Attached files
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 January 31, 2012
OR
o 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)
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DELAWARE
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59-3087128
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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380 North Old Woodward Ave., Suite 300, Birmingham, MI
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48009
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(Address of Principal Executive Offices)
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(Zip Code)
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(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 o No o
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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. (Check One):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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(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). o Yes o No
The number of shares outstanding the issuer's common stock, par value $.0001 per share, was 104,329,703 as of March 14, 2012.
PROGREEN PROPERTIES, INC.
INDEX
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Page
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Part I. Financial Information
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1
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Item 1. Financial Statements
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2
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Condensed Consolidated Balance Sheets as of January 31, 2012 (unaudited) and as of April 30, 2011
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2
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Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2012 and 2011 (unaudited)
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3
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Condensed Consolidated Statements of Stockholders’ Equity (unaudited)
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4
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Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2012 and 2011 (unaudited)
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5
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Notes to Unaudited Condensed Consolidated Financial Statements
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6
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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12
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
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15
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Item 4T. Controls and Procedures
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15
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Part II. Other Information
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15
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Item 6. Exhibits
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15
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Signatures
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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, 2011.
The results of operations for the three and nine months ended January 31, 2012 and 2011 are not necessarily indicative of the results for the entire fiscal year or for any other period.
Condensed Consolidated Balance Sheets
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January 31,
2012
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April 30,
2011
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ASSETS
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(Unaudited)
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Rental property, net accumulated depreciation of $15,565 and $5,801
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$
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399,028
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$
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307,653
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Properties under development
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175,688
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Cash
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33,965
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157,707
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Note receivable
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75,745
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76,157
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Prepaid expenses
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8,273
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15,942
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Deposits
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5,000
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6,000
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Property and equipment:
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Equipment and furniture, net of accumulated depreciation of $5,251 and $1,193
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23,589
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27,647
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Total assets
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$
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545,600
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$
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766,794
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Accounts payable and accrued expenses
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$
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38,484
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$
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41,448
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Accrued interest
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83,589
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32,548
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Deferred revenue
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1,300
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1,300
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Note payable
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15,536
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18,999
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Tenant deposits
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11,924
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9,262
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Convertible debenture payable to related party (net of unamortized
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discount of $18,963 and $43,706)
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481,037
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456,294
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Total liabilities
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631,870
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559,851
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Stockholders' equity
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Preferred stock, $.0001 par value, 10,000,000 shares authorized,
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no shares issued and outstanding
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-
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-
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Common stock, $.0001 par value, 250,000,000 authorized and
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104,329,703 outstanding at January 31, 2012 and April 30, 2011
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10,433
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10,393
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Common stock, $.0001 par value, 9,775,171
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subscribed not issued
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978
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978
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Additional paid-in capital
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3,004,526
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2,986,358
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Less: amount due from related party subscriber under subscription
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Agreement
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(120,861)
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(110,653)
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Accumulated deficit
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(2,981,346)
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(2,680,133)
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Total stockholders' equity
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(86,270)
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206,943
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Total liabilities and stockholders' equity
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$ 545,600
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$ |
766,794
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See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Operations (Unaudited)
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Three months ended
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Nine months ended
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January 31
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January 31
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2012
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2011
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2012
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2011
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Revenues:
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Condominium sale
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$ | - | $ | - | $ | 90,000 | $ | 85,000 | ||||||||
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Rental revenue
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24,025 | 8,255 | 66,435 | 20,276 | ||||||||||||
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Commissions revenue
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14,200 | - | 23,965 | 6,255 | ||||||||||||
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Total Revenue
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$ | 38,225 | $ | 8,255 | $ | 180,400 | $ | 111,531 | ||||||||
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Expenses:
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Cost of condominium sale
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- | (6,798 | ) | 90,903 | 72,335 | |||||||||||
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Rental property operating costs
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9,855 | 7,384 | 26,154 | 24,490 | ||||||||||||
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Professional fees
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32,507 | 34,500 | 162,595 | 154,378 | ||||||||||||
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General & administrative
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37,444 | 105,696 | 115,174 | 277,174 | ||||||||||||
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Depreciation
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5,820 | 998 | 15,431 | 2,972 | ||||||||||||
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Total operating expenses
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$ | 85,626 | $ | 141,780 | $ | 410,257 | $ | 531,349 | ||||||||
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Operating loss
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(47,401 | ) | (133,525 | ) | (229,857 | ) | (419,818 | ) | ||||||||
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Other expenses and income:
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Interest expense
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(19,323 | ) | (29,048 | ) | (76,490 | ) | (83,049 | ) | ||||||||
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Interest income
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1,707 | 1,719 | 5,134 | 2,867 | ||||||||||||
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Loss before income tax expense
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$ | (65,017 | ) | $ | (160,854 | ) | $ | (301,213 | ) | $ | (500,000 | ) | ||||
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Deferred income tax expense
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- | - | - | - | ||||||||||||
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Net Loss
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$ | (65,017 | ) | $ | (160,854 | ) | $ | (301,213 | ) | $ | (500,000 | ) | ||||
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Net loss per share - basic
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$ | - | $ | - | $ | - | $ | (0.01 | ) | |||||||
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Weighted Average Shares Outstanding - basic
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104,594,920 | 103,611,220 | 104,394,920 | 90,738,866 | ||||||||||||
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Net loss per share - diluted
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$ | - | $ | - | $ | - | $ | - | ||||||||
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Weighted Average shares outstanding - fully diluted
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114,104,874 | 113,386,391 | 114,081,686 | 112,509,872 | ||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Stockholders' Equity
(UNAUDITED)
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Number of
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Amount Due
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Shares
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Common
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Additional
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Under
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Net
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Issued and
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Common
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Stock
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Paid In
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Subscription
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Accumulated
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Stockholders'
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Outstanding
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Stock
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Subscribed
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Capital
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Agreement
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Deficit
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Equity
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Balance at April 30, 2010
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24,898,677 | $ | 2,490 | $ | 8,700 | $ | 2,856,944 | (100,000 | ) | $ | (2,019,104 | ) | $ | 749,030 | ||||||||||||||
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Stock issued under subscription agreement
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77,223,851 | 7,722 | (7,722 | ) | 1,442 | - | - | 1,442 | ||||||||||||||||||||
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Stock issued under City Vac agreement
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1,000,000 | 100 | - | 49,900 | - | - | 50,000 | |||||||||||||||||||||
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Stock issued for debenture interest
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807,175 | 81 | - | 67,419 | - | - | 67,500 | |||||||||||||||||||||
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Stock due under subscription agreement
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- | - | - | 10,653 | (10,653 | ) | - | - | ||||||||||||||||||||
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Net loss
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- | - | - | - | - | (661,029 | ) | (661,029 | ) | |||||||||||||||||||
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Balance at April 30, 2011
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103,929,703 | $ | 10,393 | $ | 978 | $ | 2,986,358 | $ | (110,653 | ) | $ | (2,680,133 | ) | 206,943 | ||||||||||||||
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Stock issued under LeadDog agreement
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400,000 | 40 | 7,960 | 8,000 | ||||||||||||||||||||||||
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Amount due from
subscriber under
subscription agreement
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10,208 | (10,208 | ) | |||||||||||||||||||||||||
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Net loss
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(301,213 | ) | (301,213 | ) | ||||||||||||||||||||||||
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Balance at January 31, 2012
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104,329,703 | $ | 10,433 | $ | 978 | 3,004,526 | (120,861 | ) | $ | (2,981,346 | ) | $ | (86,270 | ) | ||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
(UNAUDITED)
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Nine months ended
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January 31,
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2012
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2011
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Operating activities
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Net loss
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$ | (301,213 | ) | $ | (500,000 | ) | ||
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Adjustments to reconcile net loss to net cash provided by operating activities:
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Depreciation and amortization
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15,431 | 2,972 | ||||||
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Loss on sale of condominium
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903 | - | ||||||
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Amortization of discounts on debentures to related party
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24,743 | 32,008 | ||||||
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Advertising expense
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Investor relations expense
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10,000 | 30,000 | ||||||
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Commitment fee
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8,000 | - | ||||||
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Changes in operating assets and liabilities:
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Receivable
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- | 1,375 | ||||||
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Note receivable
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412 | 212 | ||||||
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Prepaid expenses
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(2,332 | ) | 676 | |||||
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Deposits
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1,000 | 42,350 | ||||||
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Accounts payable and accrued expenses
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50,738 | 10,272 | ||||||
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Net cash used in operating activities
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(192,318 | ) | (380,135 | ) | ||||
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Investing activities
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Acquisition and development of properties
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(17,961 | ) | (446,680 | ) | ||||
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Purchase of furniture and equipment
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- | (254 | ) | |||||
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Proceeds from sale of condominium
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90,000 | - | ||||||
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Cash provided by (used in) investing activities
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72,039 | (446,934 | ) | |||||
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Financing activities
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Proceeds from common stock through subscription agreement with related party
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- | 808,752 | ||||||
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Repayments of note payable
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(3,463 | ) | - | |||||
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Net cash (used in) provided by financing activities
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(3,463 | ) | 808,752 | |||||
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Net change in cash
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(123,742 | ) | (18,317 | ) | ||||
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Cash at beginning of period
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157,707 | 216,669 | ||||||
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Cash at end of period
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33,965 | $ | 198,352 | |||||
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Supplemental information:
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Non-cash transaction: Issuance of stock as commitment fee
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$ | 8,000 | $ | - | ||||
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Non-cash transaction: Issuance of stock in payment of debenture interest
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$ | - | $ | 67,500 | ||||
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Non-cash transaction: Issuance of stock in payment of investor relation services
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$ | - | $ | 50,000 | ||||
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Cash paid for interest
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$ | 706 | $ | - | ||||
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Cash paid for income taxes
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$ | - | $ | - | ||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
ProGreen Properties, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
January 31, 2012
Note 1. Financial statement presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. The accompanying interim financial statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations the nine and three months ended January 31, 2012, are not necessarily indicative of the results that may be expected for the year ending April 30, 2012. For further information, reference should be made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2011.
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., 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 eight properties owned. The Company is the sole member of each 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. FASB Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” requires a company’s consolidated financial statements to include subsidiaries in which the company has a controlling financial interest. This requirement usually has been applied to subsidiaries in which a company has a majority voting interest. Currently, all of the Company’s subsidiaries are wholly-owned.
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 expenditures relating to the acquisition, development, construction, and other costs that enhance the value or extend the life of rental properties are capitalized using the specific identification method. All other expenditures necessary to maintain the properties are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated useful life of the property, as follows:
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Lives
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Method
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Condominium
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27.5 years
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Straight line
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Furniture
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10 years
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Straight line
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Equipment
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5 years
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Straight line
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Vehicles
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5 years
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Straight line
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Note receivable
The note receivable is carried at amortized cost. Interest income on the note receivable is recognized on the accrual basis based on the principal balance outstanding.
Property sales revenue recognition
Condominium sales revenue and related profit are generally recognized at the time of the closing of the sale, when title to and possession of the property are transferred to the buyer. In situations where the buyer's financing is provided by the Company and the buyer has not made an adequate initial or continuing investment as required by ASC 360-20, "Property, Plant, and Equipment - Real Estate Sales" ("ASC 360-20"), the profit on such sales is deferred or recognized under the installment method, unless there is a loss on the sale in which case the loss on such sale would be recognized at the time of closing. There were no such deferred amounts at either January 31, 2012 or April 30, 2011.
Rental revenue recognition
Real estate properties are leased under operating leases with terms of twelve to twenty–four months. 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. Total advertising expenditures for the nine months ended January 31, 2012 and 2011 were $11,080 and $77,447, 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.
Reclassifications
Certain amounts in previous periods have been reclassified to conform to 2012 classifications.
Recent Accounting Pronouncements
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” The guidance improves the comparability of financial reporting and facilitates the convergence of U.S. GAAP and IFRS be amending the guidance in ASC 220, Comprehensive Income. Under the amended guidance, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This guidance is effective retrospectively for annual and interim periods beginning after December 15, 2011. The adoption of the guidance is not expected to have a material impact on the Company's Consolidated Financial Statements or the Notes thereto.
Note 2. Property and Equipment
Major classifications of property and equipment at January 31, 2012, and April 30, 2011 are summarized as follows:
The Company owned eight and ten condominiums as of January 31, 2012 and April 30, 2011, respectively.
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January 31,
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April 30,
|
|||||||
|
2012
|
2011
|
|||||||
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Condominiums – rental properties
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$ | 414,593 | $ | 313,454 | ||||
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Less: accumulated depreciation
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(15,565 | ) | ( 5,801 | ) | ||||
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Rental properties, net of accumulated depreciation
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$ | 399,028 | $ | 307,653 | ||||
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Properties under development
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$ | 0 | $ | 175,688 | ||||
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January 31,
|
April 30,
|
|||||||
|
2012
|
2011
|
|||||||
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Vehicles
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$ | 22,350 | $ | 22,350 | ||||
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Furniture
|
3,563 | 3,563 | ||||||
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Office equipment
|
2,927 | 2,927 | ||||||
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Total vehicles and equipment
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28,840 | 28,840 | ||||||
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Less: accumulated depreciation
|
(5,251 | ) | (1,193 | ) | ||||
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Net carrying amount
|
$ | 23,589 | $ | 27,647 | ||||
Note 3. Residential Leases
As of January 31, 2012, the Company has entered into leases on eight renovated properties. Lease terms range from twelve to twenty-four months and one month to month, with lease payments ranging from $875 - $1,300 per month. Below are the future minimum rental payments related to these leases are as follows:
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Year ending
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Rental
|
|||
|
April 30,
|
Amount
|
|||
|
2012
|
$ |
93,400
|
||
|
2013
|
36,525
|
|||
|
2014
|
-
|
|||
| $ |
129,925
|
|||
Note 4. Related Party Secured Convertible Debenture Agreement
On November 5, 2009, the Company issued a 13.5% Secured Convertible Debenture (the “Debenture”) to 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 Debenture is due November 2014. Additionally, the Company issued to RF 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.
The Debenture is secured by a first lien on the property to be purchased by the Company. 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 Debenture 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 Debenture in lieu of cash prepayment.
The conversion price ("Conversion Price") of the Debenture 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 Debenture is 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 the 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 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 15.73 % and 21.50 %, which resulted in interest expense of $19,000 and $76,200 for the three and nine months ended January 31, 2012, respectively.
On February 8, 2012, the Company entered into an amendment (“Amendment”) to the Debenture superseding an amendment entered into on December 14, 2011. The Amendment provided that the Company, at its sole option, may elect to pay any interest payment on the Debenture in cash, such cash interest payment to be payable no later than one hundred eighty (180) days from the original interest payment due date. In addition, the Amendment provided that, in the event the Debenture is prepaid, the Company has the option to pay accrued interest on the Debenture in cash.
Note 5. 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, 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 to be purchased by EIG on or before July 16, 2009; the Phase II tranche of 43,108,504 shares to be purchased by EIG on or before December 31, 2009; and the Phase III tranche of 48,875,855 shares of Common Stock to be purchased by EIG on or before July 16, 2010. As of January 31, 2012 all of the Phase I and Phase II shares, and 39,100,684 shares of the Phase III tranche, have been purchased, and there is a remaining balance of $100,000 payable to complete payment of the Phase III purchase price.
Under a December 1, 2009 Amendment to the Subscription Agreement, EIG pays penalty interest at a rate of 13.5% per annum on the unpaid balance as of the final purchase date of the Phase III shares from that date to the date the shares are purchased.
As of January 31, 2012, the remainder of the Phase III purchase price and the applicable interest has been included in stockholders’ equity as amount due from subscriber under subscription agreement. The remaining balance of $100,000 and related interest have not been received prior to the issuance of the financial statements.
Note 6. 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 ending
|
Rental
|
|||
|
April 30,
|
Amount
|
|||
|
2012
|
$ |
7,127
|
||
|
2013
|
28,691
|
|||
|
2014
|
28,714
|
|||
|
2015
|
28,965
|
|||
|
2016
|
|
12,069
|
||
| $ |
105,566
|
|||
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 January 31, 2012 balance sheet.
The Company recorded $18,108 in rental expense as a result of the lease for each of the nine months periods ended January 31, 2012 and 2011.
In addition, effective November 1, 2011 the Company began leasing one of the properties it previously sold to be used as a showplace. The monthly rent is $1,350 for a term of twelve months. Subsequent payments are as follows:
|
Year ending
|
Rental
|
|||
|
April 30,
|
Amount
|
|||
|
2012
|
$ |
4,050
|
||
|
2013
|
8,100
|
|||
|
2014
|
-
|
|||
|
2015
|
-
|
|||
|
2016
|
|
-
|
||
| $ |
12,150
|
|||
In addition to the base monthly rent the Company is responsible for certain utilities. The Company entered into a management agreement to manage, lease, operate, maintain and repair the property for which it receives a management fee of ten percent of the monthly rent.
Note 7. Note Payable
The Company has a note payable of $15,536 and $18,999 outstanding as of January 31, 2012 and April 30, 2011, respectively, which bears a fixed rate of interest of 6.99% and provides for monthly payments of $463 through March 2015.
Note 8. Income Taxes
The Company has not recorded any income tax benefit for the nine months ended January 31, 2012 and 2011. 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 9. 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 reflect, in periods in which they have a dilutive effect, the effect of common shares issuable under the subscription agreement.
Losses per share have been computed based on the following:
|
Nine months
|
Nine months
|
||||
|
ended
|
ended
|
||||
|
January 31, 2012
|
January 31, 2011
|
||||
|
Net loss
|
$ (301,213)
|
$ |
(500,000)
|
||
|
Average number of common shares outstanding used to calculate basic loss per share
|
104,394,920
|
90,738,866
|
|||
|
Effect of dilutive subscribed shares
|
9,686,766
|
21,771,006
|
|||
|
Average number of common shares outstanding used to calculate diluted earnings per share
|
114,081,686
|
112,509,872
|
|||
Note 10. 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 four leases with tenants to occupy four of those properties. Also, as more fully discussed in Note 4, the Company issued a $500,000 Secured Debenture the proceeds of which were primarily 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. In the prior fiscal year, the Company used approximately $509,000 of cash to support its operations and such cash needs are expected to continue in the current fiscal year. As of January 31, 2012, the Company has approximately $34,000 in cash, approximately $121,000 due from a related party under the stock subscription agreement and approximately $76,000 due under a land contract for the purchase of a condominium, which provide liquidity. In September 2011 one of the properties was sold and all remaining eight properties are listed for sale, and management expects the proceeds of sales to provide liquidity for operations and reinvestment in the business. However, there is no assurance that the Company will be able to sell to properties to provide liquidity or to secure additional financing.
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 11. Commitments
The Company has no pending offers to purchase additional properties as of January 31, 2012.
Note 12. Amendments to Certificate of Incorporation
Increase in Authorized Common Stock
In October 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. Such amendments were approved by our majority stockholder and detailed in an Information Statement mailed to stockholders.
Authorization of New Class of 10,000,000 shares of Preferred Stock
The amendments to the Company’s Certificate of Incorporation that were so approved also authorized a new class of 10,000,000 shares of preferred stock, par value $0.0001 per share, and authorize the Board of Directors to issue one or more series of the preferred stock with such designations, rights, preferences, limitations and/or restrictions as it should determine by vote of a majority of such directors.
Note 13. Subsequent Events
Management has evaluated subsequent events through March 14, 2012 the date on which the financial statements were available to be issued.
On February 8, 2012, the Company entered into an amendment to its' Secured Convertible Debenture superseding an amendment entered into on December 14, 2011. See Note 4.
On February 29, 2012 the lease on one property was terminated early and the Company has entered into a lease with a new tenant.
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
Throughout this Form 10-Q, the terms "we," "us," "our," “ProGreen” and the "Company" refer to ProGreen Properties, Inc., a Delaware corporation, and, unless the context indicates otherwise, includes our subsidiaries.
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. have the potential to grow into much larger acquisitions over time and could dramatically improve the cash flow for ProGreen. ProGreen is also continuing to look for investment partners for the acquisition of larger scale multi-family properties. We believe there is immediate opportunity to acquire highly distressed multi-family properties in Michigan as well as in some other areas, where the implementation of the ProGreen concept will create a new aspect and attraction to apartment living. ProGreen is also looking into the viability of taking the ProGreen concept even further in connection with these larger projects, with possible implementation of solar technology as well as other advanced sustainable eco solutions.
Planned Operations
We will have to raise additional capital to continue to purchase residential properties
Our Business
Our offices are located in Birmingham, Oakland County, Michigan. Our plan is to acquire, refurbish and upgrade potential income-producing residential real estate. 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 January 31, 2012, we have purchased eleven properties, leased eight, and sold three.
Our business model since our initial property purchases has been to acquire, refurbish and upgrade existing properties into more energy efficient, comfortable and healthier living spaces so that they meet standards that exceed, what is often the norm for most single family homes, condominiums and apartments. Once a property has been acquired, refurbished and rented, we put the property back on the market, but now as a fully managed investment property, with a favorable yield. These investment properties are marketed exclusively by ProGreen Realty LLC, a wholly owned subsidiary of ProGreen and managed by ProGreen Property Management, a division of ProGreen Realty LLC.
Planned Apartment Property Acquisitions
We are also evaluating a new opportunity with an European group interested in entering into an agreement with ProGreen, where ProGreen will sell income producing properties, which have been acquired and refurbished as well as leased out by ProGreen. The properties sold will continue to be managed by ProGreen through its wholly owned subsidiary, ProGreen Property Management LLC. This could have the potential to grow into much larger acquisitions over time and could dramatically improve the cash flow for ProGreen. ProGreen is also continuing to look for investment partners for the acquisition of larger scale multi-family properties.. We believe there is immediate opportunity to acquire highly distressed multi-family properties in Michigan as well as in some other areas, where the implementation of the ProGreen concept will create a new aspect and attraction to apartment living. ProGreen is also looking into the viability of taking the ProGreen concept even further in connection with these larger projects, with possible implementation of solar technology as well as other advanced sustainable eco solutions.
Planned Operations
We will have to raise additional capital to continue to purchase residential properties and to expand our property portfolio by purchasing large-scale multi-family properties. We have no third party commitments for the capital we will require for these planned investments but we anticipate to be generating cash from the sale of our income producing properties to investors. We are also seeking investment partners for the larger-scale property acquisitions, as conventional financing is presently very restricted in the U.S., we are in discussions with several European investor groups, to partner up with us for the financing of these larger projects. We are also reviewing other potential real estate lenders in the US, to secure the necessary financing. There is no assurance, however, that we will be able to secure the necessary financing to move our operations up to larger scale property investments.
RESULTS OF OPERATIONS
Nine Months Ended January 31, 2012 Compared to Nine Months Ended January 31, 2011
During the nine months ended January 31, 2012, we incurred a net loss from continuing operations of $301,200 compared to a loss of $500,000 for the nine months ended January 31, 2011. The decrease in our loss from continuing operations for the nine months ended January 31, 2012 over the comparable period of the prior year is primarily due to a decrease of approximately $121,000 in expenses from $531,300 in the nine months ended January 31, 2011, to $410,300 in the comparable period in 2012 and an increase in revenues of approximately $68,900, from $111,500 in the prior period to $180,400 for the nine months ended January 31, 2012. The primary factor in the reduction in expenses in the current nine month period was a decrease in general and administrative expense from $277,200 in 2011 to $ 115,200 in 2012 due to decreased advertising, staging costs, salary and travel expenses in the current nine month 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.
Quarter Ended January 31, 2012 Compared to Quarter Ended January 31, 2011
During the quarter ended January 31, 2012, we incurred a net loss of $65,000 compared to a net loss of $160,900 for the quarter ended January 31, 2011. The decrease in our loss for the quarter ended January 31, 2012 over the comparable period of the prior year is primarily due to a decrease in levels of general and administrative costs, primarily advertising, staging costs, salary and travel expenses. Rental revenue has increased in the quarter ended January 31, 2012 to approximately $24,000, up from approximately $8,300 for the comparable period in 2011. The Company now has eight properties leased as of January 31, 2012 compared to seven for the comparable prior quarter end. Rental property operating costs have increased in the current quarter to approximately $9,800 up from approximately $7,400 for the three months ended January 31, 2011. The Company earned commission revenue of approximately $14,200 for the quarter ended January 31, 2012 up from $0 for the comparable period in 2011.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2012, we had total assets of $546,000, compared to total assets of $767,000 at April 30, 2011. The decrease in total assets was primarily due the cash used in operations and the sale of one property in the second quarter of 2012. At January 31, 2012, we had stockholders’ deficit of $(86,000) compared to equity of $207,000 as of April 30, 2011. The decrease in stockholders’ equity was primarily due to net operating losses of $301,200 in the nine month period ended January 31, 2012.
In the current quarter, the Company continued to evaluate other properties and manage the current properties held. There have been no renovations in the current quarter as all properties are leased. Costs incurred in the renovation of the properties that enhance the value or extend the life of the properties were capitalized. The Company also incurred professional fees in implementing its business plan and preparing to sell properties in the future. Leases have been executed on all properties held by the Company.
Rental property
Rental properties increased to approximately $399,000 as of January 31, 2012 up $91,000 from $308,000 as of April 30, 2011. As of January 31, 2012, the Company has entered into leases on all renovated properties. Lease terms range from twelve to twenty-four months with lease payments ranging from $875 - $1,400 per month.
Properties under development
Properties under development decreased to $0 as of January 31, 2012 down from $175,700 as of April 30, 2011. There have been no purchases of property in the nine months ended January 31, 2012 and all properties under development have been leased or sold as of January 31, 2012.
Cash
Cash decreased approximately $ 124,000 for the nine months ended January 31, 2012. The Company received $90,000 in proceeds from the sale of property, invested approximately $18,000 in properties, expended approximately $192,000 to fund operations, and repaid $3,500 on the note payable.
Note receivable
The Company sold one property on land contract in the year ended April 30, 2011. The remaining balance of the note receivable was approximately $75,800 as of January 31, 2012 down from approximately $76,200 as of April 30, 2011.
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 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, to be purchased by EIG on or before July 16, 2009; the Phase II tranche, of 43,108,504 shares, to be purchased by EIG on or before December 31, 2009; and the Phase III tranche, of 48,875,855 shares of Common Stock, to be purchased by EIG on or before July 16, 2010.. As of January 31, 2012 all of the Phase I and Phase II shares, and 39,100,684 shares of the Phase III tranche, have been purchased, and there is a remaining balance of $100,000 payable to complete payment of the Phase II purchase price. Under a December 1, 2009, Amendment to the Subscription Agreement, EIG pays a penalty interest rate of 13.5% per annum on the unpaid balance as of the final purchase date of the Phase III shares from that date to the date the shares are purchased.
In the current fiscal year, management expects to satisfy liquidity needs of the Company through sale of renovated condominiums and purchase of remaining shares under the subscription agreement described above. With any purchases of larger apartment complex properties, we estimate that we will be required to find investment partners to provide financing in the range of $5 million to $25 million over the next 12-24 months.
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, 2011. We consider the following accounting policies to be the most critical going forward:
Property sales revenue recognition - Condominium sales revenue and related profit are generally recognized at the time of the closing of the sale, when title to and possession of the property are transferred to the buyer. In situations where the buyer's financing is provided by the Company and the buyer has not made an adequate initial or continuing investment as required by ASC 360-20, "Property, Plant, and Equipment - Real Estate Sales" ("ASC 360-20"), the profit on such sales is deferred or recognized under the installment method, unless there is a loss on the sale in which case the loss on such sale would be recognized at the time of closing.
Rental Revenue Recognition - Rental income is recognized on a straight-line basis over the term of each lease.
Rental Property and Real Estate Costs - Our 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.
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 5. OTHER INFORMATION.
On February 8, 2012, the Company entered into an amendment (“Amendment”) to the outstanding $500,000 convertible debenture (“Debenture”) held by a director of the Company, superseding an amendment entered into on December 14, 2011. The Amendment provided that the Company, at its sole option, may elect to pay any interest payment on the Debenture in cash, such cash interest payment to be payable no later than one hundred eighty (180) days from the original interest payment due date. In addition, the Amendment provided that, in the event the Debenture is prepaid, the Company has the option to pay accrued interest on the Debenture in cash.
Prior to this Amendment, all interest payments on the Debenture were payable in shares of the Company’s common stock.
ITEM 6. EXHIBITS.
|
10.9
|
Amendment, dated February 8, 2012, to the Company’s 13.5% Secured Convertible Debenture, filed herewith.
|
|
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.
|
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
* XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
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: March 16, 2012