What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-10 compared with 2022-08-11 · 185 added, 258 removed, 476 unchanged (48% of the section changed)

36 unchanged sentences

The Company is a real estate development firm

for emerging and highly regulated industries, including regulated cannabis.

for emerging and highly regulated industries, including legalized cannabis.

The Company is redefining the approach to commercial real

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Business Bureau, the U.S.

Green Building Council, and the Forbes Real Estate Council.

Green Building Council, and the Forbes Business Council.

The Company does not grow, harvest, sell or distribute

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segment), and (ii) advisory and brokerage services related to commercial properties (the “Real Estate Services” segment).

are in the process of developing and expanding multiple business divisions, including a property technology division, and a property investment

portfolio division focused on acquisitions to expand our property holdings.

Each of these operating divisions is an important element

of the overall business development strategy for long-term growth.

We believe in the value of building relationships with clients and

local communities to position the Company for long-term portfolio and revenue growth backed by sophisticated, safe, and sustainable assets

We are in the process of developing and expanding multiple business divisions, including a property technology division, a property advisory

division, a commercial brokerage division, and a property investment portfolio division focused on acquisitions to expand our property

Each of these operating divisions is an important element of the overall business development strategy for long-term growth.

We believe in the value of building relationships with clients and local communities to position the Company for long-term portfolio and

revenue growth backed by sophisticated, safe, and sustainable assets and clients.

The core of our business involves identifying

and developing commercial properties that intend to operate within highly regulated industries, including the regulated cannabis industry.

Within highly regulated industries, local municipalities typically develop strict regulations, including zoning and permitting requirements

related to commercial real estate, that dictate the specific locations and parameters under which regulated properties can operate.

regulations often include complex permitting processes and can include non-standard codes governing each location;

for example, restricting

a regulated property or facility from operating within a certain distance of any parks, schools, churches, or residential districts, or

restricting a regulated property from operating outside a defined set of hours of operation.

When an organization can collaborate with

local representatives, a proactive set of rules and regulations can be established and followed to meet the needs of both the regulated

operators and the local community.

and developing commercial properties that intend to operate within highly regulated industries, including the regulated and legalized

cannabis industry.

Within highly regulated industries, local municipalities typically develop strict regulations, including zoning and

permitting requirements related to commercial real estate, that dictate the specific locations and parameters under which regulated properties

These regulations often include complex permitting processes and can include non-standard codes governing each location;

for example, restricting a regulated property or facility from operating within a certain distance of any parks, schools, churches, or

residential districts, or restricting a regulated property from operating outside a defined set of hours of operation.

When an organization

can collaborate with local representatives, a proactive set of rules and regulations can be established and followed to meet the needs

of both the regulated operators and the local community.

The Company currently maintains a portfolio of

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Two of the leased properties are zoned and permitted as licensed and regulated cannabis dispensaries, and two of the leased properties

are zoned and permitted as licensed and regulated cannabis cultivation facilities.

Each regulated property may undergo a non-standard

development process.

Various development requirements in this process may include initial property identification, zoning authorization,

and permitting guidance in order to qualify a commercial property for subsequent architectural design, utility installation, construction

and development, property management, facilities management systems, and security system installation.

For the three and six months ended June 30, 2022

and 2021, substantially all of our Property Investment Portfolio revenues were generated from triple-net leases to tenants that are controlled

by one entity (each, a “Significant Tenant” and collectively, the “Significant Tenants”), which is located in

the State of Arizona.

For the three months ended June 30, 2022 and 2021, Real Estate Services segment revenues included $0 and $4,750

that were generated from the Significant Tenants.

For the six months ended June 30, 2022 and 2021, Real Estate Services segment revenues

included $0 and $14,000 that were generated from the Significant Tenants.

As of June 30, 2022, a summary of rental properties

owned by us in our Property Investment Portfolio consisted of the following:

are zoned and permitted as licensed and regulated cannabis cultivation and processing facilities.

Each regulated property may undergo

a non-standard development process.

Various development requirements in this process may include initial property identification, zoning

authorization, and permitting guidance in order to qualify a commercial property for subsequent architectural design, utility installation,

construction and development, property management, facilities management systems, and security system installation.

For the three and nine months ended September

30, 2022 and 2021, substantially all of our Property Investment Portfolio revenues were generated from triple-net leases to tenants that

are controlled by one entity (each, a “Significant Tenant” and collectively, the “Significant Tenants”), which

is located in the State of Arizona.

For the three months ended September 30, 2022 and 2021, Real Estate Services segment revenues included

$0 and $1,438 that were generated from the Significant Tenants.

For the nine months ended September 30, 2022 and 2021, Real Estate Services

segment revenues included $0 and $15,438 that were generated from the Significant Tenants.

As of September 30, 2022, a summary of rental

properties owned by us in our Property Investment Portfolio consisted of the following:

Chino Valley,

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Lease End Date

Portfolio Total

Land Area (Acres)

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Vacant Rentable Sq.

rented as of June 30, 2022

rented as of September 30, 2022

Annual Base Rent (*,**)

2022 (remainder of year)

base rent represents amount of cash payments due from tenants.

Tempe, AZ, table includes rental income generated from the lease of parking lot space used by a third party as an antenna location.

Annual base rent represents amount of cash payments due from tenants.

For Tempe, AZ, table includes rental income generated from the lease of parking lot space used by a third party as an antenna location.

Annualized $ per Rented Sq.

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We intend to accomplish this by prospecting

new advisory services across the country for private, public, and municipal clients.

We believe that strategic real estate and sustainability

services are likely to emerge as the growth engine for Zoned Properties.

new real estate services across the country for private, public, and municipal clients.

We believe that strategic real estate services

are likely to emerge as the growth engine for Zoned Properties.

Pursuant to lease agreements with our Significant

Tenant, from the period from May 31, 2020 through June 30, 2022, our Significant Tenants invested a combined total of at least $8,000,000

Tenant, from the period from May 31, 2020 through September 30, 2022, our Significant Tenants invested a combined total of at least $8,000,000

improvements in and to the properties in Chino Valley.

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below and should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements

for the three and six months ended June 30, 2022 and 2021, which are included elsewhere in this quarterly report on Form 10-Q.

discussed below are for the three and six months ended June 30, 2022 and 2021.

Comparison of Results of Operations for the Three and Six Months

Ended June 30, 2022 and 2021

For the three and six months ended June 30, 2022 and 2021, revenues

for the three and nine months ended September 30, 2022 and 2021, which are included elsewhere in this quarterly report on Form 10-Q.

results discussed below are for the three and nine months ended September 30, 2022 and 2021.

Comparison of Results of Operations for the Three and Nine Months

Ended September 30, 2022 and 2021

For the three and nine months ended September 30, 2022 and 2021, revenues

consisted of the following:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Rent revenues

Advisory revenues

Advisory and franchise revenues

Brokerage revenues

Franchise fees

Total revenues

Revenues by reportable business segments for the

three and six months ended June 30, 2022 and 2021 was as follows:

three and nine months ended September 30, 2022 and 2021 was as follows:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Property investment portfolio

Real estate services

For the three months ended June 30, 2022, total

revenues amounted to $498,652, including Significant Tenants revenues of $445,479, as compared to $550,064, including Significant Tenant

revenues of $291,982, for the three months ended June 30, 2021, a decrease of $51,412, or 9.3%.

For the three months ended June 30, 2022,

the decrease in revenues as compared to the 2021 comparable period was attributable to an increase in rental revenue from our Significant

Tenant of $155,342 due to an increase in rental revenue at our Chino Valley facility related to a fourth amendment to our lease agreement

in connection with an increase in rentable square footage, an increase in advisory revenues of $22,000, and an increase in franchise fees

earned of $5,000, offset by a decrease in brokerage revenues related to commission earned on real estate listings of $233,754.

Substantially

all of the Company’s real estate properties are leased under triple-net leases to the Significant Tenants.

For the six months ended June 30, 2022, total

revenues amounted to $1,437,353, including Significant Tenants revenues of $830,773, as compared to $895,909, including Significant Tenant

revenues of $588,462, for the six months ended June 30, 2021, an increase of $541,444, or 60.4%.

For the six months ended June 30, 2022,

the increase in revenues as compared to the 2021 comparable period was attributable to an increase in rental revenue from our Significant

Tenant of $253,250 due to an increase in rental revenue at our Chino Valley facility related to a fourth amendment to our lease agreement

in connection with an increase in rentable square footage, an increase in brokerage revenue of $277,350 related to commission earned on

real estate listings, and an increase in franchise fees earned of $11,250, offset by a decrease in advisory revenues of $406.

Substantially

all of the Company’s real estate properties are leased under triple-net leases to the Significant Tenants.

For the three months ended September 30, 2022,

total revenues related to our property investment portfolio amounted to $450,374, including Significant Tenants revenues of $445,476,

as compared to $314,677, including Significant Tenant revenues of $309,625, for the three months ended September 30, 2021, an increase

of $135,697, or 43.1%.

For the nine months ended September 30, 2022, total revenues related to our property investment portfolio amounted

to $1,290,785, including Significant Tenants revenues of $1,276,249, as compared to $901,838, including Significant Tenant revenues of

$884,087, for the nine months ended September 30, 2021, an increase of $388,947, or 43.1%.

For the three and nine months ended September

30, 2022, the increase in revenues as compared to the 2021 comparable period was attributable to an increase in rental revenue from our

Significant Tenant of due to an increase in rental revenue at our Chino Valley facility related to a fourth amendment to our lease agreement

in connection with an increase in rentable square footage.

Substantially all of the Company’s real estate properties are leased

under triple-net leases to the Significant Tenants.

For the three months ended September 30, 2022,

total revenues related to our real estate services segment amounted to $164,614, including Significant Tenants revenues of $0, as compared

to $72,688, including Significant Tenant revenues of $1,438, for the three months ended September 30, 2021, an increase of $91,926, or

For the three months ended September 30, 2022, the increase in revenues related to our real estate services segment as compared

to the 2021 comparable period was attributable to an increase in brokerage revenue of $21,614 related to commission earned on real estate

listings, and an increase in advisory revenues of $70,312 related to the expansion of our client base.

For the nine months ended September

30, 2022, total revenues related to our real estate services segment amounted to $761,556, including Significant Tenants revenues of $0,

as compared to $381,436, including Significant Tenant revenues of $15,438, for the nine months ended September 30, 2021, an increase of

$380,120, or 99.6%.

For the nine months ended September 30, 2022, the increase in revenues related to our real estate services segment

as compared to the 2021 comparable period was attributable to an increase in brokerage revenue of $298,964 related to commission earned

on real estate listings, an increase in advisory revenues of $69,906 related to the expansion of our client base, and an increase in franchise

fees earned of $11,250.

Operating expenses

For the three months ended June 30, 2022, operating

expenses amounted to $507,856 as compared to $410,411 for the three months ended June 30, 2021, an increase of $97,445, or 23.7%.

the six months ended June 30, 2022, operating expenses amounted to $1,437,039 as compared to $799,624 for the six months ended June 30,

2021, an increase of $637,415, or 79.7%.

For the three and six months ended June 30, 2022 and 2021, operating expenses consisted of the

For the three months ended September 30, 2022,

operating expenses amounted to $636,540 as compared to $440,816 for the three months ended September 30, 2021, an increase of $195,724,

For the nine months ended September 30, 2022, operating expenses amounted to $2,073,579 as compared to $1,240,440 for the nine

months ended September 30, 2021, an increase of $833,139, or 67.2%.

For the three and nine months ended September 30, 2022 and 2021, operating

expenses consisted of the following:

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Compensation and benefits

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Gain on sale of property and equipment

For the three months ended June 30, 2022, compensation and benefit expense increased by $200,533, or 3142.5%, as compared to the three months ended June 30, 2022.

This increase was attributable to an increase in stock-based compensation of $75,009 and increase in compensation and benefits of $125,524.

For the three months ended September 30, 2022, compensation and benefit expense increased by $219,787, or 173.2%, as compared to the three months ended September 30, 2021.

This increase was attributable to an increase in stock-based compensation of $60,420 and increase in compensation and benefits of $159,367, related to the addition of multiple new full-time and part-time team members.

The increase in stock-based compensation related to an increase in stock-based compensation from the accretion of stock option expense.

Additionally, during the second quarter of 2021, we began to hire additional staff related to the diversification of our services into brokerage services and the expansion of our advisory services.

For the six months ended June 30, 2022, compensation and benefit expense increased by $341,519, or 174.9%.

as compared to the six months ended June 30, 2021.

The increase was attributable to an increase in compensation and benefits of $217,416 and an increase in stock-based compensation of $124,103.

During the second quarter of 2022, we began to hire additional staff related to the diversification of our real estate services for the expansion of both advisory services and brokerage services.

For the nine months ended September 30, 2022, compensation and benefit expense increased by $561,306, or 174.2%.

as compared to the nine months ended September 30, 2021.

The increase was attributable to an increase in compensation and benefits of $376,783 and an increase in stock-based compensation of $184,523, related to the addition of multiple new full-time and part-time team members.

The increase in stock-based compensation was from the accretion of stock option expense offset by a decrease in the value of common shares issued for services.

Additionally, during the second quarter of 2021, we began to hire additional staff related to the diversification of our services into brokerage services and the expansion of our advisory services.

For the three months ended June 30, 2022, professional fees decreased by $42,093, or 38.8%, as compared to the three months ended June 30, 2021.

This decrease was primarily attributable to a decrease in consulting fees of $45,760 due to the hiring of certain consultants that are now employees and a decrease in accounting fees of $880 offset by an increase in legal fees of $3,146 and an increase in public relations fees of $1,625.

For the six months ended June 30, 2022, professional fees decreased by $20,194, or 10.0%, as compared to the six months ended June 30, 2021.

This decrease was primarily attributable to a decrease in consulting fees of $39,721 due to the hiring of certain consultants that are now employees, offset by an increase in legal fees of $7,113 and an increase in public relations fees of $12,250.

For the three months ended June 30, 2022 and 2021, we recorded brokerage fees amounting to $1,419 and $118,296, respectively.

For the six months ended June 30, 2022 and 2021, we recorded brokerage fees amounting to $357,966 and $118,296, respectively.

During the second quarter of 2022, we began to hire additional staff related to the diversification of our real estate services for the expansion of both advisory services and brokerage services.

For the three months ended September 30, 2022, professional fees decreased by $25,325, or 24.0%, as compared to the three months ended September 30, 2021.

This decrease was primarily attributable to a decrease in consulting fees of $31,163 due to the hiring of certain consultants that are now employees, offset by an increase in accounting fees of $2,000, an increase in legal fees of $706 and an increase in public relations fees of $3,132.

For the nine months ended September 30, 2022, professional fees decreased by $45,519, or 14.8%, as compared to the nine months ended September 30, 2021.

This decrease was primarily attributable to a decrease in consulting fees of $70,884 due to the hiring of certain consultants that are now employees and a decrease in transfer agent fees of $224, offset by an increase in accounting fees of $2,388, an increase in legal fees of $7,819, and an increase in public relations fees of $15,382.

For the three months ended September 30, 2022 and 2021, in connection with our real estate services segment, we recorded brokerage fees amounting to $70,181 and $42,500, respectively.

For the nine months ended September 30, 2022 and 2021, we recorded brokerage fees amounting to $428,147 and $160,796, respectively.

Brokerage fees occur as the result of various percentage-based commission splits we pay to our licensed brokerage team members who participate in various real estate listing transactions.

General and administrative expenses consist of expenses such as rent expense, insurance expense, insurance expense, travel expenses, office expenses, telephone and internet expenses, advertising and marketing expense, and other general operating expenses.

For the three months ended June 30, 2022, general and administrative expenses increased by $17,376, or 34.8%, as compared to the three months ended June 30, 2021.

For the six months ended June 30, 2022, general and administrative expenses increased by $31,006, or 30.6%, as compared to the six months ended June 30, 2021.

These increases were attributable to an increase in operating activities.

For the three months ended June 30, 2022, depreciation and amortization expense decreased by $13,638, or 13.6%, as compared to the three months ended June 30 2021.

For the six months ended June 30, 2022, depreciation expense decreased by $7,068, or 3.7%, as compared to the six months ended June 30 2021.

For the three months ended June 30, 2022, real estate taxes increased by $512, or 2.4%, as compared to the three months ended June 30, 2021.

For the six months ended June 30, 2022, real estate taxes increased by $850, or 2.0%, as compared to the six months ended June 30, 2021.

For the three and six months ended June 30, 2022, we recorded a gain from sale of property and equipment of $312.

For the three and six months ended June 30, 2021, we recorded a gain from sale of our Gilbert property of $51.944.

For the three months ended September 30, 2022, general and administrative expenses increased by $7,170, or 15.3%, as compared to the three months ended September 30, 2021.

For the nine months ended September 30, 2022, general and administrative expenses increased by $38,176, or 25.7%, as compared to the nine months ended September 30, 2021.

These increases were primarily attributable to an increase in operating activities related to our real estate services segment.

For the three months ended September 30, 2022, depreciation and amortization expense decreased by $10,664, or 10.9%, as compared to the three months ended September 30 2021.

For the nine months ended September 30, 2022, depreciation expense decreased by $17,732, or 6.1%, as compared to the nine months ended September 30 2021.

This decrease was related to the decrease in amortization of intangible assets which were fully amortized.

For the three months ended September 30, 2022, real estate taxes increased by $786, or 3.7%, as compared to the three months ended September 30, 2021.

For the nine months ended September 30, 2022, real estate taxes increased by $1,636, or 2.6%, as compared to the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, we recorded a gain from sale of property and equipment of $312.

For the nine months ended September 30, 2021, we recorded a gain from sale of our Gilbert property of $51,944.

(Loss) Income from operations

As a result of the factors described above, for

the three months ended June 30, 2022, loss from operations amounted to $9,204 as compared to income from operations of $139,653 for the

three months ended June 30, 2021, a negative change of $148,857, or 106.6%.

For the six months ended June 30, 2022, income from operations

amounted to $314 as compared to income from operations of $96,285 for the six months ended June 30, 2021, a decrease of $95,971, or 99.7%.

the three months ended September 30, 2022, loss from operations amounted to $45,263 as compared to loss from operations of $53,451 for

the three months ended September 30, 2021, a decrease of $8,188, or 15.3%.

For the nine months ended September 30, 2022, loss from operations

amounted to $44,949 as compared to income from operations of $42,834 for the nine months ended September 30, 2021, a negative change of

$87,783, or 204.9%.

Other (expense) income

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expense incurred on debt with third parties and a related party, and includes other (expense) income.

For the three months ended June

30, 2022 and 2021, total other expenses, net amounted to $29,859 as compared to total other expenses, net of $27,059, respectively, representing

an increase of $2,800, or 10.3%.

This increase was attributable to an increase in loss from unconsolidated joint ventures of $3,101 offset

by a decrease in interest expense of $300.

For the six months ended June 30, 2022 and 2021, total other expenses, net amounted to

$65,073 as compared to total other expenses, net of $55,026, respectively, representing an increase of $10,047, or 18.3%.

This increase

was attributable to an increase in loss from unconsolidated joint ventures of $10,920 offset by an increase in interest income of $873

attributable to interest earned on the convertible note receivable

For the three months ended September

30, 2022 and 2021, total other expenses, net amounted to $32,065 as compared to total other expenses, net of $(42,044), respectively,

representing a decrease of $9,979, or 23.7%.

This decrease was attributable to a decrease in loss from unconsolidated joint ventures of

$9,680 offset by a decrease in interest expense of $300.

For the nine months ended September 30, 2022 and 2021, total other expenses,

net amounted to $97,138 as compared to total other expenses, net of $97,070, respectively, representing an increase of $68, or less than

As a result of the foregoing, for the three months

ended June 30, 2022 and 2021, net (loss) income amounted to $(39,063), or $(0.00) per common share (basic and diluted), and $112,594,

or $0.01 per common share (basic and diluted), respectively.

For the six months ended June 30, 2022 and 2021, net (loss) income amounted

to $(64,759), or $(0.01) per common share (basic and diluted), and $41,259, or $0.00 per common share (basic and diluted), respectively.

ended September 30, 2022 and 2021, net loss amounted to $77,328, or $(0.01) per common share (basic and diluted), and $95,495, or $(0.01)

per common share (basic and diluted), respectively.

For the nine months ended September 30, 2022 and 2021, net loss amounted to $142,087,

or $(0.01) per common share (basic and diluted), and $54,236, or $(0.00) per common share (basic and diluted), respectively.

Liquidity and Capital Resources

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adequate amounts of cash to meet its needs for cash requirements.

We had cash of $891,244 and $1,191,940 of cash as of June 30, 2022 and

December 31, 2021, respectively.

We had cash of $842,115 and $1,191,940 of cash as of September 30, 2022

and December 31, 2021, respectively.

Our primary uses of cash have been for compensation

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An increase in funds used for lease incentives paid to our Significant Tenant.

An increase in funds used to secure financing.

We may need to raise additional funds, particularly

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have sufficient working capital for our ongoing operations and debt obligations, and to invest in new joint venture and other projects.

On March 19, 2020, we made an initial investment

of $100,000 into KCB Jade Holdings, LLC (“KCB”).

In exchange for the investment, KCB issued to us a convertible debenture

(the “Debenture”) dated March 19, 2020 (the “Issuance Date”) in the original principal amount of $100,000.

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

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, we 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.

On or after six months from the Issuance

Date, we 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, we 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 Debenture.

Conversion rights terminate upon acceptance by the Company of payment in full

of principal, accrued interest, and any other amounts due under the Debenture.

If (i) KCB does not elect to exercise its rights of prepayment

prior to the Maturity Date, (ii) we do 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, we 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.

On February 19, 2021, we made an additional investment

of $100,000 into KCB (the “Additional Investment”).

In exchange, the 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 Original

Pursuant to the A&R Debenture, the Company and KCB agreed to certain new terms that did not exist in the Original Debenture,

which are described below.

Interest 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.

Franchise Fees .

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.

In 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.

KCB’s obligation to pay the Company the franchise fees listed above

will survive any termination, repayment, or conversion of the A&R Debenture.

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 due.

Apart from the terms described above, the terms

of the A&R Debenture are substantially identical to the terms of the Original Debenture.

On August 2, 2021, KCB issued to the Company a

second amended and restated convertible debenture (the “Second A&R Debenture”).

The Second A&R Debenture amends and

restates in its entirety the A&R Debenture.

Pursuant to the Second A&R Debenture, the Company and KCB agreed to revise certain

terms in the A&R Debenture, as described below.

Right of Prepayment .

KCB may prepay the

Second A&R Debenture at any point after 18 months following the Issue Date, in whole or in part.

However, if KCB elects to prepay

the Second A&R Debenture prior to March 19, 2025 (the “Maturity Date”) or prior to any conversion in whole or in part,

the Company will be entitled to receive a number of KCB Class B units (“Class B Units”), in addition to such prepayment amount,

constituting 10% of the total outstanding KCB Units (as defined in KCB’s Limited Liability Company Operating Agreement (the “Operating

Agreement”)), for the avoidance of doubt, being 10% of the total of KCB’s Class A units (“Class A Units”) and

the Class B Units together, and 10% of the total Percentage Interest (as defined in the Operating Agreement) following such issuance and

at the time of such issuance.

Voluntary Conversion .

On or after six months

from the Issue Date, the Company is entitled to convert all or a portion of the principal balance and all accrued and unpaid interest

due under the Second A&R Debenture (the “Outstanding Amount”) into a number of Class B Units equal to the proportion of

the Outstanding Amount being converted multiplied by the Conversion Percentage, as defined below).

Should KCB default on payment hereof,

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 Second A&R Debenture.

Conversion rights will terminate upon acceptance by the Company of payment

in full of principal, accrued interest and any other amounts due under the Second A&R Debenture.

Conversion Percentage.

The Conversion Percentage

will be 33% of the total number of Units (for the avoidance of doubt, being 33% of the total of the Class A Units and the Class B Units

together), issued and outstanding at the time of conversion, constituting 33% of the total Percentage Interest (the “Conversion

Percentage”).

Right of Maturity Units .

If (i) KCB does

not elect to exercise its prepayment rights prior to the Maturity Date, and (ii) the Company does not elect to exercise its conversion

rights, and (iii) KCB pays to the Company all outstanding principal and interest accrued and due under the terms of the Second A&R

Debenture on the Maturity Date, then the Company will still be entitled to receive a number of Class B Units, in addition to such payment

amount, constituting 8% of the total outstanding Units (for the avoidance of doubt, being 8% of the total of the Class A Units and the

Class B Units together) and 8% of the total Percentage Interest (as such term is defined in the Second A&R Debenture) following such

issuance and at the time of such issuance.

Apart from the terms described above, the terms

of the Second A&R Debenture are substantially identical to the terms of the A&R Debenture.

As discussed in the Overview section and elsewhere,

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of rent collections.

As of June 30, 2022 and December 31, 2021, we had an asset concentration related to our Significant Tenant leases.

As of June 30, 2022 and December 31, 2021, these Significant Tenants represented approximately 73.3% and 79.2% of total assets, respectively.

If our Significant Tenants are prohibited from operating due to federal or state regulations or due to COVID-19, or cannot pay their rent,

we may not have enough working capital to support our operations and we would have to seek out new tenants at rental rates per square

less than our current rate per square foot.

As of September 30, 2022 and December 31, 2021, we had an asset concentration related to our Significant Tenant

As of September 30, 2022 and December 31, 2021, these Significant Tenants represented approximately 71.5% and 79.2% of total assets,

respectively.

If our Significant Tenants are prohibited from operating due to federal or state regulations or due to COVID-19, or cannot

pay their rent, we may not have enough working capital to support our operations and we would have to seek out new tenants at rental rates

per square less than our current rate per square foot.

We included audited financial statements of our

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Election (as hereinafter defined).

On July 11, 2022, Zoned Arizona paid the Bank a $45,000 loan fee.

Amounts borrowed under the MAL may

not be re-borrowed.

Amounts borrowed under the MAL may not be re-borrowed.

On July 11, 2022, Zoned Arizona paid loan and

other fees of $176,472 in connection with the Loan Agreement, which have been capitalized as deferred financing costs and included in

prepaid expenses and other current assets on the accompanying consolidated balance sheet as of September 30, 2022.

The proceeds of each advance under the MAL may

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principal balance of the MAL at any time until July 11, 2023, then Zoned Arizona will also pay a premium equal to 1% of the amount prepaid.

For the Six Months Ended June 30, 2022 and

As of September 30, 2022, we have not utilized

the line of credit and $4,500,000 is available to borrow under the line of credit.

For the Nine Months Ended September 30, 2022

Net cash flow provided by operating activities

was $270,968 for the six months ended June 30, 2022, as compared to net cash flow provided by operating activities of $248,408 for the

six months ended June 30, 2021, representing a decrease of $13,440.

Net cash flow provided by operating activities for the six months ended June 30, 2022 primarily reflected a net loss of $64,759 adjusted for the add-back of non-cash items consisting of depreciation of $174,418, amortization expense of $9,450, accretion of stock-based stock option expense of $198,012, and a loss from unconsolidated joint ventures of $10,920, offset by changes in operating assets and liabilities primarily consisting of an increase in accounts receivable of $266,203 attributable to an increase in brokerage commissions receivable, a decrease in lease incentive receivable of $9,174, an increase in prepaid expenses of $22,656, an increase in accounts payable of $203,976 attributable to an increase in brokerage fees payable, an increase in accrued expenses of $9,115, an increase in deferred revenues of $7,500, and a decrease in deferred rent receivable of $4,494.

Net cash flow provided by operating activities for the six months ended June 30, 2021 primarily reflected net income of $41,259 adjusted for the add-back of non-cash items consisting of depreciation of $181,486, amortization expense of $9,450, stock-based compensation expense of $52,000, accretion of stock-based stock option expense of $21,909, and a gain on sale of rental property of $(51,944), offset by changes in operating assets and liabilities primarily consisting of an increase in accounts receivable of $145,479, a decrease in prepaid expenses of $79,962, an increase in accounts payable of $74,731, an increase in accrued expenses of $9,191, an increase in deferred revenues of $4,000 and an increase in security deposits payable of $2,750.

During the six months ended June 30, 2022, net

cash flow used in investing activities amounted to $551,664 as compared to net cash flow provided by investing activities of $47,573,

a decrease of $599,237.

During the six months ended June 30, 2022, net cash used in investing activities was attributable to an increase

in lease incentive receivables related to the disbursement of $500,000 to our Significant Tenant to be used for leasehold improvements,

was $398,311 for the nine months ended September 30, 2022, as compared to net cash flow provided by operating activities of $387,999 for

the nine months ended September 30, 2021, representing an increase of $10,312.

Net cash flow provided by operating activities for the nine months ended September 30, 2022 primarily reflected a net loss of $142,087 adjusted for the add-back of non-cash items consisting of depreciation of $261,968, amortization expense of $9,450, accretion of stock-based stock option expense of $282,535, and a loss from unconsolidated joint ventures of $16,261, offset by changes in operating assets and liabilities primarily consisting of an increase in accounts receivable of $346,610 attributable to an increase in brokerage commissions receivable, a decrease in deferred rent receivable of $6,741, a decrease in lease incentive receivable of $16,055, an increase in prepaid expenses of $16,511, an increase in accounts payable of $262,654 attributable to an increase in brokerage fees payable, an increase in accrued expenses of $48,797, an increase in deferred revenues of $6,670, and a decrease in accrued expenses – related party of $5,400.

Net cash flow provided by operating activities for the nine months ended September 30, 2021 primarily reflected net income of $54,236 adjusted for the add-back of non-cash items consisting of depreciation of $270,250, amortization expense of $18,900, stock-based compensation expense of $52,000, accretion of stock-based stock option expense of $46,012, and a gain on sale of rental property of $(51,944), and a loss from joint ventures of $15,021, offset by changes in operating assets and liabilities primarily consisting of an increase in accounts receivable of $18,587, a decrease in prepaid expenses of $68,910, an increase in accounts payable of $8,148, an increase in accrued expenses of $16,447, and an increase in deferred revenues of $6,687.

During the nine months ended September 30, 2022,

net cash flow used in investing activities amounted to $551,664 as compared to net cash flow provided by investing activities of $3,348,

an increase of $555,012.

During the nine months ended September 30, 2022, net cash used in investing activities was attributable to an

increase in lease incentive receivables related to the disbursement of $500,000 to our Significant Tenant to be used for leasehold improvements,

the purchase of property and equipment of $3,764, and cash used to invest equity securities of $50,000.

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activities were offset by proceeds from the sale of property and equipment of $2,100.

During the six months ended June 30, 2021, cash

provided by investing activities was attributable to proceed from the sale of rental property of $322,332, offset by cash used for an

investment in a convertible note receivable of $100,000, cash used in improvement of rental properties of $7,135, cash used for the purchase

of property and equipment of $2,624, and cash used for investment in joint ventures of $165,000.

During the six months ended June 30, 2022, net

cash flow used in financing activities amounted to $20,000 as compared to net cash used in financing activities of $0, an increase of

During the six months ended June 30, 2022, net cash used in financing activities was attributable to the repayment of notes payable

– related party of $20,000.

During the nine months ended September 30, 2021,

cash provided by investing activities was attributable to proceed from the sale of rental property of $322,332, offset by cash used for

an investment in a convertible note receivable of $100,000, cash used in improvement of rental properties of $40,360, cash used for the

purchase of property and equipment of $2,624, and cash used for investment in joint ventures of $176,000.

During the nine months ended September 30, 2022,

net cash flow used in financing activities amounted to $196,472 as compared to net cash used in financing activities of $0, an increase

During the nine months ended September 30, 2022, net cash used in financing activities was attributable to the repayment

of notes payable – related party of $20,000 and cash used to pay for deferred financing costs related to our line of credit of $176,472.

Contractual Obligations and Off-Balance Sheet

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The following tables summarize our contractual

obligations as of June 30, 2022 (dollars in thousands), and the effect these obligations are expected to have on our liquidity and cash

flows in future periods.

obligations as of September 30, 2022 (dollars in thousands), and the effect these obligations are expected to have on our liquidity and

cash flows in future periods.

Payments Due by Period

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of rent for the months of June and July 2020.

This rent abatement resulted in a deferred rent receivable as of June 30, 2022 and December

31, 2021 of $160,276 and $164,770, respectively.

Additionally, if the lease provides for tenant improvements, the Company determines whether

the tenant improvements, for accounting purposes, are owned by the tenant or the Company.

When the Company is the owner of the tenant

improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until

the tenant improvements are substantially completed.

When the tenant is the owner of the tenant improvements, any tenant improvement allowance

(including amounts that can be taken in the form of cash or a credit against the tenant’s rent) that is funded is treated as a lease

incentive receivable and amortized as a reduction of revenue over the lease term.

This rent abatement resulted in a deferred rent receivable as of September 30, 2022 and

December 31, 2021 of $158,029 and $164,770, respectively.

Additionally, if the lease provides for tenant improvements, the Company determines

whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company.

When the Company is the owner of the

tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased

asset until the tenant improvements are substantially completed.

When the tenant is the owner of the tenant improvements, any tenant improvement

allowance (including amounts that can be taken in the form of cash or a credit against the tenant’s rent) that is funded is treated

as a lease incentive receivable and amortized as a reduction of revenue over the lease term.

For contracts entered into on or after the effective

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when the Company performs services pursuant to its agreements with clients and collectability is reasonably assured.

Brokerage revenues primarily consists of real

estate sales commissions and are recognized upon the successful completion of all required services have been performed which is when

escrow closes.

In accordance with the guidelines established for Reporting Revenue Gross as a Principal versus Net as an Agent in the

ASC Topic 606, the Company records commission revenues and expenses on a gross basis.

Of the criteria listed in ASC Topic 606, the Company

is the primary obligor in the transaction, does not have inventory risk, performs all or part of the service, has credit risk, and has

wide latitude in establishing the price of services rendered and discretion in selection of agents and determination of service specifications.

Brokerage revenue that are payable upon payment of rent or other events beyond the Company’s control are recognized upon the occurrence

of such events.

Brokerage revenues primarily consist of real estate

sales commissions and are recognized upon the successful completion of all required services which is likely to occur upon a lease commencement,

when escrow closes on the sale of a property, or as otherwise negotiated between the Brokerage and its clients.

In accordance with the

guidelines established for Reporting Revenue Gross as a Principal versus Net as an Agent in the ASC Topic 606, the Company records commission

revenues and expenses on a gross basis.

Of the criteria listed in ASC Topic 606, the Company is the primary obligor in the transaction,

does not have inventory risk, performs all or part of the service, has credit risk, and has wide latitude in establishing the price of

services rendered and discretion in selection of agents and determination of service specifications.

Brokerage revenue that are payable

upon payment of rent or other events beyond the Company’s control are recognized upon the occurrence of such events.

Stock-based compensation

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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-Q

Item 2. Management’s Discussion and Analysis