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 July 31, 2016

 

OR

 

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to _________________

 

Commission File Number 000-25429

 

PROGREEN US, INC.

(Exact name of registrant as specified in its charter)

 

DELAWARE   59-3087128
(State or other jurisdiction of
incorporation or organization) 		  (I.R.S. Employer
Identification No.)
     

6443 Inkster Road, Suite 170-D, Bloomfield Township, MI

   48301
(Address of Principal Executive Offices)    (Zip Code)

 

(248) 530-0770

 

 (Registrant’s Telephone Number, Including Area Code)

 

 

 

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES ☒    NO ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. (Check One):

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☐   Smaller reporting company ☒
(Do not check if a smaller reporting company)    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes   ☒ No

 

The number of shares outstanding the issuer's common stock, par value $.0001 per share, was 348,385,110 as of September 19, 2016.

 

 

 

 

 

 

PROGREEN US, INC.

 

INDEX

 

    Page
     
Part I. Financial Information 1
     
Item 1. Financial Statements 2
     
  Condensed Consolidated Balance Sheets as of July 31, 2016 (unaudited) and as of April 30, 2015 2
     
 

Condensed Consolidated Statements of Operations for the Three Months Ended July 31, 2016 and 2015 (unaudited)

3
     
  Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended July 31, 2016 (unaudited) 4
     
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended July 31, 2016 and 2015 (unaudited) 5
     
  Notes to Unaudited Condensed Consolidated Financial Statements 6
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 13
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
     
Item 4. Controls and Procedures. 16
     
Part II. Other Information 16
     
Item 6. Exhibits. 17
     
Signatures 18

 

 

 

 

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 months ended July 31, 2016 and 2015 are not necessarily indicative of the results for the entire fiscal year or for any other period.

 

  1  

 

 

ProGreen US, INC.

 

Condensed Consolidated Balance Sheets

 

    July 31,     April 30,  
    2016     2016  
    (Unaudited)        
Assets            
Rental property, net accumulated depreciation of $12,489 and $6,138   $ 811,765     $ 1,006,560  
Property under Development     294,179       294,179  
Property     1,105,944       1,300,739  
Cash     33,735       189,942  
Other receivables - related party     1,848       1,859  
Accounts receivable     6,165       1,194  
Prepaid expenses     14,690       -  
Notes receivable - land contracts     205,747       -  
Deposits     934       934  
Goodwill     180,011       180,011  
Note receivable - related party     260,500       110,000  
Property and equipment:                
Vehicles, furniture and equipment, net of accumulated depreciation of $37,898 and $35,764     9,494       11,628  
Total assets   $ 1,819,068     $ 1,796,307  
                 
Liabilities and Stockholders' Deficit                
Accounts payable and accrued expenses   $ 124,243     $ 136,740  
Accrued interest     4,849       68,211  
Accrued interest related party     50,700       149,991  
Obligations under capital lease     9,341       11,302  
Tenant deposits     11,755       16,030  
Notes payable     214,106       275,256  
Note payable, related party     40,000       516,000  
Note payable -Bank of Birmingham     487,803       490,000  
Convertible debenture, net of discount of $1,792 and $0, respectively     20,208       -  
Note Payable - AMREFA, net of discount of $0 and $114,189, respectively     -       1,170,811  
Related party advances     -       259,000  
Total liabilities     963,005       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 July 31, 2016 and April 30, 2016     1,256,420       -  
Stockholders' deficit                
Convertible preferred stock, Series A $.0001 par value, 1,000,000 shares authorized, 967,031 and 0 shares issued and outstanding, at July 31, 2016 and April 30, 2016     97       -  
Common stock, $.0001 par value, 1,500,000,000 shares authorized, 336,919,939 outstanding at July 31, 2016 and April 30, 2016     33,692       33,692  
Additional paid in capital     5,114,510       3,700,764  
Accumulated deficit     (5,548,656 )     (5,031,490 )
Total stockholders' deficit     (400,357 )     (1,297,034 )
Total liabilities and stockholders' deficit   $ 1,819,068     $ 1,796,307  

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

  2  

 

 

ProGreen US, INC.

 

Condensed Consolidated Statements of Operations

(Unaudited)

 

    Three Months Ended  
    July 31,  
    2016     2015  
Revenues:            
             
Rental revenue   $ 29,065     $ -  
Net gain from sale of properties     41,603       -  
Commissions revenue     3,570       -  
Management fee revenue     -       3,657  
Construction services revenue     -       41,900  
Other income     50       405  
Total Revenue   $ 74,288     $ 45,962  
Expenses:                
Cost of construction services     -       41,492  
Selling, General & administrative     103,703       55,564  
Professional fees     41,354       72,858  
Total operating expenses   $ 145,057     $ 169,914  
                 
Operating loss     (70,769 )     (123,952 )
Other expenses and income:                
Interest expense, net     (29,095 )     (23,908 )
Loss on settlement of liabilities, Series A     (428,105 )     -  
Gain on settlement of liabilities, Series B     10,803       -  
Loss before income tax expense   $ (517,166 )   $ (147,860 )
Net Loss   $ (517,166 )   $ (147,860 )
Net loss per share - basic and fully diluted   $ (0.00 )   ($ 0.00 )
Weighted average shares outstanding - basic and fully diluted     336,919,939       117,798,065  

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

  3  

 

 

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 )
                                                         
Preferred Series A stock issued in settlement of liabilities     -       -       667,031       67       1,111,651       -       1,111,718  
Preferred Series A stock issued for cash     -       -       300,000       30       299,970       -       300,000  
Compensation - restricted stock units     -       -       -       -       2,125       -       2,125  
Net loss     -       -       -       -       -       (517,166 )     (517,166 )
Balance at July 31, 2016     336,919,939     $ 33,692       967,031     $ 97     $ 5,114,510     $ (5,548,656 )   $ (400,357 )

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

  4  

 

 

ProGreen US, INC.

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

    Three Months Ended  
    April 30,  
    2016     2015  
Cash used in operating activities            
Net loss   $ (517,166 )   $ (147,860 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Compensation - restricted stock units     2,125       5,125  
Depreciation     10,532       3,398  
Gain on sale of properties     (41,603 )     -  
Loss on settlement of liabilities, Series A     428,105       -  
Gain on settlement of liabilities, Series B     (10,803 )     -  
Amortization of debt discount     20,817       -  
Common shares issued for services     -       53,500  
Changes in operating assets and liabilities:                
Other receivables - related party     11       -  
Accounts receivable     (4,971 )     21,470  
Prepaid expenses     (14,690 )     2,192  
Deposits     (4,275 )     -  
Accounts payable and accrued expenses     (11,884 )     (16,606 )
Payable under management agreement     -       (19,460 )
Cash used in operating activities     (143,802 )     (98,241 )
                 
Cash provided by investing activities                
Proceeds from (payment of) note receivable     -       (49 )
Proceeds from sale of properties     22,000       -  
Loan for note receivable - related party     (150,500 )     -  
Proceeds on land contract     253       -  
Cash used in investing activities     (128,247 )     (49 )
                 
Cash provided by (used in) financing activities                
Proceeds from related party stock purchase     100,000       -  
Proceeds from advances from related party     -       46,000  
Repayment of notes payable     -       (28,196 )
Proceeds from convertible debenture     20,000       38,000  
Payments on line of credit     (2,197 )     -  
Decrease in obligations under capital leases     (1,961 )     (1,905 )
Collection of amount due under stock subscription     -       53,999  
Cash provided by financing activities     115,842       107,898  
                 
Net change in cash     (156,207 )     9,608  
                 
Cash at beginning of period     189,942       99,325  
Cash at end of period     33,735       108,933  
Supplemental information:                
Cash paid for interest   $ 17,676     $ 16,936  
                 
Noncash investing and financing transactions:                
Noncash transaction: proceeds from land contracts issued for sale of properties   $ 206,000     $ -  
Noncash transaction: Series A Preferred Stock issued in settlement of liabilities   $ 683,613     $ -  
Noncash transaction: Series A Preferred Stock for subscription receivable   $ 200,000     $ -  
Noncash transaction: Series B Preferred Stock issued in settlement of liabilities   $ 1,246,614     $ -  
Noncash transaction: stock issued under convertible debenture   $ -     $ 28,135  
Noncash transaction: consolidation of note payable   $ -     $ 289,346  

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

  5  

 

 

ProGreen US, INC.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2016

(Unaudited)

 

Note 1. Financial Statement Presentation

 

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements and they should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended April 30, 2016 (the “Annual Report”). The accompanying interim financial statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three month period ended July 31, 2016, are not necessarily indicative of the results that may be expected for the year ending April 30, 2017.

 

Basis of Presentation

 

The Company’s significant accounting policies are summarized in Note 1 of the Annual Report. These accounting policies conform to U.S.GAAP and have been consistently applied in the preparation of the interim unaudited condensed consolidated financial statements. There were no significant changes to these accounting policies during the three months ended July 31, 2016, and the Company does not expect the adoption, as applicable, of other recent accounting pronouncements will have a material impact on its financial statements.

 

Going Concern

 

The Company’s unaudited condensed consolidated financial statements for the period ended July 31, 2016, have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company will require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue adequate to support its cost structure. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company’s ability to continue as a going concern is dependent upon the success of management’s plans and the Company’s ability to use its common stock to raise working capital. The accompanying unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities in the event management’s plans are not successful.

 

The Company will continue to incur costs that are necessary for it to remain an active public company. In the current fiscal year, the Company used approximately $144,000 of cash to support its operations and such cash needs are expected to continue in the upcoming year. As of July 31, 2016, the Company has approximately $34,000 in cash.

 

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 July 31, 2016 and April 30, 2016.

 

  6  

 

 

ProGreen US, INC.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2016

(Unaudited)

 

Note 1. Financial Statement Presentation - continued

 

Reclassifications

 

Certain amounts in previous periods have been reclassified to conform to fiscal year ending 2017 classifications.

  

Recent Accounting Pronouncements

 

We do not expect that any recently issued accounting pronouncements will have a material impact on our consolidated financial statements.

  

Note 2. Rental Properties and Property Under Development  

 

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

  

    July 31,     April 30,  
    2016     2016  
Rental properties   $ 824,254     $ 1,012,698  
Less: accumulated depreciation     (12,489 )     (6,138 )
Rental properties, net of accumulated depreciation   $ 811,765     $ 1,006,560  
                 
Property under development   $ 294,179     $ 294,179  
                 

 

Depreciation expense for the quarters ended July 31, 2016 and 2015 totaled $8,398 and $0 respectively. 

 

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

 

Note 3. Notes Receivable - Land Contracts

 

On May 20, 2016 the Company sold one of its rental properties located at 23270 Helen Street, with a selling price of $119,000. The Company received a deposit of $10,000 and issued a Land Contract to the buyer, for the balance owed in the amount of $109,000, to be paid in monthly installments, including principal and interest, beginning June 1, 2016 through June 1, 2019. The Land Contract bears interest at 9% per annum. In the quarter ended July 31, 2016 the Company recognized a gain on the sale of this property in the amount of $41,507. The balance due under this Land Contract totaled $108,747 as of July 31, 2016.

 

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 quarter ended July 31, 2016 the Company recognized a gain on the sale of this property in the amount of $96. The balance due under this Land Contract totaled $97,000 as of July 31, 2016.

 

  7  

 

 

ProGreen US, INC.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2016

(Unaudited)

 

Note 4. Note Receivable - Related Party

 

During the quarter ended July 31, 2016, the Company contributed an additional $150,500 to Baja Joint Venture which is accounted for as a note receivable. Note Receivable - Related Party totaled $260,500 and $110,000 as of July 31, 2016 and April 30, 2016, respectively.

 

Note 5. Notes Payable

 

The Company is indebted as follows:

 

    July 31,     April , 30  
    2016     2016  
Note Payable to City of Southfield dated October 29, 2014 bears a fixed rate of interest of 3.00% and requires interest only annual payments for the first three years of the note. Commencing in year four principal and interest are due in fifteen annual installments. The note payable is secured by a property located at 23270 Helen Street, Southfield Michigan.   $ 6,000     $ 6,000  
                 
Note Payable to City of Southfield dated September 19, 2014 bears a fixed rate of interest of 3.00% and requires interest only annual payments for the first three years of the note. Commencing in year four principal and interest are due in fifteen annual installments. The note payable is secured by a property located at 23270 Helen Street, Southfield Michigan.     8,106       8,106  
                 
Note Payable to AMREFA dated June 25, 2015 bears a fixüed rate of interest of 8.00%. Payments plus accrued interest are due biannually as follows; January 15, 2016 $61,150, July 15, 2016 $65,000, January 15, 2017 $65,000 and July 15, 2017 $70,000. The note payable is guaranteed by a majority shareholder.     -       261,150  
                 
Mortgage Note payable to AMREFA, is non-interest bearing and is secured by the property at 24442 Kinsel Street, Southfield, Michigan. The note is due upon the sale of the Kinsel Street Property.     200,000       -  
                 
    $ 214,106     $ 275,256  

 

During the quarter ended July 31, 2106 in connection with the purchase of ARG, the note payable due to AMREFA under the June 2015 Instalment Payment Agreement was paid in full and cancelled with the delivery of a $200,000 Mortgage Note payable to AMREFA together with issuance of 441,084 shares of Series B Preferred Stock to AMREFA, with a fair value of $65,000 in payment of note plus accrued interest. See Note 12. The amount due was comprised of $261,150 principal plus accrued interest of $14,653, for a total due to AMREFA of $275,803. In connection with this payment in full, during the quarter ended July 31, 2016, the Company recorded a gain on settlement of a liability in the amount of $10,803, which is included in other expenses and income in the accompanying unaudited Condensed Consolidated Statements of Operations.

 

The Mortgage Note is non-interest bearing and is secured by the property at 24442 Kinsel Street, Southfield, Michigan. The Mortgage Note will be paid upon the sale of the Kinsel Street property. Notes payable to AMREFA totaled $200,000 and $265,150 as of July 31, 216 and April 30, 2016, respectively. Accrued interest due AMREFA totaled $0 and $14,653 as of July 31, 2016 and April 30, 2016, respectively. .

 

Note 6. Note Payable, Related Party

 

During the quarter ended July 31, 2016, in payment of the note payable related party the Company issued EIG 608,031 shares of Series A Preferred Stock with a total stated value equal to that of the agreed upon principal in the amount of $476,000 plus accrued interest in the amount of $148,613, for a total agreed upon amount of $624,613 and a fair value of $1,013,385. See Note 11. In connection with this payment in full, during the quarter ended July 31, 2016 the Company recorded a loss on settlement of a liability in the amount of $388,772 which is included in other expenses and income in the accompanying unaudited Condensed Consolidated Statements of Operations.

 

  8  

 

 

ProGreen US, INC.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2016

(Unaudited)

 

Note 6. Note Payable, Related Party – continued

 

As of July 31, 2016 and April 30, 2016 the outstanding balance of the note payable related party was $0 and $476,000, plus accrued interest of $0 and $148,613, respectively.

 

The note payable related party is due to the Company’s controller had a balance outstanding of $40,000 as of July 31, 2016 and April 30, 2016. The Company recorded interest expense in connection with this note payable in the amount of $818 and $0 for the quarters ended July 31, 2016 and 2015, respectively. Accrued interest due under this note payable totaled $2,196 and $1,378 as of July 31, 2016 and April 30, 2016, respectively.

 

Note 7. Note Payable Bank of Birmingham

 

The note payable had a balance outstanding of $487,803 and $490,000 as of July 31, 2016 and April 30, 2016, respectively and the Company recorded interest expense in connection with this note payable in the amount of $2,520 and $0 for the quarters ended July 31, 2016 and 2015, respectively. Accrued interest due under the note payable totaled $2,520 and $2,858 as of July 31, 2016 and April 30, 2016, respectively.

 

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

 

2017   $ 9,698  
2018     13,699  
2019     14,556  
2020     15,394  
2021     434,456  
Thereafter     -  
Total   $ 487,803  

 

Note 8. Financing Agreement and Convertible Debenture

 

On June 23, 2016, the Company entered into $5,000,000 equity line financing agreement (“Investment Agreement”) with Tangiers Global, LLC, Dorado, Puerto Rico and filed a Registration Statement for the financing with the SEC on August 31, 2016. . The financing is over a maximum of 36 months. A maximum of 100 million (100,000,000) shares of the Company’s common stock will be registered for this financing. In connection with the execution of the Investment Agreement, the Company issued to Tangiers a commitment fee of a five-year warrant to purchase 4,000,000 shares of common stock, at an exercise price of $.02 per share. As of July, 2016 there have been no draws under the Investment Agreement thus the outstanding balance totaled $0 at July 31, 2016 and April 30, 2016.

 

Tangiers provided financing to the Company for legal costs in connection with the filing of the Registration Statement through a one-year $22,000 convertible debenture, due June 23, 2017, as amended August 25, 2016, which is convertible into common stock at a conversion price of $.03 per share (“Convertible Debenture”). Under the terms of the Convertible Debenture the Company borrowed the principal amount of $22,000 plus accrued interest at 5.83% per annum with an original issue discount of $2,000. As an investment incentive, the Company issued 4,000,000 5 year cashless warrants, exercisable at $.02 per share. This Note may be prepaid by the Company, in whole or in part, according to the following schedule: under 90 days the prepayment amount is 115% of the principal amount, between 91-135 days the prepayment amount is 125% of the principal amount and between 136-180 days the prepayment amount is 135% of principal. After 180 days from the Effective Date of the Original Note, this Note may not be prepaid without written consent from Holder. Accrued interest totaled $134 and $0 at July 31, 2016 and April 30, 2016, respectively. The outstanding convertible debenture balance totaled $20,208 at July 31, 2016, net of the unamortized original issue discount of $1,792. Amortization of the related discount totaled $208 for the quarter ended July 31, 2016.

 

  9  

 

 

ProGreen US, INC.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2016

(Unaudited)

 

Note 8. Financing Agreement and Convertible Debenture – continued

 

The Company analyzed the embedded conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classified as equity.

 

The Company further analyzed the conversion option for beneficial conversion features consideration under ASC 470-20 “Convertible Securities with Beneficial Conversion Features” and noted beneficial conversion features do not exist.

  

Note 9. Note Payable AMREFA

 

During the quarter ended July 31, 2016, in connection with the Company’s purchase of ARG LLC, 8,093,541 shares of Series B Preferred Stock were issued to AMREFA and the note payable to AMREFA in the amount $1,170,811 was paid in full. Amortization of the related discount totaled $20,609 for the quarter ended July 31, 2016. See Note 12.

  

Note 10. Related Party Advances

 

During the quarter ended July 31, 2016 in payment of the non-interest bearing advances due EIG in the amount of $59,000 the Company issued 59,000 shares of Series A Preferred Stock to EIG. In connection with this payment in full, during the quarter ended July 31, 2016 the Company recorded a loss on settlement of a liability in the amount of $39,333, which is included in other expenses and income in the accompanying unaudited Condensed Consolidated Statements of Operations. Related party advance from EIG totaled $0 and $59,000 at July 31, 2016 and April 30, 2016, respectively. See Note 11.

 

During the quarter ended July 31, 2016 in connection with the amount due stockholders in the amount of $200,000, the Company issued 200,000 shares of Series A Preferred Stock. Amount due stockholders totaled $0 and $200,000 at July 31, 2016 and April 30, 2016, respectively. See Note 11.

  

Note 11. Series A Convertible Preferred Stock

 

During the quarter ended July 31, 2016, the Company issued all 967,031of the authorized shares of Series A Preferred Stock as follows:

 

Number of
Series A
Shares Issued
and
Outstanding 		    Preferred Stock
Series A 		    Additional Paid in
Capital Series A 		    Liabilities
Settled 		    Loss on Settlement
of Liabilities
Series A 		 
                           
  608,031     $ 61     $ 1,013,324     $ 624,613     $ (388,772 )
  59,000       6       98,327       59,000       (39,333 )
  300,000       30       299,970       -       -  
  967,031     $ 97     $ 1,411,621     $ 683,613     $ (428,105 )

 

During the quarter ended July 31, 2016 the Company issued 300,000 shares of Series A Preferred Stock settled in cash of which $200,000 was received in the last quarter of fiscal 2016 and was recorded as amount due stockholders in the amount of $200,000 at April 30, 2016, The remaining $100,000 was received from a related party in the quarter ended July 31, 2016.

 

See Note 6 and Note 10.

 

  10  

 

 

ProGreen US, INC.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2016

(Unaudited)

 

Note 11. Series A Convertible Preferred Stock – continued

 

The Company analyzed the embedded conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classified as equity.

 

The Company further analyzed the conversion option for beneficial conversion features consideration under ASC 470-20 “Convertible Securities with Beneficial Conversion Features” and noted beneficial conversion features do not exist.

 

Note 12. Series B Convertible Redeemable Preferred Stock

 

During the quarter ended July 31, 2016, the Company issued all 8,534,625 of the authorized shares of Series B Preferred Stock to AMREFA 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 Note 5 and Note 9.

 

Series B is presented as temporary equity pursuant to ASC 480 as it is not redeemable until February 1, 2017. As of July 31, 2016 and April 30, 2016, 8,534,625 and no shares of Series B Preferred Stock were issued and outstanding, respectively.

 

The Company further analyzed the conversion option for beneficial conversion features consideration under ASC 470-20 “Convertible Securities with Beneficial Conversion Features” and noted beneficial conversion features do not exist.

 

  11  

 

 

ProGreen US, INC.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2016

(Unaudited)

 

Note 13. Employee Stock Option Plan

 

Restricted Stock Units

 

For the three month period ended July 31, 2016 compensation expense relating to RSUs was recorded as follows:

 

    April 30  
    2016  
Number of restricted stock units issued on December 3, 2012     600,000  
Stock price on grant date   $ 0.03  
Vesting Period      4 years  
Estimated fair value at issuance   $ 18,000  
         
May 1, 2016 through July 31, 2016 Compensation Expense   $ 1,125  
         
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 July 31, 2016 Compensation Expense   $ 1,000  
         
Total compensation expense   $ 2,125  

 

Note 14. Subsequent Events

 

Subsequent to July 31, 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.

 

Subsequent to July 31, 2016 the Company issued the remaining 9,775,171shares of Common Stock due EIG under the Stock Subscription.

 

The Company’s board of directors approved the amendments to the Certificate of Incorporation to decrease the authorized Common Stock from 1,500,000,000 shares to 950,000,000 shares on August 24, 2016.  

 

  12  

 

 

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.

 

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 as a fully managed investment property, with a favorable environmental profile and yield. These investment properties are marketed exclusively by ProGreen Realty LLC, a wholly-owned subsidiary of ProGreen and managed by ProGreen Properties Management LLC, another wholly owned subsidiary. In January 2015, ProGreen Construction LLC (“ProGreen Construction”) was formed as a wholly owned subsidiary of the Company to perform all construction and development services for properties which are held and being developed by the Company.

 

We have expanded our real estate development operations to include Baja California, Mexico. On February 12, 2016, we signed a definitive joint venture agreement with Inmobiliaria Contel S.R.L.C.V. for the first tract of land of approximately 300 acres for agriculture use. In addition, we have formed Procon Baja JV, our joint venture subsidiary owned by Progreen (51%) and Contel (49%). The Procon subsidiary is planned to be the holding company for the development of approximately 1,900 acres, with some 500-800 acres suitable for farming, depending on the amount of water that could be extracted through the drilling of fresh water wells. 

 

RESULTS OF OPERATIONS

 

Three months Ended July 31, 2016 Compared to Three Months Ended July 31, 2015

 

During the three months ended July 31, 2016, we incurred a net loss of approximately $517,000 compared to a net loss of approximately $148,000 for the three months ended July 31, 2015. Revenue increased approximately $28,000 in the three months ended July 31, 2016 compared to the three months ended July 31, 2015. Proceeds from the sale of properties increased to $228,000 as compared to $0 during the three months ended July 31, 2015 and corresponding cost of properties sold increased to approximately $186,000 as compared to $0 in the three months ended July 31, 2015, resulting in an increase in net gain from sale of properties to approximately $42,000. The Company sold two properties in the three months ended July 31,216 as compared to none in the comparable prior period.

 

  13  

 

 

Rental revenue increased to approximately $29,000 as compared to $0 during the three months ended July 31, 2015. The Company received rental income on eleven properties during the three months ended July 31, 2016 as compared to none in the comparable prior period.

 

Commission revenue increased to approximately $4,000 as compared to $0 during the three months ended July 31, 2015. The Company received commissions on the sale of two properties in the three months ended July 31, 2016. There were no such commissions earned during the three months ended July 31, 2015. Management fee revenue decreased to $0 during the three months ended July 31, 2016 as compared to approximately $4,000 in 2015 as the Company managed no properties in the current fiscal three month period. Construction services revenues were $0 in the three months ended July 31, 2016 as compared to approximately $42,000 in 2015. The decrease is a result of the Company’s acquisition of ARG, for whom the fiscal 2015 construction services were provided.

 

There have been fluctuations in certain expenses in the three months ended July 31, 2016, as compared to the three months ended July 31, 2015. In the three months ended July 31, 2016 cost of construction services decreased to $0 as compared to approximately $42,000 in the three months ended July 31, 2015, as a result of the Company’s acquisition of ARG, for whom the fiscal 2015 construction services cost were incurred.

 

General and administrative expenses increased approximately $43,000 for the three months ended July 31, 2016 as compared to the comparable prior period mainly due to the following:

 

Rental property costs and depreciation expense increased approximately $37,000 and $7,000, respectively, for the three months ended July 31, 2016 as compared to the comparable prior period as a result of costs incurred in connection with the rental properties the Company acquired from ARG in the last quarter of fiscal 2016.

 

Commission expense increased approximately $7,100 for the three months ended July 31, 2016 as compared to the comparable prior period as a result of a commission paid on the sale of one of the properties.

 

These increases were partially offset by decreases in certain expenses:

 

Salary expense decreased approximately $2,100 as result of a reduction in the President’s salary, net of a salary increase due to the addition of an office manager in the current three month period.

 

Compensation expense decreased approximately $3,000 for the three months ended July 31, 2016 as compared to the comparable prior period. This decrease is attributable to the full vesting of a portion of restricted stock units.

 

Office rent expense approximately $4,300 for the three months ended July 31, 2016 as compared to the comparable prior period due the Company’s new office space lease.

 

Professional fees decreased approximately $32,000 for the three months ended July 31, 2016 as compared to the comparable prior period mainly due to fees paid with the issuance of common stock to two consultants in the amount of approximately $54,000 in the three month period ended July 31, 2015. This decrease was partially offset by an increase in legal fees of approximately $11,000 and an increase in accounting and audit fees of approximately $11,000, as a result of fees incurred relating to the Company’s ongoing compliance and financing costs.

 

Interest expense increased approximately $5,000 for the three months ended July 31, 2016 as compared to the comparable prior period mainly due to increased debt mainly attributable to the ARG purchase in the last quarter of fiscal 2016.

 

Loss on settlement of liabilities, Series A increased to approximately $428,000 for the three months ended July 31, 2016 as compared to $0 for the comparable prior period due to the issuance of Series A preferred stock in settlement of the note payable to EIG resulting in a loss in the amount of approximately $389,000 and in settlement of the advance due EIG resulting in a loss in the amount of approximately $39,000.

 

  14  

 

 

Gain on settlement of liabilities, Series increased to approximately $11,000 for the three months ended July 31, 2016 as compared to $0 for the comparable prior period due to the issuance of Series B preferred stock in settlement of the note payable due AMREFA.

 

LIQUIDITY AND CAPITAL RESOURCES

 

At April 30, 2016, we had total assets of approximately $1,819,000 compared to total assets of approximately $1,796,000 at July 31, 2016. The increase in total assets was primarily due to: Notes Receivable Land Contract which increased approximately $206,000 due to the Company’s issuance of land contracts to the buyers of the two properties sold in the three month period ended July 31, 2016. Note Receivable- Related Party increased $151,000 as a result of the Company’s additional investment in Contel. Accounts receivable increased approximately $5,000 as a result of rental property rent due from tenants as of July 31, 2016. Prepaid expenses increased approximately $15,000 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 cash of approximately $156,000 in the three month period ended July 31, 2016

 

 Cash decreased to approximately $34,000 for the period ended July 31, 2016, compared to cash of $190,000 at July 31, 2016. Cash used in operating activities was approximately $144,000 for the period ended July 31, 2016, as compared with cash used in operating activities of approximately $98,000 in comparable period in fiscal 2015.

 

At April 30, 2016, we had stockholders’ deficit of approximately $400,000.

 

Equity Line Financing

 

On June 23, 2016, the Company entered into $5,000,000 equity line financing agreement (“Investment Agreement”) with Tangiers Global, LLC, Dorado, Puerto Rico, and filed a Registration Statement for the financing with the SEC on August 31, 2016. The financing is over a maximum of 36 months. A maximum of 100 million (100,000,000) shares of our common stock have been registered for this financing. 

 

We have issued to Tangiers in connection with the execution of the Investment Agreement a commitment fee of a five-year warrant to purchase 4,000,000 shares of common stock, at an exercise price of $.02 per share, and Tangiers has provided financing to us for our legal costs in connection with the filing of the Registration Statement through a one-year $22,000 convertible note, due June 23, 2017, as amended August 25, 2016, convertible into our common stock at a conversion price of $.03 per share .

 

Critical Accounting Policies

 

The summary of critical accounting policies below should be read in conjunction with the discussion of the Company’s accounting policies included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2016. We consider the following accounting policy to be the most critical going forward:

 

Basis of Presentation - The Company’s financial statements for the year ended April 30, 2016, have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of uncertainties.

 

Estimates - The preparation of financial statements required us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. We based our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurances that actual results will not differ from those estimates. On an ongoing basis, we will evaluate our accounting policies and disclosure practices as necessary.

 

  15  

 

 

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 July 31, 2016, are not effective, due to lack of segregation of duties, based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a15.

 

b. Changes in internal controls over financial reporting.

No changes were made to the Company's internal controls in the quarterly period covered by this report that have materially affected, or are reasonably likely materially to affect, the Company’s internal control over financial reporting.

 

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
August 10, 2016   Issuance of 9,775,171 shares of common stock pursuant to payment of the final installment of the purchase price of common stock subscribed for pursuant to the subscription agreement between the Company and EIG Capital Investments Ltd., a controlling stockholder of the Company.   EIG Capital Investments Ltd.   NA   $104,000/NA
                 
August 10, 2016   1,690,000 shares of common stock issued in payment of outstanding installment of interest due on outstanding $476,000 convertible debenture.   Rupes Futura AB   NA   $0.03 per share/NA

 

(1) The issuances to lenders and investors are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), alternatively, as transactions either not involving any public offering, or as exempt under the provisions of Regulation D or Regulation S promulgated by the SEC under the Securities Act.

 

  16  

 

 

ITEM 6. EXHIBITS.

 

31* Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
   
32** Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

 

* 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.

 

  17  

 

 

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: September 19, 2016 BY: /s/ Jan Telander
    Jan Telander
    President and Chief Executive Officer

 

 

18