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EX-32 - Progreen US, Inc. | v205432_ex32.htm |
EX-31 - Progreen US, Inc. | v205432_ex31.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C.
FORM
10-Q
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended October 31, 2010
OR
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ____________ to _________________
Commission
File Number 000-30563
PROGREEN
PROPERTIES, INC.
(Exact
name of registrant as specified in its charter)
DELAWARE
|
59-3087128
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification
No.)
|
380
North Old Woodward Ave., Suite 300, Birmingham, MI
|
48009
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(248)
530-0770
(Registrant’s
Telephone Number, Including Area Code)
(Former
Name, Former Address and Former Fiscal Year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES x NO ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. (Check
One):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
(Do not
check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). ¨ Yes x No
The
number of shares outstanding the issuer's common stock, par value $.0001 per
share, was 103,529,703 as of December 10, 2010.
PROGREEN
PROPERTIES, INC.
INDEX
Page
|
|||
Part
I. Financial Information
|
|||
Item
1. Financial Statements
|
1
|
||
Condensed
Consolidated Balance Sheets as of October 31, 2010 (unaudited) and as of
April 30, 2010
|
2
|
||
Condensed
Consolidated Statements of Operations for the Six and Three Months Ended
October 31, 2010 and 2009 (unaudited)
|
3
|
||
Condensed
Consolidated Statements of Stockholders Equity
|
4
|
||
Condensed
Consolidated Statements of Cash Flows for the Six and Three Months Ended
October 31, 2010 and 2009 (unaudited)
|
5
|
||
Notes
to Unaudited Condensed Financial Statements
|
6
|
||
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
|
12
|
||
Item
4T.Controls and Procedures.
|
15
|
||
Part
II. Other Information
|
15
|
||
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
|
15
|
||
Item
6. Exhibits.
|
15
|
||
Signatures
|
|
16
|
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
Certain
information and footnote disclosures required under accounting principles
generally accepted in the United States of America have been condensed or
omitted from the following financial statements pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that the
following financial statements be read in conjunction with the year-end
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended April 30, 2010.
The
results of operations for the six and three months ended October 31, 2010 and
2009 are not necessarily indicative of the results for the entire fiscal year or
for any other period.
1
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Condensed
Consolidated Balance Sheets (Unaudited)
October 31,
2010
|
April
30,
2010
|
|||||||
ASSETS
|
||||||||
Rental
property, net accumulated depreciation of $3,217 and
$1,617
|
$ | 93,106 | $ | 98,512 | ||||
Properties
under development
|
332,048 | 104,508 | ||||||
Cash
|
449,425 | 216,669 | ||||||
Commissions
receivable
|
- | 1,375 | ||||||
Note
receivable
|
76,416 | |||||||
Prepaid
expenses
|
11,394 | 7,673 | ||||||
Deposits
|
6,000 | 48,350 | ||||||
Amount
due from related party subscriber under subscription
receivable
|
807,310 | |||||||
Property
and equipment:
|
||||||||
Equipment,
furniture and fixtures, net of accumulated depreciation of $422 and
$48
|
5,179 | 5,299 | ||||||
Total
assets
|
$ | 973,568 | $ | 1,289,696 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Accounts
payable and accrued expenses
|
$ | 39,549 | $ | 88,974 | ||||
Accrued
interest
|
66,575 | 32,548 | ||||||
Deferred
revenue
|
- | 3,000 | ||||||
Tenant
deposits
|
2,850 | 2,850 | ||||||
Convertible
debenture payable to related party (net of unamortized
|
||||||||
discount
of $66,732 and $86,706)
|
433,268 | 413,294 | ||||||
Total
liabilities
|
542,242 | 540,666 | ||||||
Stockholders'
equity
|
||||||||
Preferred
stock, $.0001 par value, 10,000,000 shares authorized,
|
||||||||
no
shares issued and outstanding
|
- | - | ||||||
Common
stock, $.0001 par value, 250,000,000 authorized and
|
||||||||
102,522,528
outstanding at October 31, 2010; 250,000,000 shares
|
||||||||
authorized
and 24,898,677 outstanding at April 30, 2010
|
10,252 | 2,490 | ||||||
Common
stock, $.0001 par value, 9,775,709 and 86,999,002
|
||||||||
subscribed
not issued
|
978 | 8,700 | ||||||
Additional
paid-in capital
|
2,882,304 | 2,856,944 | ||||||
Less:
amount due from related party subscriber under
subscription
|
||||||||
Agreement
|
(103,958 | ) | (100,000 | ) | ||||
Accumulated
deficit
|
(2,358,250 | ) | (2,019,104 | ) | ||||
Total
stockholders' equity
|
431,326 | 749,030 | ||||||
Total
liabilities and stockholders' equity
|
$ | 973,568 | $ | 1,289,696 |
See
accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
2
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Condensed
Consolidated Statements of Operations (Unaudited)
Three months ended
|
Six months ended
|
|||||||||||||||
October 31
|
October 31
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues:
|
||||||||||||||||
Condominium
sale
|
$ | 85,000 | $ | - | $ | 85,000 | $ | - | ||||||||
Rental
Revenue
|
6,321 | 1,110 | 12,021 | 1,110 | ||||||||||||
Commissions
Revenue
|
5,255 | 6,255 | ||||||||||||||
Total
Revenue
|
$ | 96,576 | $ | 1,110 | $ | 103,276 | $ | 1,110 | ||||||||
Expenses:
|
||||||||||||||||
Cost
of condominium sale
|
79,133 | - | 79,133 | - | ||||||||||||
Rental
property operating costs
|
11,217 | 2,587 | 17,106 | 2,639 | ||||||||||||
Professional
fees
|
24,262 | 44,245 | 119,878 | 52,840 | ||||||||||||
General
& administrative
|
108,998 | 3,075 | 171,478 | 8,192 | ||||||||||||
Depreciation
|
986 | 412 | 1,974 | 430 | ||||||||||||
Total
operating expenses
|
$ | 224,596 | $ | 50,319 | $ | 389,569 | $ | 64,101 | ||||||||
Operating
Loss
|
$ | (128,020 | ) | $ | (49,209 | ) | $ | (286,293 | ) | $ | (62,991 | ) | ||||
Other
expenses and income:
|
||||||||||||||||
Interest
expense
|
(27,000 | ) | (54,001 | ) | ||||||||||||
Interest
income
|
1,148 | - | 1,148 | |||||||||||||
Loss
before income taxes
|
$ | (153,872 | ) | $ | (49,209 | ) | $ | (339,146 | ) | $ | (62,991 | ) | ||||
Deferred
income tax expense
|
||||||||||||||||
(Net
Loss
|
$ | (153,872 | ) | $ | (49,209 | ) | $ | (339,146 | ) | $ | (62,991 | ) | ||||
Basic
and diluted loss per share
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Weighted
Average Shares Outstanding
|
102,470,354 | 20,105,867 | 84,302,689 | 17,653,810 |
See
accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
3
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Condensed
Consolidated Statements of Stockholders' Equity
(UNAUDITED)
Number
of
|
Amount
|
|||||||||||||||||||||||||||
Shares
|
Common
|
Additional
|
Due
Under
|
Net
|
||||||||||||||||||||||||
Issued
and
|
Common
|
Stock
|
Paid
In
|
Subscription
|
Accumulated
|
Stockholders'
|
||||||||||||||||||||||
Outstanding
|
Stock
|
Subscribed
|
Capital
|
Agreement
|
Deficit
|
Equity
|
||||||||||||||||||||||
Balance
at April 30, 2009
|
13,645,990 | $ | 1,365 | $ | - | $ | 1,744,459 | $ | - | $ | (1,745,824 | ) | $ | - | ||||||||||||||
Stock
issued under subscription agreement
|
10,752,687 | 1,075 | - | 108,925 | - | - | 110,000 | |||||||||||||||||||||
Stock
issued in connection with debenture agreement
|
500,000 | 50 | - | 29,950 | - | - | 30,000 | |||||||||||||||||||||
Stock
available under debenture conversion option
|
- | - | - | 75,000 | - | - | 75,000 | |||||||||||||||||||||
Stock
due under subscription agreement
|
- | - | 8,700 | 898,610 | - | - | 907,310 | |||||||||||||||||||||
Amount
due from subscriber under subscription agreement
|
- | - | - | - | (100,000 | ) | - | (100,000 | ) | |||||||||||||||||||
Net loss
|
- | - | - | - | - | (273,280 | ) | (273,280 | ) | |||||||||||||||||||
Balance
at April 30, 2010
|
24,898,677 | $ | 2,490 | $ | 8,700 | $ | 2,856,944 | $ | (100,000 | ) | $ | (2,019,104 | ) | $ | 749,030 | |||||||||||||
Stock
issued under subscription agreement
|
77,223,851 | $ | 7,722 | $ | (7,722 | ) | $ | 1,442 | $ | - | $ | - | $ | 1,442 | ||||||||||||||
Stock
issued under City Vac agreement
|
400,000 | 40 | 19,960 | 20,000 | ||||||||||||||||||||||||
Amount
due from subscriber under subscription agreement
|
- | - | - | 3,958 | (3,958 | ) | - | - | ||||||||||||||||||||
Net loss
|
- | - | - | - | - | (339,146 | ) | (339,146 | ) | |||||||||||||||||||
Balance
at October 31, 2010
|
102,522,528 | $ | 10,252 | $ | 978 | $ | 2,882,304 | $ | (103,958 | ) | $ | (2,358,250 | ) | $ | 431,326 |
See accompanying
Notes to Unaudited Condensed Consolidated Financial
Statements.
4
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Condensed
Consolidated Statements of Cash Flows (Unaudited)
Six months ended
October 31
|
||||||||
2010
|
2009
|
|||||||
Cash
(used in) provided by Operating activities
|
||||||||
Net
loss
|
$ | (339,146 | ) | $ | (62,991 | ) | ||
Adjustments
to reconcile loss to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
1,974 | 430 | ||||||
Amortization
of discounts on debentures to related party
|
19,974 | - | ||||||
Advertising
expense
|
20,000 | |||||||
Changes
in operating assets and liabilities:
|
||||||||
Receivable
|
1,375 | - | ||||||
Note
receivable
|
84 | - | ||||||
Prepaid
expenses
|
(3,721 | ) | (1,273 | ) | ||||
Deposits
|
42,350 | |||||||
Accounts
payable and accrued expenses
|
(18,398 | ) | 19,565 | |||||
Net
cash (used in) provided by operating activities
|
$ | (275,508 | ) | $ | (44,269 | ) | ||
Cash
(used in) provided by Investing activities
|
||||||||
Acquisition
and development of properties
|
(300,234 | ) | - | |||||
Purchase
of property and equipment
|
(254 | ) | (49,500 | ) | ||||
Cash
(used in) provided by investing activities
|
$ | (300,488 | ) | $ | (49,500 | ) | ||
Financing
activities
|
||||||||
Proceeds
from common stock through subscription agreement
|
808,752 | 110,000 | ||||||
Net
cash provided by (used in) financing activities
|
$ | 808,752 | $ | 110,000 | ||||
Net
change in cash
|
$ | 232,756 | $ | 16,231 | ||||
Cash
at beginning of period
|
216,669 | - | ||||||
Cash
at end of period
|
$ | 449,425 | $ | 16,231 | ||||
Supplemental
information:
|
||||||||
Interest
paid
|
- | $ | - | |||||
Income
taxes paid
|
$ | $ | - |
See
accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
5
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Notes to
Unaudited Condensed Consolidated Financial Statements
October
31, 2010
Note
1. Financial statement presentation
The
summary of significant accounting policies is presented to assist in the
understanding of the financial statements. The financial statements and notes
are the representations of management. These accounting policies conform to
accounting principles generally accepted in the United States of America and
have been consistently applied in the preparation of the financial
statements.
History
and nature of business
ProGreen
Properties, Inc. (formerly Diversified Products Inspections, Inc.), a Delaware
corporation, and its wholly owned subsidiaries (collectively, the “Company”) own
and manage residential real estate rental property in the Oakland County,
Michigan area.
On April
30, 2009, the Company (formerly known as Diversified Product Inspections, Inc.)
ceased previous operations and settled an outstanding lawsuit which resulted in
a change of ownership and management. Following the settlement on
April 30, 2009, the Company had no assets, no liabilities, and had 13,645,990
shares of common stock outstanding.
On July
21, 2009, the Company formed ProGreen Properties, Inc. as a wholly-owned
subsidiary and merged ProGreen Properties, Inc. into the Company, which was the
surviving corporation in the merger. In connection with the merger,
the Company changed its name from Diversified Product Inspections, Inc.
to ProGreen Properties, Inc. The change of the Company’s name to
ProGreen Properties, Inc. became effective on September 11, 2009 with approval
by the Financial Industry Regulatory Authority as effective for trading purposes
in the OTC Bulletin Board market under the new symbol PGEI.
In
December 2009, ProGreen Realty LLC (“ProGreen Realty”) was formed as a wholly
owned subsidiary of the Company. ProGreen Realty is the real estate broker for
the Company and will facilitate the acquisition of real properties. All assets,
liabilities, revenues and expenses are included in the financial statements of
the Company.
In
addition to ProGreen Realty, the Company has established separate LLC’s for each
of the five properties owned. The Company is the sole member of the
LLC.
SIGNIFICANT
ACCOUNTING POLICIES
Basis
of consolidation
The
consolidated financial statements include the accounts and records of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Estimates
The
preparation of financial statements in conformity with the accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Actual results could differ from those estimates.
Property
and real estate costs
Property
and real estate costs are recorded at cost from expenditures relating to the
acquisition, development, construction, and other costs that enhance the value
or extend the life of rental properties are capitalized. All other expenditures
necessary to maintain the properties are expensed as incurred.
6
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Notes to
Unaudited Condensed Consolidated Financial Statements
October
31, 2010
Depreciation
is computed using the straight-line method over the estimated useful life of the
property, as follows:
Lives
|
Method
|
|||
Condominium
|
27.5
years
|
Straight
line
|
||
Furniture
|
10
years
|
Straight
line
|
||
Equipment
|
5
years
|
Straight
line
|
Revenue
recognition
Real
estate properties are leased under operating leases with terms of one year or
less. Rental income from these leases is recognized on a straight-line basis
over the term of each lease.
Advertising
costs
Advertising
costs are expensed as incurred and are included in general and administrative
expenses. Total advertising expenditures for the six months ended October 31,
2010 and 2009 were approximately $55,486 and $0, respectively.
Tenant
deposits
The
Company requires tenants to pay a deposit at the beginning of each lease. This
deposit may be used for unpaid lease obligations or repair of damages based on
the Company’s determination. If the tenant has not defaulted on the lease, the
Company will return the deposit to the tenant at the end of the
lease.
Deferred
revenue
The
Company may require tenants to prepay rent. The prepaid rent is amortized over
the term of the lease using the straight-line method.
Income
taxes
The
Company accounts for income taxes using an asset and liability approach under
which deferred income taxes are recognized by applying enacted tax rates
applicable to future years to the differences between the financial statement
carrying amounts and the tax bases of reported assets and
liabilities.
Fair
Value Measurements
The
Company did not have any assets or liabilities measured at fair value on a
recurring or nonrecurring basis.
Reclassifications
Certain
amounts in previous periods have been reclassified to conform to 2010
classifications.
7
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Notes to
Unaudited Condensed Consolidated Financial Statements
October
31, 2010
Note
2. Real Estate Properties
The
Company owns of eight condominiums at October 31, 2010 as follows:
Condominiums
- rental properties
|
$ | 96,323 | ||
Less
accumulated depreciation
|
3,217 | |||
$ | 93,106 | |||
Condominiums
under development
|
$ | 332,048 |
Note
3. Residential Lease
The
Company entered into one year leases with tenants for two of its rental
properties beginning November 1, 2009 and April 9, 2010, at $900 and $1,000 per
month, respectively.
Note
4. Note Receivable
On August
3, 2010 , the company entered into a land contract to sell one of the properties
renovated during the quarter.
Note5.
Related Party Secured Convertible Debenture Agreement
On
November 5, 2009, the Company entered into a Secured Convertible Debenture with
Rupes Futura AB (“RF”), an investment company controlled by Henrik Sellmann, a
director of the Company, providing for a loan to the Company of $500,000. The
Company issued to RF a 13.5% Secured Convertible Debenture, due November 2014,
together with 500,000 shares of Common Stock of the Company as a Commitment Fee.
The value of the Common Stock at the time of issuance was $30,000 and is
recorded as debt discount. The Commitment Fee will be amortized over five years,
the term of the Debenture, using the effective interest method. The proceeds of
the sale of this Debenture and other Debentures in this series, the terms of
which are described below, will primarily be used for the purchase,
refurbishment and upgrade of residential real estate in Michigan.
Each
Debenture is secured by a first lien on the property to be purchased by ProGreen
Realty. Interest is payable at an annual rate of 13.5%, payable annually in
arrears in shares of Common Stock of the Company, valued at the Conversion Price
(defined below) as of the due date of the interest payment. The
Debentures may be prepaid at any time after two years from the Closing Date,
without penalty, by the Company. Any accrued unpaid interest due at such time
will be paid in shares of Common Stock valued at the Conversion Price as of the
date of the prepayment. RF has the right to choose to convert the Debentures in
lieu of cash prepayment.
Debentures
are convertible in whole or in part into Common Stock at the option of RF at the
Conversion Price at any time following the date that is two years from the
Closing Date. If RF elects to convert any unpaid principal amount of a Debenture
it shall be entitled to receive shares of Common Stock on conversion equal in
value, at the Conversion Price, to 115% of the unpaid principal amount of the
Debenture. The conversion price ("Conversion Price") of the
Debentures is the price equal to the average closing price (the mean average
between bid and ask price) of the Common Stock during the period of twenty (20)
consecutive Trading Days, ending on the Trading Day immediately prior to the due
date of the interest payment, the prepayment date, or the date of RF’s giving
the conversion notice, as the case may be, subject to equitable adjustment for
any stock splits, stock dividends, reclassifications or similar events during
such period. The conversion feature has intrinsic value of $75,000 that is
recorded as debt discount and amortized over two years, the required holding
period for RF, using the effective interest method. The effective interest rate
on the Debenture as a result of the debt discounts noted above was
13.5%.
8
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Notes to
Unaudited Condensed Consolidated Financial Statements
October
31, 2010
Note
6. Related Party Subscription Agreement
On July 21,
2009, the Company entered into a Subscription Agreement with EIG Venture
Capital, Ltd. (“EIG”), an investment company controlled by Jan Telander,
the Company’s Chief Executive Officer and controlling stockholder for the sale
by the Company to EIG of an aggregate of 97,751,710 shares of the Company’s
Common Stock, par value $0.0001 per share (the “Common Stock”), at a fixed price
of $0.01023 per share, in three tranches. The Phase I tranche
consisted of 5,767,350 shares of Common Stock for a total purchase price of
$59,000, to be purchased by EIG on or before July 16, 2009. The Phase
II tranche consists of 43,108,504 shares of Common Stock for a total
purchase price of $441,000, to be purchased by EIG on or before December 31,
2009; and the Phase III tranche consists of 48,875,855 shares of Common Stock
for a total purchase price of $500,000, to be purchased by EIG on or before July
16, 2010. The shares comprising each of the tranches in Phases I through III may
be purchased in one or more installments by the EIG; provided, that the number
of shares required to be purchased in each tranche is purchased in its entirety
by the final purchase date specified for the entire
tranche.
On
December 1, 2009, the Company entered into an Amendment to the Subscription
Agreement with EIG. The amendment provides that, in the event EIG does not
complete payment of the full Phase II or Phase III purchase price for the shares
of Common Stock required to be purchased within the time period provided in the
Agreement for the particular Phase, as an additional purchase price for the
shares to be purchased in that particular Phase, EIG shall pay a penalty
interest rate of 13.5% per annum on the unpaid balance as of the final purchase
date from that date to the date the shares are purchased.
As of
October 31, 2010 all of the Phase I and Phase II shares have been purchased and
39,100,684 shares of the Phase III tranche.
On June
1, 2010, the Company received $400,000 of the Phase III tranche and issued
39,100,684 shares to EIG. As of December 10, 2010, the remainder of Phase III
and interest has not been paid. These amounts are reflected as amount
due from related party subscriber under subscription receivable in the
accompanying balance sheet. The remaining balance of $100,000 had not been
received prior to the issuance of the financial statements and has been included
in stockholders’ equity as amount due from subscriber under subscription
agreement.
Note
7. Corporate Lease Agreement
On March
24, 2010, the Company entered into a lease agreement for office space for a
period of sixty-six (66) months. The Company does not have a lease payment for
the first 9 months of the lease agreement, and subsequent payments are as
follows:
Year ended
|
Rental
|
|||
April 30,
|
Amount
|
|||
2011
|
$ | 5,920 | ||
2012
|
28,439 | |||
2013
|
28,692 | |||
2014
|
28,715 | |||
2015
|
28,969 | |||
2016
|
12,070 |
In
addition to the base monthly rent the Company is responsible for a pro-rata
share of operating expenses and real estate taxes as determined by the lessor. At the
beginning of the lease the Company paid a security deposit of $5,000, which is
reflected as deposits on the July 31, 2010 balance sheet. Rent
expense is recognized on a straight line basis over the term of the lease. The
excess of rent expense over required rental payments is recorded as a
liability.
During
the six months ended October 31, 2010, the Company recorded $12,073 in rental
expense as a result of the lease.
9
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Notes to
Unaudited Condensed Consolidated Financial Statements
October
31, 2010
Note
8. Stock Agreement
On August
10, 2010 the Company set forth an agreement between themselves and CityVac IR
Services (“CityVac”), an investor relations company, whereas (“CityVac”) will
provide services in exchange for payment in the form of restricted shares.
400,000 restricted shares were issued on August 12, 2010 and 200,000 restricted
shares on or before November 12, 2010, February 12, 2011, and May 12, 2011. If
this contract is canceled given a 30 day notice, (“CityVac”) will retain all
payments made prior to the notification as full payment for services
rendered.
Note
9. Income Taxes
The
Company has not recorded any income tax benefit for the six months ended October
31, 2010 and 2009. The Company has recorded an income tax valuation
allowance equal to the benefit of its income tax carry forward because of the
uncertainty relating to the Company’s ability to utilize the NOL carry
forward.
Note
10. Earnings (loss) per Share
Basic
earnings (loss) per share assumes no dilution and is computed by dividing net
income available to common stockholders by the weighted average number of common
stock outstanding during each period. Diluted earnings per share
reflects, in periods in which they have a dilutive effect, the effect of common
shares issuable upon the exercise of stock options or warrants, using the
treasury stock method of computing such effects and contingent shares, or
conversion of convertible debt.
Note
11. Going Concern
The
Company’s financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As described in Note 1, on April 30, 2009, the
Company disposed of its then existing operating business. The Company
made acquisitions of residential property and has entered into two leases with
tenants to occupy two of those properties. Also, as more fully
discussed in Note 4, the Company issued a $500,000 Secured Debenture the
proceeds of which will primarily be used for the purchase, refurbishment
and upgrade of revenue producing residential real estate.
The
Company’s primary plan and objective going forward is to acquire additional
revenue producing property to generate rental cash flow and, over time, sell the
properties to realize capital appreciation in order to increase profits and
provide shareholder value. There
is no assurance that the Company will acquire favorable business opportunities
through such transactions. In addition, there is no assurance that
these business opportunities will generate revenues or profits, or that the
market price of the Company’s common stock will be increased
thereby.
The
Company will continue to incur costs that are necessary for it to remain an
active public company. As with future acquisition, these ongoing
costs are expected to be funded through the subscription
agreements.
The
financial statements do not include any adjustments relating to the
recoverability of assets and the classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern.
Note
12. Commitments
The
Company has extended offers to purchase additional properties with earnest
deposits totaling $1,000, which has been recorded as deposits on the October 31,
2010 balance sheet. All offers are subject to inspection and final acceptance
from the Company.
Note
13. Amendments to Certificate of Incorporation
On July
8, 2009, the Company filed a Certificate of Amendment to its Certificate of
Incorporation increasing the number of authorized shares of common stock from
50,000,000, par value $.01 per share to 250,000,000, par value $.0001 per
share. The Certificate of Amendment also authorized the issuance of
10,000,000 shares of a new class of preferred stock, par value $.0001 per share,
with such rights, preferences and limitations as the Board of Directors may
designate.
10
ProGreen
Properties, Inc.
(formerly
Diversified Product Inspections, Inc.)
Notes to
Unaudited Condensed Consolidated Financial Statements
October
31, 2010
Note
14. Standby Equity Agreement
|
·
|
Effective
August 25, 2010, the Company entered into a Standby Equity Purchase
Agreement (the “SEP Agreement”), with LeadDog Capital LP (“LDC”), under
which LDC agreed to provide an equity line of credit of up to $2,500,000
to purchase the Company’s common stock. The funding will not
take place until an agreed upon date in the future. Upon funding, the
Company will issue to LDC a commitment fee of 300,000 shares of its common
stock, and has agreed to issue to an affiliate of LDC a structuring and
due diligence fee of 100,000 shares of common stock. We amended the SEP
Agreement so that it provides for the filing by the Company of a
registration statement under the Securities Act of 1933, as amended, on or
before March 1, 2011, subject to further extension by agreement of the
parties, to register the common stock to be issued under the SEP
Agreement. We plan to include in such registration statement
10,000,000 shares of our common stock for this equity line
financing. Upon the terms and conditions set forth in the SEP
Agreement, during its two year term, the Company may issue and sell (or
“put”) to LDC, and LDC shall purchase from the Company, up to that number
of shares of common stock having an aggregate purchase price of
$2,500,000, the maximum amount that LDC is required to purchase pursuant
to any one put notice under the SEP Agreement being $200,000. The purchase
price for the shares purchased by LDC shall be equal to 92% of the market
price, which is defined in the SEP Agreement to be equal to the lowest
daily volume weighted average price of the Company’s common stock during
the ten consecutive trading days after the date of the related put
notice.
|
Note
15. Subsequent Events
On November 17, 2010, the Company
closed on its ninth condominium.
11
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion of our financial condition and results of operations should
be read in conjunction with the financial statements and notes thereto and other
financial information included elsewhere in this report.
Certain
statements contained in this report, including, without limitation, statements
containing the words "believes," "anticipates," "expects" and words of similar
import, constitute "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks and uncertainties. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including our ability to create, sustain, manage
or forecast our growth; our ability to attract and retain key personnel; changes
in our business strategy or development plans; competition; business
disruptions; adverse publicity; and international, national and local general
economic and market conditions.
GENERAL
ProGreen
Properties, Inc., formerly Diversified Product Inspections, Inc. (“we”, “us”, or
the “Company”) was incorporated in Florida on April 23, 1998 and reincorporated
in Delaware on December 12, 2008. Effective September 11, 2009, we changed
our name from Diversified Product Inspections, Inc. to ProGreen Properties, Inc.
to reflect the change in our business operations from the conduct of
investigations and laboratory analyses to the purchase of income producing real
estate assets.
The
Company had maintained its conduct of investigations and laboratory analyses
operations until the April 30, 2009 closing of a Settlement and Asset Purchase
Agreement (the “Agreement”). On April 30, 2009, we ceased our
investigations and laboratory analyses operations and closed the Agreement
pursuant to which $230,000 was paid to a plaintiff to settle material
litigation, and our remaining assets and liabilities were transferred to a
separate entity owned by the previous executive officers of the Company The
Company is now controlled by the former plaintiffs in the now settled
litigation.
Our
Business
The
purchase of a condominium unit on July 28, 2009 initiated our planned new
business operations directed at purchasing income-producing residential real
estate apartment homes, condominiums and houses in the State of Michigan, where
we believe favorable investment opportunities exist based on current market
conditions.
Our plan
is to purchase residential real estate, condominiums and houses where we believe
favorable investment opportunities exist based on market conditions at the time
of the investment. We are initially concentrating on the Michigan market, and on
July 28, 2009, purchased our initial property a condominium located in Oakland
County, Michigan. The Company remodels and upgrades properties with an emphasis
on using environmentally friendly materials. As of October 31, 2010,
we have purchased nine properties, leased two, sold one and are renovating or
have completed renovation of six.
Our
primary expenses relate to our reporting obligations under the Securities
Exchange Act of 1934 (“Exchange Act”), and any costs relating to maintaining our
current condominium investment including taxes and insurance and expenses
related to the future acquisition of additional properties.
We
currently have one employee. Our management expects to confer with
consultants, attorneys and accountants as necessary.
12
FINANCIAL
CONDITION
At
October 31, 2010, we had total assets of $973,568, compared to total assets of
$1,289,696 at April 30, 2010. The decrease in total assets was primarily due to
net operating losses.
At
October 31, 2010, we had stockholders’ equity of $431,326.
The
Company continued to seek additional properties during the quarter, purchasing
four properties and evaluating other properties. The company incurred
significant costs in renovating properties to make available to rent and
professional fees in implementing its business plan and preparing to sell
properties in the future. Many of these expenses relate to setting up
procedures that will reduce ongoing operations as it continues to buy and sell
properties.
Cash
decreased approximately $372,000 for the quarter ended October 31,
2010. The Company invested approximately $296,000 in properties and
expended approximately $174000 to fund operations.
RESULTS
OF OPERATIONS
Six
Months Ended October 31, 2010 Compared to Six Months Ended October 31,
2009
During
the six months ended October 31, 2010, we incurred a net loss from continuing
operations of $339,146 compared to a loss of $62,991 for the six months ended
October 31, 2009. The increase in our loss from continuing operations for the
six months ended October 31, 2010 over the comparable period of the prior year
is primarily due to an increase in property selling and maintenance expenses of
$96,239 in the six months ended October 31, 2010, from $2,639 in the
prior period, an [increase] in general and administrative expense, including
professional fees from $ 61,032 in the six month period ended October 31, 2009
to $291,356 in the current period, offset by an increase in revenues
from $-0- in the prior period to $96,576 in the current period. All other
expenses increased due to our increasing efforts to find and renovate
houses that will contribute to our rental revenue
stream. Professional expenses continue to be significant due to
the compliance cost associated with being a public company.
Three
Months Ended October 31, 2010 Compared to Three Months Ended October 31,
2009
During
the three months ended October 31, 2010, we incurred a net loss from continuing
operations of $153,872 compared to $49,209 for the three months ended October
31, 2009. The increase in our loss from operations for the three
months ended October 31, 2010 over the comparable period of the prior year is
primarily due to an increase in property selling and maintenance expenses to
$90,350 in the six months ended October 31, 2010 from $2,587 in the prior
period, an [increase] in general and administrative expense, including
professional fees from $ 47,320 in the three month period ended
October 31, 2009 to $133,260 in the current period, offset by an increase in
revenues from $-0- in the prior period to $96,576 in the current period. All
other expenses increased due to our increasing efforts to find and renovate
houses that will contribute to our rental revenue
stream. Professional expenses continue to be significant due to
the compliance cost associated with being a public company.
The
company completed the purchase of four properties and completed the sale of one
and renovated five of the properties during the quarter. The one
property that was sold during the quarter was sold on, land
contract. Earnest deposits were made on numerous properties during
the quarter, one additional home closed in November 2010, which increases the
number of properties owned to nine.
13
LIQUIDITY
We have
limited working capital. EIG Venture Capital Ltd. (“EIG”), a company
controlled by our Chief Executive Officer, Jan Telander, agreed to invest
$1,000,000 through the purchase of 97,751,710 shares of common stock for
$0.01023 per share in three tranches. The first two tranches were due in July
2009 and December 31, 2009, and the third tranche is due July 16, 2010. On
December 1, 2009, we entered into an Amendment to the Subscription Agreement
with EIG. The amendment provides that, in the event EIG did not complete
payment of the full Phase II or Phase III purchase price for the shares of
Common Stock required to be purchased within the time period provided in the
Agreement for the particular Phase, as an additional purchase price for the
shares to be purchased in that particular Phase, EIG would pay a penalty
interest rate of 13.5% per annum on the unpaid balance as of the final purchase
date from that date to the date the shares were purchased. As of April 30, 2010
EIG had purchased all the required shares in Phase I and 4,985,337 shares in
Phase II; 38,123,167 shares in Phase II were subject to penalty interest of
$12,838 as of that date. On May 11, 2010, EIG completed its purchase of the
Phase II tranche of 43,108,504 shares of Common Stock for a total purchase price
of $441,000, by the payment to the Company of $390,000 for 38,123,167 shares of
Common Stock with, pursuant to a December 1, 2009 Amendment to the Agreement,
penalty interest in the amount of $18,752, representing interest at the rate of
13.5% per annum on the unpaid balance of the Phase II subscription from December
31, 2009 (the date by which the Phase II tranche was required to be completed
under the Agreement) to May 11, 2010. On June 1, 2010, EIG purchased 39,100,684
shares of the Phase III final tranche under the Agreement for $400,000. The
Phase III tranche consists of 48,875,855 shares of Common Stock for a total
purchase price of $500,000 to be purchased by EIG on or before July 16, 2010,
leaving a balance of 9,755,171 shares to be purchased under the Agreement for a
purchase price of $100,000.
Effective
August 25, 2010, the Company entered into a Standby Equity Purchase Agreement
(the “SEP Agreement”), with LeadDog Capital LP (“LDC”), under which LDC agreed
to provide an equity line of credit of up to $2,500,000 to purchase the
Company’s common stock. The funding will not take place until an agreed upon
date in the future. Upon funding, the Company issued to LDC in
connection with the execution of the SEP Agreement a commitment fee of 300,000
shares of its common stock, and has agreed to issue to an affiliate of LDC a
structuring and due diligence fee of 100,000 shares of common stock. We amended
the SEP Agreement so that it provides for the filing by the Company of a
registration statement under the Securities Act of 1933, as amended, on or
before March 1, 2011, subject to further extension by agreement of the parties,
to register the common stock to be issued under the SEP Agreement. We
plan to include in such registration statement 10,000,000 shares of our common
stock for this equity line financing.
Critical
Accounting Policies
The
summary of critical accounting policies below should be read in conjunction with
the discussion of the Company’s accounting policies included in the Company’s
Annual Report on Form 10-K for the year ended April 30, 2010. We consider the
following accounting policies to be the most critical going
forward:
Revenue
Recognition - Rental income is recognized on a straight-line basis over the term
of each lease. Sale of home income is recognized when the closing on
the property occurs.
Property
and Equipment - Our property and equipment, including rental property, is
recorded at cost and depreciation is computed using the straight-line method
over the estimated useful lives of the assets. We charge repairs and maintenance
to expense as it is incurred.
14
Estimates
- The preparation of financial statements required us to make estimates and
judgments that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. We based our estimates and judgments on historical experience and on
various other factors that we believe 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. There can be no assurances that actual results will not differ from
those estimates. On an ongoing basis, we will evaluate our accounting policies
and disclosure practices as necessary.
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
Not
applicable.
ITEM 4T.
|
CONTROLS
AND PROCEDURES
|
a.
Disclosure controls and procedures.
As of the
end of period covered by this report, the Company carried out an evaluation,
with the participation of the Company's Chief Executive Officer and Principal
Financial Officer, of the effectiveness of the Company's disclosure controls and
procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that
evaluation, the Company's Chief Executive Officer and Principal Financial
Officer concluded that the Company's disclosure controls and procedures were
effective in ensuring that information required to be disclosed by the Company
in the reports that it files or submits under the Securities Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms.
b.
Changes in internal controls over financial reporting.
No
changes were made to the Company's internal controls in the quarterly period
covered by this report that have materially affected, or are reasonably likely
materially to affect, the Company’s internal control over financial
reporting.
PART
II—OTHER INFORMATION
ITEM 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
|
Principal
|
Total Offering Price/
|
|||||||
Date
|
Title and Amount
|
Purchaser
|
Underwriter
|
Underwriting Discounts
|
||||
October
7, 2010
|
1,000,000
shares of common stock.
|
Director
of the Company
|
NA
|
$0.11
per
share/NA
|
The
Company believes that the above transactions are exempt from registration under
the Securities Act of 1933, as amended (“Securities Act”), pursuant to the
provisions of Regulations S, promulgated by the Securities and Exchange
Commission under the Securities Act.
ITEM 6.
|
EXHIBITS.
|
31
|
Certification of Chief Executive
Officer and Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed
herewith.
|
32
|
Certification of Chief Executive
Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith.
|
15
SIGNATURES
In
accordance with the requirements of the Exchange Act, the Company has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PROGREEN
PROPERTIES, INC.
|
||
BY:
|
/s/ Jan Telander
|
|
Jan
Telander
|
||
President
and Chief Executive Officer
|
Dated:
December 14, 2010
EXHIBIT
INDEX
31
|
Certification of Chief Executive
Officer and Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed
herewith.
|
32
|
Certification of Chief Executive
Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith.
|
16