What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 603 added, 607 removed, 99 unchanged (92% of the section changed)

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 quarterly

report on Form 10-Q 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 quarterly report on Form 10-Q 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

Factors that could cause our actual results of operations and financial condition to differ materially are set forth in the

“Risk Factors” section of our annual report on Form 10-K as filed on March 28, 2023, as the same may be updated from

time to time.

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.

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 quarterly report on Form 10-Q 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 quarterly report on Form 10-Q 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 our annual report

on Form 10-K as filed on March 28, 2023, as the same may be updated from time to time.

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.

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 unaudited consolidated financial statements and the related notes that appear elsewhere in this

quarterly report on Form 10-Q.

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 unaudited consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q.

Zoned Properties, Inc.

12 unchanged sentences

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 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 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 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.

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.

All of the properties are leased to licensed and regulated cannabis tenants and are located in areas with established

zoning and permitting procedures.

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.

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 31,

2023, a summary of rental properties owned by us consisted of the following:

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

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 holdings.

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

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 procedures.

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.

The Company is in the business of pursuing real

estate acquisitions and investments that may include various contractual agreements to secure a property, such as an Option Agreement

or a Purchase and Sale Agreement.

These agreements often include the requirement to fund escrow deposits.

Escrow deposits include cash

deposits made by the Company for the future acquisition of properties or for the option to acquire a property.

In most cases, upon closing

of the acquisition of a property, the escrow deposit will be applied to the purchase price.

In some cases, the Company may discontinue

pursuit of an acquisition of a property and therefore may terminate an existing agreement, which can cause forfeiture of escrow deposits

if those deposits are non-refundable.

During the six months ended June 30, 2023, the Company forfeited escrow deposits of $15,000 which

is reflected as a loss on forfeited escrow deposit on the accompanying consolidated statement of operations.

The Company is in pursuit of property acquisitions

that can be characterized as consumer-facing, retail dispensary properties that are positioned to be leased to retail dispensary cannabis

tenants under net leasing structures.

As of June 30.

2023, the Company had agreements in place to acquire properties located in Arizona,

Alabama, Mississippi, and Missouri.

The Company utilizes terms within the agreements to acquire properties that often include material

contingencies to complete the acquisition, such as local real estate approvals or the ability to secure an operating tenant at the property.

As of June 30, 2023, the Company has deposited escrow funds for the future acquisition of properties or for the option to acquire properties

As of June 30, 2023, a summary of rental properties

owned by us consisted of the following:

Chino Valley,

Green Valley,

Pleasant Ridge,

(special use)

2 unchanged sentences

Date Acquired

2022/ Feb 2023

Dec 2022/Feb 2023

Lease Start Date

7 unchanged sentences

Vacant Rentable Sq.

rented as of March 31, 2023

rented as of June 30, 2023

Annual Base Rent (*,**)

2023 (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.

$ per Rented Sq.

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.

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.

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.

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 greater than $8,000,000

of 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

2 unchanged sentences

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

statements for the three months ended March 31, 2023 and 2022, which are included elsewhere in this quarterly report on Form 10-Q.

results discussed below are for the three months ended March 31, 2023 and 2022.

Comparison of Results of Operations

for the Three Months Ended March 31, 2023 and 2022

For the three months

ended March 31, 2023 and 2022, revenues by reportable business segments were as follows:

statements for the three and six months ended June 30, 2023 and 2022, which are included elsewhere in this quarterly report on Form 10-Q.

The results discussed below are for the three and six months ended June 30, 2023 and 2022.

Comparison of Results of Operations for the Three and Six Months

Ended June 30, 2023 and 2022

For the three and six months ended June 30, 2023

and 2022, revenues by reportable business segments were as follows:

Six Months Ended

Property investment portfolio:

3 unchanged sentences

Brokerage revenues

Total real estate services

Total real estate services revenues

Total revenues

For the three months ended March 31, 2023, total

For the three months ended June 30, 2023, total

revenues amounted to $772,617, including rental revenues of $609,591, as compared to $498,652, including rental revenues of $450,314,

for the three months ended March 31, 2022, an overall decrease of $250,677, or 26.7%.

This decrease was attributable to a decrease in

brokerage revenues of $507,804, or 99.3%, attributable to a decrease in commissions earned on real estate listings, offset by an increase

in rental revenues of $220,377, or 56.5%, and an increase in advisory revenues of $36,750, or 98.0%.

for the three months ended June 30, 2022, an overall increase of $273,965, or 54.9%.

This increase was attributable to an increase in

brokerage revenues of $78,188, or 2,755.0%, attributable to an increase in commissions earned on real estate listings, an increase in

rental revenues of $159,277, or 35.4%, and an increase in advisory revenues of $36,500, or 80.2%.

For the six months ended June 30, 2023, total

revenues amounted to $1,460,641, including rental revenues of $1,220,065, as compared to $1,437,353, including rental revenues of $840,411,

for the six months ended June 30, 2022, an overall increase of $23,288, or 1.6%.

This increase was attributable to an increase in rental

revenues of $379,654, or 45.2%, and an increase in advisory revenues of $73,250, or 88.2%.

offset by a decrease in brokerage revenues

of $429,616, or 83.6%, attributable to a decrease in commissions earned on real estate listings.

The increase in property investment portfolio

3 unchanged sentences

Operating expenses

For the three months ended March 31, 2023, operating

expenses amounted to $696,410 as compared to $929,183 for the three months ended March 31, 2022, a decrease of $232,773, or 25.1%.

the three months ended March 31, 2023 and 2022, operating expenses consisted of the following:

For the three months ended June 30, 2023, operating

expenses amounted to $707,812 as compared to $507,856 for the three months ended June 30, 2022, an increase of $199,956, or 39.4%.

the six months ended June 30, 2023, operating expenses amounted to $1,404,222 as compared to $1,437,039 for the six months ended June

30, 2022, a decrease of $32,817, or 2.3%.

For the three and six months ended June 30, 2023 and 2022, operating expenses consisted of the

Three Months Ended

Six Months Ended

Compensation and benefits

4 unchanged sentences

Real estate taxes

the three months ended March 31, 2023, compensation and benefits expense increased by $73,365, or 27.0%, as compared to the three

months ended March 31, 2022.

The increase was attributable to an increase in compensation and benefits of $147,020 related to the

addition of multiple new full-time and part-time team members, and an increase in health insurance expense, offset by a decrease

in stock-based compensation of $73,655.

The decrease in stock-based compensation was from a decrease in accretion of stock option

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 three months ended March 31, 2023, professional fees increased by $26,343, or 22.6%, as compared to the three months ended March

This increase was primarily attributable to an increase in accounting fees of $13,603, an increase in consulting

fees of $381, an increase in legal fees of $11,546, and an increase in public relations fees of $813.

the three months ended March 31, 2023 and 2022, we recorded brokerage fees amounting to $0 and $356,547, respectively, representing

a decrease of $356,547, or 100.0%.

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 expenses, and other general operating expenses.

For the three

months ended March 31, 2023, general and administrative expenses increased by $13,815, or 21.2%, as compared to the three months

ended March 31, 2022.

These increases were primarily attributable to an increase in operating activities related to attendance at

various industry-related conferences and an increase in technology services.

the three months ended March 31, 2023, depreciation expense increased by $265, or less than 1.0%, as compared to the three months

ended March 31, 2022.

This increase was related to an increase depreciation of rental properties associated with the purchase of

the Pleasant Ridge, MI property, offset by a decrease in amortization of intangible assets which were fully amortized.

the three months ended March 31, 2023 real estate taxes increased by $9,986, or 45.9%, as compared to the three months ended March

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

property and the purchase of the Pleasant Ridge, MI property.

(Loss) income from operations

As a result of

the factors described above, for the three months ended March 31, 2023, loss from operations amounted to $(8,386) as compared to income

from operations of $9,518 for the three months ended March 31, 2022, a negative change of $17,904, or 188.1%.

Other (expenses)

Other (expense)

income, net primarily includes interest expense incurred on debt with third parties and also includes other income (expense).

three months ended March 31, 2023, total other expenses, net amounted to $301,262 as compared to total other expenses, net of $35,214,

respectively, representing an increase of $266,048, or 755.5%.

This increase was attributable to the recording of a change in fair value

loss from an interest rate swap of $130,293 in connection with our bank note payable, an increase in interest expense of $123,900 primarily

related to an increase in notes payable, and a decrease in interest income of $3,205.

Additionally, during the three months ended March

31, 2023, we recorded a loss on forfeited escrow deposit of $15,000.

These increases were offset by a decrease in loss from unconsolidated

joint ventures of $6,350.

Gain on sale of property and equipment

For the three months ended June 30, 2023, compensation and benefits expense increased by $99,183, or 37.5%, as compared to the three months ended June 30, 2022.

The increase was attributable to an increase in compensation and benefits of $143,094 related to the addition of multiple new full-time and part-time team members, and an increase in health insurance expense, offset by a decrease in stock-based compensation of $43,911.

For the six months ended June 30, 2023, compensation and benefits expense increased by $172,548, or 32.1%, as compared to the six months ended June 30, 2022.

The increase was attributable to an increase in compensation and benefits of $290,113 related to the addition of multiple new full-time and part-time team members, and an increase in health insurance expense, offset by a decrease in stock-based compensation of $117,565.

The decrease in stock-based compensation was from a decrease in accretion of stock option expense.

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 June 30, 2023, professional fees decreased by $6,508, or 9.8%, as compared to the three months ended June 30, 2022.

This decrease was primarily attributable to a decrease in accounting fees of $3,188, a decrease in legal fees of $3,240, and a decrease in public relations fees of $24,188, offset by an increase in consulting fees of $24,119.

For the six months ended June 30, 2023, professional fees increased by $19,835, or 10.9%, as compared to the six months ended June 30, 2022.

This increase was primarily attributable to an increase in accounting fees of $10,414, an increase in legal fees of $8,307, and an increase in consulting fees of $24,500, offset by a decrease in public relations fees of $23,375.

For the three months ended June 30, 2023 and 2022, we recorded brokerage fees amounting to $50,571 and $1,419, respectively, representing an increase of $49,152, or 3,464.0%.

For the six months ended June 30, 2023 and 2022, we recorded brokerage fees amounting to $50,571 and $357,966, respectively, representing a decrease of $307,395, or 85.9%.

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 expenses, and other general operating expenses.

For the three months ended June 30, 2023, general and administrative expenses increased by $32,337, or 48.0%, as compared to the three months ended June 30, 2022.

For the six months ended June 30, 2023, general and administrative expenses increased by $46,152, or 34.9%, as compared to the six months ended June 30, 2022.

These increases were primarily attributable to an increase in operating activities related to attendance at various industry-related conferences and an increase in technology services.

For the three months ended June 30, 2023, depreciation expense increased by $15,497, or 17.9%, as compared to the three months ended June 30, 2022.

For the six months ended June 30, 2023, depreciation expense increased by $15,762, or 8.8%, as compared to the six months ended June 30, 2022.

This increase was related to an increase depreciation of rental properties associated with the purchase of the Pleasant Ridge, MI property, offset by a decrease in amortization of intangible assets which were fully amortized.

For the three months ended June 30, 2023 real estate taxes increased by $9,983, or 45.9%, as compared to the three months ended June 30, 2022.

For the six months ended June 30, 2023 real estate taxes increased by $19,969, or 45.9%, as compared to the six months ended June 30, 2022.

This increase was attributable to an increase in assessed real taxes associated with improvements made on our Chino Valley property and the purchase of the Pleasant Ridge, MI property.

Income (Loss) from operations

As a result of the factors described above, for

the three months ended June 30, 2023, income from operations amounted to $64,805 as compared to a loss from operations of $(9,204) for

the three months ended June 30, 2022, a change of $74,009, or 804.1%.

For the six months ended June 30, 2023, income from operations amounted

to $56,419 as compared to income from operations of $314 for the six months ended June 30, 2022, an increase of $56,105, or 17,867.8%.

Other (expenses) income, net

Other (expenses) income, net primarily includes interest expense incurred

on debt with third parties and also includes other income (expenses).

For the three months ended June 30, 2023, total other expenses,

net amounted to $22,646 as compared to total other expenses, net of $29,859, respectively, representing a decrease of $7,213, or 24.2%.

This decrease was attributable to an increase in interest expense of $126,990 primarily related to an increase in notes payable, and a

decrease in interest income of $3,242, and an increase in loss from unconsolidated joint ventures of $2,540, offset by the recording of

a gain in fair value from an interest rate swap of $139,985 in connection with our bank note payable.

For the six months ended June 30, 2023, total other expenses, net amounted

to $323,908 as compared to total other expenses, net of $65,073, respectively, representing an increase of $258,835, or 397.8%.

This increase

was attributable to an increase in interest expense of $250,890 primarily related to an increase in notes payable, and a decrease in interest

income of $6,447.

Additionally, during the six months ended June 30, 2023, we recorded a loss on forfeited escrow deposit of $15,000.

These increases were offset by the recording of a gain in fair value from an interest rate swap of $9,692 in connection with our bank

note payable, and a decrease in loss from unconsolidated joint ventures of $3,810.

Net Income (Loss)

As a result of the foregoing, for the three months

ended March 31, 2023 and 2022, net loss amounted to $309,648, or $0.03 per common share (basic and diluted), and $25,696, or $0.00 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 $3,247,715 and

$4,335,840 as of March 31, 2023 and December 31, 2022, respectively.

Our primary uses

of cash have been for compensation and benefits, fees paid to third parties for professional services, real estate taxes, general and

administrative expenses, and the development of rental properties and other lines of business.

All funds received have been expended

in the furtherance of growing the business.

We receive funds from the collection of rental income, advisory fees and brokerage fees.

The following trends are reasonably likely to result in changes in our liquidity over the near to long term:

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 if we are unable to continue to generate positive cash flows from our operations.

We estimate that

based on current plans and assumptions, that our available cash will be sufficient to satisfy our cash requirements under our present

operating expectations for the next 12 months from the date of this quarterly report on Form 10-Q.

Other than revenue received from the

lease of our rental properties, from advisory 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, acquire and develop rental properties, invest in joint ventures and notes

receivable, and to grow our company.

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.

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 “Bank”).

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

On July 11, 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

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

(a) upon 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;

a minimum debt service 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 of the MAL.

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 is made).

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.

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”) to the Bank.

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.

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

has entered into an interest rate swap to mitigate variability in interest payments on its variable-rate debt.

On March 31, 2023,

principal and interest due on the East West Bank Swap Note amounted to $4,474,989 and $21,259, respectively.

On December 31, 2022, principal

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

23616 Land Contract

ended June 30, 2023 and 2022, net income (loss) amounted to $42,159, or $0.00 per common share (basic and diluted), and $(39,063), or

$(0.00) per common share (basic and diluted), respectively.

For the six months ended June 30, 2023 and 2022, net loss amounted to $267,489,

or $(0.02) per common share (basic and diluted), and $64,759, 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 $3,275,775 and $4,335,840 as of June 30, 2023 and December

31, 2022, respectively.

Our primary uses of cash have been for compensation

and benefits, fees paid to third parties for professional services, real estate taxes, general and administrative expenses, and the development

of rental properties and other lines of business.

All funds received have been expended in the furtherance of growing the business.

receive funds from the collection of rental income, advisory fees and brokerage fees.

The following trends are reasonably likely to result

in changes in our liquidity over the near to long term:

An increase in working capital requirements to finance our current business,

Addition of administrative and sales personnel as the business grows,

The cost of being a public company,

An increase in investments in joint ventures and other projects, and

An increase in investments in rental property.

We may need to raise additional funds, particularly

if we are unable to continue to generate positive cash flows from our operations.

We estimate that based on current plans and assumptions,

that our available cash will be sufficient to satisfy our cash requirements under our present operating expectations for the next 12 months

from the date of this quarterly report on Form 10-Q.

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

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

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.

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 “Bank”).

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.

On July 11, 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:

(a) upon 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;

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”) to the

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

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 unaudited 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 June 30, 2023, principal and interest due on

the East West Bank Swap Note amounted to $4,467,766 and $15,213, respectively.

On December 31, 2022, principal and interest due on the

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

23616 Land Contract Note Payable

On December 5, 2022, in connection with the acquisition

3 unchanged sentences

full as follows:

60 monthly payments of

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

A balloon payment of $1,274,117

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

On March 31, 2023, principal and interest due

on the 23616 Land Contract Note Payable amounted to $1,416,586 and $0, respectively.

On December 31, 2022, principal and interest due

on the 23616 Land Contract Note Payable amounted to $1,425,000 and $10,687, respectively.

23634 Land Contract

monthly payments of principal and interest of $12,821 beginning on January 1, 2023, and

balloon payment of $1,274,117 including the remaining principal and interest on or before December 1, 2028.

On June 30, 2023, principal and interest due on

the 23616 Land Contract Note Payable amounted to $1,409,810 and $0, respectively.

On December 31, 2022, principal and interest due on

the 23616 Land Contract Note Payable amounted to $1,425,000 and $10,687, respectively.

23634 Land Contract Note Payable

On February 24, 2023, in connection with the 23634

4 unchanged sentences

and all interest will be fully paid on or before March 31, 2027.

On March 31, 2023, principal and interest due on the 23634 Land Contract

On June 30, 2023, principal and interest due on the 23634 Land Contract

Note Payable amounted to $424,832 and $0, respectively.

Our future operations

are dependent on our ability to manage our current cash balance, on the collection of rental and real estate services revenues and the

attainment of new advisory and brokerage clients.

Our real estate properties are leased to Significant Tenants under triple-net leases

for which terms vary.

We monitor the credit of these tenants to stay abreast of any material changes in credit quality.

We monitor tenant

credit by (1) reviewing financial statements and related metrics and information that are publicly available or that are provided to

us upon request, and (2) monitoring the timeliness of rent collections.

As of March 31, 2023 and December 31, 2022, we had an asset

concentration related to our Significant Tenant leases.

As of March 31, 2023 and December 31, 2022, these Significant Tenants represented

approximately 69.9% and 59.8% 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 may secure additional

financing to acquire and develop additional and existing properties.

Financing transactions may include the issuance of equity or debt

securities, obtaining credit facilities, or other financing mechanisms.

Even if we are able to raise the funds required, it is possible

that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative

Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new

equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock.

The inability to

obtain additional capital may restrict our ability to grow our business operations.

For the Three

Months Ended March 31, 2023 and 2022

Net cash flow provided

by operating activities was $3,589 for the three months ended March 31, 2023, as compared to net cash flow provided by operating activities

of $119,742 for the three months ended March 31, 2022, representing a decrease of $116,153.

cash flow provided by operating activities for the three months ended March 31, 2023 primarily

reflected a net loss of $309,648 adjusted for the add-back of non-cash items consisting of

depreciation of $97,582, amortization of debt discount of $4,615, accretion of stock-based

stock option expense of $43,262, a loss on forfeited escrow deposit of $15,000, a loss from

unconsolidated joint ventures of $1,469, and a loss from the changes in fair value from an

interest rate swap of $130,293, offset by changes in operating assets and liabilities primarily

consisting of an increase in deferred rent of $102,327 attributable to rent abatement on

our new tenant lease at our Woodward Properties, an increase in contract liabilities of $49,700,

and an increase in security deposits payable of $56,100 attributable to the collection of

additional security deposit on our Woodward Properties.

cash flow provided by operating activities for the three months ended March 31, 2022

primarily reflected a net loss of $25,696 adjusted for the add-back of non-cash items consisting

of depreciation of $87,867, amortization expense of $9,450, accretion of stock-based stock

option expense of $116,916, and a loss from unconsolidated joint ventures of $7,819, offset

by changes in operating assets and liabilities primarily consisting of an increase in accounts

receivable of $311,877 attributable to an increase in brokerage commissions receivable, a

decrease in prepaid expenses of $10,881, an increase in accounts payable of $248,067 attributable

to an increase in brokerage fees payable, a decrease in accrued expenses of $25,802, and

a decrease in deferred rent of $2,247.

During the three

months ended March 31, 2023, net cash flow used in investing activities amounted to $1,071,456 as compared to net cash used in investing

activities of $503,764, an increase of $567,692.

During the three months ended March 31, 2023, net cash used in investing activities

was attributable to the purchase of rental property of $992,214 in connection with the acquisition of property in Pleasant Ridge, Michigan,

an increase in capitalized permit costs of $6,242, and an increase in escrow deposits of $73,000 in connection with escrow deposits made

on other potential acquisitions of rental properties.

During the three months ended March 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 our Significant Tenant to be

used for leasehold improvements, and the purchase of property and equipment of $3,764.

During the three months ended March 31, 2023,

net cash used in financing activities amounted to $20,258 and consisted of the repayment of notes payable.

During the three months ended

March 31, 2022, net cash used in financing activities amounted to $20,000 and consisted of the repayment of note payable – related

party of $20,000.

Obligations and Off-Balance Sheet Arrangements

We have certain

fixed contractual obligations and commitments that include future estimated payments.

Changes in our business needs, cancellation provisions,

changing interest rates, and other factors may result in actual payments differing from the estimates.

We cannot provide certainty regarding

the timing and amounts of payments.

We have presented below a summary of the most significant assumptions used in our determination of

amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial

position, results of operations, and cash flows.

The following tables

summarize our contractual obligations as of March 31, 2023 (dollars in thousands), and the effect these obligations are expected to have

on our liquidity and cash flows in future periods.

Due by Period

Our future operations are dependent on our ability

to manage our current cash balance, on the collection of rental and real estate services revenues and the attainment of new advisory and

brokerage clients.

Our real estate properties are leased to Significant Tenants under triple-net leases for which terms vary.

the credit of these tenants to stay abreast of any material changes in credit quality.

We monitor tenant credit by (1) reviewing financial

statements and related metrics and information that are publicly available or that are provided to us upon request, and (2) monitoring

the timeliness of rent collections.

As of June 30, 2023 and December 31, 2022, we had an asset concentration related to our Significant

Tenant leases.

As of June 30, 2023 and December 31, 2022, these Significant Tenants represented approximately 69.1% and 59.8% 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 may secure additional financing to acquire

and develop additional and existing properties.

Financing transactions may include the issuance of equity or debt securities, obtaining

credit facilities, or other financing mechanisms.

Even if we are able to raise the funds required, it is possible that we could incur

unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing.

if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have

rights, preferences or privileges senior to those of existing holders of our common stock.

The inability to obtain additional capital

may restrict our ability to grow our business operations.

For the Six Months Ended June 30, 2023 and

Net cash flow provided by operating activities

was $143,784 for the six months ended June 30, 2023, as compared to net cash flow provided by operating activities of $270,968 for the

six months ended June 30, 2022, representing a decrease of $127,184.

Net cash flow provided by operating activities for the six months ended June 30, 2023 primarily reflected a net loss of $267,489 adjusted for the add-back of non-cash items consisting of depreciation of $199,630, amortization of debt discount of $9,229, accretion of stock-based stock option expense of $80,447, a loss on forfeited escrow deposit of $15,000, a loss from unconsolidated joint ventures of $8,370, and a gain from the changes in fair value from an interest rate swap of $9,692, offset by changes in operating assets and liabilities primarily consisting of an increase in deferred rent of $124,013 attributable to rent abatement on our new tenant lease at our Woodward Properties, a decrease in prepaid expenses and other assets of $32,248, an increase in contract liabilities of $148,394, and an increase in security deposits payable of $56,100 attributable to the collection of additional security deposit on our Woodward Properties.

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.

During the six months ended June 30, 2023, net

cash flow used in investing activities amounted to $1,165,450 as compared to net cash used in investing activities of $551,664, an increase

During the six months ended June 30, 2023, net cash used in investing activities was attributable to the purchase of rental

property of $998,821 primarily in connection with the acquisition of property in Pleasant Ridge, Michigan, an increase in capitalized

permit costs of $11,081, and an increase in escrow deposits of $155,548 in connection with escrow deposits made on other potential acquisitions

of rental properties.

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,

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

This use of cash in investing

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

During the six months ended June 30, 2023, net

cash used in financing activities amounted to $38,399 and consisted of the repayment of notes payable.

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.

Contractual Obligations and Off-Balance Sheet

Contractual Obligations

We have certain fixed contractual obligations

and commitments that include future estimated payments.

Changes in our business needs, cancellation provisions, changing interest rates,

and other factors may result in actual payments differing from the estimates.

We cannot provide certainty regarding the timing and amounts

We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the

tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations,

and cash flows.

The following tables summarize our contractual

obligations as of June 30, 2023 (dollars in thousands), and the effect these obligations are expected to have on our liquidity and cash

flows in future periods.

Payments Due by Period

Contractual obligations:

Convertible notes

1 unchanged sentence

Notes payable

Sheet Arrangements

Other than discussed

below, we have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third

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.

Off-balance Sheet Arrangements

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 March 31, 2023, the notional amount of our interest rate

swaps was $4,489,181.

We intend to fund our interest rate

swap payments utilizing cash flows from operations.

As of June 30, 2023, the notional amount of our interest rate swaps was $4,481,959.

In interest rate swaps, the notional amount is the specified value upon which interest rate payments will be exchanged.

The notional amount in interest rate swaps is used to come up with the amount of interest due.

Critical Accounting

Policies and Estimates

Our discussion

and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which

have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these unaudited

consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,

revenues and expenses, and related disclosure of contingent assets and liabilities.

We continually evaluate our estimates, including

those related to income taxes, and the valuation of equity transactions.

We base our estimates on historical experience and on various

other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments

about the carrying values of assets and liabilities that are not readily apparent from other sources.

Any future changes to these estimates

and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities.

Actual results may

differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our

more significant judgments and estimates used in the preparation of the unaudited financial statements.

The notional amount

in interest rate swaps is used to come up with the amount of interest due.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition

and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with

accounting principles generally accepted in the United States.

The preparation of these unaudited consolidated financial statements requires

us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure

of contingent assets and liabilities.

We continually evaluate our estimates, including those related to income taxes, and the valuation

of equity transactions.

We base our estimates on historical experience and on various other assumptions that we believed to be reasonable

under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities

that are not readily apparent from other sources.

Any future changes to these estimates and assumptions could cause a material change

to our reported amounts of revenues, expenses, assets and liabilities.

Actual results may differ from these estimates under different

assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used

in the preparation of the unaudited financial statements.

Fair value of financial instruments

The carrying amounts

reported in the unaudited 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.

The carrying amounts reported in the unaudited

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.

ASC 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:

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

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.

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

11 unchanged sentences

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 vehicles.

Information regarding the interest rate

swap is as follows:

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

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 vehicles.

Information regarding the interest rate swap is as follows:

Fair Value of

December 7, 2022 interest rate swap

1 unchanged sentence

Rental properties

are carried at cost less accumulated depreciation and amortization.

Betterments, major renovations and certain costs directly related

to the improvement of rental properties are capitalized.

Rental properties are carried at cost less accumulated

depreciation and amortization.

Betterments, major renovations and certain costs directly related to the improvement of rental properties

are capitalized.

Maintenance and repair expenses are charged to expense as incurred.

is recognized on a straight-line basis over estimated useful lives of the assets, which range from 5 to 39 years.

Tenant improvements

are amortized on a straight-line basis over the lives of the related leases, which approximate the useful lives of the assets.

Upon the acquisition

of real estate, we assess the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such

as acquired above-market leases and acquired in-place leases) and acquired liabilities (such as acquired below-market leases) and allocate

the purchase price based on these assessments.

The Company assesses fair value based on estimated cash flow projections that utilize

appropriate discount and capitalization rates and available market information.

Estimates of future cash flows are based on a number

of factors including historical operating results, known trends, and market/economic conditions.

Our properties

are individually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may

not be recoverable.

An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over

the anticipated holding period on an undiscounted basis.

An impairment loss is measured based on the excess of the property’s carrying

amount over its estimated fair value.

Impairment analyses are based on our current plans, intended holding periods and available market

information at the time the analyses are prepared.

If our estimates of the projected future cash flows, anticipated holding periods,

or market conditions change, our evaluation of impairment losses may be different and such differences could be material to our consolidated

financial statements.

The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy,

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

We have capitalized

land, which is not subject to depreciation.

Depreciation is recognized on a straight-line basis

over estimated useful lives of the assets, which range from 5 to 39 years.

Tenant improvements are amortized on a straight-line basis

over the lives of the related leases, which approximate the useful lives of the assets.

Upon the acquisition of real estate, we assess

the fair value of acquired assets (including land, buildings and improvements, identified intangibles, such as acquired above-market leases

and acquired in-place leases) and acquired liabilities (such as acquired below-market leases) and allocate the purchase price based on

these assessments.

The Company assesses fair value based on estimated cash flow projections that utilize appropriate discount and capitalization

rates and available market information.

Estimates of future cash flows are based on a number of factors including historical operating

results, known trends, and market/economic conditions.

Our properties are individually reviewed for impairment

whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

An impairment exists

when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted

An impairment loss is measured based on the excess of the property’s carrying amount over its estimated fair value.

analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared.

If our estimates of the projected future cash flows, anticipated holding periods, or market conditions change, our evaluation of impairment

losses may be different and such differences could be material to our consolidated financial statements.

The evaluation of anticipated

cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that

could differ materially from actual results.

We have capitalized land, which is not subject

to depreciation.

Lease accounting

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 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.

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

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 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.

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

As disclosed in Note 3, 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

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 deferred rent.

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 aggregate deferred rent as of March 31, 2023 and December 31, 2022 of $306,406 and $204,079, 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 new lease or modified lease

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

As disclosed in Note 3, 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;

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 deferred rent.

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 aggregate deferred rent as of June 30, 2023 and December 31, 2022 of $328,092 and $204,079, 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.

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 unaudited consolidated statements

of operations.

Investment in

unconsolidated joint ventures

We have equity

investments in various privately held entities.

We account for these investments either under the equity method or cost method of accounting

depending on our ownership interest and level of influence.

Investments accounted for under the equity method are recorded based upon

the amount of our investment and adjusted each period for our share of the investee’s income or loss.

Investments are reviewed

for changes in circumstance or the occurrence of events that suggest an other than temporary event where our investment may not be recoverable.

We evaluate our investments in these entities for consolidation.

We consider our percentage interest in the joint venture, evaluation

of control and whether a variable interest entity exists when determining whether or not the investment qualifies for consolidation or

if it should be accounted for as an unconsolidated investment under either the equity method of accounting.

If an investment qualifies

for the equity method of accounting, our investment is recorded initially at cost, and subsequently adjusted for equity in net income

(loss) and cash contributions and distributions.

The net income or loss of an unconsolidated investment is allocated to its investors

in accordance with the provisions of the operating agreement of the entity.

The allocation provisions in these agreements may differ

from the ownership interest held by each investor.

Differences, if any, between the carrying amount of our investment in the respective

joint venture and our share of the underlying equity of such unconsolidated entity are amortized over the respective lives of the underlying

assets as applicable.

These items are reported as a single line item in the statements of operations as income or loss from investments

in unconsolidated affiliated entities.

(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 unaudited consolidated statements of operations.

Investment in unconsolidated joint ventures

We have equity investments in various privately

held entities.

We account for these investments either under the equity method or cost method of accounting depending on our ownership

interest and level of influence.

Investments accounted for under the equity method are recorded based upon the amount of our investment

and adjusted each period for our share of the investee’s income or loss.

Investments are reviewed for changes in circumstance or

the occurrence of events that suggest an other than temporary event where our investment may not be recoverable.

We evaluate our investments

in these entities for consolidation.

We consider our percentage interest in the joint venture, evaluation of control and whether a variable

interest entity exists when determining whether or not the investment qualifies for consolidation or if it should be accounted for as

an unconsolidated investment under either the equity method of accounting.

If an investment qualifies for the equity method of accounting,

our investment is recorded initially at cost, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions.

The net income or loss of an unconsolidated investment is allocated to its investors in accordance with the provisions of the operating

agreement of the entity.

The allocation provisions in these agreements may differ from the ownership interest held by each investor.

if any, between the carrying amount of our investment in the respective joint venture and our share of the underlying equity of such unconsolidated

entity are amortized over the respective lives of the underlying assets as applicable.

These items are reported as a single line item

in the statements of operations as income or loss from investments in unconsolidated affiliated entities.

Revenue recognition

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

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 pays in accordance with the terms of its respective lease and is reported on a straight-line basis over the

non-cancellable term of the lease, which includes the effects of rent abatements under the leases.

The Company commences rental revenue

recognition when the tenant takes possession of the leased space or controls the physical use of the leased space and the leased space

is substantially ready for its intended use.

Currently, the

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

The leases also require the tenant

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

These payments are recorded as rental income and the related property

tax expense reflected separately on the statements of operations.

Revenues from advisory

services is recognized 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.

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

pays in accordance with the terms of its respective lease and is reported on a straight-line basis over the non-cancellable term of the

lease, which includes the effects of rent abatements under the leases.

The Company commences rental revenue recognition when the tenant

takes possession of the leased space or controls the physical use of the leased space and the leased space is substantially ready for

its intended use.

Currently, the Company’s leases provide

for payments with fixed monthly base rents over the term of the leases.

The leases also require the tenant to remit estimated monthly

payments to the Company for property taxes.

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

separately on the statements of operations.

Revenues from advisory services is recognized

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.

Stock-based compensation

is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation ”, which requires

recognition in the financial statements of the cost of employee, director, and non-employee services received in exchange for an award

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

award (presumptively, the vesting period).

The ASC also requires measurement of the cost of employee, director, and non-employee services

received in exchange for an award based on the grant-date fair value of the award.

The Company has elected to recognize forfeitures as

they occur as permitted under ASU 2016-09 Improvements to Employee Share-Based Payment Accounting .

Recent Accounting

Pronouncements

In June 2016, the

FASB issued ASU No.

Stock-based compensation is accounted for based

on the requirements of ASC 718 – “Compensation –Stock Compensation ”, which requires recognition in the

financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments

over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively,

the vesting period).

The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange

for an award based on the grant-date fair value of the award.

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

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

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No.

“Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”

(“ASU 2016-13”).

ASU 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected

to be collected.

The measurement of expected credit losses is based on relevant information about past events, including historical experience,

current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

An entity must use

judgment in determining the relevant information and estimation methods that are appropriate in its circumstances.

ASU 2016-13 is effective

for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, and a modified retrospective

approach is required, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which

the guidance is effective.

In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal

years beginning after December 15, 2022 for smaller reporting companies which applies to the Company.

The Company is currently evaluating

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

Management does

not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect

on the accompanying unaudited consolidated financial statements.

and Qualitative Disclosures about Market Risk

Not applicable

to smaller reporting companies.

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”).

ASU 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected.

The measurement

of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and

reasonable and supportable forecasts that affect the collectability of the reported amounts.

An entity must use judgment in determining

the relevant information and estimation methods that are appropriate in its circumstances.

ASU 2016-13 is effective for annual reporting

periods beginning after December 15, 2019, including interim periods within those fiscal years, and a modified retrospective approach

is required, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance

is effective.

In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning

after December 15, 2022 for smaller reporting companies which applies to the Company.

The adoption of ASU 2016-13 had financial impact

on our consolidated financial statements.

Management does not believe that any other recently

issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying unaudited consolidated

financial statements.

Quantitative and Qualitative Disclosures

about Market Risk

Not applicable to smaller reporting companies.

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