Zoned Properties, Inc. (OTCQX:ZDPY), a strategic real estate development firm whose primary mission is to identify, develop and lease sophisticated, safe and sustainable properties in emerging industries, including the licensed medical marijuana industry, today announced its financial results for the three and six-month periods ended June 30, 2018.
The second quarter represented the first earnings cycle under the Company’s new business model, which is designed to better align the Company’s interests with its tenants and clients, positioning Zoned Properties to benefit from the growth of the medical marijuana industry. Accordingly:
— Zoned Properties has leased the entirety of its licensed medical marijuana facilities located in Arizona at Chino Valley, Green Valley, Tempe and Kingman to its primary tenant and client, Hana Meds, with plans to continue expanding the developments as market demands increase.
— Lease terms have been extended through the year 2040.
— Base Rent rates have been modified to be in line with industry averages beginning May 1, 2018.
— Zoned Properties and Hana Meds have entered into a long-term strategic advisory relationship, under which Zoned Properties will assist Hana Meds in all aspects of building and facility performance, aiming to increase efficiency, sustainability and profitability. Zoned Properties will receive an advisory fee equal to 10% of gross revenues, paid monthly beginning January, 2019
“During the second quarter of 2018 we began the process of transitioning our growth strategy and revenue mix towards a model that includes not only fixed lease payments, but also variable, percentage-based advisory fees,” commented Bryan McLaren, Chief Executive Officer. “Effective May 1, our lease agreements were restructured in coordination with a set of Confidential Advisory Services Agreements. The new lease agreements include updated lease terms and a new set of base rental rates, adjusted to be more in-line with average commercial and industrial real estate rates. While these adjustments have resulted in a decrease to the Company’s 2018 cash flow due to the lower base rental rates, the upside of our new revenue mix and growth strategy including variable, percentage-based advisory fees could produce significantly higher cash flows than our previous leasing model. Zoned Properties will focus much of its resources on continuing to build the relationship with our primary tenant and client in Arizona, Hana Meds and as a commitment to that relationship, we have leased the entirety of our licensed medical marijuana facilities in Arizona to them with terms extended through the year 2040.”
“Once we begin recognizing the variable, percentage-based advisory fees starting in 2019 and reflected in our financial results for the first quarter of 2019, we expect revenue to likely exceed the revenue under our prior business model,” added Mr. McLaren. “More importantly, we can now grow with our tenants and clients as they grow, positioning Zoned Properties to benefit from the expansion of the licensed marijuana industry. The Arizona Medical Marijuana market has been projected to gross over $500 Million in revenues and Hana Meds is well positioned to capture market share that will translate into revenue for Zoned Properties through our variable, percentage-based advisory fee structure. The robust and repeatable model for property development that we have developed for the medical marijuana space is garnering attention from across the country and in Canada as the push for widespread legalization continues and industry stakeholders look for proven, sustainable solutions.”
“As expected, revenues were lower this quarter than they have been historically as a result of our business transition and the renegotiation of rental payments and advisory fees that became effective on May 1,” added McLaren. “The impact to revenue was partially offset by lower operating expenses as a result of our efforts to continue systemizing a lean administrative process. The results also include a write-off of deferred rent receivable resulting in a one-time non-cash charge of approximately $1.9 million. While it is difficult to estimate the exact revenue to be realized from the upcoming variable, percentage-based advisory fees in 2019, we are confident that this restructuring will best position Zoned Properties to realize greater value for our shareholders moving forward. We expect similar financial results for the remainder of 2018, with minimal impact to cash flow from operations, as our business transition progresses and we position for the recognition of advisory fee revenue beginning in January 2019. Strategically, with a strong balance sheet, no debt tied to any of our properties and minimal corporate-level liabilities, we are now strategically poised to grow as this rapidly expanding industry grows, with highly valued properties positioned in close proximity to advancing markets in California, Nevada and Colorado. I have never been more excited about the opportunities in front of Zoned Properties.”
Letter to Shareholders
Management today published a shareholder letter, designed to further elaborate on the Company’s strategy and recent progress. Interested parties may view this letter here.
Second Quarter 2018 Financial Results
— Revenues were $179,000, compared to $505,000 for the second quarter of 2017, reflecting the company’s transition to a new business model.
— Operating expenses, including a one-time non-cash write-off of $1.9 million related to deferred rent receivables, were $2.2 million, up 510.9% compared to $355,000 for the second quarter of 2017.
— Excluding the one-time write-off, operating expenses of $316,000 were 11.1% lower than the second quarter of 2017.
— Net loss, including the aforementioned write-off, was $2.0 million, or ($0.12) per basic and diluted share, compared to net income of $118,000, or $0.01 per basic and diluted share, for the second quarter of 2017.
— Excluding the one-time write-off, the net loss was $165,000 or ($0.01) per basic and diluted share.
— Cash provided by operating activities was $206,000 for the first six months of 2018 compared to cash used by operating activities of $121,000 for the first six months of 2017.
— As of June 30, 2018, the Company had cash of $762,000, compared to $824,000 as of December 31, 2017.
About Zoned Properties, Inc. (ZDPY):
Zoned Properties is a strategic real estate development firm whose primary mission is to identify, develop, and lease sophisticated, safe, and sustainable properties in emerging industries, including the licensed medical marijuana industry. Zoned Properties is an accredited member of the Better Business Bureau, the Forbes Real Estate Council, and the U.S. Green Building Council. The Company focuses on the strategic development of commercial properties that face unique zoning challenges; identifying solutions that could potentially have a major impact on cash flow and property value. Zoned Properties targets commercial properties that can be acquired and re-zoned or permitted for specific purposes. Zoned Properties does not grow, harvest, sell or distribute cannabis or any substances regulated under United States law such as the Controlled Substances Act.
Use of Non-GAAP Financial Information
The Company measures its performance primarily through growth in revenue and operating profit. In addition to the consolidated financial statements presented in accordance with GAAP, management uses certain non-GAAP measures to measure its operating performance, including operating expenses, exclusive of a one-time non-cash write-off related to deferred rent receivables. A definition of the components of operating expenses, exclusive of a one-time non-cash write-off related to deferred rent receivables, and a reconciliation to the most directly comparable GAAP financial measure has been provided.
During the second quarter of 2018, the Company incurred a one-time non-cash write-off of $1.9 million related to deferred rent receivables. Operating expenses, exclusive of this one-time non-cash write-off related to deferred rent receivables, is presented to enhance an understanding of the operating results and is not intended to represent operating expenses or results of operations. The use of operating expenses, exclusive of the one-time non-cash write-off related to deferred rent receivables, provides a clearer understanding of normal, recurring operating results of the Company.
This non-GAAP measure is not in accordance with, and should not be used as an alternative to, measures prepared in accordance with GAAP. In addition, non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. Non-GAAP measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this press release are forward-looking statements. In some cases, forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “plan,” “potential,” “continue” or similar expressions. Such forward-looking statements include risks and uncertainties, and there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors, risks and uncertainties are discussed in the Company’s filings with the Securities and Exchange Commission. Investors should not place any undue reliance on forward-looking statements since they involve known and unknown, uncertainties and other factors which are, in some cases, beyond the Company’s control which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects the Company’s current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to operations, results of operations, growth strategy and liquidity. The Company assumes no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
ZONED PROPERTIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS As of As of June 30, December 31, 2018 2017 (Unaudited) (Audited)ASSETS Cash $ 762,109 $ 824,240 Rental properties, net 7,314,993 7,170,322 Deferred rent receivable - related parties - 1,708,734 Note receivable - related party 92,160 182,365 Prepaid expenses and other current assets 83,768 127,902 Property and equipment, net 32,231 35,768 Security deposits 600 2,890Total Assets $ 8,285,861 $ 10,052,221LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIES: Convertible notes payable - related parties $ 2,020,000 $ 2,020,000 Accounts payable 5,062 8,896 Accrued expenses 61,737 48,468 Accrued expenses - related parties 34,200 33,600 Deferred revenues 53,250 28,750 Security deposits payable - related parties 71,800 71,800 Security deposits payable 5,864 5,864Total Liabilities 2,251,913 2,217,378Commitments and ContingenciesSTOCKHOLDERS' EQUITY: Preferred stock, $0.001 par value, 5,000,000 shares authorized; 2,000,000 shares issued and outstanding at June 30, 2018 and December 31, 2017 ($1.00 per share liquidation preference) 2,000 2,000 Common stock: $0.001 par value, 100,000,000 shares authorized; 17,434,052 and 17,345,497 issued and outstanding at June 30, 2018 and December 31, 2017, respectively 17,434 17,345 Additional paid-in capital 20,725,726 20,630,649 Accumulated deficit (14,711,212) (12,815,151)Total Stockholders' Equity 6,033,948 7,834,843Total Liabilities and Stockholders' Equity $ 8,285,861 $ 10,052,221
ZONED PROPERTIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) For the Three Months Ended For the Six Months Ended June 30, June 30, 2018 2017 2018 2017REVENUES:Rental revenues $ 12,216 $ 4,629 $ 24,403 $ 54,702Rental revenues - related parties 166,425 500,312 687,499 990,506 Total revenues 178,641 504,941 711,902 1,045,208OPERATING EXPENSES:Compensation and benefits 95,523 119,935 254,982 338,228Professional fees 85,874 82,143 157,499 120,621General and administrative expenses 37,661 41,207 77,526 86,581Depreciation and amortization 63,485 49,505 126,904 108,185Property operating expenses 11,007 41,086 36,299 62,359Real estate taxes 22,040 21,206 44,294 45,282Write-off of deferred rent receivable - related parties 1,853,539 - 1,853,539 - Total operating expenses 2,169,129 355,082 2,551,043 761,256(LOSS) INCOME FROM OPERATIONS (1,990,488) 149,859 (1,839,141) 283,952OTHER (EXPENSES) INCOME:Interest expenses - (1,944) - (42,983)Interest expenses - related parties (30,300) (32,245) (60,600) (68,688)Gain on sale of property and equipment - - - 831,753Interest income 1,951 2,483 3,680 2,786 Total other (expenses) income, net (28,349) (31,706) (56,920) 722,868(LOSS) INCOME BEFORE INCOME TAXES (2,018,837) 118,153 (1,896,061) 1,006,820PROVISION FOR INCOME TAXES - - - -NET (LOSS) INCOME $ (2,018,837) $ 118,153 $(1,896,061) $1,006,820NET (LOSS) INCOME PER COMMON SHARE:Basic $ (0.12) $ 0.01 $ (0.11) $ 0.05Diluted $ (0.12) $ 0.01 $ (0.11) $ 0.05WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic 17,433,667 17,312,655 17,414,977 17,290,422Diluted 17,433,667 17,924,989 17,414,977 18,132,734
ZONED PROPERTIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited) For the Six Months Ended June 30, 2018 2017CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ (1,896,061) $ 1,006,820 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization expense 126,904 108,185 Stock-based compensation 79,408 184,925 Stock option expense 15,758 (6,881) Gain from sale of property and equipment - (831,753) Write-off of deferred rent receivable - related parties 1,853,539 - Change in operating assets and liabilities: Deferred rent receivable - related parties (144,805) (352,967) Real estate tax escrow - 39,487 Note receivable 90,205 (176,647) Prepaid expenses and other assets 44,134 49,305 Security deposits 2,290 5,268 Accounts payable (3,834) (72,542) Accrued expenses 13,269 (6,491) Accrued expenses - related parties 600 (52,241) Deferred revenues 24,500 (500) Deferred revenues - 1,841 Security deposits payable - related party - 1,800 Security deposits payable - (18,600)NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 205,907 (120,991)CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of buildings and improvements (268,038) (211,801) Cash received from sale of property and equipment - 1,984,188 Acquisition of property and equipment - (2,586)NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (268,038) 1,769,801CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from convertible debt - related parties - 2,020,000 Repayment of convertible note - related party - (500,000) Repayment of convertible note - (500,000) Repayment of mortgage payable - (2,100,000)NET CASH USED IN FINANCING ACTIVITIES - (1,080,000)NET (DECREASE) INCREASE IN CASH (62,131) 568,810CASH, beginning of period 824,240 366,024CASH, end of period $ 762,109 $ 934,834SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 60,000 $ 164,788SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for accrued settlement payable $ - $ 21,875
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SOURCE Zoned Properties, Inc.