What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-28 compared with 2022-03-24 · 451 added, 554 removed, 240 unchanged (81% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note Regarding Forward-Looking Information and Factors That May Affect Future Results

annual report on Form 10-K contains forward-looking statements regarding our business, financial condition, results of operations and

The Securities and Exchange Commission (the “SEC”) encourages companies to disclose forward-looking information

so that investors can better understand a company’s future prospects and make informed investment decisions.

This annual report

on Form 10-K and other written and oral statements that we make from time to time contain such forward-looking statements that set out

anticipated results based on management’s plans and assumptions regarding future events or performance.

We have tried, wherever

possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,”

“project,” “intend,” “plan,” “believe,” “will” and similar expressions in

connection with any discussion of future operating or financial performance.

In particular, these include statements relating to future

actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal

proceedings, and financial results.

Factors that could cause our actual results of operations and financial condition to differ materially

are set forth in the “Risk Factors” section of this annual report on Form 10-K.

caution that these factors could cause our actual results of operations and financial condition to differ materially from those expressed

in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements.

Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to

update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect

the occurrence of anticipated or unanticipated events or circumstances.

New factors emerge from time to time, and it is not possible

for us to predict all of such factors.

Further, we cannot assess the impact of each such factor on our results of operations or the extent

to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking

following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere

in this annual report on Form 10-K.

Properties, Inc.

(“Zoned Properties” or the “Company”), was incorporated in the State of Nevada on August 25,

The Company is a real estate development firm for emerging and highly regulated industries, including regulated cannabis.

is redefining the approach to commercial real estate investment through its integrated growth services.

Headquartered in Scottsdale,

Arizona, Zoned Properties has developed a full spectrum of integrated growth services to support its real estate development and investment

Advisory Services, Brokerage Services, Franchise Services, and Property Technology (“PropTech”) Data Services each

cross-pollinate within the model to drive project value associated with complex real estate projects.

With national experience and a

team of experts devoted to the emerging cannabis industry, Zoned Properties is addressing the specific needs of a modern market in highly

regulated industries.

MANAGEMENT’S DISCUSSION AND

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking

Information and Factors That May Affect Future Results

This annual report on Form 10-K contains forward-looking

statements regarding our business, financial condition, results of operations and prospects.

The Securities and Exchange Commission (the

“SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s

future prospects and make informed investment decisions.

This annual report on Form 10-K and other written and oral statements that we

make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and

assumptions regarding future events or performance.

We have tried, wherever possible, to identify such statements by using words such

as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”

“believe,” “will” and similar expressions in connection with any discussion of future operating or financial

In particular, these include statements relating to future actions, future performance or results of current and anticipated

sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results.

Factors that could cause our

actual results of operations and financial condition to differ materially are set forth in the “Risk Factors” section of

this annual report on Form 10-K.

We caution that these factors could cause our

actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make

and that investors should not place undue reliance on any such forward-looking statements.

Further, any forward-looking statement speaks

only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect

events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events

or circumstances.

New factors emerge from time to time, and it is not possible for us to predict all of such factors.

Further, we cannot

assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may

cause actual results to differ materially from those contained in any forward-looking statements.

The following discussion should be read in conjunction

with our audited financial statements and the related notes that appear elsewhere in this annual report on Form 10-K.

Zoned Properties, Inc.

(“Zoned Properties”

or the “Company”), was incorporated in the State of Nevada on August 25, 2003.

In October 2013, the Company changed its

name to Zoned Properties, Inc.

and in April 2014, the Company shifted its business model to address commercial real estate in the regulated

cannabis industry.

The Company is a real estate development firm for emerging and highly regulated industries, including legalized cannabis.

The Company is redefining the approach to commercial real estate investment through its integrated growth services.

Headquartered in

Scottsdale, Arizona, Zoned Properties has developed a full spectrum of integrated growth services to support its real estate development

the Company’s Property Technology, Advisory Services, Commercial Brokerage, and Investment Portfolio collectively cross-pollinate

within the model to drive project value associated with complex real estate projects.

With national experience and a team of experts

devoted to the emerging cannabis industry, Zoned Properties is addressing the specific needs of a modern market in highly regulated industries.

Zoned Properties is an accredited member of the Better Business Bureau, the U.S.

Green Building Council, and the

Forbes Real Estate Council.

The Company does not grow, harvest, sell or distribute cannabis or any substances regulated under United

States law such as the Controlled Substance Act of 1970, as amended (the “CSA”).

are in the process of developing and expanding multiple business divisions;

including an advisory services division, a licensed commercial

real estate brokerage division, a real estate division focused on franchise services, a real estate division focused on property technology

data for real estate, and a nonprofit charitable organization to focus on community prosperity.

Each of these operating divisions are

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

We believe in the value of building relationships

with clients and local communities in order to position the Company for long-term portfolio and revenue growth backed by sophisticated,

safe, and sustainable assets and clients.

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.

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.

April 22, 2021, ZP Data Platform 1 LLC, a wholly owned subsidiary of the Company (“ZP Data”), entered into a Limited Liability

Company Operating Agreement (the “Beakon Operating Agreement”) with a non-affiliated joint venture partner in connection

with the formation of Beakon, LLC (“Beakon”), a Delaware limited liability company formed on April 16, 2021.

Beakon signed

a licensing agreement for the licensing of a consumer data/marketing software platform that Beakon will white-label for the cannabis

Beakon’s goal is to develop and leverage the platform to help drive foot traffic to brick and mortar retail (i.e.

dispensaries),

and thus enhance the value of the real estate and mitigate risk.

Pursuant to the Beakon Operating Agreement, ZP Data purchased 50 units

of Beakon for $50, which represent 50% of the membership interests of Beakon.

Each unit represents, with respect to any member, such

(i) interest in Beakon’s capital, (ii) share of Beakon’s net profits and net losses (and specially allocated

items of income, gain, and deduction), and the right to receive distributions of net cash flow from Beakon, (iii) right to inspect Beakon’s

books and records, and (iv) right to participate in the management of and vote on matters coming before the members as provided in the

Beakon Operating Agreement.

The transactions discussed above resulted in a joint venture, in accordance with the Financial Accounting

Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 323-10 – Investments-

Equity and Joint Ventures, between ZP Data and the non-affiliated party.

Each of the entities has 50% equity ownership and voting

rights, and joint control in Beakon.

ZP Data will account for its investment in Beakon under the equity method of accounting in accordance

with ASC 323.

During the year ended December 31, 2021, we contributed $86,000 to Beakon.

On December 31, 2021, the Company recorded an

other-than-temporary impairment loss of $73,970 because it was determined that the fair value of its equity method investment in Beakon

was less than its carrying value.

Based on management’s evaluation, it was determined that due to market conditions and lack of

committed funding, the Company’s ability to recover the carrying amount of the investment in Beakon was impaired.

ended December 31, 2021, the $73,970 impairment loss is included in other expenses on the consolidated statement of operations.

May 1, 2021, we entered into a Limited Liability Company Operating Agreement (the “Zoneomics Green Operating Agreement”)

with a non-affiliated joint venture partner in connection with the formation of Zoneomics Green, LLC (“Zoneomics Green”),

a Delaware limited liability company formed on May 1, 2021.

Zoneomics Green’s goal is to utilize advanced property technology to

provide solutions for property identification in regulated industries such as regulated cannabis.

Pursuant to the Zoneomics Green Operating

Agreement, the Company purchased 50 units of Zoneomics Green for a capital contribution of $90,000, which represent 50% of the membership

interests of Zoneomics Green.

Each unit represents, with respect to any member, such member’s:

(i) interest in Zoneomics Green’s

capital, (ii) share of Zoneomics Green’s net profits and net losses (and specially allocated items of income, gain, and deduction),

and the right to receive distributions of net cash flow from Zoneomics Green, (iii) right to inspect Zoneomics Green’s books and

records, and (iv) right to participate in the management of and vote on matters coming before the members as provided in the Zoneomics

Green Operating Agreement.

The transactions discussed above resulted in a joint venture, in accordance with ASC 323-10 – Investments-

Equity and Joint Ventures, between the Company and the non-affiliated party.

Each of the entities has 50% equity ownership and voting

rights, and joint control in Zoneomics Green.

In June 2021, we contributed $90,000 to Zoneomics Green.

the years ended December 31, 2021 and 2020, substantially all of our 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.

June 1, 2021, we closed on the sale of our Gilbert, AZ property with a third party (the “Purchaser”) pursuant to which we

agreed to sell, and the Purchaser agreed to purchase, the property located in Gilbert, Arizona, for an aggregate purchase price of $335,000.

In connection with the sale, we received net proceeds of $322,332 and recorded a gain on sale of rental property of $51,944.

Company currently maintains a portfolio of properties that we own, develop, and lease.

We currently lease land and/or building space

at all five of the properties in our portfolio.

Four of the properties are leased to licensed and regulated cannabis tenants and are

located in areas with established zoning and permitting procedures.

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

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.

of December 31, 2021, a summary of rental properties owned by us consisted of the following:

Green Building Council, and the Forbes Business Council.

The Company does not grow, harvest, sell or distribute cannabis or any substances regulated under United States law such as the Controlled

Substance Act of 1970, as amended (the “CSA”).

We operate our business in two reportable segments

consisting of (i) the operations, leasing and management of its leased commercial properties (the “Property Investment Portfolio”

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

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 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

properties that we own, develop, and lease.

We lease land and/or building space at all five of the properties in our portfolio.

the properties are leased to licensed and regulated cannabis tenants and are located in areas with established zoning and permitting

Three 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 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.

As of March 28, 2023, a summary of rental properties owned by us consisted

of the following:

Chino Valley,

Green Valley,

Pleasant Ridge,

(special use)

Date Acquired

Dec 2022/ Feb 2023

Lease Start Date

December 2022

Lease End Date

5 unchanged sentences

Vacant Rentable Sq.

rented as of December 31, 2021

rented as of March 28, 2023

Annual Base Rent (*,**)

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

annual base rent does not include the Fourth Chino Valley Amendment, effective March 1, 2022 which increased the monthly base rent to

$87,581, or an annual base rent to $1,050,972.

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.

$ per Rented Sq.

Supreme Court has ruled that it is the federal government that has the right to regulate and criminalize cannabis, even for medical

Therefore, federal law criminalizing the use of marijuana preempts state laws that legalize its use for medicinal purposes.

federal government regulates drugs through the CSA, which places controlled substances, including cannabis, in a schedule.

is classified as a Schedule I controlled substance.

A Schedule I controlled substance is defined as a substance that has no

currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse.

The DOJ defines Schedule I drugs, substances or chemicals as “drugs with no currently accepted medical use and a high potential

for abuse.” However, the FDA has approved Epidiolex, which contains a purified form of the drug CBD, a non-psychoactive ingredient

in the cannabis plant, for the treatment of seizures associated with two epilepsy conditions.

The FDA has not approved cannabis or cannabis

compounds as a safe and effective drug for any other condition.

Moreover, pursuant to the Farm Bill, CBD remains a Schedule I controlled

substance under the CSA, with a narrow exception for CBD derived from hemp with a THC concentration of less than 0.3%.

Company maintains its operations so as to remain in compliance with the CSA.

Even in those jurisdictions in which the manufacture and

use of medical marijuana has been legalized at the state level, the possession, use and cultivation all remain violations of federal

law that are punishable by imprisonment and substantial fines, and the prescription of marijuana is a violation of federal law.

individuals and entities may violate federal law if they intentionally aid and abet another in violating these federal controlled substance

laws, or conspire with another to violate them.

inconsistencies between federal and state regulation of cannabis were addressed in the Cole Memo, which then-Deputy Attorney General

James Cole sent to all U.S.

District Attorneys in 2013 outlining certain priorities for the DOJ relating to the prosecution of cannabis

The Cole Memo acknowledged that, notwithstanding the designation of cannabis as a Schedule I controlled substance at the federal

level, several states had enacted laws authorizing the use of cannabis for medical purposes.

The Cole Memo noted that jurisdictions that

have enacted laws legalizing cannabis in some form have also implemented strong and effective regulatory and enforcement systems to control

the cultivation, processing, distribution, sale and possession of cannabis.

As such, conduct in compliance with those laws and regulations

is less likely to implicate the Cole Memo’s enforcement priorities.

The DOJ did not provide (and has not provided since) specific

guidelines for what regulatory and enforcement systems would be deemed sufficient under the Cole Memo.

In light of limited investigative

and prosecutorial resources, the Cole Memo concluded that the DOJ should be focused on addressing only the most significant threats related

to cannabis, such as distribution of cannabis from states where cannabis is legal to those where cannabis is illegal, the diversion of

cannabis revenues to illicit drug cartels and sales of cannabis to minors.

January 4, 2018, former U.S.

Attorney General Jeff Sessions issued the Sessions Memo, which rescinded the Cole Memo.

Memo stated, in part, that current law reflects “Congress’ determination that cannabis is a dangerous drug and cannabis activity

is a serious crime,” and Mr.

Sessions directed all U.S.

Attorneys to enforce the laws enacted by Congress by following well-established

principles when pursuing prosecutions related to cannabis activities.

The Company is not aware of any prosecutions of investment companies

doing routine business with licensed marijuana related businesses in light of the DOJ position following issuance of the Sessions Memo.

However, there can be no assurance that the federal government will not enforce federal laws relating to cannabis in the future.

result of the Sessions Memo, federal prosecutors are now free to utilize their prosecutorial discretion to decide whether to prosecute

cannabis activities, despite the existence of state-level laws that may be inconsistent with federal prohibitions.

No direction was given

to federal prosecutors in the Sessions Memo as to the priority they should ascribe to such cannabis activities, and thus it is uncertain

how active U.S.

federal prosecutors will be in relation to such activities.

Federal prosecutors appear

to continue to use the Cole Memo’s priorities as an enforcement guide.

Merrick Garland, who became Attorney General on March 10,

2021 has indicated that he would deprioritize enforcement of low-level cannabis crimes such as possession, and has shared his

view that the government should focus on large-scale criminal enterprises that circumvent state legalization laws instead of going after

people who abide by local cannabis policies.

The Company believes it is too soon to determine what prosecutorial effects will be created

by the rescission of the Cole Memo or any replacement thereof and when or if the Sessions Memo will be rescinded.

President Joseph R.

Biden, who assumed office in January 2021, has not yet indicated whether and when he will decriminalize or legalize cannabis and has previously

stated that he is opposed to legalization.

The sheer size of the cannabis industry, in addition to participation by state and local governments

and investors, suggests that a large-scale federal enforcement operation would more than likely create unwanted political backlash for

the DOJ and the current administration.

Regardless, at this time, cannabis remains a Schedule I controlled substance at the federal

federal government has always reserved the right to enforce federal law in regard to the sale and disbursement of medical

or adult use cannabis, even if state law authorizes such sale and disbursement.

It is unclear whether the risk of enforcement has been

One legislative safeguard

for the medical cannabis industry, appended to the federal budget bill, remains in place following the rescission of the Cole Memo.

several years, Congress has adopted the Rohrabacher-Blumenauer Amendment to prevent the federal government from using congressionally

appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local

Despite the rescission of the Cole Memo, the DOJ appears to continue to adhere to the enforcement priorities set forth in the Cole

Cole Memo and the Rohrabacher-Blumenauer Amendment gave licensed cannabis operators (particularly medical cannabis operators) and investors

in states with legal regimes greater certainty regarding the DOJ’s enforcement priorities and the risk of operating cannabis businesses.

While the Sessions Memo has introduced some uncertainty regarding federal enforcement, the cannabis industry continues to experience

growth in legal medical and adult use markets across the United States.

Vice President Kamala Harris is the lead sponsor of the Marijuana

Opportunity, Reinvestment, and Expungement (MORE) Act, which seeks to end the federal prohibition of marijuana, among other things, but

in March 2020, it was reported that Vice President Harris has adopted the same position as President Biden, who opposes legalization.

Currently, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will remain in place or that

local governmental authorities will not limit the applicability of state laws within their respective jurisdictions.

Unless and until

Congress amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be

no assurance), there is a risk that federal authorities may enforce current U.S.

federal law criminalizing cannabis.

Supreme Court has ruled that it is the federal government that has the right to regulate and criminalize cannabis, and federal

law criminalizing the use of marijuana preempts state laws that legalize its use, cannabis is largely regulated at the state level.

laws that permit and regulate the production, distribution and use of cannabis for adult use or medical purposes are in direct conflict

with the CSA, which makes cannabis use and possession federally illegal.

Although certain states and territories of the U.S.

medical and/or adult use cannabis production and distribution by licensed or registered entities, under U.S.

federal law, the possession,

use, cultivation and transfer of cannabis and any related drug paraphernalia is illegal and any such acts are criminal acts under federal

law under any and all circumstances under the CSA.

Although the Company’s activities are believed to be compliant with applicable

state and local laws, strict compliance with state and local laws with respect to cannabis may neither absolve the Company of liability

federal law, nor may it provide a defense to any federal proceeding which may be brought against the Company.

of December 31, 2020, 35 states, plus the District of Columbia (and the territories of Guam, Puerto Rico, the U.S.

Virgin Islands

and the Northern Mariana Islands), have legalized the cultivation and sale of cannabis for medical purposes.

In 15 of those states, the

sale and possession of cannabis is legal for both medical and adult use, and the District of Columbia has legalized adult use but not

commercial sale.

In November 2020, voters in Arizona, Montana, New Jersey and South Dakota voted by referendum to legalize cannabis for

adult use, and voters in Mississippi and South Dakota voted to legalized cannabis for medical use, and in February 2021, the Virginia

legislature approved a bill that would legalize cannabis for adult use beginning in 2024.

The Virginia bill is awaiting signature by

the governor, and if signed, Virginia will be the first southern state to legalize cannabis for adult use.

Also in February 2021, New

Jersey Governor Phil Murphy signed three bills into law that legalize cannabis for adult use.

Company will focus heavily on the growth of a diversified revenue stream in 2021.

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.

We are moving to take advantage of new opportunities.

to the terms of the several lease amendments our Significant Tenants, among other things, base rent base rent was abated from June 1,

2020 to July 31, 2020 on all of our Significant Tenant leases which decreased our cash flow from operation during the year ended December

31, 2020 by $179,000.

In addition, the parties agreed that from the period from May 31, 2020 to June 30, 2022, our Significant Tenants

will invest a combined total of at least $8,000,000 improvements in and to the properties in Chino Valley and Tempe prior to June 30,

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.

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

We are 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 our portfolio are open to our Significant Tenants and their customers and will remain open pursuant to state and local

government requirements.

We did not experience in 2020 or 2021, and we do not foresee in 2022, any material changes to our operations

from COVID-19.

Our 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.

while we do not anticipate an impact on our operations, we cannot estimate the duration of the pandemic and potential impact on our 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 our business, including weakened demand for our properties and a decreased ability

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

of Operations

following comparative analysis on results of operations was based primarily on the comparative financial statements, footnotes and related

information for the periods identified below and should be read in conjunction with the consolidated financial statements and the notes

to those statements for the years ended December 31, 2021 and 2020, which are included elsewhere in this annual report on Form 10-K.

The results discussed below are for the years ended December 31, 2021 and 2020.

Annualized $ per Rented Sq.

Chino Valley,

Green Valley,

Pleasant Ridge,

The Company focused heavily on the growth of

a diversified revenue stream in 2022 and is moving to take advantage of new opportunities in 2023 and beyond.

We intend to accomplish

this by prospecting 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 a Significant

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

improvements in and to the properties in Chino Valley.

The increase in the rentable area of the leased premises resulted in an increase

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

Results of Operations

The following comparative analysis on results

of operations was based primarily on the comparative financial statements, footnotes and related information for the periods identified

below and should be read in conjunction with the consolidated financial statements and the notes to those statements for the years ended

December 31, 2022 and 2021, which are included elsewhere in this annual report on Form 10-K.

The results discussed below are for the

years ended December 31, 2022 and 2021.

Comparison of Results of Operations for the Years Ended December

31, 2022 and 2021

For the years ended December 31, 2021 and 2020, revenues consisted

of the following:

Rent revenues

For the years ended December 31, 2022 and 2021,

revenues by reportable business segments were as follows:

Property investment portfolio:

Rental revenues

Real estate services:

Advisory revenues

Brokerage revenues

Total real estate services revenues

Total revenues

2 unchanged sentences

revenues of $1,255,130, for the year ended December 31, 2021, an increase of $839,605, or 46.1%.

For the year ended December 31, 2022, the increase

in revenues was attributable to an increase in rental revenue from our tenant of $534,660, an increase in brokerage revenue of $206,226

related to commission earned on real estate listings, and an increase in advisory revenues of $98,719.

For the year ended December 31,

the increase in revenues was attributable to an increase in rental revenue from our Significant Tenant of $135,713, an increase in brokerage

revenue of $413,395 related to commission earned on real estate listings, and an increase in advisory revenues of $55,935.

Substantially

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

2022, the increase in rental revenues as compared to the year ended December 31, 2021 was attributable to an increase in rental revenue

from our Chino Valley property related to a fourth amendment to our lease agreement in connection with an increase in rentable square

footage, and due to the signing of a new lease with our new tenant at our recently acquired property located in Pleasant Ridge, Michigan

which began on December 1, 2022.

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

Operating expenses

11 unchanged sentences

December 31, 2021.

This increase was attributable to an increase in stock-based compensation of $59,749 and increase in compensation

and benefits of $86,167.

The increase in stock-based compensation related to an increase in stock-based compensation from the accretion

of stock option expense and an increase in the value of shares issued for services.

Additionally, during 2021, we hired additional

staff related to the diversification of our services into brokerage services and the expansion of our advisory services.

the year ended December 31, 2021, professional fees increased by $202,193, or 103.3%, as compared to the year ended December 31,

This increase was primarily attributable to an increase in consulting fees of $122,484 related to an increase in consultants

used in our brokerage business, an increase in public relations fees of $58,035, and an increase in legal fees of $21,857.

For the year ended December

31, 2021, we recorded brokerage fees amounting to $265,208.

We did not record brokerage fees during the year ended December 31, 2020.

and administrative expenses consist of expenses such as rent expense, directors’ and officers’ liability insurance, travel

expenses, office expenses, telephone and internet expenses and other general operating expenses.

For the year ended December 31,

2021, general and administrative expenses increased by $10,819, or 5.7%, as compared to the year ended December 31, 2020.

the year ended December 31, 2021, depreciation expense increased by $23,810, or 6.6%, as compared to the year ended December 31,

The increase was attributable to an increase in compensation and benefits of $515,232 and an increase in stock-based

compensation of $228,575, 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.

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.

the year ended December 31, 2022, professional fees decreased by $45,234, or 11.4%, as compared to the year ended December 31, 2021.

This decrease was primarily attributable to a decrease in consulting fees of $87,366 due to the hiring of certain consultants that

are now employees, offset by an increase in accounting fees of $5,763, an increase in legal fees of $13,942, and an increase in public

relations fees of $22,255.

For the years ended December 31, 2022 and 2021, we recorded brokerage

fees amounting to $431,029 and $265,208, respectively, representing an increase of $165,821, or 62.5%, from 2021 to 2022.

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.

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.

ended December 31, 2022, general and administrative expenses increased by $74,237, or 36.8%, as compared to the year ended December

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

the year ended December 31, 2022, depreciation expense decreased by $26,150, or 6.8%, as compared to the year ended December 31, 2021.

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

the year ended December 31, 2022, real estate taxes increased by $29,143, or 33.2%, as compared to the year ended December 31, 2021.

the year ended December 31, 2021, we recorded a gain from the sale of our Gilbert property of $51,944.

We did not record any gain

or loss from the sale of rental property during the 2020 period.

Income from operations

This increase was attributable to an increase in assessed real taxes associated with improvements made on our Chino Valley property,

the year ended December 31, 2022, we recorded a gain from sale of property and equipment of $312.

For the year ended December 31,

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 year ended December 31, 2021, income from operations amounted to $44,700 as compared to $37,733 for the year ended December 31, 2020,

an increase of $6,967, or 18.5%.

the year ended December 31, 2022, loss from operations amounted to $(108,951) as compared to income from operations of $44,700 for the

year ended December 31, 2021, a negative change of $153,651, or 343.7%.

Other (expenses) income

Other (expense) income primarily includes interest

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

For the year ended December

31, 2021, total other expenses, net amounted to $210,519 as compared to total other expenses, net of $116,071, respectively, representing

an increase of $94,448, or 81.4%.

This increase was attributable to an increase in loss from unconsolidated joint ventures of $27,476

and an impairment loss from unconsolidated joint venture of $73,970, offset by an increase in interest income of $6,998 attributable

to interest earned on the convertible note receivable.

Other (expense) income primarily includes interest expense incurred

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

For the year ended December 31, 2022, total other

expenses, net amounted to $465,404 as compared to total other expenses, net of $210,519, respectively, representing an increase of $254,885,

This increase was attributable to the recording of a loss on note receivable investment of $210,756 that was deemed uncollectible,

the recording of a change in fair value loss from an interest rate swap of $90,237 in connection with our bank note payable, and an increase

in interest expense of $39,950 primarily related to an increase in notes payable.

These increases were offset by a decrease in loss from

unconsolidated joint ventures of $11,215 and a decrease in impairment loss from unconsolidated joint venture of $73,970 which was recorded

As a result of the foregoing, for the years ended

December 31, 2021 and 2020, net loss amounted to $165,819, or $0.01 per common share (basic and diluted), and $78,338, or $0.01 per common

share (basic and diluted), respectively.

December 31, 2022 and 2021, net loss amounted to $574,355, or $0.05 per common share (basic and diluted), and $165,819, or $0.01 per

common share (basic and diluted), respectively.

Liquidity and Capital Resources

Liquidity is the ability of an enterprise to

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

We had cash of $1,191,940 and $699,335 of cash as of December

31, 2021 and 2020, respectively.

Liquidity is the ability of an enterprise to generate adequate amounts

of cash to meet its needs for cash requirements.

We had cash of $4,335,840 and $1,191,940 as of December 31, 2022 and 2021, respectively.

Our primary uses of cash have been for compensation

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in our liquidity over the near to long term:

An increase in working

capital requirements to finance our current business,

Addition of administrative

and sales personnel as the business grows, and

The cost of being a public

An increase in investments

in joint ventures and other projects.

increase in working capital requirements to finance our current business,

of administrative and sales personnel as the business grows,

cost of being a public company,

increase in investments in joint ventures and other projects, and

increase in investments in rental property.

We may need to raise additional funds, particularly

4 unchanged sentences

Other than revenue received from the lease of our rental properties, from advisory

fees, and from brokerage revenues, we presently have no other significant alternative source of working capital.

fees, and from brokerage revenues, and from a bank note, we presently have no other significant alternative source of working capital.

We have used these funds to fund our operating

expenses, pay our obligations, develop rental properties, invest in joint ventures and notes receivable, and to grow our company.

may need to raise significant additional capital or debt financing to acquire new properties, to develop existing properties, to assure

we 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 Debenture.

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

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,

during the year ended December 31, 2021, we contributed $86,000 to the Beakon joint venture and we contributed $90,000 to the Zoneomics

Green joint venture.

Additionally, on December 31, 2021, we recorded an other-than-temporary impairment loss of $73,970 because it was

determined that the fair value of our equity method investment in Beakon was less than its carrying value.

Based on management’s

evaluation, it was determined that due to market conditions and lack of committed funding, our ability to recover the carrying amount

of the investment in Beakon was impaired.

expenses, pay our obligations, acquire and develop rental properties, invest in joint ventures and notes receivable, and to grow our

We may need to raise significant additional capital or debt financing to acquire new properties, to develop existing properties,

to assure we have sufficient working capital for our ongoing operations and debt obligations, and to invest in new joint venture and

other projects.

As discussed elsewhere, during the year ended

December 31, 2021, we contributed $86,000 to the Beakon joint venture and we contributed $90,000 to the Zoneomics Green joint venture.

Additionally, on December 31, 2021, we recorded an other-than-temporary impairment loss of $73,970 because it was determined that the

fair value of our equity method investment in Beakon was less than its carrying value.

Based on management’s evaluation, it was

determined that due to market conditions and lack of committed funding, our ability to recover the carrying amount of the investment

in Beakon was impaired as of December 31, 2021.

East West Bank Swap and Amended Note

On July 11, 2022, Zoned Arizona entered into

a Loan Agreement (the “Loan Agreement”), dated as of July 11, 2022, by and between Zoned Arizona and East West Bank (the

Pursuant to the terms of the Loan Agreement, subject to and upon the satisfaction of the terms and conditions of

the Loan Agreement, Zoned Arizona could request advances under a multiple access loan (“MAL”) during the MAL.

2022, in connection with the Loan Agreement, Zoned Arizona paid loan and other fees of $176,472, and in connection with the First Amendment

to the Loan Agreement discussed below, paid additional fees of $8,124.

These loan and other fees aggregating $184,596 are reflected as

a debt discount and are being amortized ratably and charged to interest expense over the term of the related debt.

The proceeds of each advance under the MAL may

be used by Zoned Arizona to refinance the real property at 410 S.

Madison Drive, Tempe, AZ 85251 (the “Property”) or to conduct

certain acts related to the acquisition, improvement and maintenance of real property.

On termination of the MAL, all unpaid principal,

unpaid and accrued interest, and all other amounts due under the MAL will be immediately due and payable.

The Loan Agreement contains representations,

warranties and covenants customary for a transaction of this type.

Among other things, the Loan Agreement provides as follows:

the occurrence of an event of default, the outstanding principal balance of the MAL will not at any time exceed 65% of the Property’s

most recent appraised value;

(b) upon the occurrence of an event of default, Zoned Arizona will maintain a minimum Non-Cannabis Debt

Service Coverage Ratio (as hereinafter defined) of 1.40 to 1.00;

coverage ratio of 1.50 to 1.0;

and (d) Zoned Arizona and the Company, collectively, will maintain at all times, liquid assets of at least

the sum of all tenant securities deposits under leases, plus $350,000 in operating reserves.

All advances under the MAL bear interest at a

variable rate equal to the greater of (a) the prime rate plus 2%, or (b) a floor rate equal to the sum of the prime rate as of July 11,

2022 plus 2.25%.

From July 11, 2022 to July 11, 2023, Zoned Arizona agreed to make interest payments on the outstanding principal balance

From and after July 11, 2023 and continuing until July 11, 2028 (the “Maturity Date”), Zoned Arizona will pay

principal together with interest on the MAL in 60 monthly installments based on the interest rate set forth in the Note and a principal

amortization schedule of 25 years from July 11, 2023 (or if Zoned Arizona makes the Early Amortization Election, from the date such election

Zoned Arizona may prepay the outstanding principal

under the Note, at any time, subject to the provisions of the Note.

If Zoned Arizona prepays all, but not less than all, of the outstanding

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.

On December 7, 2022, Zoned Arizona and the Bank

entered into a First Amendment to Loan Agreement (the “First Amendment”).

Pursuant to the terms of the First Amendment, Zoned

Arizona has elected to make its Early Amortization Election (defined in the First Amendment and Loan Agreement), which election requires

Zoned Arizona to commence paying principal and interest on the MAL as set forth in the Swap Note (defined below).

Except as provided

in the First Amendment, the terms of the Loan Agreement remain in full force and effect.

Pursuant to the terms of the Loan Agreement

and First Amendment, on December 7, 2022, Zoned Arizona issued an Amended and Restated Promissory Note (the “Swap Note”)

The Swap Note has an original principal amount of $4,500,000, a 50% loan-to-value as determined by the bank-ordered appraisal

completed on the Tempe Property.

The Swap Note requires Zoned Arizona to pay monthly principal and interest payments to the Bank at an

interest rate equal to the prime rate plus 0.75%.

The Swap Note matures 10 years after its effective date and payments are calculated

based on a 30-year amortization schedule.

In connection with the Swap Note, Zoned Arizona received net proceeds of $4,315,404 which is

net of fees of $184,596.

Zoned Arizona may prepay the outstanding principal

under the Swap Note, at any time, subject to the provisions of the Swap Note.

Also as previously disclosed, on July 11, 2022

and pursuant to the terms of the Loan Agreement, the Company executed a Guaranty (the “Guaranty”) in favor of the Bank, pursuant

to which the Company agreed to guarantee all indebtedness of Zoned Arizona to the Bank arising under or in connection with the MAL or

any of the loan documents.

On December 7, 2022, the Company executed an Acknowledgement of Amendment and Reaffirmation of Guaranty (the

“Reaffirmation”) in favor of the Bank.

The Reaffirmation reaffirms the Guaranty and provides the Company’s consent

to the First Amendment and Swap Note.

On December 7, 2022, Zoned Arizona and the Bank

entered into an Interest Rate Swap Transaction Confirmation (the “Confirmation”).

The Confirmation incorporates by reference

the 2002 ISDA Master Agreement as published by the International Swaps and Derivatives Association, Inc.

as if the parties to the Confirmation

executed such agreement in such form.

The Confirmation provides the terms and conditions governing the interest rate swap transaction

afforded to Zoned Arizona, including a fixed interest rate of 7.65%.

The Company recorded the swap at fair value in the consolidated

balance sheets with changes in fair value recorded contemporaneously in earnings.

The Company has entered into an interest rate swap

to mitigate variability in interest payments on its variable-rate debt.

On December 31, 2022, principal and interest

due on the East West Bank Swap Note amounted to $4,485,808 and $28,324, respectively.

Woodward Property Note Payable

On December 5, 2022, in connection with the acquisition

of the Woodward Property located in Pleasant Ridge, Michigan, the Company entered into a land contact note in the amount of $1,425,000

(the “Woodward Property Note Payable”).

The Woodward Property Note Payable bears interest at 9% per annum and is due in

full as follows:

1) 60 monthly payments of principal and interest

of $12,821 beginning on January 1, 2023, and

2) A balloon payment of $1,274,117 including

the remaining principal and interest on or before December 1, 2028.

On December 31, 2022, principal and interest

due on the Woodward Property Note Payable amounted to $1,425,000 and $10,687, respectively.

Our future operations are dependent on our ability

11 unchanged sentences

less than our current rate per square foot.

We included audited financial statements of our

Significant Tenants as Exhibit 99.1 to this Annual Report on Form 10-K since such audited financial statements represent material information

and are necessary for the protection of investors.

We may secure additional financing to acquire

12 unchanged sentences

year ended December 31, 2021, representing an increase of $382,644.

Net cash flow provided

by operating activities for the year ended December 31, 2021 primarily reflected a net loss of $165,819 adjusted for the add-back

of non-cash items consisting of depreciation of $358,294, amortization expense of $28,350, stock-based compensation expense

of $52,000, accretion of stock-based stock option expense of $56,180, a gain on sale of rental property of $(51,944), and a loss

and impairment loss from unconsolidated joint ventures of $101,446, offset by changes in operating assets and liabilities primarily

consisting of an increase in accounts receivable of $2,921, a decrease in prepaid expenses of $71,712, an increase in accounts payable

of $11,244, an increase in accrued expenses of $16,278, and a decrease in deferred rent receivable of $8,987.

Net cash flow provided

by operating activities for the year ended December 31, 2020 primarily reflected net loss of $78,338 adjusted for the add-back of

non-cash items consisting of depreciation and amortization of $362,833, stock-based compensation expense of $24,200 and accretion

of stock-based stock option expense of $24,231, offset by changes in operating assets and liabilities primarily consisting of an

increase in deferred rent receivable of $173,757 attributable to the abatement of May and June 2020 rent as part of lease amendments

effective on May 31, 2020.

cash flow provided by operating activities for the year ended December 31, 2022 primarily reflected a net loss of $574,355 adjusted

for the add-back of non-cash items consisting of depreciation of $351,043, amortization expense of $9,450, accretion of stock-based

stock option expense of $336,755, a loss on note receivable investments of $210,756 attributable to the recording of an allowance

for uncollectible amounts, a loss from unconsolidated joint ventures of $16,261, and a loss from the changes in fair value from an

interest rate swap of $90,237, offset by changes in operating assets and liabilities primarily consisting of an increase in contract

liabilities of $298,565 attributable to the receipt of cash of a $300,000 assignment fee which was reflected in contract liabilities

on the accompanying consolidated balance sheet and will be amortized into rental revenue on a straight-line basis over the remaining

term of the lease, and an increase in security deposits payable of $147,600 attributable to the collection of additional security

deposit on our Tempe property.

cash flow provided by operating activities for the year ended December 31, 2021 primarily reflected a net loss of $165,819 adjusted

for the add-back of non-cash items consisting of depreciation of $358,294, amortization expense of $28,350, stock-based compensation

expense of $52,000, accretion of stock-based stock option expense of $56,180, a gain on sale of rental property of $(51,944), and

a loss and impairment loss from unconsolidated joint ventures of $101,446, offset by changes in operating assets and liabilities

primarily consisting of an increase in accounts receivable of $2,921, a decrease in prepaid expenses of $71,712, an increase in accounts

payable of $11,244, an increase in accrued expenses of $16,278, and a decrease in deferred rent receivable of $8,987.

During the year ended December 31, 2022, net

cash flow provided by investing activities amounted to $3,348 as compared to net cash used in investing activities of $110,486, a positive

change of $113,834.

During the year ended December 31, 2021, cash provided by investing activities was attributable to proceeds from

the sale of rental property of $322,332, offset by cash used for an investment in a convertible note receivable of $100,000 as discussed

above, cash used in the 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 year ended December 31, 2020, net cash flow used in investing

activities was attributable to cash used for an investment in a convertible note receivable of $100,000 as discussed above, cash used

in the improvement of rental properties of $9,565 and cash used for the purchase of property and equipment of $923.

cash flow used in investing activities amounted to $2,009,213 as compared to net cash provided by investing activities of $3,348, a change

of $2,012,561.

During the year ended December 31, 2022, net cash used in investing activities was attributable to an increase in lease

incentive receivables related to the disbursement of $500,000 to a Significant Tenant to be used for leasehold improvements, the purchase

of rental property of $867,549 in connection with the acquisition of property in Pleasant Ridge, Michigan, the purchase of property and

equipment of $3,764, an increase in escrow deposits of $590,000 in connection with the acquisition of additional property in Pleasant

Ridge, Michigan which closed in February 2023, and cash used to invest in equity securities of $50,000.

These uses of cash in investing

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

During the year ended December 31, 2021, cash provided

by investing activities was attributable to proceeds 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 the 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 year ended December 31, 2022, net

cash provided by financing activities amounted to $4,281,212 and consisted of net proceeds from notes payable of $4,315,404, offset by

the repayment of notes payable of $14,192 and the repayment of notes payable – related party of $20,000.

We did not have any cash

flows from financing activities during the year ended December 31, 2021.

Contractual Obligations and Off-Balance Sheet

15 unchanged sentences

Interest on convertible notes

Notes payable

Off-balance Sheet Arrangements

We have not entered into any other financial

guarantees or other commitments to guarantee the payment obligations of any third parties.

We have not entered into any derivative contracts

that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our consolidated financial statements.

Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit,

liquidity or market risk support to such entity.

We do not have any variable interest in any unconsolidated entity that provides financing,

liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Other than discussed below, we have not entered

into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties.

We have not entered

into any derivative contracts that are indexed to our shares and classified as shareholders’ equity.

Furthermore, we do not have

any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk

support to such entity.

We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market

risk or credit support to us or engages in leasing, hedging or research and development services with us.

Our off-balance sheet arrangement

includes the notional amount of our interest rate swaps which we use to hedge a portion of our exposure to interest rate fluctuations.

Currently, our interest rate swap fixes the variable rate interest on our bank swap note payable.

We intend to fund our interest rate

swap payments utilizing cash flows from operations.

As of December 31, 2022, the notional amount of our interest rate swaps was

Critical Accounting Policies and Estimates

16 unchanged sentences

used in the preparation of the audited consolidated financial statements.

Fair value of financial instruments

The carrying amounts reported in the consolidated

balance sheets for cash, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses, and other payables

approximate their fair market value based on the short-term maturity of these instruments.

The Financial Accounting Standards Board (“FASB”) Accounting

Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“ASC 820”), requires companies to determine

fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.

820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement.

The guidance requires that assets and liabilities carried at fair

value be classified and disclosed in one of the following categories:

Quoted market prices in active markets for identical assets or liabilities.

Observable market-based inputs or unobservable inputs that are corroborated by market data.

Unobservable inputs that are not corroborated by market data.

Other than the interest rate swap, the Company did not identify any

other assets or liabilities that are required to be presented on the balance sheets at fair value, on a recurring basis, in accordance

with ASC Topic 820.

Interest rate swap

In connection with a bank loan executed in 2022,

the Company entered into an interest rate swap agreement to management interest rate risk related to debt that accrues interest at variable

rates The Company accounts for its interest rate swap agreement in accordance with the guidance related to derivatives and hedging activities.

The Company is exposed to market risk from changes in interest rates.

The Company agrees to exchange, at specified intervals, the difference

between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.

Interest payments receivable

and payable under the terms of the interest rate swap agreement are accrued over the period to which the payment relates and the net

difference is treated as an adjustment of interest expense related to the underlying liability.

Because the variable interest rates used

to calculate payments under the terms of the swap agreement are calculated using different benchmarks than those included in the Company’s

variable rate debt agreement, the swap agreement is not considered an effective cash flow hedge.

Accordingly, changes in the underlying market

value of the remaining swap payments are recognized into income as an increase or decrease to other income (expense) each reporting period.

In accordance with ASC 820, Fair Value Measurements and Disclosures , the Company believes values provided by its counterparty

represent the fair value of its swap agreement.

The Company believes that the quality of the counterparty to its swap agreement mitigates

the counterparty credit risk.

The estimated fair value of the interest rate swap agreement is reflected

as a derivative liability on the accompanying balance sheet with changes in the fair value reflected in interest expense in the accompanying

statements of operations.

The Company uses derivative financial instruments only to manage interest rate risks and not as investment

Information regarding the interest rate swap is as follows:

Fair Value of

December 7, 2022 interest rate swap

December 10, 2032

Rental properties

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Lease accounting

Effective January 1, 2019, we adopted ASU 2016-02,

“ Leases (Topic 842)” using a modified retrospective method.

On adoption, we also applied the package of practical

expedients to leases, where we are the lessee or lessor, that commenced before the effective date whereby we elected to not reassess

the following:

(i) whether any expired or existing contracts contain leases;

(ii) the lease classification for any expired or existing

and (iii) initial direct costs for any existing leases.

ASU 2016-02, “ Leases (Topic 842)”

sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e.,

lessees and lessors).

The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases

based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

This classification will determine

whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

is also required to recognize a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless

of their classification.

Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases

The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance

for sales-type leases, direct financing leases and operating leases.

For contracts entered into on or after the effective

date, where we are the lessee, at the inception of a contract, we assess whether the contract is, or contains, a lease.

Our assessment

(1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially

all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right to direct the use of the

We allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the

lease payments.

Leases entered into prior to January 1, 2019 were accounted for under ASC 840 and were not reassessed.

The FASB’s Accounting Standards Update

(“ASU”) 2016-02, “ Leases (Topic 842)” sets out the principles for the recognition, measurement, presentation

and disclosure of leases for both parties to a contract (i.e., lessees and lessors).

The standard requires lessees to apply a dual approach,

classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed

purchase by the lessee.

This classification will determine whether lease expense is recognized based on an effective interest method

or on a straight-line basis over the term of the lease.

A lessee is also required to recognize a right-of-use asset and a lease liability

for all leases with a term of greater than 12 months regardless of their classification.

Leases with a term of 12 months or less will

be accounted for similar to existing guidance for operating leases today.

The new standard requires lessors to account for leases using

an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.

For leases entered into on or after the effective

date, where we are the lessor, at the inception of the contract, we assess whether the contract is a sales-type, direct financing or

operating lease by reviewing the terms of the lease and determining if the lessee obtains control of the underlying asset implicitly

or explicitly.

If a change to a pre-existing lease occurs, we

evaluate if the modification results in a separate new lease or a modified lease.

A new lease results when a modification provides additional

right of use.

The new lease or modified lease is then reassessed to determine its classification based on the modified terms.

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.

On August 23, 2021 and effective September 1, 2021, the Chino Valley

lease was amended, and the monthly base rent was increased to $55,195.

At the commencement of the modified terms, we reassessed its lease

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

The adoption of ASU 2016-02 did not have a material

impact on the operating leases where we are a lessor.

We will continue to record revenues from rental properties for its operating leases

on a straight-line basis.

Any revenue on the straight-line basis exceeding the monthly payment amount required on the operating lease

is reflected as a deferred rent receivable.

Effective May 31, 2020, we amended our leases for which we are the lessor on our Chino Valley,

Tempe, Kingman and Green Valley properties.

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

rent abatement resulted in a deferred rent receivable as of December 31, 2021 and 2020 of $164,770 and $173,757, respectively.

For leases where we are a lessee, primarily for

the Company’s administrative office lease, we 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, we determined that the lease meets the definition of a short-term lease

and we did not recognize a right-of use asset and lease liability arising from this lease.

date, where the Company is the lessor, at the inception of the contract, the Company assesses whether the contract is a sales-type, direct

financing or operating lease by reviewing the terms of the lease and determining if the lessee obtains control of the underlying asset

implicitly or explicitly.

If a change to a pre-existing lease occurs, the Company evaluates if the modification results in a separate

new lease or a modified lease.

A new lease results when a modification provides additional right of use.

The new lease or modified lease

is then reassessed to determine its classification based on the modified terms.

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.

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

On August 23, 2021 and effective September 1, 2021, the Chino Valley lease was amended, and the monthly base rent was increased

to $55,195 due to additional space of 27,312 square feet being leased to the lessee.

On January 24, 2022 and effective on March 1, 2022,

the Chino Valley lease was amended and the monthly base rent was increased to $87,581 due to additional space of 30,000 square feet being

leased to the lessee, increasing the premises to a total of 97,312 square feet of operational space.

In connection with this lease amendment,

the Company paid $500,000 to the tenant as a tenant improvement allowance or lease incentive for investment into the premises, which

was capitalized as a lease incentive receivable and is recognized on a straight-line basis over the remaining lease term as a reduction

to the lease income.

The increase in monthly rent was commensurate with the additional space being leased;

therefore, this modification

qualifies as a separate contract under ASC 842 which does not require lease classification reassessment.

The Company records revenues from rental properties

for its operating leases where it is the lessor on a straight-line basis.

Any revenue on the straight-line basis exceeding the monthly

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

Effective 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.

Additionally, in connection with an operating lease on the Company’s Michigan property

acquired in December 2022, the Company abated certain lease payments for the period from December 2022 to March 2023.

These rent abatements

resulted in an aggregate deferred rent receivable as of December 31, 2022 and 2021 of $204,079 and $164,770, respectively (see Note 3).

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

date, where the Company is the lessee, at the inception of a contract, the Company assesses whether the contract is, or contains, a lease.

The Company’s assessment is based on:

(1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain

the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether we have the right

to direct the use of the asset.

The Company allocates the consideration in the contract to each lease component based on its relative

stand-alone price to determine the lease payments.

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.

Operating lease right of use asset represents

the right to use the leased asset for the lease term and operating lease liability is recognized based on the present value of the future

minimum lease payments over the lease term at commencement date.

As most leases do not provide an implicit rate, the Company used its

incremental borrowing rate of 6% based on the information available at the adoption date or execution of a lease agreement in determining

the present value of future payments.

Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term

and is included in general and administrative expenses in the consolidated statements of operations.

Investment in joint ventures

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Revenue recognition

We follow the Financial Accounting Standards

Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers

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.

We follow 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.

Rental income includes base rents that each tenant

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The Company has elected to recognize forfeitures as they occur as permitted

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

under ASU 2016-09 Improvements to Employee Share-Based Payment Accounting .

Recent Accounting Pronouncements

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impact of ASU 2016-13 on its future consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06,

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

The ASU simplifies the accounting for certain convertible

instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity and requires the use of

the if-converted method for calculating diluted earnings per share.

The ASU removes separation models for convertible debt with a cash

conversion feature.

Such convertible instruments will be accounted for as a single liability measured at amortized cost.

The ASU is effective

for interim and annual periods beginning after December 15, 2021, with early adoption permitted after December 15, 2020, which can either

be on a modified retrospective or full retrospective basis.

Adoption of the ASU is not expected to have a material impact on the Company's

financial condition and results of operations.

Management does not believe that any other recently

9 unchanged sentences

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 7. Management’s Discussion and Analysis