other shareholders.

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:

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:

or change the rights, preferences or privileges of the Preferred Stock.

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by us, except for operating leases and obligations assumed as part of the purchase price of property.

Common stock issued for services

January 12, 2018, pursuant to an engagement letter dated in October 2015, the Company issued 16,055 shares of its common stock

to a company majority owned by the Company’s former CFO for services rendered.

The shares were valued at their fair value

of $16,858, or $1.05 per common share, which was the fair value of the common shares on the date of grant by using the quoted

share price on the date of grant.

In connection with the issuance of these common shares, in January 2018, the Company recorded

stock-based compensation expense of $16,858.

January 30, 2018, the Company issued an aggregate of 55,000 shares of common stock to members of the Company’s board of

directors for services rendered.

The shares were valued at their fair value of $51,700 using the quoted share price on the date

of grant of $0.94 per common share.

In connection with these grants, in January 2018, the Company recorded stock-based compensation

expense of $51,700.

April 2, 2018, the Company issued 10,000 shares of common stock to a member of the Company’s board of directors for services

The shares were valued at their fair value of $6,200 using the quoted share price on the date of grant of $0.62 per

common share.

In connection with these grants, in April 2018, the Company recorded stock-based compensation expense of $6,200.

connection with a consulting agreement with an investor relations firm effective September 1, 2016 for investor relations services,

on April 2, 2018 and on September 3, 2018, the Company issued 7,500 and 7,500 shares of restricted stock, respectively.

2, 2018 the shares were valued at a fair value of $4,650 using the quoted share price on the date of grant of $0.62 per common

Accordingly, the Company recorded consulting fees of $4,650.

On September 3, 2018, the shares were valued at a fair value

of $4,724 using the quoted share price on the date of grant of $0.63 per common share.

Accordingly, the Company recorded consulting

fees of $4,724.

ZONED PROPERTIES, INC.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

DECEMBER 31, 2020 AND 2019

Common stock issued for services

January 14, 2019, the Company issued an aggregate of 100,000 shares of common stock to the members of the Company’s board

4 unchanged sentences

expense of $31,100.

January 6, 2020, the Company issued an aggregate of 110,000 shares of common stock to members of the Company’s board of

directors for services rendered.

The shares were valued at their aggregate fair value of $24,200 using the quoted per share price

on the date of grant of $0.22.

In connection with these grants, in January 2020, the Company recorded stock-based compensation

expense of $24,200 which is included in compensation and benefits on the consolidated statements of operations.

Equity incentive plans

7 unchanged sentences

The 2016 Plan authorizes the grant of awards in the

form of options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code, options that do

not qualify (non-statutory stock options) and grants of restricted shares of common stock.

Restricted shares granted pursuant

to the 2016 Plan are amortized to expense over the three-year vesting period.

form of options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended,

options that do not qualify (non-statutory stock options) and grants of restricted shares of common stock.

Restricted shares granted

pursuant to the 2016 Plan are amortized to expense over the vesting period.

Options vest and expire over a period not to exceed

3 unchanged sentences

As of December 31,

2019 and 2018, 40,000 stock option awards have been made under the 2016 Plan.

At December 31, 2019 and 2018, 9,960,000 shares

are available for future issuance.

2019, 40,000 stock option awards are outstanding and 40,000 options are exercisable under the 2016 Plan.

As of December 31, 2020,

75,000 stock option awards are outstanding and 75,000 options are exercisable under the 2016 Plan.

As of December 31, 2020 and

2019, 9,925,000 and 9,960,000 shares are available for future issuance.

Company also continues to maintain its 2014 Equity Compensation Plan (the “2014 Plan”), pursuant to which 1,250,000

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As of December 31, 2020 and 2019, options to purchase 1,250,000 shares of common

stock are outstanding and 1,140,000 are exercisable pursuant to the 2014 Plan.

stock are outstanding and 1,150,000 options are exercisable pursuant to the 2014 Plan.

Stock options

January 6, 2020, the Company granted an employee an option, pursuant to the 2016 Plan, to purchase 125,000 of the Company’s

common stock at an exercise price of $1.00 per share.

The grant date of the option was January 6, 2020 and the option expires

on January 6, 2030.

The option vests as to (i) 35,000 of such shares on January 6, 2020;

and (ii) as to 10,000 of such shares

on January 6, 2021 and each year thereafter through January 6, 2029.

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

expected volatility of 110%;

risk-free interest rate of 1.81%;

and an estimated holding period of 10 years.

In connection

with these options, the Company valued these options at a fair value of $23,388 and will record stock-based compensation expense

over the vesting period.

In July 2020, this employee was terminated and 90,000 unvested options were cancelled.

the years ended December 31, 2020 and 2019, in connection with the accretion of stock-based option expense, the Company recorded

4 unchanged sentences

expense to be recognized through December 2024.

The aggregate intrinsic value at December 31, 2019 was nil and was calculated

The aggregate intrinsic value on December 31, 2020 was nil and was calculated

based on the difference between the quoted share price on December 31, 2020 of $0.43 and the exercise price of the underlying

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

option activities for the years ended December 31, 2020 and 2019 are summarized as follows:

Weighted Average Exercise

Weighted Average Remaining Contractual Term (

Aggregate Intrinsic

Exercise Price

Balance Outstanding December 31, 2018

3 unchanged sentences

Balance Non-vested at December 31, 2019

Vested during the year

Vested during

Balance Non-vested at December 31,

ZONED PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

Stock redemption agreement

32 unchanged sentences

(the “New Chino Valley Lease”) to increase the monthly base rent payable by Broken Arrow from $35,000 to $40,000.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

effectiveness of the Stock Redemption and the transactions set forth above:

15 unchanged sentences

in full force and effect.

ZONED PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

10 - INCOME TAXES

1 unchanged sentence

amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

tax assets at December 31, 2019 and 2018 consist of net operating loss carryforwards.

tax assets on December 31, 2020 and 2019 consist of net operating loss carryforwards.

The net deferred tax asset has been fully

2 unchanged sentences

the years ended December 31, 2020 and 2019 were as follows:

Income tax benefit at U.S.

tax benefit at U.S.

statutory rate

Income tax benefit –

Non-deductible expenses

Effect of change in effective rate

Change in valuation allowance

Total provision for income tax

tax benefit –

Non-deductible

in valuation allowance

provision for income tax

Company’s approximate net deferred tax asset as of December 31, 2020 and 2019 was as follows:

operating loss carryforward

deferred tax assets before valuation allowance

deferred tax asset

Net operating loss carryforward

Net deferred tax assets before valuation allowance

Valuation allowance

Net deferred tax asset

net operating loss carryforward was approximately $1,711,000 at December 31, 2019.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

net operating loss carryforward was approximately $1,764,000 on December 31, 2020.

The Company provided a valuation allowance

7 unchanged sentences

prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.

valuation allowance decreased by $3,543.

valuation allowance increased by $14,740.

The potential tax benefit arising from the loss carryforward will expire in 2040.

17 unchanged sentences

the prospective tenant’s obtaining a license to cultivate on the Property.

ZONED PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

to the terms of the Parachute Agreement, Zoned Colorado will have a right of first refusal on eleven additional lots owned by

3 unchanged sentences

31, 2020 and 2019.

As of December 31, 2019, the Company and Seller have yet to complete the purchase.

In January 2021, the Parachute Agreement was mutually terminated, and the refundable deposit was returned to

the Company (See Note 12).

time to time, the Company may be involved in litigation related to claims arising out of its operations in the normal course of

As of December 31, 2019, the Company is not involved in any pending or threatened legal proceedings that it believes

could reasonably be expected to have a material adverse effect on its financial condition, results of operations, or cash flows.

As of December 31, 2020 and 2019, the Company is not involved in any pending or threatened legal proceedings that it

believes could reasonably be expected to have a material adverse effect on its financial condition, results of operations, or

Advisory Services Agreements

May 1, 2018, the Company entered into the Broken Arrow CASA, with a term expiring on April 30, 2040, unless earlier terminated

as provided in the Broken Arrow CASA.

Additionally, on May 1, 2018, the Company entered into the CJK CASA, with a term expiring

on April 30, 2040, unless earlier terminated as provided in the CJK CASA.

These Agreements may be terminated prior to the expiration

of the Term upon the occurrence of any of the following:

(a) by the Company for any reason at any time upon thirty calendar days’

May 1, 2018, the Company entered into that certain Confidential Advisory Services Agreement by and between the Company and Broken

Arrow (the “Broken Arrow CASA”), with a term expiring on April 30, 2040, unless earlier terminated as provided in

the Broken Arrow CASA.

Additionally, on May 1, 2018, the Company entered into that certain Confidential Advisory Services Agreement

by and between the Company and CJK (the “CJK CASA”

and together with the Broken Arrow CASA, the “CASAs”),

with a term expiring on April 30, 2040, unless earlier terminated as provided in the CJK CASA.

The CASAs may be terminated prior

to the expiration of their respective term upon the occurrence of any of the following:

(a) by the Company for any reason at any

time upon thirty calendar days’

written notice to the other party;

(b) by either party immediately upon the mutual agreement of the parties, evidenced by

a writing signed by the parties;

or (c) immediately by either party in the event of an actual finding, by a court of competent

jurisdiction, of fraud, gross negligence or willful misconduct of the other party in connection with these Agreements.

to the terms of the Broken Arrow CASA and CJK CASA, Broken Arrow and CJK engaged the Company to perform certain advisory services

in exchange for a fee equal to 10% of Broken Arrow’s and CJK’s gross revenues (the (“Revenue Fee”), commencing

January 2019.

(b) by either party immediately upon the mutual agreement

of the parties, evidenced by a writing signed by the parties;

or (c) immediately by either party in the event of an actual finding,

by a court of competent jurisdiction, of fraud, gross negligence or willful misconduct of the other party in connection with the

Pursuant to the terms of the CASAs, Broken Arrow and CJK engaged the Company to perform certain advisory services in exchange

for a fee equal to 10% of Broken Arrow’s and CJK’s gross revenues (the “Revenue Fee”).

Effective January

1, 2019, the parties agreed to amend the May 1, 2018 leases to reduce the Revenue Fee payable pursuant to each of the CASAs from

10% of gross revenue to 0% of gross revenue.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

January 1, 2019, the Company and Messrs.

1 unchanged sentence

Abrams and Carra entered into Stock

Redemption Agreements.

Prior to entry into the Stock Redemption Agreement, pursuant to the terms of the Stock Redemption Agreement,

the parties agreed that the Company would redeem an aggregate of 5,640,004 owned by such related party shareholders’

exchange for the Stock Redemption.

In addition to other terms, the parties agreed to amend the May 1, 2018 leases to reduce the

gross revenue fee payable by these related party tenants from 10% of gross revenue to 0% of gross revenue (See Note 3).

Redemption Agreements (see Note 9).

Prior to entry into the Stock Redemption Agreement, pursuant to the terms of the Stock Redemption

Agreement, the parties agreed that the Company would redeem an aggregate of 5,640,004 owned by such related party shareholders’

in exchange for the Stock Redemption.

In addition to other terms, the parties agreed to amend the May 1, 2018 leases to reduce

the gross revenue fee payable by these related party tenants from 10% of gross revenue to 0% of gross revenue (See Note 3).

and Related Golden Parachute Agreement

May 23, 2018, the Company and Mr.

McLaren, the Company’s Chief Executive Officer, agreed to replace Mr.

McLaren’s

2014 employment agreement with a new employment agreement dated May 23, 2018 (the “2018 Employment Agreement”).

to the terms of the 2018 Employment Agreement, the Company agreed to continue to pay Mr.

McLaren his then-current base annual

salary of $215,000, and to award Mr.

McLaren with an annual and/or quarterly bonus payable in either cash and/or equity of no

less than 2% of the Company’s net income for the associated period.

McLaren, the Company’s President, Chief Executive Officer, Chief Financial Officer and

Chairman of the Board, agreed to replace Mr.

McLaren’s 2014 employment agreement with a new employment agreement dated May

23, 2018 (the “2018 Employment Agreement”).

Pursuant to the terms of the 2018 Employment Agreement, the Company agreed

to continue to pay Mr.

McLaren his then-current base annual salary of $215,000, and to award Mr.

McLaren with an annual and/or

quarterly bonus payable in either cash and/or equity of no less than 2% of the Company’s net income for the associated period.

2018 Employment Agreement has a term of 10 years.

2 unchanged sentences

in any of the following circumstances:

(i) immediately,

McLaren dies;

(ii) immediately,

McLaren receives benefits under the long-term disability insurance coverage then provided by the Company or, if no such

insurance is in effect, upon Mr.

McLaren receives benefits under the long-term disability insurance coverage then provided by the Company or, if no

such insurance is in effect, upon Mr.

McLaren’s disability;

the expiration date, as the same may be extended by the parties by written amendment to the 2018 Employment Agreement prior to

the occasion thereof;

the expiration date, as the same may be extended by the parties by written amendment to the 2018 Employment Agreement prior

to the occasion thereof;

the option of the Company for Cause (as defined in the 2018 Employment Agreement) upon the Company’s provision of written

3 unchanged sentences

McLaren at any time with Good Reason (as defined in the 2018 Employment Agreement), upon 30 days’

prior written notice

to the Company delivered not later than within 90 days of the existence of the condition therefor;

prior written

notice to the Company delivered not later than within 90 days of the existence of the condition therefor;

McLaren at any time without Good Reason, upon not less than three months’

5 unchanged sentences

McLaren, except for his obligation under the restrictive covenants in the 2018 Employment Agreement.

ZONED PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

Company and Mr.

26 unchanged sentences

McLaren report to a corporate officer or employee instead of reporting directly to the Board;

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

material diminution in the budget over which Mr.

43 unchanged sentences

rise to the notice of Termination given in respect of them.

PROPERTIES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

31, 2019 AND 2018

Company will pay to Mr.

9 unchanged sentences

McLaren all legal fees and expenses incurred by him as a result of such Termination.

PROPERTIES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 AND 2019

SUBSEQUENT EVENTS

On January 6,

2020, the Company issued an aggregate of 110,000 shares of common stock to members of the Company’s board of directors for

services rendered.

The shares were valued at their aggregate fair value of $24,200 using the quoted per share price on the date

of grant of $0.22.

In connection with these grants, in January 2020, the Company recorded stock-based compensation expense of

January 6, 2020, the Company granted an employee an option, pursuant to the 2016 Plan, to purchase 125,000 of the Company’s

January 1, 2021, the Company granted a consultant an option, pursuant to the 2016 Plan, to purchase 125,000 of the Company’s

common stock at an exercise price of $1.00 per share.

1 unchanged sentence

on January 1, 2031.

The option vests as to (i) 35,000 of such shares on January 6, 2020, and (ii) as to 10,000 of such shares

The option vests as to (i) 25,000 of such shares on January 1, 2021;

and (ii) as to 10,000 of such shares

on January 1, 2022 and each year thereafter through January 1, 2031.

8 unchanged sentences

over the vesting period.

note receivable

19, 2020, the Company made an initial investment of $100,000 into KCB Jade Holdings, LLC (“KCB”).

In exchange for

the investment, KCB issued to the Company a convertible debenture (the “Debenture”) dated March 19, 2020 (the “Issuance

Date”) in the original principal amount of $100,000.

The Debenture bears interest at the rate of 6.5% per annum and matures

on March 19, 2025 (the “Maturity Date”).

Interest on the outstanding principal sum of the Debenture commences accruing

on the Issuance Date and is computed on the basis of a 365-day year and the actual number of days elapsed, and shall be payable

annually due by the first day of each calendar anniversary following the Issuance Date.

KCB may prepay the Debenture at any point

after 18 months following the Issuance Date, in whole or in part.

However, if KCB elects to prepay the Debenture prior to the

Maturity Date or prior to any conversion as provided in the Debenture in whole or in part, the Company will be entitled to receive

a number of KCB units, in addition to such prepayment amount, constituting 10% of the total outstanding units and 10% of the total

percentage interest following such issuance and at the time of such issuance.

six months from the Issuance Date, the Company may convert all or a portion of the principal balance and all accrued and unpaid

interest due into a number of units equal to the proportion of the outstanding amount being converted multiplied by 33% of the

total number of units issued and outstanding at the time of conversion, constituting 33% of the total percentage interest (the

“Conversion Percentage”).

If KCB defaults on payment of the Debenture, the Company may, at its option, extend all

conversion rights, through and including the date KCB tenders or attempts to tender payment in full of all amounts due under the

Conversion rights terminate upon acceptance by the Company of payment in full of principal, accrued interest and any

other amounts due under the Debenture.

does not elect to exercise its rights of prepayment prior to the Maturity Date, (ii) the Company does not elect to exercise its

rights of conversion, and (iii) KCB pays to the Company all outstanding principal and interest accrued and due under the terms

of the Debenture on the Maturity Date, the Company will still be entitled to receive a number of units, in addition to such payment

amount, constituting 8% of the total outstanding units and 8% of the total percentage interest following such issuance and at

the time of such issuance.

occurrence of an Event of Default, as defined in the Debenture, the entire principal balance and accrued and unpaid interest outstanding

under the Debenture, and all other obligations of KCB under the Debenture, will be immediately due and payable and the Company

may exercise any and all rights, power and remedies available to it at law or in equity or other appropriate proceeding, whether

for the specific performance of any covenant or agreement contained in the Debenture and proceed to enforce the payment thereof

or any other legal or equitable right of the Company.

of principal or interest not paid when due will bear interest at the rate of 12% per annum from the due date thereof until paid.

January 31, 2021, the Company issued an aggregate of 130,000 shares of common stock to members of the Company’s board of

directors for services rendered.

The shares were valued at their aggregate fair value of $52,000 using the quoted per share price

on the date of grant of $0.40.

In connection with these grants, in January 2021, the Company recorded stock-based compensation

expense of $52,000 which will be included in compensation and benefits on the consolidated statements of operations.

January 2021, the Parachute Agreement was mutually terminated, and the refundable deposit was returned to the Company (see Note

February 19, 2021 (the “Amendment Date”), the Company made an additional investment of $100,000 into KCB (the “Additional

Investment”) (See Note 6).

In exchange, KCB issued to the Company an amended and restated convertible debenture (the “A&R

Debenture”) on the Amendment Date.

The A&R Debenture amends and restates in its entirety the KCB Debenture (see Note

Pursuant to the A&R Debenture, the Company and KCB agreed to certain new terms that did not exist in the KCB Debenture,

which are described below.

Accrual Commencement :

Pursuant to the A&R Debenture, interest on the Initial

Investment begins accruing as of March 19, 2020, while interest on the Additional Investment

begins accruing on February 19, 2021.

In the A&R Debenture, the parties acknowledge that each time that KCB sells

one of its franchise locations, KCB earns a fee (an “Initial Fee”), and that

KCB also earns a fee when one of its franchise locations renews its franchise with KCB

(a “Renewal Fee”).

Pursuant to the A&R Debenture, the Company and KCB

agreed that, as additional consideration for the Additional Investment, KCB will pay

to the Company, in perpetuity, 5% of any Initial Fee received by KCB after the Amendment

Date, as well as 5% of any Renewal Fee received by KCB related to any franchise locations

sold after the Amendment Date, in each case to be paid within five (5) days of receipt

of KCB thereof.

addition, following the Amendment Date, KCB agreed not to decrease the amount it charges its franchise locations for an Initial

Fee or any Renewal Fee as in effect on the Amendment Date without the prior written consent of the Company, or to take any other

actions that would reduce the value of KCB’s obligation to the Company with respect to these franchise fee payments.

obligation to pay the Company the franchise fees listed above will survive any termination, repayment or conversion of the A&R

Failure by KCB to pay the Company the franchise fees in the manner described above will result in an event of default,

and, among other things, any due and unpaid franchise fees will accrue interest at 12% per year from the date the obligation was

from the terms described above, the terms of the A&R Debenture are substantially identical to the terms of the KCB Debenture

(See Note 6).

March 3, 2021, Gilbert entered into that certain Commercial Lease Agreement (the “Lease”), dated as of February 26,

2021, between Gilbert and AZ2CAL Enterprises, LLC (the “Tenant”).

Pursuant to the terms of the Lease, Gilbert agreed

to rent its vacant land in Gilbert, AZ (the “Property”) to the Tenant for a term of 24 months, from April 1, 2021

to March 31, 2023, for monthly rent of $2,750;

provided, however, that no rent is due for the month of April 2021.

pursuant to the terms of the Lease, the Tenant has an option to purchase the Property (the “Option”) that can be exercised

any time after the fourth month of the lease term, but no later than the end of the 12 th month of the lease term.

purchase price of the Property would be $335,000.

If the Tenant exercises its Option, $750 of each lease payment made prior to

close of escrow, along with the security deposit will be credited toward the purchase price of the Property.

If the Tenant exercises

its Option, close of escrow will occur no later than 30 days after opening of escrow.

The parties agreed to make every reasonable

attempt to fully execute a purchase contract within seven business days of the Tenant’s notice of its desire to exercise

March 17, 2021, the Company formed a new wholly-owned subsidiary, Zoned Brokerage, LLC.

that was organized in the State of Arizona.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures