Attached files
file | filename |
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EX-32 - CERTIFICATION - Progreen US, Inc. | f10q1016ex32_progreenusinc.htm |
EX-31 - CERTIFICATION - Progreen US, Inc. | f10q1016ex31_progreenusinc.htm |
EX-10.37B - AMENDMENT DATED DECEMBER 9, 2016 TO AMENDED AND RESTATED 5.83% FIXED CONVERTIBLE - Progreen US, Inc. | f10q1016ex10xxxviib_progreen.htm |
EX-3.1H - CERTIFICATE OF AMENDMENT, FILED WITH THE DELAWARE SECRETARY OF STATE ON DECEMBER - Progreen US, Inc. | f10q1016ex3ih_progreenusinc.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2016
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission File Number 000-25429
PROGREEN US, INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 59-3087128 | |
(State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
6443 Inkster Road, Suite 170-D, Bloomfield Township, MI | 48301 | |
(Address of Principal Executive Offices) | (Zip Code) |
(248) 530-0770
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. (Check One):
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding the issuer's common stock, par value $.0001 per share, was 348,885,110 as of December 20, 2016.
PROGREEN US, INC.
INDEX
Page | ||
Part I. Financial Information | 1 | |
Item 1. | Financial Statements | 1 |
Condensed Consolidated Balance Sheets as of October 31, 2016 (unaudited) and as of April 30, 2016 | 2 | |
Condensed Consolidated Statements of Operations for the Three and Six Months Ended October 31, 2016 and 2015 (unaudited) | 3 | |
Condensed Consolidated Statements of Stockholders’ Deficit for the Six Months ended October 31, 2016 (unaudited) | 4 | |
Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 31, 2016 and 2015 (unaudited) | 5 | |
Notes to Unaudited Condensed Consolidated Financial Statements | 6 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 17 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 21 |
Item 4. | Controls and Procedures. | 21 |
Part II. Other Information | 22 | |
Item 6. | Exhibits | 22 |
Signatures | 23 |
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, 2016.
The results of operations for the six months ended October 31, 2016 and 2015 are not necessarily indicative of the results for the entire fiscal year or for any other period.
1 |
ProGreen US, INC.
Condensed Consolidated Balance Sheets
October 31, | April 30, | |||||||
2016 | 2016 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Rental property, net accumulated depreciation of $19,982 and $6,138 | $ | 804,272 | $ | 1,006,560 | ||||
Property under Development | 294,179 | 294,179 | ||||||
Property | 1,098,451 | 1,300,739 | ||||||
Cash | 30,016 | 189,942 | ||||||
Other receivables - related party | 1,714 | 1,859 | ||||||
Accounts receivable | 5,450 | 1,194 | ||||||
Prepaid expenses | 2,090 | - | ||||||
Notes receivable - land contracts | 206,041 | - | ||||||
Deposits | 934 | 934 | ||||||
Goodwill | 180,011 | 180,011 | ||||||
Note receivable - related party | 305,500 | 110,000 | ||||||
Property and equipment: | ||||||||
Vehicles, furniture and equipment, net of accumulated depreciation of $40,033 and $35,764 | 7,359 | 11,628 | ||||||
Total assets | $ | 1,837,566 | $ | 1,796,307 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Accounts payable and accrued expenses | $ | 152,392 | $ | 136,740 | ||||
Accrued interest | 9,907 | 68,211 | ||||||
Accrued interest related party | 3,456 | 149,991 | ||||||
Obligations under capital lease | 7,366 | 11,302 | ||||||
Tenant deposits | 11,755 | 16,030 | ||||||
Notes payable | 214,106 | 275,256 | ||||||
Note payable, related parties, net of discount of $8,652 and $0, respectively | 81,348 | 516,000 | ||||||
Note payable - Bank of Birmingham | 484,666 | 490,000 | ||||||
Derivative liabilities | 168,983 | - | ||||||
Convertible debentures, net of discount of $92,730 and $0, respectively | 34,270 | - | ||||||
Note Payable - AMREFA, net of discount of $0 and $114,189, respectively | - | 1,170,811 | ||||||
Related party advances | - | 259,000 | ||||||
Total liabilities | 1,168,249 | 3,093,341 | ||||||
Redeemable convertible preferred stock, Series B | ||||||||
Redeemable, convertible preferred stock, Series B $.0001 par value, 8,534,625 shares authorized, 8,534,625 and 0 shares issued and outstanding at October 31, 2016 and April 30, 2016 | 1,278,465 | - | ||||||
Stockholders' deficit | ||||||||
Convertible preferred stock, Series A $.0001 par value, 1,000,000 shares authorized, 967,031 and 0 shares issued and outstanding, at October 31, 2016 and April 30, 2016 | 97 | - | ||||||
Common stock, $.0001 par value, 950,000,000 shares authorized, 348,885,110 and 336,919,939 outstanding at October 31, 2016 and April 30, 2016 | 34,888 | 33,692 | ||||||
Additional paid in capital | 5,068,339 | 3,700,764 | ||||||
Accumulated deficit | (5,712,472 | ) | (5,031,490 | ) | ||||
Total stockholders' deficit | (609,148 | ) | (1,297,034 | ) | ||||
Total liabilities and stockholders' deficit | 1,837,566 | $ | 1,796,307 |
See
accompanying Notes to Unaudited Condensed Consolidated Financial Statements ProGreen
US, INC. Condensed
Consolidated Statements of Operations Unaudited See accompanying Notes to Unaudited Condensed
Consolidated Financial Statements ProGreen US, INC. Condensed Consolidated
Statements of Stockholders’ Deficit Unaudited See accompanying Notes to Unaudited Condensed
Consolidated Financial Statements ProGreen US, INC. Condensed Consolidated
Statements of Cash Flows Unaudited 2
Three Months Ended
Six Months Ended
October 31,
October 31,
2016
2015
2016
2015
Revenues:
Rental revenue
$ 19,540
$ -
$ 48,605
$ -
Net gain from sale of properties
-
-
41,603
-
Commissions revenue
-
-
3,570
-
Management fee revenue
-
3,501
-
7,158
Construction services revenue
-
109,702
-
151,602
Other income
-
325
50
730
Total Revenue
$ 19,540
$ 113,528
$ 93,828
$ 159,490
Expenses:
Cost of construction services
-
96,262
-
137,754
Selling, General & administrative
83,769
49,376
187,472
104,940
Professional fees
90,921
25,126
132,275
97,984
Total operating expenses
$ 174,690
$ 170,764
$ 319,747
$ 340,678
Operating loss
(155,150 )
(57,236 )
(225,919 )
(181,188 )
Other expenses and income:
Interest expense, net
(25,326 )
(69,736 )
(54,421 )
(93,644 )
Loss on settlement of liabilities, convertible preferred stock, Series A
-
-
(428,105 )
-
Gain on settlement of liabilities, redeemable, convertible preferred stock, Series B
-
-
10,803
-
Gain on change in fair value of derivative liabilities
16,660
5,777
16,660
5,777
Loss before income tax expense
$ (163,816 )
$ (121,195 )
$ (680,982 )
$ (269,055 )
Net Loss
$ (163,816 )
$ (121,195 )
$ (680,982 )
$ (269,055 )
Net loss per share - basic and fully diluted
$ (0.00 )
$ (0.00 )
$ (0.00 )
$ (0.00 )
Weighted average shares outstanding - basic and fully diluted
347,399,765
140,354,489
342,159,852
129,076,277 3
Number
of Common Stock Issued and Outstanding
Common
Stock
Number
of Series A Preferred Stock Issued and Outstanding
Preferred
Stock Series A
Additional
Paid In Capital
Accumulated
Deficit
Net
Stockholders' Deficit
Balance
at April 30, 2016
336,919,939
$ 33,692
-
$ -
$ 3,700,764
$ (5,031,490 )
$ (1,297,034 )
Stock issued under convertible
debenture
500,000
50
-
-
7,497
-
7,547
Stock issued under previous subscription
agreement
9,775,171
977
-
-
(977 )
-
-
Stock issued in settlement of
accrued interest
1,690,000
169
-
-
50,531
-
50,700
Tainting due to convertible debt
and warrants
-
-
-
-
(83,302 )
-
(83,302 )
Accretion of redeemable, convertible
preferred stock, Series B
-
-
-
-
(22,045 )
-
(22,045 )
Convertible preferred stock, Series
A issued in settlement of liabilities
-
-
667,031
67
1,111,651
-
1,111,718
Convertible preferred stock, Series
A issued for subscription receivable
-
-
200,000
20
199,980
-
200,000
Convertible preferred stock, Series
A issued for cash from related party
100,000
10
99,990
100,000
Compensation - restricted stock
units
-
-
-
-
4,250
-
4,250
Net loss
-
-
-
-
-
(680,982 )
(680,982 )
Balance at October 31,
2016
348,885,110
$ 34,888
967,031
$ 97
$ 5,068,339
$ (5,712,472 )
$ (609,148 ) 4
Six Months Ended | ||||||||
October 31, | ||||||||
2016 | 2015 | |||||||
Cash used in operating activities | ||||||||
Net loss | $ | (680,982 | ) | $ | (269,055 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Compensation - restricted stock units | 4,250 | 7,250 | ||||||
Depreciation | 20,160 | 6,796 | ||||||
Gain on sale of properties | (41,603 | ) | - | |||||
Gain on change in fair value of derivative liabilities | (16,660 | ) | (5,777 | ) | ||||
Loss on settlement of liabilities, Series A | 428,105 | - | ||||||
Gain on settlement of liabilities, Series B | (10,803 | ) | - | |||||
Amortization of debt discount | 36,115 | 43,246 | ||||||
Common shares issued for services | - | 53,500 | ||||||
Changes in operating assets and liabilities: | ||||||||
Other receivables - related party | 145 | - | ||||||
Accounts receivable | (4,256 | ) | (26,057 | ) | ||||
Prepaid expenses | (2,949 | ) | 2,135 | |||||
Deposits | (4,275 | ) | (1,500 | ) | ||||
Accounts payable and accrued expenses | 24,779 | 15,024 | ||||||
Payable under management agreement | - | (29,142 | ) | |||||
Cash used in operating activities | (247,974 | ) | (203,580 | ) | ||||
Cash provided by investing activities | ||||||||
Proceeds from note receivable | 818 | (98 | ) | |||||
Proceeds from sale of properties | 22,000 | - | ||||||
Loan for note receivable - related party | (195,500 | ) | - | |||||
Proceeds on land contract | - | |||||||
Cash used in investing activities | (172,682 | ) | (98 | ) | ||||
Cash provided by (used in) financing activities | ||||||||
Proceeds from Convertible preferred stock, Series A issued for cash from related party | 100,000 | - | ||||||
Proceeds from advances from related party | 50,000 | 46,000 | ||||||
Repayment of notes payable | - | (28,196 | ) | |||||
Proceeds from convertible debentures | 120,000 | 68,000 | ||||||
Payments on line of credit | (5,334 | ) | ||||||
Decrease in obligations under capital leases | (3,936 | ) | (3,824 | ) | ||||
Collection of amount due under stock subscription | - | 53,999 | ||||||
Cash provided by financing activities | 260,730 | 135,979 | ||||||
Net change in cash | (159,926 | ) | (67,699 | ) | ||||
Cash at beginning of period | 189,942 | 99,325 | ||||||
Cash at end of period | 30,016 | 31,626 | ||||||
Supplemental information: | ||||||||
Cash paid for interest | $ | 15,870 | $ | 16,803 | ||||
Noncash investing and financing transactions: | ||||||||
Notes receivable - land contracts issued for sale of properties | $ | 206,000 | $ | - | ||||
Convertible preferred stock, Series A issued in settlement of liabilities | $ | 683,613 | $ | - | ||||
Convertible preferred stock, Series A issued for subscription receivable | $ | 200,000 | $ | - | ||||
Redeemable, convertible preferred stock, Series B issued in settlement of liabilities | $ | 1,246,614 | $ | - | ||||
Accretion of redeemable, convertible preferred stock, Series B | $ | 22,045 | $ | - | ||||
Stock issued under previous subscription agreement | $ | 977 | $ | - | ||||
Stock issued in settlement of accrued interest | $ | 50,700 | $ | - | ||||
Debt discount on common stock issued along with debt | $ | 7,547 | $ | - | ||||
Discount on derivatives | $ | 102,341 | $ | 27,906 | ||||
Reclass of APIC to derivative due to tainting | $ | 83,302 | $ | (260,941 | ) | |||
Stock issued under convertible debenture | $ | - | $ | 53,050 | ||||
Consolidation of note payable | $ | - | $ | 261,150 | ||||
Derivative liability extinguished on conversion | $ | - | $ | 49,764 | ||||
Reclass from derivative to APIC due to tainting ended | $ | - | $ | 212,694 |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
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, 2016 (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 six month period ended October 31, 2016, are not necessarily indicative of the results that may be expected for the year ending April 30, 2017.
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 six months ended October 31, 2016, and the Company does not expect the adoption, as applicable, of other recent accounting pronouncements will have a material impact on its financial statements.
Fair Value of Financial Instruments
The Company records convertible debt and warrants at fair value on a recurring basis. Estimated fair values of the Company's convertible debt and derivatives liability were calculated based upon quoted market prices. See Notes 8 and 9.
Going Concern
The Company’s unaudited condensed consolidated financial statements for the period ended October 31, 2016, 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 will require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon the success of management’s plans and the Company’s ability to use its common stock to raise working capital. 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 in the event management’s plans are not successful.
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 $248,000 of cash to support its operations and such cash needs are expected to continue in the upcoming year. As of October 31, 2016, the Company has approximately $30,000 in cash.
6 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 1. Financial Statement Presentation - continued
Notes Receivable - Land Contracts
The note receivables land contracts are carried at amortized cost. Interest income on the notes receivable is recognized on the accrual basis based on the principal balances outstanding. Management believes the notes are collectible and therefore, an allowance for doubtful accounts has not been recorded at October 31, 2016 and April 30, 2016.
Reclassifications
Certain amounts in previous periods have been reclassified to conform to fiscal year ending 2017 classifications.
Recent Accounting Pronouncements
We do not expect that any recently issued accounting pronouncements will have a material impact on our consolidated financial statements.
Note 2. Rental Properties and Property under Development
Rental properties and property under development at October 31 and April 30, 2016 are summarized as follows:
October 31, | April 30, | |||||||
2016 | 2016 | |||||||
Rental properties | $ | 824,254 | $ | 1,012,698 | ||||
Less: accumulated depreciation | (19,982 | ) | (6,138 | ) | ||||
Rental properties, net of accumulated depreciation | $ | 804,272 | $ | 1,006,560 | ||||
Property under development | $ | 294,179 | $ | 294,179 |
Depreciation expense for the six month periods ended October 31, 2016 and 2015 totaled $15,891and $0, respectively.
The Company owned eleven and thirteen rental properties as of October 31, and April 30, 2016, respectively. The Company held one property under development as of October 31, and April 30, 2016.
Note 3. Notes Receivable - Land Contracts
On May 20, 2016 the Company sold one of its rental properties located at 23270 Helen Street, with a selling price of $119,000. The Company received a deposit of $10,000 and issued a Land Contract to the buyer, for the balance owed in the amount of $109,000 to be paid in monthly installments, including principal and interest, beginning June 1, 2016 through June 1, 2019. The Land Contract bears interest at 9% per annum. In the six months ended October 31, 2016 the Company recognized a gain on the sale of this property in the amount of $41,507. The balance due under this Land Contract totaled $109,606 as of October 31, 2016.
7 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 3. Notes Receivable - Land Contracts - continued
On June 25, 2016 the Company sold a second one of its rental properties located at 21421 Greenview Avenue with a selling price of $109,000. The Company received a deposit of $12,000 and issued a Land Contract to the buyer, for the balance owed in the amount of $97,000, to be paid in monthly installments, including principal and interest, beginning August 1, 2016 through June 30, 2019. The Land Contract bears interest at 9% per annum. In the six months ended October 31, 2016 the Company recognized a gain on the sale of this property in the amount of $96. The balance due under this Land Contract totaled $96,435 as of October 31, 2016.
Note 4. Note Receivable - Related Party
During the six months ended October 31, 2016, the Company contributed an additional $195,500 to Baja Joint Venture which is accounted for as an investment. Note Receivable - Related Party totaled $305,500 and $110,000 as of October 31, 2016 and April 30, 2016, respectively.
Note 5. Notes Payable
The Company is indebted as follows:
October 31, | April 30, | |||||||
2016 | 2016 | |||||||
Note Payable to City of Southfield dated October 29, 2014 bears a fixed rate of interest of 3.00% and requires interest only annual payments for the first three years of the note. Commencing in year four principal and interest are due in fifteen annual installments. The note payable is secured by a property located at 23270 Helen Street, Southfield Michigan. | $ | 6,000 | $ | 6,000 | ||||
Note Payable to City of Southfield dated September 19, 2014 bears a fixed rate of interest of 3.00% and requires interest only annual payments for the first three years of the note. Commencing in year four principal and interest are due in fifteen annual installments. The note payable is secured by a property located at 23270 Helen Street, Southfield Michigan. | 8,106 | 8,106 | ||||||
Note Payable to AMREFA dated June 25, 2015 bears a fixed rate of interest of 8.00%. Payments plus accrued interest are due biannually as follows; January 15, 2016 $61,150, July 15, 2016 $65,000, January 15, 2017 $65,000 and July 15, 2017 $70,000. The note payable is guaranteed by a majority shareholder. | - | 261,150 | ||||||
Mortgage Note payable to AMREFA, is non-interest bearing and is secured by the property at 24442 Kinsel Street, Southfield, Michigan. The note is due upon the sale of the Kinsel Street Property. | 200,000 | - | ||||||
$ | 214,106 | $ | 275,256 |
During the six months ended October 31, 2016 in connection with the purchase of ARG, the note payable due to AMREFA under the June 2015 Instalment Payment Agreement was paid in full and cancelled with the delivery of a $200,000 Mortgage Note payable to AMREFA together with issuance of 441,084 shares of Series B Preferred Stock to AMREFA, with a fair value of $65,000 in payment of note plus accrued interest. See Note 12. The amount due was comprised of $261,150 principal plus accrued interest of $14,653, for a total due to AMREFA of $275,803. In connection with this payment in full, during the six months ended October 31, 2016, the Company recorded a gain on settlement of a liability in the amount of $10,803, which is included in other expenses and income in the accompanying unaudited Condensed Consolidated Statements of Operations.
The Mortgage Note is non-interest bearing and is secured by the property at 24442 Kinsel Street, Southfield, Michigan. The Mortgage Note will be paid upon the sale of the Kinsel Street property. Notes payable to AMREFA totaled $200,000 and $265,150 as of October 31, 2016 and April 30, 2016, respectively. Accrued interest due AMREFA totaled $0 and $14,653 as of October 31, 2016 and April 30, 2016, respectively.
8 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 6. Notes Payable, Related Parties
During the six months ended October 31, 2016, in payment of the note payable related party the Company issued EIG 608,031 shares of Series A Preferred Stock with a total stated value equal to that of the agreed upon principal in the amount of $476,000 plus accrued interest in the amount of $148,613, for a total agreed upon amount of $624,613 and a fair value of $1,013,385. See Note 14. In connection with this payment in full, during the six months ended October 31, 2016 the Company recorded a loss on settlement of a liability in the amount of $388,772 which is included in other expenses and income in the accompanying unaudited Condensed Consolidated Statements of Operations.
As of October 31, 2016 and April 30, 2016 the outstanding balance of the note payable related party was $0 and $476,000, plus accrued interest of $0 and $148,613, respectively.
On August 2, 2016, the Company entered into a credit line promissory note (“Credit Line”) with its President and Chief Executive Officer (“President”) whereby the Company may borrow up to $250,000 with interest at a rate of five (5%) percent per annum due on July 31, 2017. The Credit Line is unsecured. During the six months ended October 31, 2016 the Company borrowed $50,000 under the Credit Line. As a result of the derivatives calculation an additional discount of $9,888 was recorded. Notes payable related parties includes the amount due to the Company’s President with a balance outstanding of $50,000 less the unamortized discount of $8,652 as of October 31, 2016 and $0 as of April 30, 2016. Amortization of the related discount totaled $1,236 for the six months ended October 31, 2016. The Company recorded interest expense in connection with this Credit Line in the amount of $443 and $0 for the six months ended October 31, 2016 and 2015, respectively. Accrued interest due under this Credit Line totaled $443 and $0 as of October 31, 2016 and April 30, 2016, respectively.
Also, in connection with the Credit Line, the Company issued the President common stock purchase warrants. The warrants entitle the President to purchase ten shares of common stock for each one ($1.00) dollar of total disbursements by the President to the Company, of up to 2,500,000 shares of common stock at an exercise price of $0.05. During the six months ended October 31, 2016, 50,000 of these warrants were issued in various denominations between August 2, 2016 through September 13, 2016, resulting in a total number of warrant shares of 500,000 as of October 31, 2016. The warrants have a five year term. See Note 8 and Note 17.
In addition, notes payable related parties includes an amount due to the Company’s controller with a balance outstanding of $40,000 as of October 31, 2016 and April 30, 2016. The Company recorded interest expense in connection with this note payable in the amount of $1,635 and $0 for the six months ended October 31, 2016 and 2015, respectively. Accrued interest due under this note payable totaled $3,013 and $1,378 as of October 31, 2016 and April 30, 2016, respectively.
9 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 7. Note Payable Bank of Birmingham
The note payable had a balance outstanding of $484,666 and $490,000 as of October 31, 2016 and April 30, 2016, respectively and the Company recorded interest expense in connection with this note payable in the amount of $17,970 and $0 for the six months ended October 31, 2016 and 2015, respectively. Accrued interest due under the note payable totaled $2,100 and $2,858 as of October 31, 2016 and April 30, 2016, respectively.
Principal payment requirements on the notes payable to Bank of Birmingham are as follows:
2017 | $ | 6,584 | ||
2018 | 13,701 | |||
2019 | 14,558 | |||
2020 | 15,395 | |||
2021 | 434,428 | |||
Thereafter | - | |||
Total | $ | 484,666 |
Note 8. Fair Value Measurement
The Company utilizes the accounting guidance for fair value measurements and discloses for all financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis during the reporting period.
The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. ASC 820, "Fair Value Measurements and Disclosures", establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1 - | Observable inputs such as quoted market prices in active markets. | |
Level 2 - | Inputs other than quoted prices in active markets that are either directly or indirectly observable. | |
Level 3 - | Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
As of October 31, 2016, the Company held certain financial instruments that are measured at fair value on a recurring basis. These consisted of convertible debt totaling $34,270 and $0 with a derivative liability totaling $168,983 (including stock warrants) and $0 at October 31, 2016 and 2015, respectively, which are categorized as Level 3. The related gain on derivatives totaled $16,660 for the six month period ended October 31, 2016. Gain on derivatives totaled $5,777 for the six month period ended October 31, 2015.
See Notes 7 and 9.
10 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 9 - Derivative Liabilities
During the six months ended October 31, 2016, the Company identified conversion features embedded within its convertible debt. See Note 10. The Company has determined that the conversion feature of the Hoppel convertible note represents an embedded derivative since the Note is convertible into a variable number of shares upon conversion. Accordingly, the Note is not considered to be conventional debt and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The Hoppel convertible note tainted all other convertible instruments (Tangier convertible notes and all warrants) and these convertible instruments were treated as derivatives as well. Therefore, the fair value of the derivative instruments has been recorded as liabilities on the balance sheet with the corresponding amount recorded as discounts to the Notes. Such discounts will be accreted from the issuance date to the maturity date of the Notes. The change in the fair value of the derivative liabilities will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet. The fair value of the embedded derivative liabilities on the convertible notes were determined using a multinomial lattice models on the issuance dates with the assumptions in the table below. The fair value of the warrants was calculated using a Black-Scholes valuation model.
The fair value of the Company’s derivative liabilities at October 31, 2016 is as follows:
April 30, 2016 balance | $ | - | ||
Discount on debt | 102,341 | |||
Reclass from equity due to tainting | 83,302 | |||
Fair value mark- to market adjustment | (16,660 | ) | ||
Derivatives liabilities, balance | $ | 168,983 |
The fair values at the commitment dates and remeasurement dates for the convertible debt and warrants treated as derivative liabilities are based upon the following estimates and assumptions made by management for the six months ended October 31, 2016:
The stock prices ranged from $0.0198 to $0.0114 in this periods would fluctuate with the Company projected volatility;
An event of default for the Convertible Note would occur 0% of the time, increasing 0.5% per month to a maximum of 5%;
Alternative financing for the Convertible Notes would be initially available to redeem the note 0% of the time and increase monthly by 1% to a maximum of 10%;
The Holder would automatically convert (limited by trading volume and ownership limits of 4.99% to 9.99%) the note starting after 180 days if the company was not in default.
The projected annual volatility for each valuation period was based on the historical volatility of the company and the remaining term of the instrument and ranged from 160% to 306%.
The risk-free rates were based on the remaining term of the instrument and ranged from 0.51% to 1.84%.
See Note 8.
11 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 10. Financing Agreement and Convertible Debentures
Tangiers Convertible Note and Financing Agreement
On August 25, 2016, the Company entered into an Amended and Restated 5.83% Fixed Convertible Promissory Note with Tangiers Global, LLC (“Tangiers convertible note”). This note amended the previously entered into 5.83% Fixed Convertible Promissory Note dated June 23, 2016 in the principal amount of $22,000 including an original issue discount in the amount of $2,000. This convertible note is due and payable on June 23, 2017 with guaranteed interest of 5.83% of the principal amount. This note is convertible at the election of the Holder from time to time after the issuance date. The note converts at $0.03. Conversion is limited such that the holder cannot exceed 9.99% beneficial ownership. In the event of default, the amount of principal not paid is subject to a default interest rate of 15% and a default penalty of 35%.
The Company may prepay the amounts outstanding to the holder at any time up to the 180th day following the issue date of this note by making a payment to the note holder of an amount in cash equal to 115% (for the first 90 days) up to 135%, multiplied by the sum of: the then outstanding principal amount of this Note plus accrued and unpaid interest on the unpaid principal amount of this Note. The prepayment term was further amended in the subsequent period, see Note 17.
In connection with the Tangiers convertible note, the Company issued Tangiers a Common Stock Purchase Warrant. The warrant entitled the holder to purchase up to 4,000,000 shares of common stock at an exercise price of $0.02. The warrant expires on June 23, 2021. The warrant contains standard adjustments for stock dividends and splits, allows cashless exercise, and provides for alternative consideration or cash payment upon a fundamental transaction.
The outstanding Tangiers convertible note balance totaled $20,712 at October 31, 2016, net of the unamortized original issue discount of $1,288. Amortization of the related discount totaled $712 for the six months ended October 31, 2016. Accrued interest totaled $457 and $0 at October 31, 2016 and April 30, 2016, respectively.
On June 23, 2016, the Company entered into a $5,000,000 equity line financing agreement (“Investment Agreement”) with Tangiers Global, LLC, Dorado, Puerto Rico and filed a Registration Statement for the financing with the SEC on August 31, 2016. The financing is over a maximum of 36 months. A maximum of 100 million (100,000,000) shares of the Company’s common stock will be registered for this financing. In connection with the execution of the Investment Agreement, the Company issued to Tangiers a commitment fee of a five-year warrant to purchase 4,000,000 shares of common stock, at an exercise price of $.02 per share. As of October, 2016 there have been no draws under the Investment Agreement thus the outstanding balance totaled $0 at October 31, 2016 and April 30, 2016.
Hoppel Convertible Note
On September 13, 2016, the Company issued a convertible promissory note in the amount of principal amount of $105,000 to Lucas Hoppel (“Hoppel convertible note”). This convertible note is due and payable on March 13, 2017 with interest of a one-time charge of 7%. This note is convertible upon the event of default (as defined in the Hoppel convertible note agreement), if not cured within five calendar days following the default event, at the election of the Holder. The note converts at 65% of the average of the three daily lowest trades occurring during the fifteen previous trading days. Conversion is limited such that the holder cannot exceed 4.99% beneficial ownership, or 9.99% if the market capitalization is less than $2,500,000. In the event of default, the amount of principal not paid is subject to a 25% penalty and a daily penalty of $1,000 and the note becomes immediately due and payable.
The Company may prepay the amounts outstanding to the holder at any time up to the 180th day following the issue date of this note by making a payment to the note holder of an amount in cash equal to 100%(for the first 90 days) up to 120%, multiplied by the sum of: the then outstanding principal amount of this Note plus accrued and unpaid interest on the unpaid principal amount of this Note.
12 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 10. Financing Agreement and Convertible Debentures - continued
In connection with the Hoppel convertible note, the Company issued Lucas Hoppel a Common Stock Purchase Warrant. The warrant entitled the holder to purchase up to 1,000,000 shares of common stock at an exercise price of $0.05. The warrant expires on September 13, 2023. The warrant contains standard adjustments for stock dividends and splits, and allows cashless exercise after six months. In addition, Lucas Hoppel was issued 500,000 common shares as an inducement to enter into the financing. If the note has not been repaid in full and the share price at any time falls below $0.0125 after the six month repayment period, then the Company will issue an additional 500,000 shares. A total of $105,000 debt discount was recorded on the note including original issuance discount of $5,000, stock issuance discount of $7,547 and derivative discount of $92,453.
The outstanding Hoppel convertible note balance totaled $13,558 at October 31, 2016, net of the unamortized discount of $91,442. Amortization of the related discounts totaled $13,558 for the six months ended October 31, 2016. Accrued interest totaled $7,350 and $0 at October 31, 2016 and April 30, 2016, respectively. See Note 9.
Note 11. Note Payable AMREFA
During the six months ended October 31, 2016, in connection with the Company’s purchase of ARG LLC, 8,093,541 shares of Series B Preferred Stock were issued to AMREFA and the note payable to AMREFA in the amount $1,170,811 was paid in full. Amortization of the related discount totaled $20,609 for the six months ended October 31, 2016. See Note 15.
Note 12. Related Party Advances
During the six months ended October 31, 2016 in payment of the non-interest bearing advances due EIG in the amount of $59,000 the Company issued 59,000 shares of Series A Preferred Stock to EIG. In connection with this payment in full, during the six months ended October 31, 2016 the Company recorded a loss on settlement of a liability in the amount of $39,333, which is included in other expenses and income in the accompanying unaudited Condensed Consolidated Statements of Operations. Related party advance from EIG totaled $0 and $59,000 at October 31, 2016 and April 30, 2016, respectively. See Note 14.
During the six months ended October 31, 2016 in connection with the amount due stockholders in the amount of $200,000, the Company issued 200,000 shares of Series A Preferred Stock. Amount due stockholders totaled $0 and $200,000 at October 31, 2016 and April 30, 2016, respectively. See Note 14.
Note 13. Common Stock
On August 10, 2016, in payment of accrued interest due RF in the amount of $50,700, the Company issued 1,690,000 shares Common Stock, to RF.
On August 10, 2016, the Company issued the remaining 9,775,171 shares of Common Stock due EIG under the Stock Subscription for which the proceeds were received in a prior year.
On October 17, 2016, in connection Hoppel Financing the Company issued 500,000 shares of Common Stock.See Note 10.
13 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 14. Series A Convertible Preferred Stock
During the six months ended October 31, 2016, the Company issued all 967,031of the authorized shares of Series A Preferred Stock as follows:
Number of Series A Shares Issued and Outstanding | Preferred Stock Series A | Additional Paid in Capital Series A | Liabilities Settled | Loss on Settlement of Liabilities Series A | ||||||||||||||
608,031 | $ | 61 | $ | 1,013,324 | $ | 624,613 | $ | (388,772 | ) | |||||||||
59,000 | 6 | 98,327 | 59,000 | (39,333 | ) | |||||||||||||
300,000 | 30 | 299,970 | - | - | ||||||||||||||
967,031 | $ | 97 | $ | 1,411,621 | $ | 683,613 | $ | (428,105 | ) |
During the six months ended October 31, 2016 the Company issued 300,000 shares of Series A Preferred Stock settled in cash of which $200,000 was received in the last quarter of fiscal 2016 and was recorded as amount due stockholders in the amount of $200,000 at April 30, 2016. The remaining $100,000 was received in the six months ended October 31, 2016.
See Note 6 and Note 12.
The Company analyzed the embedded conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classified as equity.
The Company further analyzed the conversion option for beneficial conversion features consideration under ASC 470-20 “Convertible Securities with Beneficial Conversion Features” and noted beneficial conversion features do not exist.
Note 15. Series B Convertible Redeemable Preferred Stock
During the six months ended October 31, 2016, the Company issued all 8,534,625 of the authorized shares of Series B Preferred Stock to AMREFA, recorded at fair value as of the issuance date, as follows:
Number of | ||||||||||||||||||
Series B Shares | Additional | Gain on Settlement | ||||||||||||||||
Issued and | Preferred Stock | Paid In | of Liabilities | |||||||||||||||
Outstanding | Series B | Capital Series B | Total Series B | Series B | ||||||||||||||
441,084 | $ | 44 | $ | 64,956 | $ | 65,000 | $ | 10,803 | ||||||||||
8,093,541 | 809 | 1,190,611 | 1,191,420 | - | ||||||||||||||
8,534,625 | $ | 853 | $ | 1,255,567 | $ | 1,256,420 | $ | 10,803 |
14 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 15. Series B Convertible Redeemable Preferred Stock - continued
See Notes 5 and 11.
From the date of issuance of the Series B Preferred Shares through October 31, 2016 the Company accreted $22,045 of the purchase discount. As of October 31, 2015, the Series B Preferred Shares had a fair value of $1,278,465.
Series B is presented as temporary equity in the accompanying Condensed Consolidated Balance Sheet pursuant to ASC 480 as it is not redeemable until February 1, 2017. As of October 31, 2016 and April 30, 2016, 8,534,625 and no shares of Series B Preferred Stock were issued and outstanding, respectively.
The Company further analyzed the conversion option for beneficial conversion features consideration under ASC 470-20 “Convertible Securities with Beneficial Conversion Features” and noted beneficial conversion features do not exist.
Note 16. Employee Stock Option Plan
Restricted Stock Units
For the six month period ended October 31, 2016 compensation expense relating to RSUs was recorded as follows:
October 31, | ||||
2016 | ||||
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, 2016 through October 31, 2016 Compensation Expense | $ | 2,250 | ||
Number of restricted stock units issued on June 1, 2014 | 600,000 | |||
Stock price on grant date | $ | 0.02 | ||
Vesting Period | 3 years | |||
Estimated fair value at issuance | $ | 12,000 | ||
May 1, 2016 through October 31, 2016 Compensation Expense | $ | 2,000 | ||
Total compensation expense | $ | 4,250 |
15 |
ProGreen US, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2016
Unaudited
Note 17. Subsequent Events
Subsequent to October 31, 2016 the Company borrowed an additional $112,000 under the Credit Line with its President resulting in the issuance of an additional warrants to purchase 1,120,000 shares of the Company’s common stock with an exercise price of $0.05. The warrants have a five year term. See Note 6.
On December 6, 2016 the Company amended its Certificate of Incorporation to reduce the number of shares of common stock the Company is authorized to issue from 1,500,000,000 to 950,000,000.
On December 9, 2016, the Company amended the Tangiers convertible note as follows; The Company may prepay the amounts outstanding to the holder at any time up to the 204th day following the issue date of this note by making a payment to the note holder of an amount in cash equal to: 115% (for the first 90 days), 125% (for the next 91-135 days), 135% (for the next 136-180 days) multiplied by the then outstanding principal amount of this Note or $31,200 (135% of Principal plus $1,500, including interest). After January 16, 2017 the Note may not be prepaid without consent from the Holder. If the Note is in default (as defined by the Original Note) the Company may not prepay the note without consent of the Holder. See Note10.
16 |
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 US, 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 to the purchase of income producing real estate assets, and changed our name effective July 22, 2016 to Progreen US, Inc. to reflect initiation of development operations in Baja Mexico.
On December 6, 2016 we filed with the Secretary of State of Delaware a Certificate of Amendment to our Certificate of Incorporation that reduced the number of shares of common stock the Company is authorized to issue from 1,500,000,000 to 950,000,000.
OUR BUSINESS
The purchase of a condominium unit on July 28, 2009 initiated our planned new business operations directed at purchasing income-producing residential real estate apartment homes, condominiums and houses in the State of Michigan, where we believe favorable investment opportunities exist based on current market conditions.
Our offices are located in Oakland County, Michigan. Our business model since our initial property purchases in 2009 has been to acquire, refurbish and upgrade existing properties into more environmentally sustainable, 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, the property would be put back on the market, but now with a favorable environmental profile. In January 2015, ProGreen Construction LLC (“ProGreen Construction”) was formed as a wholly owned subsidiary of the Company to perform all construction and development services for properties which are held and being developed by the Company.
We have expanded our real estate development operations to include Baja California, Mexico. On February 12, 2016, we signed a definitive joint venture agreement with Inmobiliaria Contel S.R.L.C.V. for the first tract of land of approximately 300 acres for agriculture use. In addition, we have formed Procon joint venture subsidiary. Procon will be the holding company for further non-agricultural land and real estate developments. The company will be managed by a board of Managing Directors consisting of three members, of which two will be representing Progreen and one representing Contel.
17 |
RESULTS OF OPERATIONS
Three months Ended October 31, 2016 Compared to Three Months Ended October 31, 2015
During the three months ended October 31, 2016, we incurred a net loss of approximately $ 164,000 compared to a net loss of approximately $121,000 for the three months ended October 31, 2015. Revenue decreased approximately $94,000 in the three months ended October 31, 2016 compared to the three months ended October 31, 2015.
Rental revenue increased to approximately $20,000 as compared to $0 during the three months ended October 31, 2015. The Company received rental income on seven properties during the three months ended October 31, 2016 as compared to none in the comparable prior period.
Management fee revenue decreased to $0 during the three months ended October 31, 2016 as compared to approximately $4,000 in 2015 as the Company managed no properties in the current fiscal three month period. Construction services revenues were $0 in the three months ended October 31, 2016 as compared to approximately $110,000 in 2015. The decrease is a result of the Company’s acquisition of ARG, for whom the fiscal 2015 construction services were provided.
There have been fluctuations in certain expenses in the three months ended October 31, 2016, as compared to the three months ended October 31, 2015. In the three months ended October 31, 2016 cost of construction services decreased to $0 as compared to approximately $96,000 in the three months ended October 31, 2015, as a result of the Company’s acquisition of ARG, for whom the fiscal 2015 construction services cost were incurred.
General and administrative expenses increased approximately $34,000 for the three months ended October 31, 2016 as compared to the comparable prior period mainly due to the following:
Rental property costs and depreciation expense increased approximately $14,000 and $6,000, respectively, for the three months ended October 31, 2016 as compared to the comparable prior period as a result of costs incurred in connection with the rental properties the Company acquired from ARG in the last quarter of fiscal 2016.
The reserve for the guarantee relating to the sale of rental properties increased to $0, for the three months ended October 31, 2016 as compared to a credit of approximately $6,000 in the comparable prior period as a result of the reversal of the reserve upon expiration of the guarantee period.
Salary expense increased approximately $12,000 during the three months ended October 31, 2016 as compared to the comparable prior period due to the addition of an office manager in the current quarter.
These increases were partially offset by decreases in certain expenses:
Office rent expense and office expense decreased approximately $3,000 for the three months ended October 31, 2016 as compared to the comparable prior period due the Company’s new office space lease and due to cost cutting measures.
Auto expense decreased approximately $1,000 for the three months ended October 31, 2016 as compared to the comparable prior period due to the reduction in the number of vehicles used by the Company.
18 |
Professional fees increased approximately $66,000 for the three months ended October 31, 2016 as compared to the comparable prior period mainly due to:
Audit and accounting fees increased approximately $33,000 in the three month period ended October 31, 2016 as compared to the prior comparable quarter, mainly due to increased fees paid to our auditors and to our outside accountants due to the increased complexity of accounting issues and regulatory compliance costs.
An increase in legal fees paid in the amount of approximately $20,000 in the three month period ended October 31, 2016 as a result of our S-1 filing.
An increase in fees paid relating to investor relations and other expenses incurred as a result of our public company filings in the amount of approximately $13,000 in the three month period ended October 31, 2016.
Interest expense, net decreased approximately $44,000 for the three months ended October 31, 2016 as compared to the comparable prior period mainly due to the decrease in amounts paid in connection with the AMREFA debt in the prior comparable quarter and the payoff of the RF debenture in the first quarter of fiscal 2017.
Derivatives gain increased to approximately $17,000 for the three months ended October 31, 2016 as compared to $6,000 for the comparable prior period due to the fair value adjustments in connection with the convertible notes and common stock warrants in the current three month period.
Six months Ended October 31, 2016 Compared to Six Months Ended October 31, 2015
During the six months ended October 31, 2016, we incurred a net loss of approximately $681,000 compared to a net loss of approximately $269,000 for the six months ended October 31, 2015. Revenue decreased approximately $66,000 in the six months ended October 31, 2016 compared to the six months ended October 31, 2015. Proceeds from the sale of properties increased to $228,000 as compared to $0 during the six months ended October 31, 2015 and corresponding cost of properties sold increased to approximately $186,000 as compared to $0 in the six months ended October 31, 2015, resulting in an increase in net gain from sale of properties to approximately $42,000. The Company sold two properties in the six months ended October 31, 2016 as compared to none in the comparable prior period.
Rental revenue increased to approximately $49,000 as compared to $0 during the six months ended October 31, 2015. The Company received rental income on seven properties during the six months ended October 31, 2016 as compared to none in the comparable prior period.
Commission revenue increased to approximately $ 4,000 as compared to $0 during the six months ended October 31, 2015. The Company received commissions on the sale of two properties in the six months ended October 31, 2016. There were no such commissions earned during the six months ended October 31, 2015. Management fee revenue decreased to $0 during the six months ended October 31, 2016 as compared to approximately $7,000 in 2015 as the Company managed no properties in the current fiscal six month period. Construction services revenues were $0 in the six months ended October 31, 2016 as compared to approximately $152,000 in 2015. The decrease is a result of the Company’s acquisition of ARG, for whom the fiscal 2015 construction services were provided.
There have been fluctuations in certain expenses in the six months ended October 31, 2016, as compared to the six months ended October 31, 2015. In the six months ended October 31, 2016 cost of construction services decreased to $0 as compared to approximately $138,000 in the six months ended October 31, 2015, as a result of the Company’s acquisition of ARG, for whom the fiscal 2015 construction services cost were incurred.
19 |
General and administrative expenses increased approximately $83,000 for the six months ended October 31, 2016 as compared to the comparable prior period mainly due to the following:
Rental property costs and depreciation expense increased approximately $43,000 and $ 13,000, respectively, for the six months ended October 31, 2016 as compared to the comparable prior period as a result of costs incurred in connection with the rental properties the Company acquired from ARG in the last quarter of fiscal 2016.
Commission expense increased approximately $7,100 for the six months ended October 31, 2016 as compared to the comparable prior period as a result of a commission paid on the sale of one of the properties.
Travel fees increased approximately $9,000, for the six months ended October 31, 2016 as compared to the comparable prior period as a result of business travel to Mexico.
Salary expense increased approximately $22,000 in the current six months ended October 31, 2016 as compared to the comparable prior period mainly due to the addition of an office manager and corrections to payroll tax expense.
Compensation expense increased approximately $3,000 for the six months ended October 31, 2016 as compared to the comparable prior period due to the vesting of a portion of restricted stock units.
These increases were partially offset by decreases in certain expenses:
Office rent expense decreased approximately $7,200 for the six months ended October 31, 2016 as compared to the comparable prior period due the Company’s new office space lease.
Office expense and auto expense decreased approximately $5,100 for the six months ended October 31, 2016 as compared to the comparable prior period due cost cutting measures.
Professional fees increased approximately $34,000 for the six months ended October 31, 2016 as compared to the comparable prior period mainly due to the following:
Audit, accounting and legal and fees increased approximately $71,000 mainly due to our S-1 filing, the increased complexity of accounting issues and regulatory compliance costs.
Investor and OTC fees increased approximately $16,000 for the six months ended October 31, 2016 as compared to the comparable prior period.
These increases were partially offset due to fees paid with the issuance of common stock to two consultants in the amount of approximately $53,000 in the six month period ended October 31, 2015.
Interest expense decreased to approximately $54,000 for the six months ended October 31, 2016 as compared to $94,000 for the comparable prior period due to the reduction in debt and the amortization of prior period debt discounts.
Loss on settlement of liabilities, Series A increased to approximately $428,000 for the six months ended October 31, 2016 as compared to $0 for the comparable prior period due to the issuance of Series A preferred stock in settlement of the note payable to EIG resulting in a loss in the amount of approximately $389,000 and in settlement of the advance due EIG resulting in a loss in the amount of approximately $39,000.
Gain on settlement of liabilities, Series B increased to approximately $11,000 for the six months ended October 31, 2016 as compared to $0 for the comparable prior period due to the issuance of Series B preferred stock in settlement of the note payable due AMREFA.
20 |
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 2016, we had total assets of approximately $1,796,000 compared to total assets of approximately $1,838,000 at October 31, 2016. The increase in total assets was primarily due to: Notes Receivable Land Contract which increased approximately $206,000 due to the Company’s issuance of land contracts to the buyers of the two properties sold in the six month period ended October 31, 2016. Note Receivable- Related Party increased $195,000 as a result of the Company’s additional investment in Contel. Accounts receivable increased approximately $4,000 as a result of rental property rent due from tenants as of October 31, 2016. Prepaid expenses increased approximately $2,000 due to the Company’s prepayment of legal fees in connection with SEC filings. These increases in assets were partially offset by a decrease in rental properties of approximately $ 202,000, as a result of the sale of two properties in the six months ended October 31, 2016 and a decrease in cash of approximately $160,000 in the six month period ended October 31, 2016
Cash decreased to approximately $30,000 for the period ended October 31, 2016, compared to cash of $190,000 at April 30, 2016. Cash used in operating activities was approximately $248,000 for the period ended October 31, 2016, as compared with cash used in operating activities of approximately $204,000 in the comparable period in fiscal 2015.
At October 31, 2016, we had stockholders’ deficit of approximately $609,000 as compared to a deficit of approximately $1,297,000 at April 30, 2016.
Equity Line Financing
On June 23, 2016, the Company entered into a $5,000,000 equity line financing agreement (“Investment Agreement”) with Tangiers Global, LLC, Dorado, Puerto Rico, and filed a Registration Statement for the financing with the SEC on August 31, 2016. The financing is over a maximum of 36 months. A maximum of 100 million (100,000,000) shares of our common stock have been registered for this financing.
We have issued to Tangiers in connection with the execution of the Investment Agreement a commitment fee of a five-year warrant to purchase 4,000,000 shares of common stock, at an exercise price of $.02 per share, and Tangiers has provided financing to us for our legal costs in connection with the filing of the Registration Statement through a one-year $22,000 convertible note, due June 23, 2017, as amended August 25, 2016, convertible into our common stock at a conversion price of $.03 per share .
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, 2016. We consider the following accounting policy to be the most critical going forward:
Basis of Presentation - The Company’s financial statements for the year ended April 30, 2016, 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 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.
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 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 our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934, as amended (“Exchange Act”) Rule 13a15(e)) as of October 31, 2016, are not effective, due to lack of segregation of duties, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a15.
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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PART II—OTHER INFORMATION
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
The following table sets forth the sales of unregistered securities since the Company’s last-filed report on Form 8-K covering sales of unregistered securities or on Form 10-Q filed under this item.
Date | Title and Amount (1) | Purchaser | Principal Underwriter | Total Offering Price/ Underwriting Discounts | ||||||
October 17, 2016 | 500,000 shares of common stock. | Private Investor | NA | $ | 7,547/NA |
(1) The issuances to lenders and investors are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), alternatively, as transactions either not involving any public offering, or as exempt under the provisions of Regulation D or Regulation S promulgated by the SEC under the Securities Act.
ITEM 6. | EXHIBITS. |
3.1(h) | Certificate of Amendment, filed with the Delaware Secretary of State on December 6, 2016. |
10.37b | Amendment dated December 9, 2016 to Amended and Restated 5.83% Fixed Convertible Promissory Note, dated August 25, 2016, issued to Tangiers Global, LLC, 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. |
* | Filed herewith |
** | Furnished herewith |
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
SEC
Ref. No. |
Title of Document | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Label Linkbase Document | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.
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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 US, INC. | ||
Dated: December 20, 2016 | BY: | /s/ Jan Telander |
Jan Telander | ||
President and Chief Executive Officer |
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