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 January 31, 2017

 

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 349,811,110 as of March 21, 2017.

 

 

 

PROGREEN US, INC.

 

INDEX

 

		Page
Part I. Financial Information		1
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of January 31, 2017 (unaudited) and as of April 30, 2016	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2017 and 2016 (unaudited)	3
	Condensed Consolidated Statements of Stockholders’ Deficit for the Nine Months ended January 31, 2017 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2017 and 2016 (unaudited)	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	24
Part II. Other Information		25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25
Item 5.	Other Information	25
Item 6.	Exhibits	28
Signatures		29

 

 

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 three and nine months ended January 31, 2017 and 2016 are not necessarily indicative of the results for the entire fiscal year or for any other period.

 

 

ProGreen US, INC.

Condensed Consolidated Balance Sheets

 

		January 31,				April 30,
		2017				2016
		(Unaudited)
Assets
Rental property, net accumulated depreciation of $25,482 and $6,138		$	738,972			$	1,006,560
Property under Development			294,179				294,179
Land under Development			500,000				-
Property			1,533,151				1,300,739
Cash			63,990				189,942
Other receivables - related party			1,925				1,859
Accounts receivable			9,410				1,194
Prepaid expenses			2,090				-
Notes receivable - land contracts			204,665				-
Deposits			934				934
Goodwill			180,011				180,011
Note receivable - related party			325,500				110,000
Property and equipment:
Vehicles, furniture and equipment, net of accumulated depreciation of $42,167 and $35,764			5,225				11,628
Total assets		$	2,326,901			$	1,796,307
Liabilities and Stockholders' Deficit
Accounts payable and accrued expenses		$	121,887			$	136,740
Accrued interest			16,747				68,211
Accrued interest related party			5,918				149,991
Obligations under capital lease			5,377				11,302
Tenant deposits			11,755				16,030
Notes payable			214,106				275,256
Note payable, related parties, net of discount of $23,887 and $0, respectively			210,113				516,000
Note payable - Bank of Birmingham			454,059				490,000
Derivative liabilities			316,595				-
Convertible debentures, net of discount of $124,616 and $0, respectively			85,384				-
Dividend Payable			39,505
Note Payable - AMREFA, net of discount of $0 and $114,189, respectively			-				1,170,811
Liability under land contract			488,000
Related party advances							259,000
Total liabilities			1,969,446				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 January 31, 2017 and April 30, 2016			1,300,968				-
Stockholders' deficit
Convertible preferred stock, Series A $.0001 par value, 1,000,000 shares authorized, 967,031 and 0 shares issued and outstanding, at January 31, 2017 and April 30, 2016			97				-
Common stock, $.0001 par value, 950,000,000 shares authorized, 349,811,110 and 336,919,939 outstanding at January 31, 2017 and April 30, 2016			34,981				33,692
Additional paid in capital			5,059,527				3,700,764
Accumulated deficit			(6,038,118	)			(5,031,490	)
Total stockholders' deficit			(943,513	)			(1,297,034	)
Total liabilities and stockholders' deficit		$	2,326,901			$	1,796,307

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

ProGreen US, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		January 31,								January 31,
		2017				2016				2017				2016
Revenues:
Rental revenue		$	23,595			$	-			$	72,200			$	-
Net gain from sale of properties			18,650				-				60,253				-
Commissions revenue			-				-				3,570				-
Management fee revenue			-				3,686				-				10,844
Construction services revenue			-				28,874				-				180,476
Other income			280				155				330				885
Total Revenue		$	42,525			$	32,715			$	136,353			$	192,205
Expenses:
Cost of construction services			-				29,354				-				167,108
Selling, General & administrative			111,242				54,136				298,714				159,076
Bad debt expense (recovery)			(2,235	)			2,137				(2,235	)			2,137
Professional fees			30,763				73,501				163,038				171,485
Total operating expenses		$	139,770			$	159,128			$	459,517			$	499,806
Operating loss			(97,245	)			(126,413	)			(323,164	)			(307,601	)
Other expenses and income:
Interest expense, net			(100,513	)			(73,072	)			(154,934	)			(166,716	)
Gain on sale of fixed asset			-				8,147				-				8,147
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				-
Loss on change in fair value of derivative liabilities			(40,958	)			(664,820	)			(24,298	)			(659,043	)
Loss before income tax expense		$	(238,716	)		$	(856,158	)		$	(919,698	)		$	(1,125,213	)
Net Loss		$	(238,716	)		$	(856,158	)		$	(919,698	)		$	(1,125,213	)
Net loss per share - basic and fully diluted		$	(0.00	)		$	(0.01	)		$	(0.00	)		$	(0.01	)
Weighted average shares outstanding - basic and fully diluted			348,995,827				164,888,511				344,438,511				141,013,688

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

ProGreen US, INC.

Condensed Consolidated Statements of Stockholders’ Deficit
Unaudited

 

		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			1,426,000				143				-				-				19,812				-				19,955
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			-				-				-				-				(44,548	)			-				(44,548	)
Dividend on redeemable, convertible preferred stock, Series B			-				-				-				-				-				(86,930	)			(86,930	)
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			-				-				-				-				5,626				-				5,626
Net loss			-				-				-				-				-				(919,698	)			(919,698	)
Balance at January  31, 2017			349,811,110			$	34,981				967,031			$	97			$	5,059,527			$	(6,038,118	)		$	(943,513	)

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 

ProGreen US, INC.

Condensed Consolidated Statements of Cash Flows

Unaudited

 

		Nine Months Ended
		January 31,
		2017				2016
Cash used in operating activities
Net loss		$	(919,698	)		$	(1,125,213	)
Adjustments to reconcile net loss to net cash used in operating activities:
Compensation - restricted stock units			5,626				9,375
Depreciation			29,244				9,077
Bad debt expense (recovery)			(2,235	)			2,137
Gain on sale of asset			-				(8,147	)
Gain on sale of properties			(60,253	)			-
Loss on change in fair value of derivative liabilities			24,298				659,043
Loss on settlement of liabilities,  Series A			428,105				-
Gain on settlement of liabilities,  Series B			(10,803	)			-
Amortization of debt discount			113,056				93,464
Common shares issued for services			-				53,500
Changes in operating assets and liabilities:							-
Other receivables - related party			(66	)			-
Accounts receivable			(5,981	)			11,727
Prepaid expenses			(2,090	)			2,346
Deposits			(4,275	)			2,420
Accounts payable and accrued expenses			(14,853	)			112,308
Accrued interest			18,429
Payable under management agreement			-				(36,884	)
Cash used in operating activities			(401,496	)			(214,847	)
Cash provided by investing activities
Proceeds from sale of asset			-				10,000
Proceeds from note receivable			1,335				-
Proceeds from sale of properties			99,000				-
Purchase of land			(12,000	)
Loan for note receivable - related party			(215,500	)			-
Proceeds on land contract			-				-
Cash used in investing activities			(127,165	)			10,000
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			194,000				59,000
Repayment of notes payable			-				(28,196	)
Proceeds from convertible debentures			220,000				68,000
Repayment of convertible debentures			(22,000	)
Payments on line of credit			(35,941	)
Decrease in obligations under capital leases			(5,925	)			(5,756	)
Dividend paid by cash			(47,425	)			53,999
Cash provided by financing activities			402,709				147,047
Net change in cash			(125,952	)			(57,800	)
Cash at beginning of period			189,942				99,325
Cash at end of period		$	63,990			$	41,525
Supplemental information:
Cash paid for interest		$	27,170			$	17,162
Noncash investing and financing transactions:
Notes receivable - land contracts issued for sale of properties		$	206,000			$	-
Land purchased under land contract		$	488,000			$	-
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		$	44,548			$	-
Dividend declared not paid, redeemable, convertible preferred stock, Series B		$	39,505			$	-
Stock issued under previous subscription agreement		$	977			$	-
Stock issued in settlement of accrued interest		$	50,700			$	-
Discount on derivatives		$	208,995			$	140,925
Reclass of APIC to derivative due to tainting		$	83,302			$	(260,941	)
Stock issued under convertible debenture		$	19,955			$	69,635
Consolidation of note payable		$	-			$	261,150
Derivative liability extinguished on conversion		$	-			$	102,645
Reclass from derivative to APIC due to tainting ended		$	-			$	212,694

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

ProGreen US, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

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 nine month period ended January 31, 2017, 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 nine months ended January 31, 2017, and the Company does not expect the adoption, as applicable, of other recent accounting pronouncements will have a material impact on its financial statements.

 

On January 23, 2017, ProGreen US, Inc.’s subsidiary in Baja California, Mexico, Procon Baja JV (Procon), entered into a definitive purchase agreement for, and has taken possession of, a large tract of land situated near the town of El Rosario in Baja California. In connection with this purchase the Company has recorded land in the amount of $500,000, paid $12,000 and recorded a liability under land contract for the balance due in the amount of $488,000 as of January 31, 2017. The land, planned for residential real estate development, is bordering the Pacific Ocean and covers a total area of 2,056 ha (5,100 acres) with 7,5 km (4.7 miles) of ocean front. See Note 3.

 

On January 15, 2017 the Company entered into a loan agreement with its 51% owned subsidiary Procon Baja JV (“Procon”) whereby the Company has agreed it will grant a loan to Procon in as much amount as is needed to accomplish Procon’s objectives. Procon will repay all borrowings received under the loan once Procon has sufficient income. The loan amounts bear interest at a 6% per annum from the date of each borrowing until repaid. During the nine month period ended January 31, 2017 the Company loaned Procon $20,000 to commence operations. All significant intercompany accounts and transactions have been eliminated. FASB Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” requires a company’s consolidated financial statements to include subsidiaries in which the company has a controlling financial interest. Procon is owned by Progreen (51%) and Inmobiliaria Contel S.R.L.C.V. (Contel (49%) and is included in the Company’s consolidated financial statements for the period ended January 31, 2017. The accrued interest payable was immaterial for the nine months ended January 31, 2017 and was not accrued, thus there is no noncontrolling interest recorded as of the current period end. Procon is the holding company for non-agricultural land and real estate developments. See Note 3.

 

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 9 and 10.

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 1. Financial Statement Presentation – continued

 

Going Concern

 

The Company’s unaudited condensed consolidated financial statements for the period ended January 31, 2017, 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 $401,000 of cash to support its operations and such cash needs are expected to continue in the upcoming year.  As of January 31, 2017, the Company has approximately $64,000 in cash.

 

Land under Development

 

Land under development is recorded at cost.

 

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 January 31, 2017.

 

Liability under Land Contract

 

Liability under land contract is recorded at cost.

 

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.

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 2. Rental Properties and Property under Development 

 

Rental properties and property under development at January 31, 2017 and April 30, 2016 are summarized as follows:

 

		January 31,				April 30,
		2017				2016
Rental properties		$	764,454			$	1,012,698
Less: accumulated depreciation			(25,482	)			(6,138	)
Rental properties, net of accumultaed depreciation		$	738,972			$	1,006,560
Property under development		$	294,179			$	294,179

 

Depreciation expense for the Company’s rental properties for the nine month periods ended January 31, 2017 and 2016 totaled $22,841and $0, respectively.

 

The Company owned ten and thirteen rental properties as of January 31, 2017, and April 30, 2016, respectively. The Company held one property under development as of January 31, 2017, and April 30, 2016.

 

Note 3. Land under Development and Liability under Land Contract

 

The Company held land under development in the amount of $500,000 and $0 as of January 31, 2017, and April 30, 2016, respectively. During the period ended January 31, 2017 Procon, the Company’s joint venture subsidiary purchased the first tract of land for residential real estate development. Under the terms of the definitive purchase agreement the Company has recorded land at cost in the amount of $500,000, paid $12,000 of the purchase price and recorded a liability under land contract for the balance due in the amount of $488,000 as of January 31, 2017. See Note 1. The payments are due as follows:

 

Year Ending		April 30,
2017		$	38,000
2018			50,000
2019			100,000
2020			100,000
2021			100,000
2022			100,000
		$	488,000

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 4. Notes Receivable - Land Contracts and Gain on Sale of Properties

 

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 nine months ended January 31, 2017 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 $108,339 as of January 31, 2017.

 

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 nine months ended January 31, 2017 the Company recognized a gain on the sale of this property in the amount of $96. The balance due under this Land Contract totaled $96,326 as of January 31, 2017.

 

On November 4, 2016 the Company sold a third one of its rental properties located at 29108 Tessmer Court with a selling price of $77,000. The entire $77,000 was received in cash during the nine months ended January 31, 2017. In the nine months ended January 31, 2017 the Company recognized a gain on the sale of this property in the amount of $18,650.

 

Note 5. Note Receivable - Related Party

 

During the nine months ended January 31, 2017, the Company contributed an additional $215,500 to Baja Joint Venture which is accounted for as an investment. Note Receivable - Related Party totaled $325,500 and $110,000 as of January 31, 2017 and April 30, 2016, respectively. See Note 18.

 

Note 6. Notes Payable

 

The Company is indebted as follows:

 

		January  31,				April 30,
		2017				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

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 6. Notes Payable – continued

 

During the nine months ended January 31, 2017 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 16. 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 nine months ended January 31, 2017, 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 January 31, 2017 and April 30, 2016, respectively. Accrued interest due AMREFA totaled $0 and $14,653 as of January 31, 2017 and April 30, 2016, respectively.

 

Note 7. Notes Payable, Related Parties

 

During the nine months ended January 31, 2017, 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 15. In connection with this payment in full, during the nine months ended January 31, 2017 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 January 31, 2017 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 nine months ended January 31, 2017 the Company borrowed $194,000 under the Credit Line. As a result of the derivatives calculation an additional discount of $28,950 was recorded. Notes payable related parties includes the amount due to the Company’s President with a balance outstanding of $194,000 less the unamortized discount of $23,887 as of January 31, 2017 and $0 as of April 30, 2016. Amortization of the related discount totaled $ 5,063 for the nine months ended January 31, 2017. The Company recorded interest expense in connection with this Credit Line in the amount of $2,087 and $0 for the nine months ended January 31, 2017 and 2016, respectively. Accrued interest due under this Credit Line totaled $2,087 and $0 as of January 31, 2017 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 nine months ended January 31, 2017, 194,000 of these warrants were issued in various denominations between August 2, 2016 through January 23, 2017, resulting in a total number of warrant shares of 1,940,000 as of January 31, 2017. The warrants have a five year term. See Notes 9, 10 and 18.

 

In addition, notes payable related parties includes an amount due to the Company’s controller with a balance outstanding of $40,000 as of January 31, 2017 and April 30, 2016. The Company recorded interest expense in connection with this note payable in the amount of $2,453 and $0 for the nine months ended January 31, 2017 and 2016, respectively. Accrued interest due under this note payable totaled $3,831 and $1,378 as of January 31, 2017 and April 30, 2016, respectively.

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 8. Note Payable Bank of Birmingham

 

The note payable had a balance outstanding of $454,059 and $490,000 as of January 31, 2017 and April 30, 2016, respectively and the Company recorded interest expense in connection with this note payable in the amount of $25,056 and $0 for the nine months ended January 31, 2017 and 2016, respectively. Accrued interest due under the note payable totaled $2,047 and $2,858 as of January 31, 2017 and April 30, 2016, respectively.

 

Principal payment requirements on the notes payable to Bank of Birmingham are as follows:

 

2017		$	3,810
2018			15,442
2019			16,408
2020			17,367
2021			401,032
Thereafter			-
Total		$	454,059

 

See Note 4.

 

Note 9. 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 January 31, 2017, the Company held certain financial instruments that are measured at fair value on a recurring basis. These consisted of convertible debt totaling $85,384 and $0 with a derivative liability totaling $316,595 (including stock warrants) and $0 at January 31, 2017 and April 30, 2016, respectively, which are categorized as Level 3. The related loss on derivatives totaled $24,298 for the nine month period ended January 31, 2017. Loss on derivatives totaled $40,958 for the three month period ended January 31, 2017.

 

See Notes 7, 10 and 11.

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 10 - Derivative Liabilities

 

During the nine months ended January 31, 2017, the Company identified conversion features embedded within its convertible debt. See Note 11. 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 (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 January 31, 2017 is as follows:

 

April 30, 2016 balance		$	-
Discount on debt			208,995
Reclass from equity due to tainting			83,302
Fair value mark- to market adjustment			24,298
Derivatives liabilities, balance		$	316,595

 

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 quarter ended January 31, 2017:

 

The stock prices ranged from $0.0134 to $0.0114 in this period 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 152% to 170% and 302% to 308%.

 

Default at maturity would occur 100% of the time for the Hoppel Notes and they would convert at a percentage of market.

 

The risk-free rates were based on the remaining term of the instrument and ranged from 0.52% to 1.92%.

 

See Notes 7, 9 and 11.

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 11. 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. 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. 

 

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 Tangiers convertible note was redeemed in full on January 9, 2017. Amortization of the related discount totaled $2,000 for the nine months ended January 31, 2017. Interest in the amount of $9,200 was paid in the final settlement of Tangiers convertible note.

 

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. As of January 31, 2017 there have been no draws under the Investment Agreement thus the outstanding balance totaled $0 at January 31, 2017 and April 30, 2016.

 

Hoppel Convertible Notes

 

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 1”). 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.

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 11. Financing Agreement and Convertible Debentures – continued

 

On January 20, 2017, the Company issued a convertible promissory note in the amount of principal amount of $105,000 to Lucas Hoppel (“Hoppel Convertible Note 2”). This convertible note is due and payable on July 20, 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, under either Hoppel convertible note, 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 the Note plus accrued and unpaid interest on the unpaid principal amount of the Note.

 

In connection with Hoppel Convertible Note 1, 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. See Note 14. 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 Hoppel Convertible Note 1including original issuance discount of $5,000, stock issuance discount of $7,547 and derivative discount of $92,453.

 

In connection with Hoppel Convertible Note 2, 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 $0.03. The warrant expires on January 20, 2022. The warrant contains standard adjustments for stock dividends and splits, and allows cashless exercise after six months. In addition, Lucas Hoppel was issued 926,000 common shares as an inducement to enter into the financing. See Note 14. 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 926,000 shares. A total of $105,000 debt discount was recorded on Hoppel Convertible Note 2 including original issuance discount of $5,000, stock issuance discount of $12,408 and derivative discount of $87,592.

 

The outstanding Hoppel Convertible Note 1 and Note 2 balances totaled $85,384 at January 31, 2017, net of the unamortized discount of $124,616. Amortization of the related discounts totaled $85,384 for the nine months ended January 31, 2017. Accrued interest totaled $14,700 and $0 at January 31, 2017 and April 30, 2016, respectively. See Notes 9 and 10.

 

Note 12. Note Payable AMREFA

 

During the nine months ended January 31, 2017, 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 nine months ended January 31, 2017. See Notes 6 and 16.

 

Note 13. Related Party Advances

 

During the nine months ended January 31, 2017 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 nine months ended January 31, 2017 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 January 31, 2017 and April 30, 2016, respectively. See Note 15.

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 13. Related Party Advances – continued

 

During the nine months ended January 31, 2017 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 January 31, 2017 and April 30, 2016, respectively. See Note 15.

 

Note 14. Common Stock

 

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 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.

 

In connection with Hoppel Financing on October 17, 2016 and January 26, 2017, the Company issued 500,000 and 926,000 shares of Common Stock, respectively. See Note 11.

 

Note 15. Series A Convertible Preferred Stock

 

During the nine months ended January 31, 2017, 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				Liability 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 nine months ended January 31, 2017 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 nine months ended January 31, 2017.

 

See Note 7 and Note 13.

 

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.

 

 

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 16. Series B Convertible Redeemable Preferred Stock and Dividend Payable

 

During the nine months ended January 31, 2017, 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

 

See Notes 5 and 11.

 

From the date of issuance of the Series B Preferred Shares through January 31, 2017 the Company accreted $44,548 of the purchase discount. As of January 31, 2017, the Series B Preferred Shares had a fair value of $1,300,968.

 

Each holder of record on September 8, 2016 and March 8, 2017 of the Series B Preferred Stock shall be entitled to receive a cash dividend at the annual rate of 7% of the Stated Value of the shares of Series B Preferred Stock held by such holder. During the nine month period ended January 31, 2017 the Company paid Series B cash dividends in the amount of $47,425and accrued an additional $39,505 for a total dividend of $86,930 as of January 31, 2017.

 

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 January 31, 2017 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.

 

  

ProGreen US, INC.

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2017

Unaudited

 

Note 17. Employee Stock Option Plan

 

Restricted Stock Units

 

For the nine month period ended January 31, 2017 compensation expense relating to RSUs was recorded as follows:

 

		January 31,
		2017
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 January 31, 2017 Compensation Expense		$	2,626
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 January 31, 2017 Compensation Expense		$	3,000
Total compensation expense		$	5,626

 

Note 18. Subsequent Events

 

On February 1, 2017, the Company increased its commitment to contribute up to $1,000,000 from $350,000 to Baja Joint Venture. See Note 5.

 

On February 1, 2017 the Company issued five year warrants to purchase 1,500,000 shares of common stock, at an exercise price of $.011 per share to each of two separate consultants for services. The warrants will be vested in three equal installments starting from April 30, 2017 and following on April 30, 2018 and April 30, 2019.

 

Subsequent to January 31, 2017, the Company borrowed an additional $56,000 under the Credit Line with its President resulting in the issuance of additional warrants to purchase 560,000 shares of the Company’s common stock with an exercise price of $0.05. This completed the Company’s borrowings pursuant to the August 2, 2016 credit line note in the amount of $250,000 and the five-year common stock purchase warrant to purchase 2,500,000 shares of common stock at an exercise price of $.05 per share were issued to the Company’s President which were due upon completion of advances to the Company. See Note 7.

 

On February 21, 2017 the Company’s President entered into an additional one year 5% Promissory Note credit line agreement of up to $250,000 with the Company, on the same terms as those of the August 2, 2016 agreement, and has commenced advances to the Company under the new Promissory Note. As of March 20, 2017 the President has advanced the Company $195,000 under this Promissory Note.

 

On February 21, 2017, the Company sold to an institutional lender a convertible note in the amount of $103,500, bearing interest at the rate of 12% per annum, and due November 30, 2017. The note is convertible any time 180 days after issuance date, conversion price equal to 58% multiplied by the average of the lowest 2 trading price during the 15 trading days prior to the conversion.

 

On March 15, the Company issued to Bellridge Capital, LP a $5,000 Original Issue Discount 10% Convertible Debenture (the "Debenture") in the principal amount of $105,000, due March 15, 2018.

 

On March 21, 2017, the Company issued a 7% Fixed Convertible Promissory Note in the principal amount of $105,000 due September 21, 2018 to Tangiers Global, LLC.

 

 

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. Through the JV agreements with Contel, ProGreen controls nearly 14,000 acres of agricultural land in Baja, including 2,200 acres plus a 3-year option on the remaining 11,500 acres. Of the total agricultural land, ProGreen expects between 4,000 to 5,000 acres may be suitable for farming, depending on the availability of water. The rest of the land could potentially be used for commercial and residential real estate adjunct to the farming operations, although we have not initiated any planning or development efforts in this regard.

 

 

Agricultural operations with JV partner, Contel, have commenced and will be branded under the name, “ProGreen Farms,” for which we have made application for a trademark. Four wells have been drilled on the first tract, and the growing operation have commenced with a first produce purchase agreement for $1.1 to $1.3 million (USD) for red chile peppers - from Agricola El Consuela, an exporter/importer to the U.S. market – which crop is being grown on the first 100 acres. The profit margin on this first crop is expected to be in the range of 55-60%, and will be dependent on market conditions.

 

In addition, we have formed the Procon joint venture subsidiary, which is the holding company for further non-agricultural land and real estate developments. The company is managed by a board of Managing Directors consisting of three members, of which two represent Progreen and one represents Contel. On January 23, 017, Procon entered into a definitive purchase agreement for, and has taken possession of, a large tract of land situated near the town of El Rosario in Baja California. The land, planned for residential real estate development, is bordering the Pacific Ocean and covers a total area of 2,056 ha (5,100 acres) with 7,5 km (4.7 miles) of ocean front.

 

Procon in January 2017 signed a definitive purchase agreement for the purchase of a tract of land near the town of El Rosario in Baja that covers a total area of approximately 5,000 acres with 4.7 miles of oceanfront. The transfer of deed for the 5000-acre oceanfront property to Procon was completed on March 15, 2017, and a Master Plan for all of this land is being created for a very large resort-type retirement and vacation community with the name “Cielo Mar”. Translated into English, Cielo means “heaven” and Mar means “sea”, the Cielo Mar planned community thus being “heaven by the sea.” The first phase of the development of the master plan is underway.

 

RESULTS OF OPERATIONS

 

Three months Ended January 31, 2017 Compared to Three Months Ended January 31, 2016

 

During the three months ended January 31, 2017, we incurred a net loss of approximately $239,000 compared to a net loss of approximately $856,000 for the three months ended January 31, 2016. Revenue increased approximately $10,000 in the three months ended January 31, 2017 compared to the three months ended January 31, 2016.

 

Rental revenue increased to approximately $24,000 as compared to $0 during the three months ended January 31, 2016. The Company received rental income on seven properties during the three months ended January 31, 2017 as compared to none in the comparable prior period.

 

Proceeds from the sale of properties increased to $77,000 as compared to $0 during the three months ended January 31, 2016 and corresponding cost of properties sold increased to approximately $58,000 as compared to $0 in the three months ended January 31, 2016, resulting in an increase in net gain from sale of properties to approximately $19,000. The Company sold one property in the three months ended January 31, 2017 as compared to none in the comparable prior period.

 

Management fee revenue decreased to $0 during the three months ended January 31, 2017 as compared to approximately $4,000 in 2016 as the Company managed no properties in the current fiscal three month period. Construction services revenues were $0 in the three months ended January 31, 2017 as compared to approximately $29,000 in 2016. The decrease is a result of the Company’s acquisition of ARG, for whom the fiscal 2016 construction services were provided.

 

There have been fluctuations in certain expenses in the three months ended January 31, 2017, as compared to the three months ended January 31, 2016. In the three months ended January 31, 2017 cost of construction services decreased to $0 as compared to approximately $29,000 in the three months ended January 31, 2016, as a result of the Company’s acquisition of ARG, for whom the fiscal 2016 construction services cost were incurred.

 

 

General and administrative expenses increased approximately $57,000 for the three months ended January 31, 2017 as compared to the comparable prior period mainly due to the following:

 

Rental property costs and depreciation expense increased approximately $10,000 and $7,000, respectively, for the three months ended January 31, 2017 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.

 

Salary expense increased approximately $2,000 during the three months ended January 31, 2017 as compared to the comparable prior period due to the addition of an office manager in the current quarter.

 

Computer Costs increased approximately $2,000 during the three months ended January 31, 2017 as compared to the comparable prior period due to increased support costs.

 

Commissions and Closing costs increased by $7,000 during the three months ended January 31, 2017 as compared to the comparable prior period due to the selling of one building.

 

Investor Relations costs increased by $14,000 during the three months ended January 31, 2017 as compared to the comparable prior period due to the increased activity of promoting the Company.

 

Travel costs increased by $7,500 during the three months ended January 31, 2017 as compared to the comparable prior period due to the development of partnerships and property in Mexico.

 

Payroll Taxes increased by during the three months ended January 31, 2017 as compared to the comparable prior period due $11,000 due to the settling ongoing negotiations of taxes due for a number of years.

 

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 January 31, 2017 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 January 31, 2017 as compared to the comparable prior period due to the reduction in the number of vehicles used by the Company.

 

Bad debt expense decreased from $2,000 for the three month period ended January 31, 2016 to a recovery of $2,000 in the current three month period ended January 31, 2017 as the Company received payment tin full on a previously written off land contract receivable.

 

Professional fees decreased approximately $43,000 for the three months ended January 31, 2017 as compared to the comparable prior period mainly due to:

 

Audit and accounting fees decreased approximately $26,000 in the three month period ended January 31, 2017 as compared to the prior comparable quarter.

 

A decrease in legal fees paid in the amount of approximately $19,000 in the three month period ended January 31, 2017 as a result of less S-1 filing expenses incurred and decreased legal resources required.

 

An increase in fees paid in the amount of approximate $2,000 to a consultant for increased office responsibilities.

 

Interest expense, net increased approximately $27,000 for the three months ended January 31, 2017 as compared to the comparable prior period mainly due to the increase in borrowings under notes payable, convertible notes and notes payable relate party in the current quarter of fiscal 2017 as compared to the comparable prior three month period.

 

 

Gain on sale of fixed asset decreased to $0 for the three months ended January 31, 2017 as compared to $8,000 for the comparable prior period due to the sale of a vehicle in the prior fiscal quarter.

 

Derivatives loss decreased to approximately $41,000 for the three months ended January 31, 2017 as compared to a loss of approximately $665,000 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.

 

Nine months Ended January 31, 2017 Compared to Nine Months Ended January 31, 2016

 

During the nine months ended January 31, 2017, we incurred a net loss of approximately $920,000 compared to a net loss of approximately $1,125,000 for the nine months ended January 31, 2016. Revenue decreased approximately $56,000 in the nine months ended January 31, 2017 compared to the nine months ended January 31, 2016.

 

Rental revenue increased to approximately $72,000 during the nine months ended January 31, 2017 as compared to $0 during the nine months ended January 31, 2016. The Company received rental income on seven properties during the nine months ended January 31, 2017 as compared to none in the comparable prior period.

 

Proceeds from the sale of properties increased to $305,000 as compared to $0 during the nine months ended January 31, 2016 and corresponding cost of properties sold increased to approximately $245,000 as compared to $0 in the nine months ended January 31, 2016, resulting in an increase in net gain from sale of properties to approximately $60,000. The Company sold three properties in the nine months ended January 31,2017 as compared to none in the comparable prior period.

 

Commission revenue increased to approximately $ 4,000 as compared to $0 during the nine months ended January 31, 2016. The Company received commissions on the sale of two of the three properties in the nine months ended January 31, 2017. There were no such commissions earned during the nine months ended January 31, 2016. Management fee revenue decreased to $0 during the nine months ended January 31, 2017 as compared to approximately $11,000 in 2016 as the Company managed no properties in the current fiscal nine month period. Construction services revenues were $0 in the nine months ended January 31, 2017 as compared to approximately $180,000 in 2016. The decrease is a result of the Company’s acquisition of ARG, for whom the fiscal 2016 construction services were provided.

 

There have been fluctuations in certain expenses in the nine months ended January 31, 2017, as compared to the nine months ended January 31, 2016. In the nine months ended January 31, 2017 cost of construction services decreased to $0 as compared to approximately $167,000 in the nine months ended January 31, 2016, as a result of the Company’s acquisition of ARG, for whom the fiscal 2016 construction services cost were incurred.

 

General and administrative expenses increased approximately $140,000 for the nine months ended January 31, 2017 as compared to the comparable prior period mainly due to the following:

 

Rental property costs and depreciation expense increased approximately $54,000 and $ 20,000, respectively, for the nine months ended January 31, 2017 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 and closing costs expense increased approximately $16,000 for the nine months ended January 31, 2017 as compared to the comparable prior period as a result of the sale of three properties with aa commission paid on the sale of two of the properties.

 

Investor relations expense increased approximately $14,000, for the nine months ended January 31, 2017 as compared to the comparable prior period as a result of more activity in publicity for the Company.

 

Travel fees increased approximately $17,000, for the nine months ended January 31, 2017 as compared to the comparable prior period as a result of business travel to Mexico.

 

 

Salary and payroll tax expense increased approximately $35,000 in the current nine months ended January 31, 2017 as compared to the comparable prior period mainly due to the addition of an office manager and corrections to payroll tax expense.

 

These increases were partially offset by decreases in certain expenses:

 

Compensation expense decreased approximately $4,000 for the nine months ended January 31, 2017 as compared to the comparable prior period due to the full vesting of a portion of restricted stock units during the current nine month period.

 

Office rent expense decreased approximately $8,000 for the nine months ended January 31, 2017 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 nine months ended January 31, 2017 as compared to the comparable prior period due cost cutting measures.

 

Bad debt expense decreased from $2,000 for the nine months ended January 31, 2016 to a recovery of $2,000 in the current nine months ended January 31, 2017 as the Company received payment tin full on a previously written off land contract receivable.

 

Professional fees decreased approximately $8,000 for the nine months ended January 31, 2017 as compared to the comparable prior period mainly due to the following:

 

Audit, accounting and legal and fees increased approximately $25,000 mainly due to our S-1 filing, the increased complexity of accounting issues and regulatory compliance costs.

 

Consultant fees paid increased approximately $3,000 for the nine months ended January 31, 2017 as compared to the comparable prior period due to increased responsibility after letting go office employee.

 

These increases were partially offset by a decrease in investor and OTC fees of approximately $36,000 for the nine months ended January 31, 2017 as compared to the comparable prior period, which includes a decrease due to fees paid with the issuance of common stock to two consultants in the amount of approximately $53,000 in the nine month period ended January 31, 2016. This decrease was offset by an increase approximately of $17,000 for investor relations expense for the current nine month period.

 

Interest expense, net decreased to approximately $155,000 for the nine months ended January 31, 2017 as compared to $167,000 for the comparable prior period due to the reduction in debt and the amortization of prior period debt discounts.

 

Gain on sale of fixed asset decreased to $0 for the nine months ended January 31, 2017 as compared to $8,000 for the comparable prior period due to the sale of a vehicle in the prior comparable fiscal period.

 

Loss on settlement of liabilities, Series A increased to approximately $428,000 for the nine months ended January 31, 2017 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 nine months ended January 31, 2017 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.

 

Derivatives loss decreased to approximately $24,000 for the nine months ended January 31, 2017 as compared to a loss of approximately $659,000 for the comparable prior period due to the fair value adjustments in connection with the convertible notes and common stock warrants in the current nine month period.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

At April 30, 2016, we had total assets of approximately $1,796,000 compared to total assets of approximately $2,327,000 at January 31, 2017. The increase in total assets was primarily due to: Land under development in the increased $500,000 due to the Company’s purchase of land though its Procon subsidiary, Notes Receivable Land Contract which increased approximately $205,000 due to the Company’s issuance of land contracts to the buyers of the two properties sold in the nine-month period ended January 31, 2017. Note Receivable- Related Party increased $216,000 as a result of the Company’s additional investment in Contel. Accounts receivable increased approximately $8,000 as a result of rental property rent due from tenants as of January 31, 2017. 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 $ 268,000, as a result of the sale of three properties in the nine months ended January 31, 2017 and a decrease in cash of approximately $126,000 in the nine month period ended January 31, 2017.

 

Cash decreased to approximately $64,000 for the period ended January 31, 2017, compared to cash of $190,000 at April 30, 2016. Cash used in operating activities was approximately $402,000 for the period ended January 31, 2017, as compared with cash used in operating activities of approximately $215,000 in the comparable period in fiscal 2016.

 

At January 31, 2017, we had stockholders’ deficit of approximately $944,000 as compared to a deficit of approximately $1,297,000 at April 30, 2016.

 

Credit Line

 

On August 2, 2016, the Company signed a 5% Promissory Note with the company’s CEO, Jan Telander, for a credit line of up to $250,000. The Note is non-convertible and is to be repaid within one year. Mr. Telander completed the full amount of the advances under the Note as of February 21, 2017 and we have issued to Mr. Telander, in accordance with the terms of this credit line financing, a five-year common stock purchase warrant to purchase 2,500,000 shares of common stock at an exercise price of $0.05 per share, will be issued as are made.

 

Mr. Telander on February 21, 2017 entered into an additional one year 5% Promissory Note credit line agreement of up to $250,000 with the Company, on the same terms as those of the August 2, 2016 agreement, and has commenced advances to the Company under the new Promissory Note.

 

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, which was declared effective by the SEC on January 31, 2017. 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.

 

Convertible Note Financings

 

On January 20, 2017, the Company sold a private investor a 7% convertible promissory note in the principal amount of $105,000, due July 20, 2017, convertible in the event of an event of default.

 

On February 21, 2017, the Company sold to an institutional lender a convertible note in the amount of $103,500, bearing interest at the rate of 12% per annum, and due November 30, 2017.

 

On March 15, the Company issued to an institutional lender a $5,000 Original Issue Discount 10% Convertible Debenture in the principal amount of $105,000, due March 15, 2018.

 

On March 21, 2017, the Company issued a 7% Fixed Convertible Promissory Note in the principal amount of $105,000 due September 21, 2018 to an institutional lender.

 

 

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 January 31, 2017, 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.

 

 

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
September 13, 2016		Convertible Promissory Note in the principal amount of $105,000, together with five-year common stock purchase warrant exercisable to purchase 1,000,000 shares at an exercise price of $.05 per share.		Private investor.		NA		$	105,000	/NA
October 17, 2016		500,000 shares of common stock issued in connection with issuance of Convertible Promissory Note in the principal amount of $105,000.		Private investor.		NA		$	-0-	/NA
January 20, 2017		Convertible Promissory Note in the principal amount of $105,000, together with five-year common stock purchase warrant exercisable to purchase 1,000,000 shares at an exercise price of $.03 per share.		Private investor.		NA		$	105,000	/NA
January 20, 2017		926,000 shares of common stock issued in connection with issuance of Convertible Promissory Note in the principal amount of $105,000.		Private investor.		NA		$	-0-	/NA
February 1, 2017		Two five-year common stock purchase warrant to purchase 1,500,000 shares of common stock, issued to two separate consultants to the Company, the warrants being exercisable at a price of $0.011 per share, and vesting in installments of 500,000 shares each on April 30, 2017, April 30, 2018 and April 30, 2019, exercise being also conditioned on the consultant holder continuing as an actively participating consultant to the Company.		Consultants to the Company.		NA		$	-0-	/NA
February 21, 2017		Convertible Promissory Note, in the principal amount of $103,500 issued to Power Up Lending Group Ltd.		Private Investor		NA		$	103,500	/NA
February 21, 2017		Five-year common stock purchase warrant to purchase 2,500,000 shares of common stock at an exercise price of $.05 per share, issued to the Company’s Chief Executive Officer upon completion of advances to the Company by the CEO of $250,000 pursuant to an August 2, 2016 creditline note.		Chief Executive Officer		NA		$	-0-	/NA
March 15, 2017		Convertible Promissory Note, in the principal amount of $105,000, issued to Bellridge Capital, LP.		Private Investor.		NA		$	105,000	/NA
March 21, 2017		Convertible Promissory Note, in the principal amount of $105,000, issued to Tangiers Global, LLC.		Private Investor.		NA

 

(1)        The issuances to consultants, 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 5.

OTHER INFORMATION.

 

Promissory Note Issued to Private Investor

 

On January 20, 2017, the Company issued to Lucas Hoppel, a private investor a convertible promissory note in the principal amount of $105,000, due and payable on July 20, 2017, with interest of a one-time charge of 7%. This note is convertible upon the event of default, if not cured within five calendar days following the default event, at the election of the holder from time to time after the issuance date. The note converts at 65% of the average of the three daily lowest trades occurring during the fifteen previous trading days. In connection with the issuance of this note, on January 20, 2017, the Company issued the holder of the note a five-year warrant to purchase 1,000,000 shares of common stock at an exercise price at an exercise price of $0.03.

 

 

Convertible Promissory Note Issued February 21, 2017

 

Effective on February 21, 2017, the Company entered into a Securities Purchase Agreement with Power Up Funding Group Ltd (“Lender”), pursuant to which the Company sold the Lender a convertible note in the amount of $103,500, bearing interest at the rate of 12% per annum (the “Convertible Note”). The Convertible Note provides the Lender the right to convert the outstanding balance (including accrued and unpaid interest) of such Convertible Note into shares of the Company’s common stock at the Conversion Price equal to 58% multiplied by the Market Price, defined as the average of the lowest two (2) Trading Prices (as defined below) for the common stock during the fifteen (15) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The Convertible Note is payable, along with interest thereon on November 30, 2017. In the event that any principal or interest is not timely paid, such amount accrues interest at 22% per annum until paid in full.

 

The Company may repay the Convertible Note (prior to conversion), at 120% of such note (and accrued and unpaid interest thereon) if the note is repaid during the period beginning on the Issue Date and ending 150 days following the Issue Date; and 125% of such note (and accrued and unpaid interest thereon) if such note is repaid during the period beginning on the date that is 151 days from the Issue Date and ending 180 days following the Issue Date. After 180 days have elapsed from the Issue Date the Company has no right to prepay the Convertible Note.

 

The Note provides for customary events of default such as failing to timely make payments under the Note when due, unsatisfied judgments against the Company, failure to issue conversion shares in a timely manner and failure of the Company to file annual and quarterly reports with the Securities and Exchange Commission. Upon the occurrence of an event of default, as described in the Convertible Note, the Note shall become immediately due and payable and the Company is required to pay to the Lender, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of the Note plus (x) accrued and unpaid interest on the unpaid principal amount of the Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, (the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of common stock issuable upon conversion of or otherwise pursuant to such Default Sum, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the common stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”), and the Lender shall be entitled to exercise all other rights and remedies available at law or in equity. If the Company fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Lender shall have the right at any time, to require the Company, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of common stock of the Company equal to the Default Amount divided by the Conversion Price then in effect.

 

Bellridge Capital, LP Convertible Debenture Issued March 15, 2017

 

On March 15, 2017, the Company issued to Bellridge Capital, LP a $5,000 Original Issue Discount 10% Convertible Debenture (the “Debenture”) in the principal amount of $105,000, due March 15, 2018. At any time after the sooner to occur of (i) 180 days from March 15, 2017 (ii) when the shares issuable upon conversion of this Debenture have been registered on a registration statement that has been declared effective by the Commission or (iii) if the Company is in breach or default of any of the Transaction Documents and until the Debenture is no longer outstanding, the Debenture (including principal and accrued but unpaid interest on any principal being converted, if any) shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at a Conversion Price equal to the (ii) 55% of the lowest trading price for the Company’s Common Stock on the Trading Market for the 15 Trading Days prior to the conversion; provided that or if the shares of Common Stock are not traded on a Trading Market but is quoted on the OTC Pink, then 65% of the lowest closing price for the Company’s Common Stock on the OTC Pink for the 15 Trading Days prior to the conversion and in all other cases 55% of the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchaser and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

 

During the first six months the Debenture is in effect, the Company may redeem the Debenture by paying to the Holder an amount as follows: (i) if the redemption is prior to the 90th day this Debenture is in effect (including the 90th day), then for an amount equal to 115% of the unpaid principal amount of this Debenture along with any interest that has accrued during that period; (ii) if the redemption is on the 91st day this Debenture is in effect, up to and including the 120th day this Debenture is in effect, then for an amount equal to 120% of the unpaid principal amount of this Debenture along with any accrued interest; and (iii) if the redemption is on the 121st day this Debenture is in effect, up to and including the 180th day this Debenture is in effect, then for an amount equal to 125% of the unpaid principal amount of this Debenture along with any accrued interest. The redemption must be closed and paid for within 3 business days of the Company sending the redemption demand or the redemption will be invalid and the Company may not redeem this Debenture.

 

Events of Default under the Debenture include any monetary default in the payment of principal of or interest on the Debenture; if the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event; a default under a separate financial obligation or a judgment greater in amount than $100,000; if the Company fails to file with the Commission any required annual or quarterly reports under Section 13 or 15(d) of the Exchange Act such that it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable); and bankruptcy or reorganization of the Company or a Significant Subsidiary.

 

If any Event of Default occurs, then the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election by notice in writing to Company, immediately due and payable in cash at the Mandatory Default Amount. After the occurrence of any Event of Default the default interest rate is 20%, plus a one-time 5% penalty on the then-outstanding balance of the Debenture.

 

Convertible Note issued to Tangiers Global, LLC

 

On March 21, 2017, the Company issued a 7% Fixed Convertible Promissory Note in the principal amount of $105,000 due September 21, 2018 to Tangiers Global, LLC. In the Event of Default under this Note, additional interest will accrue from the date of the Event of Default at the rate equal to the lower of 17% per annum or the highest rate permitted by law.

 

This Note may be prepaid by the Company, in whole or in part, according to the following schedule:

 

Days Since Effective Date		Prepayment Amount
Under 90		100% of Principal Amount
91-120		115% of Principal Amount
121-150		120% of Principal Amount
151-180		125% of Principal Amount

 

After 180 days from the Effective Date the Note may not be prepaid without written consent from Holder, which consent may be withheld, delayed or denied in Holder’s sole and absolute discretion. If the Note is in default, the Company may not prepay the Note without written consent of the Holder. The Note is convertible after it has been outstanding for at least six months from the Effective Date, at a conversion price equal to $.015.

 

Under the Note, events of default include a default in payment of any amount due under the Note; a default in the timely issuance of underlying shares upon and in accordance with the terms of the Note; failure by the Company for 10 days after notice from the Holder has been received by the Company to comply with any material provision of the Note; failure of the Company to remain compliant with DTC, thus incurring a “chilled” status with DTC; any default of any mortgage, indenture or instrument in the amount of $100,000 or in excess thereof, which may be issued, or by which there may be secured or evidenced any indebtedness, for money borrowed by the Company or for money borrowed the repayment of which is guaranteed by the Company, whether such indebtedness or guarantee now exists or shall be created hereafter; if the Company is subject to any Bankruptcy Event; any failure of the Company to satisfy its “filing” obligations relating the filing of annual and quarterly reports under the Securities Exchange Act of 1934, as amended; failure of the Company to remain in good standing with its state of domicile, which is not corrected within 30 days; failure of Company’s Common Stock to maintain a closing bid price in its Principal Market for more than 3 consecutive Trading Days; delisting from a Principal Market for any reason; any trading suspension imposed by the SEC; or failure by the Company to meet all requirements necessary to satisfy the availability of Rule 144 to the Holder or its assigns, including but not limited to the timely fulfillment of its filing requirements as a fully-reporting issuer registered with the SEC, requirements for XBRL filings, and requirements for disclosure of financial statements on its website.

 

 

If an Event of Default occurs, the outstanding Principal Amount of the Note owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the default amount of 150% of the outstanding Principal Amount of this Note. At any time and from time to time after a default occurs solely due to the fact the Note is not paid in full on or before the Maturity Date, the Holder shall have the right, at the Holder’s sole option, to convert in whole or in part the outstanding and unpaid Principal Amount under this Note into shares of Common Stock at the Default Conversion Price, equal to the lower of: (a) the Conversion Price or (b) 65% of the average of the three lowest trading prices of the Company’s common stock during the 15 consecutive Trading Days prior to the date on which Holder elects to convert all or part of the Note. If the Company is placed on “chilled” status with the DTC, the discount shall be increased by 10%, i.e., from 35% to 45%, until such chill is remedied. If the Company is not DWAC eligible through their Transfer Agent and DTC’s FAST system, the discount will be increased by 5%, i.e., from 35% to 40%. In the case of both, the discount shall be a cumulative increase of 15%, i.e., from 35% to 40%.

 

THE DESCRIPTIONS ABOVE OF THE TERMS OF THE SECURITIES PURCHASE AGREEMENTS AND CONVERTIBLE NOTES OR DEBENTURE ARE SUMMARIES OF THE TERMS OF THOSE AGREEMENTS AND DEBT OBLIGATIONS. REFERENCE IS MADE TO COPIES OF THE RESPECTIVES SECURITIES PURCHASE AGREEMENTS AND DEBT OBLIGATIONS ATTACHED TO THIS REPORT AS EXHIBITS FOR THE COMPLETE TERMS OF THESE AGREEMENTS AND DEBT OBLIGATIONS, WHICH EXHIBITS ARE INCORPORATED HEREIN BY REFERENCE. ALL CAPITALIZED TERMS IN THE ABOVE DESCRIPTIONS OF THESE SECURITIES PURCHASE AGREEMENTS AND DEBT OBLIGATIONS ARE DEFINED IN THE RESPECTIVE SECURITIES PURCHASE AGREEMENTS AND DEBT OBLIGATIONS IN WHICH SUCH TERMS ARE USED.

 

ITEM 6.

EXHIBITS.

 

10.37	Convertible 7% Promissory Note, dated January 20, 2017, issued to Lucas Hoppel.
10.38	Securities Purchase Agreement, dated January 20, 2017, between the Company and Lucas Hoppel.
10.39	Convertible Promissory Note dated February 21, 2017, issued to Power Up Lending Group Ltd.
10.40	Securities Purchase Agreement, dated February 21, 2017, between the Company and Power Up Lending Group Ltd.
10.41	Convertible Debenture, dated March 15, 2017, issued to Bellridge Capital, LP.
10.42	Securities Purchase Agreement, dated March 15, 2017, between the Company and Bellridge Capital, LP.
10.43	Convertible Promissory Note, dated March 21, 2017, issued to Tangiers Global, LLC
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.

 

 

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: March 21, 2017	BY:	/s/ Jan Telander
		Jan Telander
		President and Chief Executive Officer

 

 

EXHIBIT INDEX

 

10.37		Convertible 7% Promissory Note, dated January 20, 2017, issued to Lucas Hoppel.
10.38		Securities Purchase Agreement, dated January 20, 2017, between the Company and Lucas Hoppel.
10.39		Convertible Promissory Note dated February 21, 2017, issued to Power Up Lending Group Ltd.
10.40		Securities Purchase Agreement, dated February 21, 2017, between the Company and Power Up Lending Group Ltd.
10.41		Convertible Promissory Note dated March 15, 2017, issued to Bellridge Capital, LP.
10.42		Securities Purchase Agreement, dated March 15, 2017, between the Company and Bellridge Capital, LP.
10.43		Convertible Promissory Note, dated March 21, 2017, issued to Tangiers Global, LLC.
31*		Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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

**	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.

 

 

30