Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Progreen US, Inc. | Financial_Report.xls |
| EX-32 - CERTIFICATION - Progreen US, Inc. | f10q0713ex32_progreenprop.htm |
| EX-31 - CERTIFICATION - Progreen US, Inc. | f10q0713ex31_progreenprop.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 July 31, 2013
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 x 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 x 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 x No
The number of shares outstanding the issuer's common stock, par value $.0001 per share, was 104,329,703 as of September 14, 2013.
PROGREEN PROPERTIES, INC.
INDEX
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Page
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1
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2
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2
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3
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4
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5
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6
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12
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15
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15
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15
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15
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16
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ProGreen Properties, Inc.
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, 2013.
The results of operations for the three months ended July 31, 2013 and 2012 are not necessarily indicative of the results for the entire fiscal year or for any other period.
1
Condensed Consolidated Balance Sheets
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July 31,
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April 30,
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|||||||
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2013
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2013
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|||||||
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(Unaudited)
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|||||||
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Assets
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||||||||
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Cash
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$ | 91,091 | $ | 152,318 | ||||
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Properties under development
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54,186 | - | ||||||
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Accounts receivable
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2,869 | 6,007 | ||||||
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Accrued interest receivable
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1,455 | 1,380 | ||||||
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Investment - non-marketable securities
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- | 51,000 | ||||||
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Note receivable - ARG
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- | 9,000 | ||||||
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Note receivable - rental property
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6,550 | 7,325 | ||||||
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Prepaid expenses
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- | 666 | ||||||
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Deposits
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5,000 | 6,000 | ||||||
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Property and equipment:
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||||||||
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Vehicles, furniture and equipment, net of accumulated depreciation of $21,561 and $18,163
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48,181 | 51,579 | ||||||
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Total assets
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$ | 209,332 | $ | 285,275 | ||||
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Liabilities and Stockholders' Deficit
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||||||||
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Accounts payable and accrued expenses
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$ | 90,332 | $ | 63,693 | ||||
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Accrued interest
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33,473 | 16,459 | ||||||
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Payable under management agreement
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23,814 | 12,457 | ||||||
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Obligations under capital leases
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41,092 | 44,106 | ||||||
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Tenant deposits
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11,137 | 11,137 | ||||||
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Convertible debenture payable to related party, net of unamortized discount of $9,529 and $11,224
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490,471 | 488,776 | ||||||
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Total liabilities
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690,319 | 636,628 | ||||||
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Stockholders' deficit
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||||||||
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Preferred stock, $.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding
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- | - | ||||||
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Common stock, $.0001 par value, 250,000,000 shares authorized and 104,329,703 outstanding at April 30, 2013 and April 30, 2012
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10,433 | 10,433 | ||||||
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Additional paid in capital
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3,077,735 | 3,062,707 | ||||||
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Less: amount due from related party subscriber under subscription agreement
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(141,092 | ) | (137,689 | ) | ||||
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Accumulated deficit
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(3,428,063 | ) | (3,286,804 | ) | ||||
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Total stockholders' deficit
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(480,987 | ) | (351,353 | ) | ||||
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Total liabilities and stockholders' (deficit) equity
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$ | 209,332 | $ | 285,275 | ||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
2
Condensed Consolidated Statements of Operations
(UNAUDITED)
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Three Months Ended
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||||||||
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July 31,
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||||||||
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2013
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2012
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|||||||
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Revenues:
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||||||||
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Rental revenue
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$ | - | $ | 8,330 | ||||
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Commissions revenue
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1,500 | 1,000 | ||||||
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Management fee revenue
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2,998 | 1,620 | ||||||
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Other income
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100 | 4,800 | ||||||
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Total Revenue
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$ | 4,598 | $ | 15,750 | ||||
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Expenses:
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||||||||
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Rental property operating costs
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- | 20,469 | ||||||
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Advertising
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5,782 | 10,529 | ||||||
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Depreciation
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3,398 | 2,814 | ||||||
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Compensation Expense
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11,625 | 7,000 | ||||||
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General & administrative
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58,191 | 61,413 | ||||||
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Other expenses
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2,177 | 1,016 | ||||||
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Professional fees
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45,711 | 26,829 | ||||||
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Total operating expenses
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$ | 126,884 | $ | 130,070 | ||||
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Operating loss
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(122,286 | ) | (114,320 | ) | ||||
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Other expenses and income:
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||||||||
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Interest expense
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(19,184 | ) | (18,769 | ) | ||||
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Interest income
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211 | 2,886 | ||||||
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Loss before income tax expense
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$ | (141,259 | ) | $ | (130,203 | ) | ||
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Deferred income tax expense
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$ | - | - | |||||
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Net Loss
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$ | (141,259 | ) | $ | (130,203 | ) | ||
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Net loss per share - basic
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$ | - | $ | - | ||||
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Net loss per share - diluted
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$ | - | $ | - | ||||
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Weighted average shares outstanding - basic and fully diluted
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104,329,703 | 104,329,703 | ||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
Condensed Consolidated Statement of Stockholders' (Deficit)/Equity
(UNAUDITED)
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Number of
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Amount Due
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|||||||||||||||||||||||
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Shares
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Additional
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Under
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Net
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|||||||||||||||||||||
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Issued and
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Common
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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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|||||||||||||||||||
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Outstanding
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Stock
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Capital
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Agreement
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Deficit
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(Deficit) Equity
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|||||||||||||||||||
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Balance at April 30, 2012
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104,329,703 | $ | 10,433 | $ | 3,008,832 | $ | (124,189 | ) | $ | (2,911,097 | ) | $ | (16,021 | ) | ||||||||||
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Amount due from subscriber under subscription agreement
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13,500 | (13,500 | ) | |||||||||||||||||||||
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Amount due under restricted stock unit agreement
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40,375 | 40,375 | ||||||||||||||||||||||
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Net loss
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(375,707 | ) | (375,707 | ) | ||||||||||||||||||||
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Balance at April 30, 2013
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104,329,703 | $ | 10,433 | $ | 3,062,707 | $ | (137,689 | ) | $ | (3,286,804 | ) | $ | (351,353 | ) | ||||||||||
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Amount due from subscriber under subscription agreement
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3,403 | (3,403 | ) | |||||||||||||||||||||
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Amount due under restricted stock unit agreement
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11,625 | 11,625 | ||||||||||||||||||||||
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Net loss
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(141,259 | ) | (141,259 | ) | ||||||||||||||||||||
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Balance at July 31, 2013
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104,329,703 | $ | 10,433 | $ | 3,077,735 | $ | (141,092 | ) | $ | (3,428,063 | ) | $ | (480,987 | ) | ||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
Condensed Consolidated Statements of Cash Flows
(UNAUDITED)
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Three Months Ended
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||||||||
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July 31,
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||||||||
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2013
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2012
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Cash provided by (used in) operating activities
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Net loss
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$ | (141,259 | ) | $ | (130,203 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities:
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Compensation - restricted stock units
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11,625 | 7,000 | ||||||
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Depreciation and amortization
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3,398 | 2,813 | ||||||
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Amortization of discounts on debenture to related party
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1,695 | 1,460 | ||||||
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Acquisition and development of properties
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(54,186 | ) | (20,460 | ) | ||||
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Proceeds from sale of properties
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- | 142,654 | ||||||
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Changes in operating assets and liabilities:
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||||||||
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Accounts receivable
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3,138 | (1,131 | ) | |||||
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Accrued interest receivable
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(75 | ) | (1,125 | ) | ||||
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Note receivable
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775 | 87 | ||||||
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Prepaid expenses
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666 | 736 | ||||||
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Deposits
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1,000 | (1,000 | ) | |||||
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Accounts payable and accrued expenses
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43,653 | 2,120 | ||||||
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Payable under management agreement
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11,357 | (1,805 | ) | |||||
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Cash provided by (used in) operating activities
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(118,213 | ) | 1,146 | |||||
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Cash provided by (used in) investing activities
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||||||||
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Proceeds from sale of investment notes
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60,000 | 30,000 | ||||||
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Cash provided by investing activities
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60,000 | 30,000 | ||||||
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Cash provided by (used in) financing activities
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Decrease in obligations under capital leases
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(3,014 | ) | (1,117 | ) | ||||
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Cash (used in) financing activities
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(3,014 | ) | (1,117 | ) | ||||
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Net change in cash
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(61,227 | ) | 30,029 | |||||
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Cash at beginning of period
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152,318 | 12,984 | ||||||
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Cash at end of period
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$ | 91,091 | $ | 43,013 | ||||
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Supplemental information:
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||||||||
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Cash paid for interest
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$ | 475 | $ | 273 | ||||
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Cash paid for income taxes
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$ | - | $ | - | ||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
Unaudited
Note 1. Financial Statement Presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) 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 U.S. GAAP for complete financial statements and they should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended April 30, 2013 (the “Annual Report”). 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 for the three month period ended July 31, 2013, are not necessarily indicative of the results that may be expected for the year ending April 30, 2014.
Basis of Presentation
The Company’s significant accounting policies are summarized in Note 1 of the Annual Report. These accounting policies conform to U.S. GAAP and have been consistently applied in the preparation of the interim unaudited condensed consolidated financial statements. There were no significant changes to these accounting policies during the three months ended July 31, 2013, and the Company does not expect the adoption of other recent accounting pronouncements will have a material impact on its financial statements.
Going Concern
The Company’s unaudited condensed consolidated financial statements for the period ended July 31, 2013, have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company has incurred losses from operations since its change of ownership, management and line of business on April 30, 2009. Management recognizes successful business operations and the Company’s transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. The accompanying unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of uncertainties.
The Company will continue to incur costs that are necessary for it to remain an active public company. In the current fiscal year, the Company used approximately $118,000 of cash to support its operations and such cash needs are expected to continue in the upcoming year. As of July 31, 2013, the Company has approximately $91,000 in cash.
In the quarter ended July 31, 2013 the Company has recently financed a portion its operations through the sale of its investment notes and securities in the amount of $60,000. Also, during the current quarter the Company spent approximately $54,000 to acquire and develop one property. The Company does not expect to receive revenues to cover its costs of property acquisitions in the near future and will require external financing to continue acquisitions and sales of properties. There is no guarantee that the Company will be successful in arranging financing on acceptable terms.
On July 19, 2013, the Company entered into an Investment Agreement (“AMREFA Agreement”) with American Residential Fastigheter AB (“AMREFA), which provides generally for an intended investment of $3,000,000 by AMREFA for the purpose of acquisition of investment properties in the U.S. from the Company.
6
ProGreen Properties, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
Unaudited
Note 1. Financial Statement Presentation (continued)
Advertising costs
Advertising costs are expensed as incurred. Total advertising expenditures for the three months ended July 31, 2013 and 2012 were $5,800 and $10,500 respectively.
Reclassifications
Certain amounts in previous periods have been reclassified to conform to 2014 classifications.
Note 2. Rental Properties and Properties under Development
Rental properties and properties under development at July 31, 2013, and April 30, 2013 are summarized as follows:
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July 31,
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April 30,
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|||||||
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2013
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2013
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|||||||
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Condominiums – rental properties
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$ | - | $ | - | ||||
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Less: accumulated depreciation
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- | - | ||||||
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Rental properties, net of accumulated depreciation
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$ | - | $ | - | ||||
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Properties under development
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$ | 54,186 | $ | - | ||||
The Company owned no rental condominiums as of July 31, 2013 and April 30, 2013. The Company owned one and no condominiums under development as of July 31, 2013 and April 30, 2013, respectively.
Note 3. Property and Equipment
Major classifications of property and equipment at July 31, 2013, and April 30, 2013 are summarized as follows:
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July 31,
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April 30,
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|||||||
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2013
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2013
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|||||||
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Vehicles
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$ | 63,252 | $ | 63,252 | ||||
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Furniture
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3,563 | 3,563 | ||||||
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Office equipment
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2,927 | 2,927 | ||||||
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Total vehicles, furniture and equipment
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69,742 | 69,742 | ||||||
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Less: accumulated depreciation
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(21,561 | ) | (18,163 | ) | ||||
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Net carrying amount
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$ | 48,181 | $ | 51,579 | ||||
7
ProGreen Properties, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
Unaudited
Note 4. Residential Leases
As of July 31, 2013 and April 30, 2013 the Company owned no renovated leased properties.
Note 5. Investment - Non-marketable Securities
At July 31, 2013 and April 30, 2013 the Company held 0 and 51,000 shares of ARG common stock with a total cost of $0 and $51,000, respectively.
Note 6. Note Receivable – ARG
At October 31, 2012 the Company held 15 ARG debt obligation bonds in the principal amount of $75,000, due in five years and bearing interest at the rate of 6% per annum, payable quarterly commencing December 31, 2012. Effective December 31, 2012 the Company waived its right to the interest payment on ARG’s bonds originally due on December 31, 2012, instead interest was to be paid no later than December 31, 2013. The bonds were sold in the first quarter of fiscal 2014 and the related interest due was collected. At July 31, 2013 and April 30, 2013 the Company held 0 and 18 ARG debt obligation bonds in the principal amount of $0 and $9,000, respectively.
Note 7. Note Receivable - Rental Property
On August 21, 2012 the Company sold one property with a sales price of $60,000 of which $10,000 was financed by the Company which is recorded as a note receivable with a balance of $6,550 and $7,300 as of July 31, 2013 and April 30, 2013, respectively. The note is due in August 21, 2014 with monthly payments of $457, including interest at 9.00% per annum.
Note 8. Payable Under Management Agreement
ProGreen Management has entered into management agreements with certain property owners whereby the Company manages, leases, operates, maintains and repairs the properties for which it receives a management fee of ten percent of the monthly rent. ProGreen Management collects rent and remits the property owners’ portion of collected rent, net of a management fee to the owners. At July 31, 2013 and April 30, 2013 net rent amounts due totaled $23,800 and $12,500, respectively.
In addition, for certain properties the Company has guaranteed rents, in accordance with the terms of each lease, through various dates though February 1, 2014. In connection with the guarantees the Company has recorded a liability totaling $13,300 and $12,500 as of July 31, 2013 and April 30, 2013, respectively which are included in accounts payable and accrued expenses in the accompanying unaudited condensed consolidated balance sheet.
8
ProGreen Properties, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
Unaudited
Note 9. Obligations Under Capital Leases
The Company leases vehicles under capital leases expiring in various years though fiscal 2018.
The following is a schedule by year of future minimum lease payments under the capital leases together with the present value of the net minimum lease payments as of July 31, 2013:
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Year ending April 30,
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|||||
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2014
|
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$ | 10,283 | ||
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2015
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13,711 | ||||
| 2016 | 8,152 | ||||
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2017
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8,152 | ||||
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2018
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3,397 | ||||
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Thereafter
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- | ||||
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Total minimum lease payments
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43,695 | ||||
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Less amounts representing interest
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(2,603 | ) | |||
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Present value of future minimum lease payments
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$ | 41,092 | |||
Total lease payments made in the quarters ended July 31, 2013 and 2012 were $3,428 and $1,390, consisting of $3,014 and $1,141 principal and $414 and $249 interest, respectively. Principal payments are shown on the Company’s Unaudited Condensed Consolidated Statements of Cash Flow under Financing Activities. Interest expense is included in the Company’s Unaudited Condensed Consolidated Statements of Operations.
The cost of the vehicles in the amount of $63,252 at July 31, 2013 and April 30, 2013, is included in the Company’s Unaudited Condensed Consolidated Balance Sheets as a component of vehicles, furniture and equipment, and is being depreciated over the estimated useful life of five years. Depreciation expense of $3,163 and $1,127 is included in the Company’s Unaudited Condensed Consolidated Statements of Operations for the three months ended July 31, 2013 and July 31, 2012, respectively.
Note 10. 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 April 30,
|
Rental
Amount
|
|||
|
2014
|
$ | 28,714 | ||
|
2015
|
28,965 | |||
|
2016
|
12,069 | |||
|
Thereafter
|
- | |||
| $ | 69,748 | |||
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, 2013 balance sheet. The Company recorded $6,036 rental expense as a result of the lease for each of the three months ended July 31, 2013 and 2012.
9
ProGreen Properties, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
Unaudited
Note 11. Related Party Secured Convertible Debenture Agreement
The effective interest rate on the convertible debenture payable to a related party as a result of discounts was 15.16% and 15.19% which resulted in interest expense of $18,700 and $18,500 for the three months ended January 31, 2013 and 2012, respectively. Accrued interest due totaled $33,500 and $16,500 at July 31, 2013 and April 30, 2013, respectively.
Note 12. Related Party Subscription Agreement
In connection with the related party Subscription Agreement, as of July 31, 2013 and April 30, 2013 the remainder of the purchase price and the applicable interest have 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 13. Income Taxes
The Company has not recorded any income tax benefit for the three months ended July 31, 2013 and 2012. 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 Net Operating Loss carry forward.
Note 14. Loss per Share
Basic net income (loss) per share is computed using the weighted average number of common stock outstanding during each period. Diluted net income per share is computed using the weighted average number of common stock outstanding during each period and any dilutive potential common shares. Diluted net loss per common share is computed using the weighted average number of common stock outstanding and excludes all dilutive potential common shares because the Company is in a net loss position and their inclusion would be antidilutive.
Note 15. Commitments
The Company has no pending offers to purchase additional properties as of July 31, 2013.
10
ProGreen Properties, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
Unaudited
Note 16. Employee Stock Option Plan
Restricted Stock Units
Under the 2012 Employee Stock Option Plan the Company has awarded 4,800,000 restricted stock units (“RSUs”) to certain employees, officers, directors and consultants. As of July 31, 2013 compensation expense relating to these RSUs of $11,625 was recorded as follows:
|
Number of restricted stock units issued on June 1, 2012
|
4,200,000 | |||
|
Stock price on grant date
|
$ | 0.03 | ||
|
Vesting period
|
3 years
|
|||
|
Estimated fair value at issuance
|
$ | 126,000 | ||
|
May 1, 2013 through July 31, 2013 compensation expense
|
$ | 10,500 | ||
|
Number of restricted stock units issued on December 3, 2012
|
600,000 | |||
|
Stock price on grant date
|
$ | 0.03 | ||
|
Vesting period
|
4 years
|
|||
|
Estimated fair value at issuance
|
$ | 18,000 | ||
|
May 1, 2013 through July 31, 2013 compensation expense
|
$ | 1,125 | ||
|
Total compensation expense as of July 31, 2013
|
$ | 11,625 | ||
Note 17. Subsequent Events
Management has evaluated subsequent events through September 20, 2013 the date on which the financial statements were available to be issued.
11
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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.
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
Our Business
Our offices are located in Birmingham, Oakland County, Michigan. 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 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 Properties Management LLC, another wholly owned subsidiary.
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 firm third party commitments for the capital we will require for these planned investments, although in fiscal 2013 we concluded a working agreement, resulting in the sale of eight properties, with one group, and on July 19, 2013, we entered into an Investment Agreement (the “Agreement”) with American Residential Fastigheter AB (“AMREFA”), a company formed under the laws of Sweden, which provides generally for an intended investment of $3,000,000 by AMREFAfor the purpose of acquisition of investment properties in the U.S. from the Company. Under the Agreement, Progreen would be provided with 100% property acquisition and refurbishment financing by AMREFA, in the form of property loans secured by mortgages on the properties. Once the properties acquired have been reformed and updated to ProGreen standards and subsequently leased, showing a minimum initial return of 9.5% per annum to AMREFA, the properties would be acquired by AMREFA as income producing investment properties, managed by ProGreen. Pursuant to the Agreement, AMREFA’s stated plan is to conduct an offering in Sweden to fund an intended investment of up to US$3,000,000 during 2013, with a maximum of 10% of such investment funds designated for subscription, atAMREFA’s sole option, to purchase Progreen common stock.
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RESULTS OF OPERATIONS
Quarter Ended July 31, 2013 Compared to Quarter Ended July 31, 2012
During the quarter ended July 31, 2013, we incurred a net loss of approximately $141,300 compared to a net loss of approximately $130,200 for the quarter ended July 31, 2012. Revenue decreased approximately $11,200 from the quarter ended July 31, 2013 compared to the quarter ended July 31, 2012. Revenue decreased mainly due to a decrease in rental revenue from approximately $8,300 in the quarter ended July 31, 2012 to $0 in the quarter ended July 31, 2013. The Company held no rental properties in the current quarter as compared to three rental properties in the quarter ended July 31, 2012. Revenue also decreased approximately $4,700 over the comparable quarters due to a decrease in other income relating to property upgrades charged in the quarter ended July 31, 2012 with no such charges in the current quarter. Revenue increased approximately $1,400 as the Company earned management fees of approximately $3,000 for the three months ended July 31, 2013 as compared with approximately $1,600 for the comparable period in 2012. This increase is the result of the management agreements the Company has entered into to manage some of the sold properties.
There have been fluctuations in certain expenses in the three months ended July 31, 2013, as compared to the three months ended July 31, 2012. Rental property operating costs decreased from approximately $20,500 for the quarter ended July 31, 2012 to $0 for the quarter ended July 31, 2013 as there were no rental properties in the current quarter.
Advertising decreased approximately $4,700 as there was a decrease in available rental properties. Compensation expense increased approximately $4,600 from the comparable period as a result of the award of additional restricted stock units in the third quarter of fiscal 2013.
General and administrative fees decreased approximately $3,200 for the quarter ended July 31, 2013 as compared to the same period of the prior quarter due to decreased activity in the current quarter. Professional fees increased approximately $18,900 mainly attributable to legal services relating to drafting the AMREFA agreement and other professional consulting services for the three months ended July 31, 2013 as compared to the comparable the three months ended July 31, 2012.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 2013, we had total assets of approximately $209,300, compared to total assets of approximately $285,300 at April 30, 2013. The decrease in total assets was due to the following: Investment - non-marketable securities decreased $51,000 and Note Receivable ARG decreased $9,000 as the Company sold 18 ARG debt obligation bonds in the amount of $9,000 and 51,000 ARG common shares with a total cost of $51,000 to Rupes Futura AB for $60,000, the agreed value between the parties. These decreases were partially offset by an increase of approximately $54,200 in properties under development as the Company purchased and is upgrading one property in the current quarter.
Cash decreased from approximately $152,300 as of April 30, 2013 to approximately $91,100 as of July 31, 2013. At July 31, 2013, we had stockholders’ deficit of approximately $481,000 compared to deficit of approximately $351,300 as of April 30, 2013. The increase in stockholders’ deficit was primarily due to net operating losses of approximately $141,300 offset by amount due under restricted stock units of approximately $11,600 in the three month period ended July 31, 2013.
Rental property
The Company held no rental properties as of July 31, 2013 or April 30, 2013. As of July 31, 2013, the Company held one property under development.
Properties under development
In May 2013 the Company purchased one property for development, which was held for development as of July 31, 2013.
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Cash
Cash decreased approximately $61,200 for the three months ended July 31, 2013. The Company received $60,000 in proceeds from the sale of investments and securities. The Company invested approximately $54,200 in properties underdevelopment, expended approximately $64,000 to fund operations and repaid $3,000 on obligations under capital leases.
Note receivable - rental property
On August 21, 2012 the Company sold one property with a sales price of $60,000 of which $10,000 was financed by the Company, which is recorded as a note receivable with a balance of $6,600 as of July 31, 2013. The note is due in August 21, 2014 with monthly payments of $457, including interest at 9.00% per annum.
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 July 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 capital needs of the Company for the purchase and sale of renovated condominiums and purchase of remaining shares under the subscription agreement described above to be approximately $3,000,000. For continued purchases of properties for renovation, we are looking to AMREFA and other financing sources to provide the necessary capital. 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, 2013. 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.
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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Not applicable.
| ITEM 4. | 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.
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31
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Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
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32
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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.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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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.
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PROGREEN PROPERTIES, INC.
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BY:
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/s/ Jan Telander
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Jan Telander
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President and Chief Executive Officer
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Dated: September 20, 2013
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EXHIBIT INDEX
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31
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Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
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32
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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.
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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* 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.
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