Item
7. 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 report, 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 from the conduct
of investigations and laboratory analyses operations to the purchase of income producing properties and changed our name effective
July 22, 2016 to Progreen US, Inc., to reflect initiation of development operations in Baja Mexico.
OUR
BUSINESS
We
have recently moved our offices from Oakland County, Michigan, to San Diego, California, proximate to our agricultural and development
projects in Baja California, on which our current business operations are focused. The purchase of a condominium unit on July
28, 2009 initiated our real estate development operations directed at purchasing income-producing residential real estate apartment
homes, condominiums and houses in the State of Michigan.
Our
business model in Michigan since our initial property purchases in 2009 was 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 was acquired, refurbished
and rented, the property was put back on the market as a residential property, with a favorable environmental profile.
On
July 19, 2013, the Company entered into an Investment Agreement with AMREFA, which provided for 100% property acquisition and
refurbishment financing by in the form of property loans, and that the properties would show a minimum initial return of 9.5%
per annum and then be sold income producing investment properties, managed by ProGreen.
Effective
December 22, 2014 the Company entered into an interim operating agreement (the “Interim PAJV Operating Agreement”)
with American Residential GAP, LLC (“ARG” or “ARG LLC”) to form PAJV LLC (“PAJV”), a Michigan
limited liability company. American Residential Fastigheter AB (“AMREFA”) is ARG’s sole member. The Company
and ARG each owned 50% of PAJV. There were no capital contributions. During the year ended April 30, 2015 the Company sold its
remaining property under development in the amount of $73,688 to PAJV. The selling price was $75,000. Our agreement with AMREFA
was restructured through a March 15, 2015, amendment to the Investment Agreement with AMREFA, superseding the December 2014 Interim
PAJV Operating Agreement. The amendment provided for ARG LLC (the U.S. real estate subsidiary of AMREFA) to fund 100% of all financing
requirements for real estate projects, which would be owned by specific joint ventures or ARG LLC, with Progreen handling everything
from acquisition to sale and receiving a profit participation payment for a return on the property above 9.5%.
Purchase
of Investment Properties from AMREFA
On
March 8, 2016, the Company restructured its working arrangements with AMREFA through entry into a purchase agreement, amended
March 16, 2016, with AMREFA for the purchase of a 100% interest in AMREFA’s U.S. subsidiary, ARG, which holds real estate
properties in Birmingham, Michigan, that were purchased by AMREFA and which the Company managed for AMREFA. The Company paid
the purchase price of $1,285,000 by the issuance to AMREFA of 8,093,541 shares of a new Series B Preferred Stock.
Michigan
As
lease terms have expired, we are proceeding to liquidate our current real estate portfolio in Michigan by offering the properties
with land contracts to buyers unable to obtain conventional financing. The goal of selling these properties is to focus on the
agricultural and Cielo Mar project.
During
the year ended April 30, 2017 we sold four of our properties. We do not offer, and do not intend in the future to offer, managed
properties as investment properties.
Baja
California Joint Venture Agreement
We
have expanded our real estate development operations to include Baja California, Mexico. On February 11, 2016, we signed a definitive
agreement with Contel for Progreen to finance the first tract of land of approximately 300 acres which is being developed by Contel
for agriculture use. Four wells have been drilled on the first tract, and the growing operation have commenced with a first produce
purchase agreement for chile peppers - from Agricola Consuela, an exporter/importer to the U.S. market.
In
addition, we have formed the Procon joint venture subsidiary, which is the holding company for further non-agricultural land and
real estate developments. On January 23, 2017, 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 2,016 ha (5,000 acres) with 7.5 km (4.5 miles) of ocean
front.
The
transfer of deed for the 5,000-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”.
The first phase of the development of the master plan is underway.
FINANCIAL
CONDITION
At
April 30, 2017, we had total assets of approximately $2,395,000 compared to total assets of approximately $ 1,796,000 at
April 30, 2016. The increase in total assets was primarily due to: an increase in Cash of $99,000, Land under development
increased $500,000 due to the Company’s purchase of land though its Procon subsidiary, Accounts Receivable increased
$15,000 due to Procon’s AR and rental property rent due from tenants,
Notes Receivable Land Contract increased approximately
$158,000 due to the Company’s issuance of land contracts to the buyers of two of the properties sold in the year ended April
30, 2017, Note Receivable-Related Party increased $581,000 as a result of the Company’s additional investment in Contel.
These increases in assets were partially offset by decreases in (i) Rental Properties of approximately $274,000, as a result of
the sale of four properties in the year ended April 30, 2017, (ii) Sale of the Property under Development in the amount of $294,000
(iii) property of $9,000 due to depreciation and a decrease in Goodwill of $180,011.
Cash
increased to approximately $289,000 for the year ended April 30, 2017, compared to cash of $190,000 at April 30, 2016. Cash used
in operating activities was approximately $617,000 in the year ended April 30, 2017, as compared with cash used in operating activities
of approximately $364,000 in the year ended April 30, 2016.
At April 30, 2017, we had stockholders’
deficit of approximately $200,000 compared to a deficit of approximately $1,297,000 as of April 30, 2016. The increase in stockholders’
deficit was due to; net operating losses of $1,478,000, tainting due to convertible debt and warrants of approximately $83,300,
accretion of redeemable, convertible preferred stock, Series B of approximately $98,000 and dividend on redeemable, convertible
preferred stock, Series B of approximately $109,000. These increases in the deficit were offset by; stock issued under convertible
debenture of approximately $20,000, stock issued in settlement of accrued interest in the amount of approximately $50,700, Convertible
preferred stock, Series A issued in settlement of liabilities in the amount of approximately $1,112,000, Convertible preferred
stock, Series A issued for subscription receivable in the amount of approximately $200,000, Convertible preferred stock, Series
A issued for cash from related party in the amount of approximately $100,000, Convertible preferred stock, Series B issued
in settlement of liabilities in the amount of approximately of $1,354,000, compensation expense relating to RSUs of approximately
$6,600 and common stock warrants issued under service contracts in the amount of approximately $16,500, capital contribution to
the Procon subsidiary in the amount of approximately $2,000 and other comprehensive income in the amount of approximately $ 2,000
in the year ended April 30, 2017.
Costs
incurred in the renovation of the properties that enhance the value or extend the life of the properties are capitalized. The
Company also incurred professional fees in implementing its business plan and preparing to sell properties in the future. During
2016, the Company acquired thirteen rental properties in the amount of $1,007,000 and one property under development in the amount
of $294,000. No costs to develop were incurred in fiscal 2017 or 2016. The Company owned ten and thirteen rental properties as
of April 30, 2017 and 2016, respectively. The Company held no properties under development as of April 30, 2017 and one as of
April 30, 2016.
Going
Concern
The
Company’s financial statements for the year ended April 30, 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 has incurred
losses from operations since its change of ownership, management and line of business on April 30, 2009. Management recognizes
successful business operations and the Company’s transition to attaining profitability are dependent upon obtaining additional
financing and achieving a level of revenue adequate to support its cost structure. These conditions raise substantial doubt about
its ability to continue as a going concern. 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.
While
the Company is attempting to establish an ongoing source of revenues sufficient to cover its operating costs and allow it to continue
as a going concern, the Company’s cash position may not be adequate to support the Company’s daily operations. Management
intends to raise additional funds by seeking equity and/or debt financing; however there can be no assurances that it will be
successful in those efforts. The ability of the Company to continue as a going concern is dependent upon the Company’s ability
to obtain financing, further implement its business plan, and generate revenues.
As
it is the first year for the agriculture operation and with the Cielo Mar project under development, it is impossible to identify
any trends in the Company’s business prospects. Accordingly, there can be no assurance that we will be able to pay obligations
which we may incur in the future.
The
Company’s only sources of additional funds to meet continuing operating expenses, fund additional development and fund additional
working capital are through the sale of securities and/or debt instruments. We are actively seeking additional debt or equity
financing, but no assurances can be given that such financing will be obtained or what the terms thereof will be. The Company
may need to discontinue a portion or all of our operations if the Company is unsuccessful in generating positive cash flow or
financing for the Company’s operations through the issuance of securities.
Cash
Cash increased approximately $99,000 for the
year ended April 30, 2017. Cash used in operating activities was approximately $617,000 for the year ended April 30, 2017, as
compared with cash used in operating activities of approximately $364,000 in fiscal 2016. During fiscal 2017, the Company loaned
approximately $581,000 to Contel and made payments on the purchase of land in the amount of $50,000 in connection with Procon
which were offset by proceeds from the sale of properties of approximately $369,000 and proceeds from notes receivable
in the amount of approximately $1,000.
The Company received: $100,000 in proceeds
from Convertible preferred stock, Series A issued for cash from related party, $455,000 in proceeds from advances from a related
party and $726,000 in proceeds from convertible debentures and repaid: $40,000 of notes payable to a related party, $127,000
of convertible debentures, approximately $40,000 on the line of credit, approximately $8,000 on obligations under capital leases
and paid approximately $95,000 in dividends.
Rental
properties and properties under development
The
Company owned ten and thirteen rental properties as of April 30, 2017 and 2016, respectively. Rental properties totaled $732,000
and $1,007,000 at April 30, 2017 and 2016, respectively.
The
Company held no and one properties under development as of April 30, 2017 and 2016, respectively. Properties under development
totaled $0 and $294,000 at April 30, 2017 and 2016, respectively.
Land
under Development
The
Company owned land under development in the amount of $500,000 and $0 at April 30, 2017 and 2016, respectively.
Business
Combination
On
March 8, 2016, the Company restructured its working arrangements with AMREFA through entry into a purchase agreement, amended
March 16, 2016, with AMREFA for the purchase of a 100% interest in AMREFA’s U.S. subsidiary, ARG LLC (ARG), which holds
real estate properties in Birmingham, Michigan, that were purchased by AMREFA and which the Company managed for AMREFA. The Company
recorded Goodwill in the amount of $180,000 in connection with the purchase of ARG.
Investment
On February 11, 2016, the Company signed a
definitive agreement with Inmobiliaria Contel S.R.L.C.V. (“Contel”) to finance the first tract of land of approximately
300 acres which is being developed by Contel for agriculture use in Baja California, Mexico. The Company’s Chief Executive
Officer has made personal investments in this project, and has a 49.5% minority partnership interest in Contel.
The Company and its Chief Executive Office have no management or governance authority in Contel. Contel’s
general manager is not required to consult with our Chief Executive Officer on any management decisions in the conduct
of Contel’s business.
The
property acquired by Contel will be developed for agricultural purposes and multi-use purposes. The Company initially committed
to loan(s) up to the amount of $350,000 and on February 1, 2017, the Company increased its loan commitment to $1,000,000.
The
Company is entitled to a share of Contel’s profits and losses subsequent to repayment of all outstanding loans.
In
the years ended April 2017 and 2016, the Company contributed $580,500 and $110,000 to Contel, respectively, which is accounted
for as an investment loan. Note Receivable - Related Party totaled $690,500 and $110,000 as of April 30, 2017 and 2016, respectively.
RESULTS
OF OPERATIONS
Year
Ended April 30, 2017 Compared to Year Ended April 30, 2016
During the year ended April 30, 2017, we incurred
a net loss of $1,478,000 compared to a net loss of $852,000 for the year ended April 30, 2016. The increase in our loss for the
year ended April 30, 2017 over the comparable prior year is due to a decrease in our revenue of approximately $140,000,
an increase of approximately $163,000 in operating expenses and an increase in net other expenses of approximately $323,000.
There
were increases in revenue in the fiscal year ended April 30, 2017 compared to fiscal 2016 is due to:
Rental
revenue increased to approximately $91,000 during the year ended April 30, 2017 as compared to $24,000 during the prior fiscal
year. The Company received rental income on between five and seven properties during the entire year ended April 30, 2017, as
compared to rental income earned on properties acquired from ARG only in the last quarter of the prior fiscal year.
Commission
revenue was approximately $4,000 for the year ended April 30, 2017 as compared to $0 during the fiscal year ended April 30, 2016.
The Company received commissions on the sale of two of the properties in the fiscal year ended April 30, 2017. There were no such
commissions earned during the prior fiscal year.
These
increases in revenue in the fiscal year ended April 30, 2017 compared to fiscal 2016 were partially offset by the following decreases:
Proceeds from the sale of properties
increased to $575,000 during the year ended April 30, 2017 as compared to $0 in the comparable prior year end and corresponding
cost of properties sold increased to approximately $554,000 as compared to $0 during the year ended April 30, 2016. However, during
2017 the profit in connection with the sale of two properties, which the Company financed, was deferred in the amount of $41,603,
resulting in a net loss from sale of properties of approximately $21,000. The Company sold four properties in the year
ended April 30, 2017 as compared to none in the comparable prior year end.
Management fee revenue decreased
to $0 during the year ended April 30, 2017 as compared to approximately $12,000 for the fiscal year ended April 30, 2016 as the
Company managed no properties in the current fiscal year.
Construction services revenues were
$0 during the year ended April 30, 2017 as compared to approximately $177,000 for the fiscal year ended April 30, 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 fiscal year ended April 30, 2017, as compared to the fiscal year ended April
30, 2016.
Selling, general and administrative expense
increased approximately $179,000 for the year ended April 30, 2017 as compared to the comparable prior year mainly due
to the following:
Rental property costs and depreciation
expense increased for the year ended April 30, 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 year ended April 30, 2017 as compared to the comparable prior period as a result of the
sale of four properties with commission paid on the sale of two of the properties.
Investor relations expense increased
approximately $22,000 for the year ended April 30, 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 year ended April 30, 2017 as compared to the comparable prior period as a result of business travel to Mexico.
Salary and payroll tax expense increased
for the year ended April 30, 2017 as compared to the comparable prior period mainly due to the addition of an office manager and
corrections to payroll tax expense.
Bad debt expense increased approximately
$10,000 from $0 for the year ended April 30, 2016 to a loss of $10,000 in the current year ended April 30, 2017 as the Company
recorded a bad debt reserve of approximately $7,000 in connection with rent due on one of its rental properties and approximately
$5,000 in connection with its Notes receivable land contracts, net of $2,000 received in payment in full on a previously written
off land contract receivable.
Professional
fees decreased approximately $29,000 for the year ended April 30, 2017 as compared to the comparable prior year mainly due to:
Audit,
accounting and legal and fees increased mainly due to our S-1 filing, the increased complexity of accounting issues and regulatory
compliance costs.
Consultant
fees paid increased for the year ended April 30, 2017 as compared to the comparable prior period due to increased responsibility
after letting go of an office employee.
These
increases were partially offset by a decrease in investor and OTC fees for the year ended April 30, 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 year ended April 30, 2016. This decrease was offset by an increase for investor relations expense
for the current year ended.
Impairment
loss expense increased from $0 for the year ended April 30, 2016 to approximately $180,000 for the year ended April 30, 2017 due
to the Company’s determination the goodwill relating to its acquisition of ARG was impaired and a loss in the amount of
approximately $180,000 was recognized in the last quarter of fiscal 2017.
Interest
expense was approximately $300,000 for the year ended April 30, 2017 as compared to approximately $239,000 for the comparable
prior year mainly due to increased debt and convertible debt during the current year and the related interest and amortization
of debt discounts for the year ended April 30, 2017.
Gain on sale of asset decreased from $8,100
in the comparable prior year to approximately $0 for the year ended April 30, 2017 due to the sale of a vehicle in the prior year.
Loss on settlement of related party
liabilities, Series A increased to approximately $428,000 for the year ended April 30, 2017 as compared to $0 for the comparable
prior year 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 year ended April 30, 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 from approximately
$177,000 in the comparable prior year to approximately $8,000 for the year ended April 30, 2017 due to derivative gain on settlement
of Hoppel Convertible Note 1 which was paid in full in the last quarter of fiscal 2017.
LIQUIDITY
At April 30, 2017, we had total assets of approximately
$2,395,000 compared to total assets of approximately $1,796,000 at April 30, 2016. The increase in total assets was primarily due
to: an increase in Cash of approximately $99,000, Land under development increased $500,000 due to the Company’s purchase
of land though its Procon subsidiary, Accounts Receivable increased approximately $15,000 due to Procon’s AR and rental property
rent due from tenants, Notes Receivable Land Contract increased approximately $158,000 due to the Company’s issuance of land
contracts to the buyers of two of the properties sold in the year ended April 30, 2017, Note Receivable-Related Party increased
approximately $581,000 as a result of the Company’s additional loan to Contel. These increases in assets were partially offset
by decreases: in Rental Properties of approximately $274,000, as a result of the sale of four properties in the year ended April
30, 2017, in the Sale of the Property under Development in the amount of approximately $294,000 and in property of approximately
$9,000 due to depreciation.
Cash increased approximately $99,000 for the
year ended April 30, 2017. Cash used in operating activities was approximately $617,000 for the year ended April 30, 2017, as
compared with cash used in operating activities of approximately $364,000 in fiscal 2016. During fiscal 2017, the Company loaned
approximately $581,000 to Contel and made payments on the purchase of land in the amount of $50,000 in connection with Procon
which were offset by proceeds from the sale of properties of approximately $369,000 and proceeds from notes receivable
in the amount of approximately $1,000.
The Company received: $100,000 in proceeds
from Convertible preferred stock, Series A issued for cash from related party, $455,000 in proceeds from advances from a related
party and $726,000 in proceeds from convertible debentures and repaid: $40,000 of notes payable to a related party, $127,000
of convertible debentures, approximately $40,000 on the line of credit, approximately $8,000 on obligations under capital leases
and paid approximately $95,000 in dividends.
At April 30, 2017, we had stockholders’
deficit of approximately $200,000.
In the current fiscal year, to expand the agricultural
operation and to commence the Cielo Mar development activities in Baja California, we estimate that we will be required to find
investment partners to provide financing in the range of $5 million to $25 million over the next 12-24 months.
Credit
Lines
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 $5,000,000 equity line financing agreement (“Investment Agreement”) with Tangiers
Global, LLC , Dorado, Puerto Rico. The financing is over a maximum of 36 months. A maximum of 75 million (75,000,000)
shares of our common stock has been registered for this financing.
The
registration statement filed with the SEC for the equity line financing was declared effective by the SEC on January 31, 2017.
The Company has not yet utilized this financing.
We
issued to the 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 provided financing to us for our
legal costs in connection with the filing of the Registration Statement through a one-year $22,000 convertible debenture, which
the Company paid off in January 2017.
Convertible
Note Financings
On
September 13, 2016, the Company sold a private investor a 7% convertible promissory note in the principal amount of $105,000,
due March 13, 2017.
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, 2017, 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.
On
March 30, 2017, the Company issued a 7% Fixed Convertible Promissory Note in the principal amount of $100,000 due September 22,
2017 to an institutional lender.
On
April 27, 2017, the Company issued a 10% Fixed Convertible Promissory Note in the principal amount of $113,000 due April 3, 2018
to an institutional lender.
On
May 3, 2017, the Company issued a 8% Fixed Convertible Promissory Note in the principal amount of $110,000 due November 29, 2017
to an institutional lender.
On
May 15, 2017, the Company issued a 12% Fixed Convertible Promissory Note in the principal amount of $46,500 due February 15, 2018
to an institutional lender.
On
May 10, 2017, the Company issued a 12% Fixed Convertible Promissory Note in the principal amount of $113,000 due February 10,
2018 to an institutional lender. Additionally, we issued 2,000,000 warrants pursuant to the terms of the securities purchase agreement
with an exercise price of $0.05 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 financial statements in this report. We consider the following accounting policies to be the most critical
going forward:
Basis
of Presentation - The Company’s financial statements for the year ended April 30, 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 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.
Basis
of consolidation
-
The consolidated financial
statements include the accounts and records of the Company and its wholly-owned subsidiaries: ProGreen Realty, Progreen Properties
Management, ProGreen Construction, ARG, LLC, 21000 Westover LLC, 20210 Westover LLC, 21112 Evergreen LLC, 21421 Greenview LLC,
21198 Berg LLC, 23270 Helen LLC, Progreen Properties VII LLC, Progreen Properties XI LLC, Progreen Properties II, LLC, Franklin
Pointe Drive LLC, 20351 Lacrosse LLC, Progreen Properties III LLC, 25825 Lahser Unit Two LLC and 24442 Kinsel LLC and its 51%
controlling interest in Procon Baja JV, S.R.L. DE C..V . All significant intercompany accounts and transactions have been eliminated.
FASB Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” requires a company’s
consolidated financial statements to include subsidiaries in which the company has a controlling financial interest. This requirement
usually has been applied to subsidiaries in which a company has a majority voting interest.
Notes
Receivable - Land Contracts -
The notes
receivable 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. An allowance for doubtful accounts in the amount of $4,800 and $0 has been
recorded at April 30, 2017 and 2016.
Notes
receivable are considered impaired when, based on current information and events, it is probable that the Company will not be
able to collect all principal and interest amounts due according to the contractual terms. The Company assesses the credit quality
of the notes receivable and adequacy of notes receivable loss reserves on a quarterly basis or more frequently as necessary. Significant
judgment of the Company is required in this analysis. The Company considers the estimated net recoverable value of the notes receivable
as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior
debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral
is located. Because this determination is based on projections of future economic events, which are inherently subjective, the
amount ultimately realized may differ materially from the carrying value as of the balance sheet date.
If
upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of
the notes receivable, notes receivable loss reserve is recorded with a corresponding charge to provision for notes receivable
losses.
The
notes receivable loss reserve for each note is maintained at a level that is determined to be adequate by management to absorb
probable losses.
Income
recognition is suspended for a note receivable when full recovery, according to the contractual terms, of income and principal
becomes doubtful. When the ultimate collectability of the principal of an impaired note receivable is in doubt, all payments are
applied to principal under the cost recovery method.
When
the ultimate collectability of the principal of an impaired note receivable is not in doubt, contractual interest is recorded
as interest income when received, under the cash basis method until an accrual is resumed when the note receivable becomes contractually
current and performance is demonstrated to be resumed. Interest accrued and not collected will be reversed against interest income.
A note receivable is written off when it is no longer realizable and/or legally discharged. As of April 30, 2017, the Company
had two impaired notes receivable.
Property
sales revenue recognition
-
Property sales revenue
and related profit are generally recognized at the time of the closing of the sale, when title to and possession of the property
are transferred to the buyer. In situations where the buyer’s financing is provided by the Company and the buyer has not
made an adequate initial or continuing investment as required by ASC 360-20, “Property, Plant, and Equipment - Real Estate
Sales” (“ASC 360-20”), the profit on such sales is deferred or recognized under the installment method, unless
there is a loss on the sale in which case the loss on such sale would be recognized at the time of closing. In in connection with
the sale of two properties, which the Company financed, at April 30, 2017 deferred profit on such sales totaled $41,603, off against
the notes receivable balance on the face of balance sheet. See Note 5. There were no such deferred amounts at April 30, 2016.
Emerging growth company status - As an emerging
growth company under the JOBS Act, we have elected to opt out of the extended transition period for complying with new or revised
accounting standards pursuant to Section 107(b) of the Act. This election is irrevocable.
Item
8. Financial Statements and Supplementary Data.
PROGREEN
US, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
April
30, 2017 and 2016
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of
ProGreen US, Inc.
San Diego, CA
We have audited the accompanying consolidated
balance sheets of ProGreen US, Inc. and its subsidiaries (collectively the “Company”) as of April 30, 2017 and 2016,
and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the years then ended.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of ProGreen US, Inc. and its subsidiaries
as of April 30, 2017 and 2016 and the consolidated results of their operations and their cash flows for each of the years
then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has incurred losses since inception and further losses are anticipated. These conditions raise significant doubt about
the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MaloneBailey, LLP
|
|
www.malonebailey.com
|
|
Houston, Texas
|
|
August
14, 2017
|
|
ProGreen
US, Inc.
Consolidated
Balance Sheets
|
|
April 30
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Rental property, net accumulated depreciation of $32,431 and $6,138
|
|
$
|
732,023
|
|
|
$
|
1,006,560
|
|
Property under development
|
|
|
-
|
|
|
|
294,179
|
|
Land under development
|
|
|
500,000
|
|
|
|
-
|
|
Property
|
|
|
1,232,023
|
|
|
|
1,300,739
|
|
Cash
|
|
|
289,095
|
|
|
|
189,942
|
|
Accounts receivable, net of allowance of $7,395 and $0
|
|
|
15,957
|
|
|
|
1,194
|
|
Notes receivable - land contracts, net of allowance of $4,800 and $0
|
|
|
158,153
|
|
|
|
-
|
|
Other assets
|
|
|
5,956
|
|
|
|
2,793
|
|
Goodwill
|
|
|
-
|
|
|
|
180,011
|
|
Note receivable - related party
|
|
|
690,500
|
|
|
|
110,000
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Vehicles, furniture and equipment, net of accumulated depreciation of $44,301 and $35,764
|
|
|
3,091
|
|
|
|
11,628
|
|
Total assets
|
|
$
|
2,394,775
|
|
|
$
|
1,796,307
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
117,068
|
|
|
$
|
354,942
|
|
Obligations under capital lease
|
|
|
3,373
|
|
|
|
11,302
|
|
Reservation and tenant deposits
|
|
|
21,313
|
|
|
|
16,030
|
|
Notes payable
|
|
|
214,106
|
|
|
|
275,256
|
|
Note payable, related parties, net of discount of $58,005 and $0, respectively
|
|
|
396,995
|
|
|
|
516,000
|
|
Note payable - Bank of Birmingham
|
|
|
450,258
|
|
|
|
490,000
|
|
Derivative liabilities
|
|
|
361,742
|
|
|
|
-
|
|
Convertible debentures, net of discount of $65,184 and $0, respectively
|
|
|
566,316
|
|
|
|
-
|
|
Dividend payable
|
|
|
13,767
|
|
|
|
-
|
|
Note payable - AMREFA, net of discount of $0 and $114,189, respectively
|
|
|
-
|
|
|
|
1,170,811
|
|
Liability under land contract - related party
|
|
|
450,000
|
|
|
|
-
|
|
Related party advances
|
|
|
-
|
|
|
|
259,000
|
|
Total liabilities
|
|
|
2,594,938
|
|
|
|
3,093,341
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
Convertible preferred stock, Series A $.0001 par value, 1,000,000 shares authorized, 967,031 and 0 shares issued and outstanding, at April 30, 2017 and April 30, 2016
|
|
|
97
|
|
|
|
-
|
|
Convertible preferred stock, Series B $.0001 par value, 8,534,625 shares authorized, 8,534,625 and 0 shares issued and outstanding at April 30, 2017 and April 30, 2016
|
|
|
853
|
|
|
|
-
|
|
Common stock, $.0001 par value, 950,000,000 shares authorized, 349,811,110 and 336,919,939 outstanding at April 30, 2017
and April 30, 2016
|
|
|
34,981
|
|
|
|
33,692
|
|
Additional paid in capital
|
|
|
6,379,564
|
|
|
|
3,700,764
|
|
Accumulated other comprehensive income
|
|
|
2,357
|
|
|
|
-
|
|
Accumulated deficit
|
|
|
(6,617,353
|
)
|
|
|
(5,031,490
|
)
|
Total controlling interest
|
|
|
(199,501
|
)
|
|
|
(1,297,034
|
)
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in consolidated subsidiary
|
|
|
(662
|
)
|
|
|
-
|
|
Total stockholders' deficit
|
|
|
(200,163
|
)
|
|
|
(1,297,034
|
)
|
Total liabilities and stockholders' deficit
|
|
$
|
2,394,775
|
|
|
$
|
1,796,307
|
|
See
accompanying Notes to Consolidated Financial Statements
ProGreen
US, Inc.
Consolidated
Statements of Operations
|
|
Years Ended
|
|
|
|
April 30
|
|
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
90,768
|
|
|
$
|
23,880
|
|
Net loss from sale of properties
|
|
|
(20,635
|
)
|
|
|
-
|
|
Commission revenue
|
|
|
3,570
|
|
|
|
-
|
|
Management fee revenue
|
|
|
-
|
|
|
|
12,078
|
|
Construction services revenue
|
|
|
-
|
|
|
|
177,171
|
|
Other income
|
|
|
1,138
|
|
|
|
1,335
|
|
Total Revenue
|
|
$
|
74,841
|
|
|
$
|
214,464
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Cost of construction services
|
|
|
-
|
|
|
|
177,823
|
|
Selling, general & administrative
|
|
$
|
409,413
|
|
|
|
230,156
|
|
Bad debt loss net of recovery
|
|
|
9,960
|
|
|
|
-
|
|
Professional fees
|
|
|
228,067
|
|
|
|
256,750
|
|
Impairment loss
|
|
|
180,011
|
|
|
|
-
|
|
Total operating expenses
|
|
$
|
827,451
|
|
|
$
|
664,729
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(752,610
|
)
|
|
|
(450,265
|
)
|
Other expenses and income:
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(300,241
|
)
|
|
|
(239,097
|
)
|
Gain on sale of fixed asset
|
|
|
-
|
|
|
|
8,147
|
|
Loss on settlement of related party 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
|
|
|
(7,793
|
)
|
|
|
(170,901
|
)
|
Loss before income tax expense
|
|
$
|
(1,477,946
|
)
|
|
$
|
(852,116
|
)
|
Net Loss
|
|
$
|
(1,477,946
|
)
|
|
$
|
(852,116
|
)
|
Less: Net loss attributable to noncontrolling interest
|
|
$
|
(662
|
)
|
|
$
|
-
|
|
Net Loss attributable to parent
|
|
$
|
(1,477,284
|
)
|
|
$
|
(852,116
|
)
|
Deemed dividend on redeemable, convertible preferred stock, Series B
|
|
$
|
98,025
|
|
|
$
|
-
|
|
Net Loss attributable to parent common shareholders
|
|
$
|
(1,575,309
|
)
|
|
$
|
(852,116
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments
|
|
$
|
2,357
|
|
|
$
|
-
|
|
Other comprehensive income
|
|
$
|
2,357
|
|
|
$
|
-
|
|
Comprehensive net loss
|
|
$
|
(1,572,952
|
)
|
|
$
|
(852,116
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and fully diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average shares outstanding - basic and fully diluted
|
|
|
345,686,744
|
|
|
|
179,909,164
|
|
See
accompanying Notes to Consolidated Financial Statements
ProGreen
US, Inc.
Consolidated
Statements of Stockholders’ Deficit
|
|
Controlling Interest
|
|
|
|
|
|
|
|
|
|
Number of Common Stock Issued and
Outstanding
|
|
|
Common Stock
|
|
|
Number of Series A Preferred Stock Issued and
Outstanding
|
|
|
Preferred Stock Series A
|
|
|
Number of Series B Preferred Stock Issued and
Outstanding
|
|
|
Preferred Stock Series B
|
|
|
Additional Paid In Capital
|
|
|
Amount Due Under Subscription Agreement
|
|
|
Accumulated Deficit
|
|
|
Accumulated Other Comprehensive Income
|
|
|
Net Stockholders' Deficit
|
|
|
Noncontrolling Interest
|
|
|
Total Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2015
|
|
|
110,329,703
|
|
|
$
|
11,033
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
3,189,666
|
|
|
$
|
(52,961
|
)
|
|
$
|
(4,179,374
|
)
|
|
$
|
-
|
|
|
$
|
(1,031,636
|
)
|
|
$
|
-
|
|
|
$
|
(1,031,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due from subscriber under subscription agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,038
|
|
|
|
(1,038
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount received from subscriber under subscription agreement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,999
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,999
|
|
|
|
-
|
|
|
|
53,999
|
|
Stock issued under convertible debenture
|
|
|
219,090,236
|
|
|
|
21,909
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
133,984
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155,893
|
|
|
|
-
|
|
|
|
155,893
|
|
Derivative liability extinguished on conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360,073
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360,073
|
|
|
|
-
|
|
|
|
360,073
|
|
Reclass of APIC to derivative
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(260,941
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(260,941
|
)
|
|
|
-
|
|
|
|
(260,941
|
)
|
Reclass from derivative to APIC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
212,694
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
212,694
|
|
|
|
-
|
|
|
|
212,694
|
|
Stock issued under services contracts
|
|
|
7,500,000
|
|
|
|
750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,500
|
|
|
|
-
|
|
|
|
53,500
|
|
Compensation - restricted stock units
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,500
|
|
|
|
-
|
|
|
|
11,500
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(852,116
|
)
|
|
|
-
|
|
|
|
(852,116
|
)
|
|
|
-
|
|
|
|
(852,116
|
)
|
Balance at April 30, 2016
|
|
|
336,919,939
|
|
|
$
|
33,692
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
3,700,764
|
|
|
$
|
-
|
|
|
$
|
(5,031,490
|
)
|
|
$
|
-
|
|
|
$
|
(1,297,034
|
)
|
|
$
|
-
|
|
|
$
|
(1,297,034
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under convertible debenture
|
|
|
1,426,000
|
|
|
|
143
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,955
|
|
|
|
-
|
|
|
|
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
|
|
|
|
-
|
|
|
|
50,700
|
|
Tainting due to convertible debt and warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(83,302
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(83,302
|
)
|
|
|
-
|
|
|
|
(83,302
|
)
|
Accretion of redeemable, convertible preferred stock, Series B
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(98,025
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(98,025
|
)
|
|
|
-
|
|
|
|
(98,025
|
)
|
Dividend on redeemable, convertible preferred stock, Series B
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(108,579
|
)
|
|
|
-
|
|
|
|
(108,579
|
)
|
|
|
-
|
|
|
|
(108,579
|
)
|
Convertible preferred stock, Series B issued in settlement
of liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,534,625
|
|
|
|
853
|
|
|
|
1,353,592
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,354,445
|
|
|
|
-
|
|
|
|
1,354,445
|
|
Convertible preferred stock, Series A issued in settlement of related
party liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
667,031
|
|
|
|
67
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,111,651
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,111,718
|
|
|
|
-
|
|
|
|
1,111,718
|
|
Convertible preferred stock, Series A issued for subscription receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
20
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199,980
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
200,000
|
|
Convertible preferred stock, Series A issued for cash from related party
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
10
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,990
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
Compensation - restricted stock units
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,626
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,626
|
|
|
|
-
|
|
|
|
6,626
|
|
Common stock warrants issued for services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,516
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
16,516
|
|
|
|
-
|
|
|
|
16,516
|
|
Capital contribution Procon subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,406
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,406
|
|
|
|
-
|
|
|
|
2,406
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,477,284
|
)
|
|
|
-
|
|
|
|
(1,477,284
|
)
|
|
|
(662
|
)
|
|
|
(1,477,946
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,357
|
|
|
|
2,357
|
|
|
|
-
|
|
|
|
2,357
|
|
Balance at April 30, 2017
|
|
|
349,811,110
|
|
|
$
|
34,981
|
|
|
|
967,031
|
|
|
$
|
97
|
|
|
|
8,534,625
|
|
|
$
|
853
|
|
|
$
|
6,379,564
|
|
|
$
|
-
|
|
|
$
|
(6,617,353
|
)
|
|
$
|
2,357
|
|
|
$
|
(199,501
|
)
|
|
$
|
(662
|
)
|
|
$
|
(200,163
|
)
|
See
accompanying Notes to Consolidated Financial Statements
ProGreen
US, Inc.
Consolidated
Statements of Cash Flows
|
|
Years
Ended
|
|
|
|
April
30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash used in operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,477,946
|
)
|
|
$
|
(852,116
|
)
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Compensation - restricted
stock units
|
|
|
6,626
|
|
|
|
11,500
|
|
Depreciation
|
|
|
38,327
|
|
|
|
17,051
|
|
Bad debt expense
|
|
|
9,960
|
|
|
|
2,137
|
|
Gain on sale of asset
|
|
|
-
|
|
|
|
(8,147
|
)
|
Net loss from
sale of rental properties
|
|
|
20,635
|
|
|
|
-
|
|
Loss on change in
fair value of derivative liabilities
|
|
|
7,793
|
|
|
|
170,901
|
|
Loss on settlement
of related party liabilities, Series A
|
|
|
428,105
|
|
|
|
-
|
|
Gain on settlement
of liabilities, Series B
|
|
|
(10,803
|
)
|
|
|
-
|
|
Warrants issued for
services
|
|
|
16,516
|
|
|
|
-
|
|
Amortization of debt
discount
|
|
|
220,322
|
|
|
|
157,799
|
|
Common shares issued
for services
|
|
|
-
|
|
|
|
53,500
|
|
Impairment of goodwill
|
|
|
180,011
|
|
|
|
-
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(19,923
|
)
|
|
|
26,171
|
|
Accounts payable
and accrued expenses
|
|
|
(39,014
|
)
|
|
|
96,420
|
|
Reservation and tenant
deposits
|
|
|
5,283
|
|
|
|
|
|
Other current assets
|
|
|
(3,163
|
)
|
|
|
5,887
|
|
Payable under management
agreement
|
|
|
-
|
|
|
|
(44,950
|
)
|
Cash used in operating
activities
|
|
|
(617,271
|
)
|
|
|
(363,847
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of asset
|
|
|
-
|
|
|
|
10,000
|
|
Proceeds from note receivable
|
|
|
1,444
|
|
|
|
-
|
|
Proceeds from sale of properties
|
|
|
369,000
|
|
|
|
-
|
|
Purchase of land
|
|
|
(50,000
|
)
|
|
|
-
|
|
Loan for note receivable - related party
|
|
|
(580,500
|
)
|
|
|
(110,000
|
)
|
Cash received in ARG acquisition
|
|
|
-
|
|
|
|
71,840
|
|
Cash used in investing
activities
|
|
|
(260,056
|
)
|
|
|
(28,160
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
|
259,000
|
|
Proceeds from notes payable related party
|
|
|
455,000
|
|
|
|
-
|
|
Repayment of notes payable related party
|
|
|
(40,000
|
)
|
|
|
-
|
|
Repayment of notes payable
|
|
|
-
|
|
|
|
(28,186
|
)
|
Proceeds from notes payable - Bank of Birmingham
|
|
|
-
|
|
|
|
137,514
|
|
Repayment of note payable - Bank of Birmingham
|
|
|
(39,742
|
)
|
|
|
-
|
|
Proceeds from convertible debentures
|
|
|
726,200
|
|
|
|
68,000
|
|
Repayment of convertible debentures
|
|
|
(127,000
|
)
|
|
|
-
|
|
Decrease in obligations under capital leases
|
|
|
(7,929
|
)
|
|
|
(7,703
|
)
|
Dividend paid by cash
|
|
|
(94,812
|
)
|
|
|
-
|
|
Capital contribution - Procon subsidiary
|
|
|
2,406
|
|
|
|
-
|
|
Collection of amount due under stock subscription
|
|
|
-
|
|
|
|
53,999
|
|
|
|
|
|
|
|
|
|
|
Cash provided by
financing activities
|
|
|
974,123
|
|
|
|
482,624
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign
exchange on cash
|
|
|
2,357
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
99,153
|
|
|
|
90,617
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
189,942
|
|
|
|
99,325
|
|
Cash at end of period
|
|
$
|
289,095
|
|
|
$
|
189,942
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
77,037
|
|
|
$
|
17,676
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing transactions:
|
|
|
|
|
|
|
|
|
Series B preferred
stock dividend declared but not paid
|
|
$
|
13,767
|
|
|
$
|
-
|
|
Notes receivable
- land contracts issued for sale of properties
|
|
$
|
206,000
|
|
|
$
|
-
|
|
Land purchased under
land contract
|
|
$
|
450,000
|
|
|
$
|
-
|
|
Deferred gain on
sale of rental properties
|
|
$
|
41,603
|
|
|
$
|
-
|
|
Debt discount on
derivative liability
|
|
$
|
270,647
|
|
|
$
|
140,925
|
|
Accretion of redeemable
convertible preferred stock, Series B
|
|
$
|
98,025
|
|
|
$
|
-
|
|
Convertible preferred
stock, Series A issued in settlement of related party 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
|
|
$
|
1,256,420
|
|
|
$
|
-
|
|
Re-class of temporary
equity to permanent equity
|
|
$
|
1,354,445
|
|
|
$
|
-
|
|
Stock issued under
previous subscription agreement
|
|
$
|
977
|
|
|
$
|
-
|
|
Stock issued in settlement
of accrued interest
|
|
$
|
50,700
|
|
|
$
|
-
|
|
Tainting on convertible
notes and warrants
|
|
$
|
83,302
|
|
|
$
|
260,941
|
|
Debt discount on
common stock issued with debt
|
|
$
|
19,955
|
|
|
$
|
-
|
|
Assignment of debt
|
|
$
|
-
|
|
|
$
|
476,000
|
|
Note payable issued
to purchase ARG
|
|
$
|
-
|
|
|
$
|
1,157,270
|
|
Accrued interest
added to debt principal
|
|
$
|
-
|
|
|
$
|
5,376
|
|
Stock issued under
convertible debenture
|
|
$
|
-
|
|
|
$
|
155,893
|
|
Derivative liability
extinguished on conversion
|
|
$
|
-
|
|
|
$
|
360,073
|
|
Reclass
from derivative to APIC
|
|
$
|
-
|
|
|
$
|
212,694
|
|
See
accompanying Notes to Consolidated Financial Statements
PROGREEN
US, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2017
Note
1. Financial Statement Presentation
The
summary of significant accounting policies is presented to assist in the understanding of the financial statements. The financial
statements and notes are the representations of management. These accounting policies conform to accounting principles generally
accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
History
and nature of business
ProGreen
US, Inc., a Delaware corporation, and its wholly owned subsidiaries (collectively, the “Company”) own and manage residential
real estate rental property in the Oakland County, Michigan area.
On
April 30, 2009, the Company (formerly known as Diversified Product Inspections, Inc.) ceased previous operations and settled an
outstanding lawsuit which resulted in a change of ownership and management. Following the settlement on April 30, 2009, the Company
had no assets, no liabilities, and had 13,645,990 shares of common stock outstanding.
On July 21, 2009, the Company formed ProGreen
Properties, Inc. as a wholly-owned subsidiary and merged ProGreen Properties, Inc. into the Company, which was the surviving corporation
in the merger. In connection with the merger, the Company changed its name from Diversified Product Inspections, Inc. to ProGreen
Properties, Inc. The change of the Company’s name to ProGreen Properties, Inc. became effective on September 11, 2009 with
approval by the Financial Industry Regulatory Authority (FINRA) as effective for trading purposes in the OTC Bulletin Board market.
Pursuant to Board of Directors authorization, the Company changed its name to Progreen US, Inc. with the filing of a Certificate
of Amendment with the Secretary of State of Delaware on July 11, 2016, which was approved by FINRA effective for trading purposes
on July 22, 2016, with a new symbol of PGUS.
In
December 2009, ProGreen Realty LLC (“ProGreen Realty”) was formed as a wholly owned subsidiary of the Company. ProGreen
Realty acts as the real estate broker for the Company. All assets, liabilities, revenues and expenses are included in the consolidated
financial statements of the Company.
On
October 31, 2011 ProGreen Properties Management LLC (“Properties Management”) was formed as a wholly owned subsidiary
of the Company which manages the Company owned properties. All assets, liabilities, revenues and expenses are included in the
consolidated financial statements of the Company.
These
investment properties are marketed exclusively by ProGreen Realty and managed by ProGreen Management. As of April 30, 2017 the
Company owned no investment properties.
In
January 2015, ProGreen Construction LLC (“ProGreen Construction”) was formed as a wholly owned subsidiary of the Company.
ProGreen Construction performs all construction and development services for the properties held under development. All assets,
liabilities, revenues and expenses are included in the consolidated financial statements of the Company.
On February
11, 2016, the Company signed a definitive agreement with Inmobiliaria Contel S.R.L.C.V. (“Contel”) to finance the
first tract of land of approximately 300 acres which is being developed by Contel for agriculture use in Baja California, Mexico.
The Company’s Chief Executive Officer has made personal investments in this project, and has a 49.5% minority partnership
interest in Contel.
The Company and its Chief Executive
Office have no management or governance authority in Contel. Contel’s manager is not required to consult with our
Chief Executive Officer on any management decisions in the conduct of Contel’s business.
A portion of the property acquired by Contel
is currently developed for agricultural purposes. The remaining parcels will be developed for agricultural use or developed as
a multi-use property. The Company initially committed to a loan of up to the amount of $350,000 and on February 1, 2017, the Company
increased its loan commitment to Contel to up to $1,000,000 from $350,000.
The Company evaluated Contel for consolidation
based on the provisions of FASB ASC 810 - Consolidation (“ASC 810”). ASC 810 approach is to determine a variable interest
entity’s (“VIE”) primary beneficiary and requires companies to more frequently reassess whether they must consolidate
or deconsolidate VIEs. The accounting standard requires a qualitative, rather than quantitative, analysis to determine the primary
beneficiary of a VIE for consolidation purposes. The primary beneficiary of a VIE is the enterprise that has (a) the power to
direct the VIE activities that most significantly affect the VIE’s economic performance, and (b) the right to receive benefits
of the VIE that could potentially be significant to the VIE or the obligation to absorb losses of the VIE that could potentially
be significant to the VIE. The Company has determined that Contel does have the characteristics of a VIE. ProGreen has no direct
ownership in Contel and no power to direct the activities of Contel, and its relationship to Contel is limited to a loan, secured
by land. As ProGreen has no power over management of Contel, ProGreen is not the primary beneficiary and therefore does not need
to consolidate Contel. The maximum exposure for loss is limited to the outstanding loan balance.
The Company is entitled a share of Contel’s profits and losses after all outstanding loan amounts are
repaid. See Note 7.
On March 8, 2016, the Company restructured
its working arrangements with AMREFA. The Company entered into an agreement to purchase AMREFA’s U.S. subsidiary, ARG LLC
which was, amended March 16, 2016, which holds real estate properties in Birmingham, Michigan, that were purchased by AMREFA and
which the Company managed for AMREFA. The purchase price was paid by the issuance to AMREFA of 8,093,541 shares of a new Series
B Preferred Stock which were issued in the fiscal year ended April 30, 2017. Also acquired were 14 wholly-owned subsidiaries
of ARG LLC that holds ownership of the real estate properties: 21000 Westover LLC, 20210 Westover LLC, 21112 Evergreen LLC, 21421
Greenview LLC, 21198 Berg LLC, 23270 Helen LLC, Progreen Properties VII LLC, Progreen Properties XI LLC, Progreen Properties II,
LLC, Franklin Pointe Drive LLC, 20351 Lacrosse LLC, Progreen Properties III LLC, 25825 Lahser Unit Two LLC and 24442 Kinsel LLC.
See Notes 6 and 23.
On
June 17, 2016, the Company formed Procon Baja JV, S.DE R.L. DE C.V (“Procon”), a subsidiary owned by Progreen (51%)
and Inmobiliaria Contel S.R.L.C.V. (Contel). Procon is managed by a board of Managing Directors consisting of three members, of
which two represent Progreen and one represents Contel. On January 23, 2017, Procon entered into a definitive purchase agreement
for, and has taken possession of, a tract of land situated near the town of El Rosario in Baja California, Mexico. The purchased
land was formerly owned by a relative of Contel’s majority shareholder. The land, planned for residential real estate
development, is bordering the Pacific Ocean and covers a total area of approximately 2,016 ha (5,000 acres) with 4.5 miles of
ocean front. The execution of the deed transferring the 5,000-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 resort-type retirement and vacation community with the name “Cielo
Mar”. In connection with this purchase the Company has recorded land in the amount of $500,000 (for which no interest is
due), paid $50,000 and recorded a liability under land contract for the balance due in the amount of $450,000 as of April 30,
2017. See Notes 3 and 10.
On January 15, 2017 the Company entered into
a loan agreement with its 51% owned subsidiary 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 bears interest at a 6% per annum from the date of each borrowing until repaid. During the year
ended April 30, 2017 the Company loaned Procon a total of $70,000 to fund operations. The amount due under the loan and accrued
interest payable totaled $70,000 and $347, respectively, at April 30, 2017. 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.
As Procon is owned by 51 % by Progreen it is included in the Company’s consolidated financial statements for the year ended
April 30, 2017.
We
have recently moved our offices from Oakland County, Michigan, to San Diego, California, proximate to our agricultural and development
projects in Baja California, on which our current business operations are focused.
SIGNIFICANT
ACCOUNTING POLICIES
Basis
of Presentation
GOING
CONCERN
The Company’s financial statements for
the year ended April 30, 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 has incurred losses from operations since its change
of ownership, management and line of business. Management recognizes successful business operations and the Company’s
transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue adequate
to support its cost structure. These conditions raise substantial doubt about its ability to continue as a going concern. 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.
While
the Company is attempting to establish an ongoing source of revenues sufficient to cover its operating costs and allow it to continue
as a going concern, the Company’s cash position may not be adequate to support the Company’s daily operations. Management
intends to raise additional funds by seeking equity and/or debt financing; however there can be no assurances that it will be
successful in those efforts. The ability of the Company to continue as a going concern is dependent upon the Company’s ability
to obtain financing, further implement its business plan, and generate revenues.
As
it is the first year for the agriculture operation and with the Cielo Mar project under development, it is impossible to identify
any trends in the Company’s business prospects. Accordingly, there can be no assurance that we will be able to pay obligations
which we may incur in the future.
The
Company’s only sources of additional funds to meet continuing operating expenses, fund additional development and fund additional
working capital are through the sale of securities and/or debt instruments. We are actively seeking additional debt or equity
financing, but no assurances can be given that such financing will be obtained or what the terms thereof will be. The Company
may need to discontinue a portion or all of our operations if the Company is unsuccessful in generating positive cash flow or
financing for the Company’s operations through the issuance of securities.
In
the current fiscal year, the Company used approximately $617,000 of cash to support its operations and such cash needs are expected
to continue in the upcoming year. As of April 30, 2017, the Company has approximately $289,000 in cash.
During
the year ended April 30, 2017 the Company financed its operations through proceeds from related party advances, proceeds from
issuance of convertible preferred stock and issuance of convertible debt. Also, during the year ended April 30, 2017, the Company
sold some of the properties acquired in its fiscal 2016 purchase of ARG.
Basis
of
consolidation
The consolidated financial statements include
the accounts and records of the Company and its wholly-owned subsidiaries: ProGreen Realty, Progreen Properties Management, ProGreen
Construction, ARG, LLC, 21000 Westover LLC, 20210 Westover LLC, 21112 Evergreen LLC, 21421 Greenview LLC, 21198 Berg LLC, 23270
Helen LLC, Progreen Properties VII LLC, Progreen Properties XI LLC, Progreen Properties II, LLC, Franklin Pointe Drive LLC, 20351
Lacrosse LLC, Progreen Properties III LLC, 25825 Lahser Unit Two LLC and 24442 Kinsel LLC and its 51% controlling interest in
Procon Baja JV, S.R.L. DE C..V . All significant intercompany accounts and transactions have been eliminated. FASB Accounting
Standards Codification (“ASC”) Topic 810, “Consolidation,” requires a company’s consolidated financial
statements to include subsidiaries in which the company has a controlling financial interest. This requirement usually has been
applied to subsidiaries in which a company has a majority voting interest.
Estimates
The
preparation of financial statements in conformity with the accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could
differ from those estimates.
Concentration
of credit risk
Financial
instruments which potentially subject the Company to concentrations of credit risk consist of cash and trade receivables. The
Company places its cash with high credit quality financial institutions. At times such cash may be in excess of the FDIC limit.
With respect to trade receivables, the Company routinely assesses the financial strength of its customers and, as a consequence,
believes that the receivable credit risk exposure is limited.
Rental
property
The
fair value of rental property and property under development acquired is based on estimated selling prices of the properties,
net of estimated selling costs.
Property
under development
Properties
under development are recorded at cost from expenditures relating to the acquisition, development, construction, and other costs
that enhance the value or extend the life of rental properties which are capitalized using the specific identification method
to accumulate costs.
Land
under Development
Land
under development is recorded at cost.
Cash
Cash
consists solely of cash on deposit with financial institutions.
Allowance
for doubtful accounts
An
allowance for doubtful accounts is management’s best estimate of the probable credit losses in the existing accounts receivable.
Management determines the allowance based on historical write-off experience and an understanding of customer payment history.
All amounts deemed to be uncollectible are charged against the allowance for doubtful accounts in the period that determination
is made. An allowance for doubtful accounts in the amount of $7,395 and $0 has been recorded at April 30, 2017 and 2016.
Notes
Receivable - Land Contracts
The
notes receivable 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. An allowance for doubtful accounts in the amount of $4,800 and $0 has been
recorded at April 30, 2017 and 2016.
Notes
receivable
are considered impaired when, based on current information
and events, it is probable that the Company will not be able to collect all principal and interest amounts due according to the
contractual terms. The Company assesses the credit quality of the notes receivable and adequacy of notes receivable loss
reserves on a quarterly basis or more frequently as necessary. Significant judgment of the Company is required in this analysis.
The Company considers the estimated net recoverable value of the notes receivable as well as other factors, including but
not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition
of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination
is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ
materially from the carrying value as of the balance sheet date.
If
upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of
the notes receivable, notes receivable loss reserve is recorded with a corresponding charge to provision for notes
receivable losses.
The
notes receivable loss reserve for each note is maintained at a level that is determined to be adequate by management
to absorb probable losses.
Income
recognition is suspended for a note receivable when full recovery, according to the contractual terms, of income and principal
becomes doubtful. When the ultimate collectability of the principal of an impaired note receivable is in doubt, all payments
are applied to principal under the cost recovery method.
When
the ultimate collectability of the principal of an impaired note receivable is not in doubt, contractual interest is recorded
as interest income when received, under the cash basis method until an accrual is resumed when the note receivable becomes contractually
current and performance is demonstrated to be resumed. Interest accrued and not collected will be reversed against interest income.
A note receivable is written off when it is no longer realizable and/or legally discharged. As of April 30, 2017, the Company
had two impaired notes receivable. See Note 5.
Goodwill
The
cost of acquiring ARG in excess of the underlying fair value of net assets at date of acquisition is recorded as goodwill and
is assessed annually for impairment. If considered impaired, goodwill will be written down to fair value and a corresponding impairment
loss recognized. The Company performed goodwill impairment testing for 2017 relating to its acquisition of ARG and determined
that it was fully impaired. Refer to Note 6.
Property
and equipment
Property
and equipment are recorded at cost.
Depreciation
is computed using the straight-line method over the estimated useful life of the property and equipment, as follows:
|
Lives
|
|
Method
|
Vehicles
|
5
years
|
|
Straight
line
|
Furniture
|
10
years
|
|
Straight
line
|
Office
equipment
|
5
years
|
|
Straight
line
|
Rental
property
|
27.5
years
|
|
Straight
line
|
Impairment
of Long Lived Assets
The
Company evaluates its real estate assets for impairment periodically or whenever events or circumstances indicate that its carrying
amount may not be recoverable. If an impairment indicator exists, we compare the expected future undiscounted cash flows against
the carrying amount of an asset. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the asset,
we would record an impairment loss for the difference between the estimated fair value and the carrying amount of the asset.
Rental
revenue recognition
Real
estate properties were leased under operating leases. Currently, as the original lease terms have expired, real estate properties
are being leased on a month-to-month basis. Rental income from these leases is recognized on a straight-line basis over the term
of each lease.
Management
fee revenue recognition
ProGreen
Management has entered into management agreements with certain property owners whereby the Company manages, leases, operates,
maintains and repairs the properties for which it receives a management fee of ten percent of the monthly rent. Revenue is recognized
as services are performed.
Construction
service revenue recognition
ProGreen
Construction performs all construction and development services for the properties held by the Company and collects ten percent
of materials and services costs as construction revenue. Revenue is recognized as services are performed.
Property
sales revenue recognition
Property sales revenue and related profit
are generally recognized at the time of the closing of the sale, when title to and possession of the property are transferred
to the buyer. In situations where the buyer’s financing is provided by the Company and the buyer has not made an adequate
initial or continuing investment as required by ASC 360-20, “Property, Plant, and Equipment - Real Estate Sales” (“ASC
360-20”), the profit on such sales is deferred or recognized under the installment method, unless there is a loss on the
sale in which case the loss on such sale would be recognized at the time of closing. In in connection with the sale of two properties,
which the Company financed, at April 30 2017 deferred profit on such sales totaled $41,603, off against the notes receivable
balance on the face of balance sheet. See Note 5. There were no such deferred amounts at April 30, 2016.
Advertising
costs
Advertising
costs are expensed as incurred. Total advertising expenditures for the years ended April 30, 2017 and 2016 were approximately
$2,900 and $1,400, respectively.
Tenant
deposits
The
Company requires tenants to pay a deposit at the beginning of each lease. This deposit may be used for unpaid lease obligations
or repair of damages based on the Company’s determination. If the tenant has not defaulted on the lease, the Company will
return the deposit to the tenant at the end of the lease. The Company holds the tenant deposits for the properties under management.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the statements of operations. For stock-based derivative financial instruments, the Company uses a Black-Scholes option pricing
model, in accordance with ASC 815-15 “Derivative and Hedging” to value the derivative instruments at inception and
on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period.
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 14 and 15.
Income
taxes
The
Company accounts for income taxes using an asset and liability approach under which deferred income taxes are recognized by applying
enacted tax rates applicable to future years to the differences between the financial statement carrying amounts and the tax bases
of reported assets and liabilities.
Earnings
(loss) per Share
Earnings
per share is calculated in accordance with ASC Topic 260,
Earnings Per Share
. Basic earnings per share (“EPS”)
is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive
convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method.
Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance,
if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
In
periods of losses from operations, basic and diluted income per share from operations are also the same, as ASC 260-10 requires
the use of the denominator used in the calculation of loss per share from operations in all other calculations of earnings per
share presented, despite the dilutive effect of potential common shares.
Based on the conversion prices in effect,
the potentially dilutive effects of 11,550,000 warrants were not considered in the calculation of EPS as the effect would
be anti-dilutive on April 30, 2017. There were no warrants outstanding as of April 30, 2016.
Based on the conversion prices in effect, the potentially dilutive effects of 11,652,550 due to convertible
debt were not considered in the calculation of EPS as the effect would be anti-dilutive on April 30, 2017. There were no convertible
debt outstanding as of April 30, 2016.
Based on the conversion prices in effect, the potentially dilutive effects of 290,399,700 due to convertible
preferred stock series A were not considered in the calculation of EPS as the effect would be anti-dilutive on April 30, 2017.
There were no convertible preferred stock series A outstanding as of April 30, 2016.
Based on the conversion prices in effect, the potentially dilutive effects of 59,756,142 due to convertible
preferred stock series B were not considered in the calculation of EPS as the effect would be anti-dilutive on April 30, 2017.
There were no convertible preferred stock series B outstanding as of April 30, 2016.
Employee Stock-Based Compensation
The Company accounts for stock-based compensation
in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee
services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of
the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for
the award, usually the vesting period.
Non-Employee Stock-Based Compensation
The Company accounts for stock-based compensation
in accordance with the provision of ASC 505-50, “Equity Based Payments to Non-Employees” (“ASC 505-50”),
which requires that such equity instruments are recorded at their fair value on the measurement date. The measurement of stock-based
compensation is subject to periodic adjustment as the underlying equity instruments vest.
Reclassifications
Certain amounts in previous periods have been reclassified to conform
to 2017 classifications.
Related
Parties
In
accordance with ASC 850 “Related Party Disclosures” a party is considered to be related to the Company if the party
directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the
Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented
from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies
of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence
the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests
is also a related party.
Recent
Accounting Pronouncements
In
July 2017,
the Financial Accounting Standards Board (“FASB”) issued ASU 2017-11
, Earnings Per Share
(Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815): I. Accounting for Certain
Financial Instruments with Down Round Features, II. Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope
Exception.
(the “ASU”). Part I of this ASU changes the classification analysis of certain equity-linked
financial instruments (or embedded features) with down round features and clarifies existing disclosure requirements. Part II
does not have an accounting effect. The ASU is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018 with early adoption permitted. Management is currently evaluating the potential impact of
these changes on the consolidated financial statements of the Company.
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02,
Leases (Topic 842)
(the
“ASU”). The ASU requires the recognition of lease assets and lease liabilities by lessees for those leases classified
as operating leases under previous GAAP. The ASU allows for early adoption, however, management is currently evaluating the potential
impact of these changes on the consolidated financial statements of the Company.
In
April 2015, the FASB issued Accounting Standard’s Update No. 2015-03
“Interest Imputation of Interest (Subtopic
835-30): Simplifying the Presentation of Debt Issuance Costs”
The update requires that debt issuance costs related to
a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.
The recognition and measurement guidance for debt issuance costs are not affected by this update. The adoption of the guidance
did not have a material impact on the Company’s Consolidated Financial Statements or the Notes thereto as it is a presentation
matter.
We
do not expect that any other 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 April 30, 2017 and 2016 are summarized as follows:
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Rental properties
|
|
$
|
764,454
|
|
|
$
|
1,012,698
|
|
Less: accumulated depreciation
|
|
|
(32,431
|
)
|
|
|
(6,138
|
)
|
Rental properties, net of accumultaed depreciation
|
|
$
|
732,023
|
|
|
$
|
1,006,560
|
|
|
|
|
|
|
|
|
|
|
Property under development
|
|
$
|
-
|
|
|
$
|
294,179
|
|
Depreciation
expense for the years ended April 30 2017 and 2016 totaled $29,790 and $6,138, respectively.
The
Company owned ten and thirteen rental properties as of April 30, 2017 and 2016, respectively. The Company held no properties and
one property under development as of April 30, 2017 and 2016, respectively.
Note
3. Land under Development and Liability under Land Contract-Related Party
The
Company held land under development in the amount of $500,000 and $0 as of April 30, 2017 and 2016 respectively. During the year
ended April 30, 2017, the Company through its subsidiary Procon, purchased the first tract of land for residential real estate
development. The purchased land was formerly owned by a relative of Contel’s majority shareholder. Under the terms of the
definitive purchase agreement, the Company has recorded land at cost in the amount of $500,000, paid $50,000 of the purchase price
and recorded a liability under land contract for the balance due in the amount of $450,000 as of April 30, 2017 and 2016. See
Notes 1 and 10. No interest is due under the terms of the definitive purchase agreement. The payments are due as follows:
Year Ending
|
|
|
April 30 ,
|
|
2018
|
|
|
$
|
50,000
|
|
2019
|
|
|
|
100,000
|
|
2020
|
|
|
|
100,000
|
|
2021
|
|
|
|
100,000
|
|
2022
|
|
|
|
100,000
|
|
|
|
|
$
|
450,000
|
|
Note
4. Accounts Receivable
Accounts
receivable totaled $15,957 and $1,194 at April 30, 2017 and 2016, respectively and is comprised of amounts rent due from tenants
in the amount of $12,245 and $1,194 at April 30, 2017 and 2016, respectively and Procon’s accounts receivable in the amount
of $11,107 and $0 at April 30, 2017 and 2016, respectively. During the year ended April 30, 2017, management determined the rent
due from one tenant may not be collectible and an allowance for uncollectible accounts receivable was established in the amount
of $7,395, resulting in net accounts receivable of $15,957 and $1,194 at April 30, 2017 and 2016, respectively. Bad debt expense
in the amount of $7,395 and $0 is included in the accompanying Consolidated Statements of Operations for the years ended April
30, 2017 and 2016, respectively.
Note
5. Notes Receivable - Land Contracts and Gain on Sale of Properties and Property under Development
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 fiscal year ended April 30, 2017 the Company recognized a deferred gain on the sale of
this property in the amount of $41,507, which is offset against the receivable balance on the face of balance sheet. The balance
due under this Land Contract totaled $108,280 plus accrued interest in the amount of $1,655 as of April 30, 2017. At April 30
2017 the deferred profit on the sale of this property totaled $41,507. See Note 1.
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 fiscal year ended April 30, 2017 the Company recognized a deferred gain on the sale of this property in the amount
of $96, which is offset against the receivable balance on the face of balance sheet. The balance due under this Land Contract
totaled $96,276 plus accrued interest in the amount of $1,567 as of April 30, 2017. At April 30 2017 the deferred profit on the
sale of this property totaled $96. See Note 1.
During
the year ended April 30, 2017, management determined the amounts due under the land contracts may not be collectible in full and
an allowance for uncollectible accounts was established in the amount of $4,800 for the portion management determined may not
be collectible based on payment history. Notes receivable - land contracts, net of allowance total $199,756 and $0 at April 30,
2017 and 2016, respectively. Bad debt expense in the amount of $4,800 and $0 is included in the accompanying Consolidated Statements
of Operations for the years ended April 30, 2017 and 2016, respectively.
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 (net of costs) in the fiscal year ended April 30, 2017. In the fiscal year ended
April 30, 2017 the Company recognized a gain on the sale of this property in the amount of $18,650.
On
April 28, 2017 the Company sold its property under development located at 24442 Kinsel Street with a selling price of $270,000.
The entire $270,000 was received in cash (net of costs) in the fiscal year ended April 30, 2017. In the fiscal year ended April
30, 2017 the Company recognized a loss on the sale of this property under development in the amount of $39,285. In connection
with this sale, the Company paid in full the amount due to the Company’s controller in the amount of $40,000. See Note 12.
Note
6. Business Combination and Impairment of Goodwill
On
March 8, 2016, the Company restructured its working arrangements with AMREFA through entry into a purchase agreement, amended
March 16, 2016, with AMREFA for the purchase of a 100% interest in AMREFA’s U.S. subsidiary, ARG LLC (ARG), which holds
real estate properties in Birmingham, Michigan, that were purchased by AMREFA and which the Company managed for AMREFA. The Company
paid the purchase price of $1,285,000 by the issuance to AMREFA of 8,093,541 shares of a new Series B Preferred Stock however
at April 30, 2016 the shares had not been issued and the Company recorded a note payable to AMREFA in the amount $1,157,270 including
a present value discount of $127,730. During the fiscal year ended April 30, 2017 the 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. At April 30, 2017 and 2016 the
note payable balance due AMREFA totaled $0 and $1,170,811, net of $0 and $114,189 of unamortized discount, respectively. During
the years ended April 30, 2017 and 2016, $20,609 and $13,541 was recognized as amortization of debt discount, respectively.
The
acquisition is accounted for under ASC 805 Business Combination and the transaction is recorded at fair value on acquisition date.
The Company recorded Goodwill in the amount of $180,011 in connection with the purchase of ARG.
The
Company performed goodwill impairment testing for 2017 and determined there was an impairment. As such, the entire balance of
$180,011 was written off.
The
following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date:
Cash
|
|
$
|
71,840
|
|
Rental property and property under development
|
|
|
1,306,876
|
|
Accrued liabilities and interest
|
|
|
(14,357
|
)
|
Notes payable
|
|
|
(387,100
|
)
|
|
|
|
|
|
Total Identifiable Net Assets
|
|
|
977,259
|
|
|
|
|
|
|
Goodwill
|
|
|
180,011
|
|
|
|
|
|
|
Total Purchase Price
|
|
$
|
1,157,270
|
|
Rental
property and property under development
The
fair value of rental property and property under development acquired is based on estimated selling prices of the properties,
net of estimated selling costs.
Accrued
liabilities and interest
The
fair value of accrued liabilities and interest include amounts due to ProGreen Construction and Properties Management and accruals
for interest on notes payable which approximate acquisition date amounts.
Notes
payable
The
fair value of notes payable comprises amounts due under promissory note agreements with a bank and the Company’s controller
which approximate acquisition date amounts. See Notes 12 and 13.
Goodwill
Impairment
During
the year ended April 30, 2017, based on actual selling prices, net of selling costs, of the rental properties acquired from ARG,
the Company determined the carrying amount of its net assets exceeded the estimated fair value and the Company recognized a goodwill
impairment loss in the amount of $180,011. No such impairment loss was determined in the year ended April 30, 2016.
Note
7. Note Receivable - Related Party
On February 11 2016, the Company signed a
definitive agreement with Inmobiliaria Contel S.R.L.C.V. (“Contel”) to finance the first tract of land of approximately
300 acres which is being developed by Contel for agriculture use in Baja California, Mexico. The Company’s Chief Executive
Officer has made personal investments in this project, and has a 49.5% minority partnership interest in Contel The Company
and its Chief Executive Office have no management or governance authority. Contel’s manager is not required to consult with
him on any management decisions in the conduct of Contel’s business.
The
Company initially committed to a contribution up to the amount of $350,000 and on February 1, 2017, the Company increased its
commitment to contribute up to $1,000,000 from $350,000 to Contel. The Company accepts a share of Contel’s profits and losses
and is entitled to recover all contribution upon completion of the sale of the property. In the years ended April 2017 and 2016,
the Company contributed $580,500 and $110,000 to Contel, respectively, which is accounted for as an investment loan. Note Receivable
- Related Party totaled $690,500 and $110,000 as of April 30, 2017 and 2016, respectively. See Note 1.
Note
8. Property and Equipment
Major
classifications of property and equipment at April 30, 2017 and 2016 are summarized as follows:
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Vehicles
|
|
$
|
40,902
|
|
|
$
|
40,902
|
|
Furniture
|
|
|
3,564
|
|
|
|
3,564
|
|
Office equipment
|
|
|
2,926
|
|
|
|
2,926
|
|
Total vehicles, furniture and equipment
|
|
|
47,392
|
|
|
|
47,392
|
|
Less: accumulated depreciation
|
|
|
(44,301
|
)
|
|
|
(35,764
|
)
|
Net carrying amount
|
|
$
|
3,091
|
|
|
$
|
11,628
|
|
Depreciation
expense for the years ended April 30 2017 and 2016 totaled $8,537 and $10,913, respectively.
Note
9. Obligations Under Capital Leases
The
Company leases a vehicle under a capital lease expiring in fiscal 2018. The following is a schedule by year of future minimum
lease payments under the capital lease together with the present value of the net minimum lease payments as of April 30, 2017:
Year ending April 30,
|
|
|
|
2018
|
|
$
|
3,397
|
|
Total minimum
lease payments
|
|
|
3,397
|
|
|
|
|
|
|
Less amounts
representing interest
|
|
|
(24
|
)
|
Present value
of future minimum lease payments
|
|
$
|
3,373
|
|
Total
lease payments made in fiscal 2017 and 2016 were $8,152 and $8,152, consisting of $7,929 and $7,703 principal and $223 and $449
interest, respectively. Principal payments are shown on the Company’s Consolidated Statements of Cash Flow under Financing
Activities. Interest expense is included in the Company’s Consolidated Statements of Operations.
The
cost of the vehicles in the amount of $40,902 at April 30, 2017 and 2016, is included in the Company’s Consolidated Balance
Sheets as a component of vehicles, furniture and equipment, and is being depreciated over the estimated useful life of five years.
Depreciation expense of $8,180 and $10,415 is included in the Company’s Consolidated Statements of Operations for the years
ended April 30, 2017 and 2016, respectively. During fiscal 2016 the Company sold one of the vehicles. The proceeds from the sale
totaled $10,000 and the Company recognized a gain on the sale of the vehicle in them amount of $8,147 which is included in the
Company’s Consolidated Statement of Operations for the year ended April 30, 2016.
Note
10. Reservation Deposits
In
connection with Procon’s planned development of a residential community to be known as Cielo Mar (see Notes 1 and 3), located
in Bahia de El Rosario, El Rosario, Baja California, Mexico (the “Development Project”); Procon has collected deposits
(“Reservation Deposit”) in the amount of $12,500 from Depositors to reserve development lots until the first execution
phase of the development and a Definitive Purchase Agreement is executed at which time the Depositor may proceed with the purchase
which will result in the Reservation Deposit’s conversion to a purchase deposit. The Depositor may decide not to proceed
with the purchase and the Reservation Deposit will be returned, unless waived in the Reservation Request, less 10% for administrative
charges. Reservation deposits totaled $12,500 and $0 at April 30, 2017 and 2016, respectively. See Note 25.
Note
11. Notes Payable
Under
the terms of a July 19, 2013 Investment Agreement (“AMREFA Agreement”) with AMREFA, as of April 30, 2015 the Company
has notes payable to AMREFA totaling $289,346 plus accrued interest totaling $13,206. The notes payable and accrued interest were
due in less than twelve months. However, pursuant to an Installment Payment Agreement (June 2015 Installment Payment Agreement)
entered into on June 25, 2015 with AMREFA, the Company refinanced its outstanding principal and interest on loans to the Company
from AMREFA. This agreement replaced all outstanding notes by a single 8% promissory note in the principal amount of $289,346,
due July 15, 2017, amortized by installment payments of principal and interest commencing with an initial payment in July 2015
of $45,000, including accrued interest of $17,000, which payment was made on July 15, 2015. EIG, a major shareholder of the Company,
guaranteed Progreen’s obligations under the June 2015 Installment Payment Agreement. During fiscal 2016 the Company made
payments to AMREFA totaling $28,186 in connection with the June 2015 Installment Payment Agreement.
During
the fiscal year ended April 30, 2017 in connection with the fiscal 2016 purchase of ARG, the note payable due to AMREFA under
the June 2015 Installment 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 23. 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 fiscal year ended April 30, 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 is to be paid upon the sale of the Kinsel Street property. Notes payable to AMREFA totaled $200,000 and $265,150 as of April
30 2017 and 2016, respectively. Accrued interest due AMREFA totaled $0 and $14,653 as of April 30, 2017 and 2016, respectively.
On April 28, 2017 the Kinsel Street property was sold and in May 2017 the Mortgage Note was paid in full.
During
the year ended April 30, 2015, the Company entered into two notes payable in the form of noncash to the City of Southfield totaling
$14,106 (collectively, the “Southfield debt”) to finance the City of Southfield’s assessments on one of the
Company’s sold properties. The Southfield debt and accrued interest is due over a 17 year period commencing August 31, 2015.
During the years ended April 30, 2017 and 2016 the Company recognized interest expense of $301 and $0, respectively. Accrued interest
totaled $301 and $0 at April 30, 2017 and 2016, respectively.
The
Company is indebted as follows:
|
|
April
30, 2017
|
|
|
April
30, 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
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
$
|
214,106
|
|
|
$
|
275,256
|
|
Note
12. Notes Payable Related Parties
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 fiscal year ended April 30, 2017 the Company
borrowed $250,000 under the Credit Line. As a result of the derivatives calculation an additional discount of $39,299 was recorded.
Notes payable related parties includes the amount due under the Credit Line with a balance outstanding of $250,000 less the unamortized
discount of $14,947 as of April 30, 2017.
Amortization
of the related discount totaled $24,352 for the year ended April 30, 2017. The Company recorded interest expense in connection
with the Credit Line in the amount of $5,061 and $0 for the years ended April 30, 2017 and 2016, respectively. Accrued interest
due under the Credit Line totaled $5,061 and $0 as of April 30, 2017 and April 30, 2016, respectively.
On
February 21, 2017 the Company’s President entered into an additional one year 5% Promissory Note credit line agreement (“Credit
Line 2”) whereby the Company may borrow up to $250,000 with interest at a rate of five (5%) percent per annum due on February
22, 2018. Credit Line2 is unsecured.
During
the fiscal year ended April 30, 2017 the Company borrowed $205,000 under Credit Line 2. As a result of the derivatives calculation
an additional discount of $51,303 was recorded. Notes payable related parties includes the amount due under the Credit Line with
a balance outstanding of $205,000 less the unamortized discount of $43,058 as of April 30, 2017.
Amortization
of the related discount totaled $8,245 for the year ended April 30, 2017. The Company recorded interest expense in connection
with the Credit Line in the amount of $1,581 and $0 for the years ended April 30, 2017 and 2016, respectively. Accrued interest
due under the Credit Line totaled $1,581 and $0 as of April 30, 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 year ended April 30, 2017, 250,000 of these
warrants were issued in various denominations between August 2, 2016 through February 21, 2017, resulting in a total number of
warrant shares of 2,500,000 as of April 30, 2017. The warrants have a five year term. See Notes 14 and 15.
In
connection with the Credit Line 2, 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 year ended April 30, 2017, 205,000 of these warrants
were issued in various denominations between February 22, 2017 through March 20, 2017, resulting in a total number of warrant
shares of 2,050,000 as of April 30, 2017. The warrants have a five year term. See Notes 14 and 15.
In
connection with the Company’s purchase of ARG, effective March 8, 2016 the Company assumed a $40,000 note payable plus accrued
interest in the amount of $907, which was due to the Company’s controller under the terms of a promissory note payable effective
November 27, 2015. The note bore a fixed rate of interest of 8.00% and required no monthly payments. Additional interest of 5%
was paid upon payment of the note payable. The note was secured by the property at 24442 Kinsel Street, Southfield, Michigan which
the Company acquired in the ARG purchase and was sold during the fiscal year ended April 30, 2017. Upon the sale of the Kinsel
Street Property on April 28, 2017, the note was paid in full in the amount of $40,000 plus accrued interest of $6,604. See Notes
5 and 11.
The
note payable to the Company’s controller had a balance outstanding of $0 and $40,000 as of April 30, 2017 and 2016, respectively
and the Company recorded interest expense in connection with this note payable in the amount of $5,226 and $471 for the fiscal
years ended April 30, 2017 and 2016, respectively. Accrued interest due under this note payable totaled $0 and $1,378 as of April
30, 2017 and 2016, respectively.
Effective
February 9, 2016, the Company entered into an agreement with the Company’s largest stockholder, whereby EIG assumed all
of the Company’s obligations under a November 5, 2009 (as amended) 13.5% convertible debenture due to RF, which agreed to
assumption of the convertible debenture obligations by EIG. The convertible debenture was transferred to note payable related
party, which is not convertible. The portion of the accrued interest assumed by EIG in the amount of $148,613 was transferred
to accrued interest payable related party.
During
the fiscal year ended April 30, 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 22. In
connection with this payment in full, during the fiscal year ended April 30, 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 April 30, 2017 and 2016 the outstanding balance of the note payable due EIG was $0 and $476,000, plus accrued interest of $0
and $148,613, respectively.
Note
13. Note Payable Bank of Birmingham
In
connection with the Company’s purchase of ARG, effective March 8, 2016 the Company assumed a $347,100 note payable plus
accrued interest in the amount of $5,386, which was due to the Bank of Birmingham under the terms of a promissory note payable
effective January 26, 2015. Principal was due in full on February 5, 2016.
Effective
March 4, 2016 the Company entered into a new note payable to Bank of Birmingham in the amount of $490,000 which was comprised
of the principal and interest due under the previous note ($352,486) plus additional proceeds and fees totaling $137,514, resulting
in a note payable totaling $490,000. Interest is calculated at 6% per annum. Principal and interest in the amount of $3,534 are
payable monthly commencing May 5, 2016 until April 5, 2021 when the then outstanding principal and interest are due. The note
is secured by all properties and related rents which the Company acquired in the ARG purchase. See Note 6.
The
note payable had a balance outstanding of $450,258 and $490,000 as of April 30, 2017 and 2016, respectively and the Company recorded
interest expense in connection with this note payable in the amount of $31,753 and $2,858 for the years ended April 30, 2017 and
2016, respectively. Accrued interest due under the note payable totaled $1,953 and $2,858 as of April 30, 2017 and April 30, 2016,
respectively.
Principal
payment requirements on the notes payable to Bank of Birmingham for the years ending after April 30, 2017 are as follows:
2018
|
|
$
|
15,442
|
|
2019
|
|
|
16,408
|
|
2020
|
|
|
17,367
|
|
2021
|
|
|
401,041
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
450,258
|
|
Note
14. 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.
Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820,
Fair Value
Measurements and Disclosures
, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC
Topic 825,
Financial Instruments
, defines fair value, and establishes a three-level valuation hierarchy for disclosures
of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the
balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of
their fair values because of the short period of time between the origination of such instruments and their expected realization
and their current market rate of interest.
The
three levels of valuation hierarchy 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.
|
During
fiscal year ended April 30, 2017 and 2016, the Company held certain financial instruments that were measured at fair value on
a recurring basis. The Company determined that the convertible feature of the convertible note should be classified as a derivative
liability under ASC 815-15 – “Derivatives and Hedging”. The fair value of the embedded instrument were categorized
as Level 3.
As
of April 30, 2017 and 2016, the financial instruments that are measured at fair value on a recurring basis consisted of convertible
debt totaling $105,000 and $0 with a derivative liability totaling $361,742 (including 10,550,000 stock warrants) and $0 at April
30, 2017 and 2016, respectively, which are categorized as Level 3. The related loss on derivatives totaled $7,793 and $170,901
for the fiscal years ended April 30, 2017 and 2016, respectively.
See
Notes 12, 15 and 16.
Note
15. Derivative Liabilities
During
the fiscal year ended April 30, 2017, the Company identified conversion features embedded within its convertible debt. See Note
16. 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 April 30, 2017 is as follows:
April 30, 2016 balance
|
|
$
|
-
|
|
Discount on debt
|
|
|
270,647
|
|
Reclass from equity due to tainting
|
|
|
83,302
|
|
Fair value
mark- to market adjustment
|
|
|
7,793
|
|
Derivatives
liabilities, balance
|
|
$
|
361,742
|
|
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 fiscal year ended April 30, 2017:
The
stock prices ranged from $0.0214 to $0.0239 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 86% to 164% and 295% to 305%.
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 0.68% to 1.90%.
2016
Activity
During
fiscal 2016, $425,413 of derivative liability was recorded as the notes became convertible of which $140,925 was recorded as debt
discount, $23,547 as loss on derivative liability and $260,941 as re-class of equity to liability.
Upon
full conversion of the convertible notes, $147,354 was recorded as loss on derivative liability, $140,925 of debt discount was
fully amortized, $212,694 was re-classified from derivative to equity and $360,073 was extinguished through equity from derivative
liability.
The
fair value of the embedded derivative liabilities were determine using the Black -Sholes valuation model on the issuance dates
with the assumptions in the table below for the fiscal year ended April 30, 2016:
Expected dividends
|
|
|
0
%
|
|
Expected Volatility
|
|
|
166%-
676%
|
|
Stock price
|
|
|
$0.001
- $ .01
|
|
Discount rate
|
|
|
.04%
-. 77%
|
|
Note
16. 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 registration statement was declared
effective by the Securities and Exchange Commission on January 31, 2017. The financing is over a maximum of 36 months. A maximum
of 75 million (75,000,000) shares of the Company’s common stock have been registered for this financing. As of April 30,
2017, there have been no draws under the Investment Agreement; thus, the outstanding balance totaled $0 at
April 30, 2017 and 2016.
EMA
Financial, LLC Convertible Note
On
April 3, 2017, the Company issued a convertible promissory note in the principal amount of $113,000 to EMA Financial, LLC (“EMA
Convertible Note”). This convertible note is due and payable on April 3, 2018 plus interest on the unpaid principal balance
at a rate of 10% per annum. The Holder shall have the right, in its sole and absolute discretion, as of the date which is one
hundred and eighty days following the Closing Date (April 3, 2017), to convert all or any part of the outstanding amount due under
this Note into fully paid and nonassessable shares of Common Stock. The conversion price shall equal the lower of: (i) the closing
sale price of the Common Stock on the Principal Market on the Trading Day immediately preceding the Closing Date, and (ii) 55%
of either the lowest sale price for the Common Stock on the Principal Market during the fifteen (15) consecutive Trading Days
immediately preceding the Conversion Date or the closing bid price.
The
Company may prepay the amounts outstanding to the holder at any time up to the 180th day (the “Prepayment Date”) following
the issue date of this note by making a payment to the note holder of an amount in cash equal to 120% (for the first 90 days)
up to 125%, 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 plus Default Interest, if any. After the Prepayment Date, the Note may not be prepaid. In
connection with the EMA Convertible Note the Company paid $6,800 in debt issuance costs which are being amortized to interest
expense using the effective interest method. During the year ended April 30, 2017 the Company recognized interest expense in the
amount of amount of $522 relating to the amortization of the debt issuance costs. The unamortized balance of debt issuance costs
totaled $6,278 at April 30, 2017. The Company recorded interest expense in connection with the EMA Convertible Note in the amount
of $868 and $0 for the years ended April 30, 2017 and 2016, respectively. Accrued interest due under the EMA Convertible Note
totaled $868 and $0 as of April 30, 2017 and April 30, 2016, respectively.
Silo
Equity Partners Venture Fund LLC Convertible Note
On
March 22, 2017, the Company issued a convertible promissory note in the amount of principal amount of $100,000 to Silo Equity
Partners Venture Fund LLC (“Silo Convertible Note”). This convertible note is due and payable on September 22, 2017
plus interest on the unpaid principal balance at a rate of 8% per annum. The Holder shall have the right, in its sole and absolute
discretion, as of the date which is one hundred and eighty days following the Closing Date (March 22, 2017), to convert all or
any part of the outstanding amount due under this Note into fully paid and nonassessable shares of Common Stock. The conversion
price hereunder (the “Conversion Price”) shall equal the lower of: (i) the closing sale price of the Common Stock
on the Principal Market on the Trading Day immediately preceding the Closing Date, and (ii) 50% of the lowest sale price for the
Common Stock on the Principal Market during the fifteen (15) consecutive Trading Days immediately preceding the Conversion Date.
The
Company may prepay the amounts outstanding to the holder at any time up to the 180th day (the “Prepayment Date”) 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 60 days),
to 120% (between 61 -120 days) up to 125% (anytime after 120 days) , 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 plus Default Interest, if any.
The Company recorded interest expense in connection with the Silo Convertible Note in the amount of $858 and $0 for the years
ended April 30, 2017 and 2016, respectively. Accrued interest due under the Silo Convertible Note totaled $858 and $0 as of April
30, 2017 and April 30, 2016, respectively.
Tangiers
Global, LLC Convertible Note
On
March 21, 2017, the Company issued a convertible promissory note in the amount of principal amount of $105,000 to Tangiers Global,
LLC (“Tangiers Convertible Note”) including an Original Issue Discount (“OID”) of $5,000. This convertible
note is due and payable on September 21, 2018 plus interest on the unpaid principal balance at a rate of 7% per annum. At any
time after 180 days from the Effective Date (March 21,2017) of the Note, the Holder shall have the right, at the Holder’s
sole option, at any time and from time to time to convert in whole or in part the outstanding and unpaid Principal Amount under
this Note into shares of Common Stock as per the Conversion Formula. The conversion price is $.015. The Company may prepay the
amounts outstanding to the holder at any time up to the 180th day (the “Prepayment Date”) following the issue date
of this note by making a payment to the note holder of an amount in cash equal to 100% of Principal amount (for the first 89 days),
to 115% of Principal amount (between 90 -120 days) to 120% of Principal amount (between 121 -150 days) and to 125% of Principal
amount (between 151-180 days). After 180 days from the Effective Date this Note may not be prepaid without written consent from
Holder, which consent may be withheld,
During the year ended April 30, 2017 the Company
recognized interest expense in the amount of amount of $366 relating to the amortization of the original issue discount.
The unamortized balance of original issue discount totaled $4,634 at April 30, 2017. The Company recorded interest expense
in connection with the Tangiers Convertible Note in the amount of $807 and $0 for the years ended April 30, 2017 and 2016, respectively.
Accrued interest due under the Tangiers Convertible Note totaled $807 and $0 as of April 30, 2017 and April 30, 2016, respectively.
Bellridge
Capital, LP
On
March 15, 2017, the Company issued a convertible promissory note in the amount of principal amount of $105,000 to Bellridge Capital,
LP (“Bellridge Convertible Note”) including an OID of $5,000 This convertible note is due and payable on March 15,
2018 plus interest on the unpaid principal balance at a rate of 10% per annum. 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 this Debenture is no longer outstanding (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
any time and from time to time. The conversion price hereunder (the "Conversion Price") shall equal the 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.
During
the first six months this Note is in effect, the Company may redeem this Note by paying to the Holder an amount as follows: (i)
if the redemption is prior to the 90th day this Note is in effect (including the 90th day), then for an amount equal to 115% of
the unpaid principal amount of this Note along with any interest that has accrued during that period; (ii) if the redemption
is on the 91st day this Note is in effect, up to and including the 120th day this Note is in effect, then for an amount equal
to 120% of the unpaid principal amount of this Note along with any accrued interest; (iii) if the redemption is on the 121st
day this Note is in effect, up to and including the 180th day this Note is in effect, then for an amount equal to 125% of the
unpaid principal amount of this Note along with any accrued interest.
During
the year ended April 30, 2017 the Company recognized interest expense in the amount of amount of $644 relating to the amortization
of the original issuance discount. The unamortized balance of original issuance totaled $4,356 at April 30, 2017. The Company
recorded interest expense in connection with the Bellridge Convertible Note in the amount of $1,334 and $0 for the years ended
April 30, 2017 and 2016, respectively. Accrued interest due under the Bellridge Convertible Note totaled $1,334 and $0 as of April
30, 2017 and April 30, 2016, respectively.
Power
Up Lending Group Ltd
On
February 21, 2017, the Company issued a convertible promissory note in the amount of principal amount of $103,500 to Power Up
Lending Group Ltd (“Power Up Convertible Note”). This convertible note is due and payable on November 30, 2017 plus
interest on the unpaid principal balance at a rate of 12% per annum.
The Holder shall have the right from time
to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of
this Note (February 21,2017) and ending on the later of: (i) the Maturity Date (November 30, 2017) and (ii) the date of payment
of the Default Amount (as defined in the Note), each in respect of the remaining outstanding principal amount of this Note to
convert all or any part of the outstanding and unpaid principal amount of the Note into fully paid and nonassessable shares of
Common Stock. The conversion price hereunder (the “Conversion Price”) shall equal 58% multiplied by the average
of the lowest 2 Trading Prices for the Common Stock during the 15 Trading Day period ending on the latest complete Trading Day
prior to the Conversion Date.
The
Company may prepay the amounts outstanding to the holder at any time up to the 180th day (the “Prepayment Date”) following
the issue date of this note by making a payment to the note holder of an amount in cash equal to 120% (for the first 150 days)
and to 125% (between 151 -180 days). After 180 days from the Effective Date this Note may not be prepaid.
In
connection with the Power Up Convertible Note the Company paid $3,500 in debt issuance costs which are being amortized to interest
expense using the effective interest method. During the year ended April 30, 2017 the Company recognized interest expense in the
amount of amount of $845 relating to the amortization of the debt issuance costs. The unamortized balance of debt issuance costs
totaled $2,655 at April 30, 2017.
The
Company recorded interest expense in connection with the Power Up Convertible Note in the amount of $2,380 and $0 for the years
ended April 30, 2017 and 2016, respectively. Accrued interest due under the Power Up Convertible Note totaled $2,380 and $0 as
of April 30, 2017 and April 30, 2016, respectively.
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.
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 1 including original issuance discount of $5,000, stock
issuance discount of $7,547 and derivative discount of $92,453. On March 16, 2017 Hoppel Convertible Note 1 was paid in full,
in cash without any conversions. Amortization of the related discounts and interest expense totaled $105,000 and $7,350, respectively
for the fiscal year ended April 30, 2017.
Note
16. 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 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 22. 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. The price of Common Shares fell below .0125 on January 25, 2017 resulting in
an additional 926,000 shares due. These shares were not issued at April 30, 2017 and are part of a negotiation to restructure
the Note. 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 2 balance totaled $57,739 at April 30, 2017, net of the unamortized discount of $47,261. Amortization
of the related discounts totaled $57,739 for the fiscal year ended April 30, 2017. Accrued interest totaled $7,350 and $0 at April
30, 2017and April 30, 2016, respectively. See Notes 14 and 15.
KBM
Worldwide, Inc. Convertible Note
Effective
November 24, 2014, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with KBM Worldwide,
Inc. (“KBM”), pursuant to which the Company issued KBM a convertible note in the amount of $43,000, bearing interest
at the rate of 8% per annum (the “KBM Convertible Note”). The KBM Convertible Note provided KBM the right, during
the period beginning on the date which is one hundred eighty (180) days following the date of the KBM Convertible Note, to convert
the outstanding balance (including accrued and unpaid interest) into shares of the Company’s common stock at a 39% discount
from the market price of the common stock and is payable, together with interest thereon, on November 24, 2015. The Company had
the right to repay the KBM Convertible Note prior to maturity (or conversion), provided that it pays 110% of such the outstanding
principal amount and accrued and unpaid interest thereon) if the note is repaid within the first 30 days after the issuance date.
The prepayment penalty increases to 120% if repayment is during the period which is 31 to 60 days after the issuance date; 125%,
if repayment is during the period which is 61 to 90 days after the issuance date; 130%, if repayment is during the period which
is 91 to 120 days after the issuance date; and 135%, if repayment is during the period which is 121 days to 180 days after the
issuance date. After 180 days have elapsed from the issuance date, the Company had no right to prepay the KBM Convertible Note.
During
the year ended April 30, 2016 KBM converted the KBM Convertible Note into a total of 19,018,480 shares of Common Stock at a fair
value as follows:
Conversion
Date
|
|
Number
of Shares of Common Stock
|
|
|
Principal
and Interest Amount Converted *(i)
|
|
|
Price
per
Share
|
|
May 26, 2015
|
|
|
1,967,213
|
|
|
$
|
12,000
|
|
|
$
|
0.00610
|
|
July 20, 2015
|
|
|
5,204,839
|
|
|
|
16,135
|
|
|
$
|
0.00310
|
|
August 14, 2015
|
|
|
6,235,714
|
|
|
|
8,730
|
|
|
$
|
0.00140
|
|
August 17, 2015
|
|
|
5,610,714
|
|
|
|
7,855
|
|
|
$
|
0.00140
|
|
Totals
- Year ended April 30, 2016
|
|
|
19,018,480
|
|
|
$
|
44,720
|
|
|
|
|
|
(i)
Includes accrued interest of $1,720.
There
was no remaining principal balance or accrued interest due under the KBM Convertible Note at April 30, 2016. See Note 21. Interest
expense relating to this KBM debenture totaled approximately $0 and $240 for years ended April 30, 2017 and 2016, respectively.
Accrued interest due totaled $0 at April 30, 2017 and 2016.
JMJ
Financial Convertible Note
Effective
September 10, 2015 the Company entered into a Convertible Promissory Note (“JMJ Note”) with JMJ Financial (“JMJ”)
pursuant to which the Company issued JMJ Financial a convertible note in the amount of $250,000 with an original issue discount
in the amount of $25,000. The principal amount due JMJ is based on the consideration paid. The maturity date is two years from
the effective date of each payment. On September 10, 2015 the Company received consideration of $30,000 for which an original
issue discount of $3,333 was recorded. There were no additional borrowings under the JMJ Note during the quarter ended January
31, 2016. The Company did not repay the JMJ Note on or before 90 days from the effective date, thus the Company was not able to
make further payments on this JMJ Note prior to the maturity date and a one-time interest charge of 12% was applied to the principal
amount. The JMJ Note provided JMJ the right at any time, to convert the outstanding balance (including accrued and unpaid interest)
into shares of the Company’s common stock at 60% of the average of two lowest trade prices in the 20 trading days previous
to the conversion, additional discounts may apply in the case that conversion shares are not deliverable or if the shares are
ineligible.
During
the year ended April 30, 2016 JMJ Financial converted the JMJ Convertible Note in its entirety and the original issue discount
of $3,333 was fully amortized upon conversion, into a total of 44,738,207 shares of Common Stock at a fair value as follows:
Conversion
Date
|
|
Number
of Shares of Common Stock
|
|
|
Principal
and Interest Amount Converted *(i)
|
|
|
Price
per share
|
|
February 25, 2016
|
|
|
14,575,000
|
|
|
$
|
3,498
|
|
|
$
|
0.00024
|
|
March 17, 2016
|
|
|
15,300,000
|
|
|
|
13,770
|
|
|
$
|
0.00090
|
|
March 28, 2016
|
|
|
14,863,207
|
|
|
|
20,065
|
|
|
$
|
0.00135
|
|
Totals - Year
ended April 30, 2016
|
|
|
44,738,207
|
|
|
$
|
37,333
|
|
|
|
|
|
(i)
Includes accrued interest of $4,000
See
Note 21
Vis
Vires Convertible Notes
Effective
March 25, 2015, the Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with Vis Vires pursuant
to which the Company issued Vis Vires a convertible note in the amount of $33,000, bearing interest at the rate of 8% per annum
(the “March 2015 Vis Vires Convertible Note”). The March 2015 Vis Vires Convertible Note provided Vis Vires the right,
during the period beginning on the date which is one hundred eighty (180) days following the date of the March 2015 Vis Vires
Convertible Note, to convert the outstanding balance (including accrued and unpaid interest) into shares of the Company’s
common stock at a 39% discount from the market price of the common stock and is payable, together with interest thereon, on March
16, 2016. The Company had the right to repay the March 2015 Vis Vires Convertible Note prior to maturity (or conversion), provided
that it pays 110% of such the outstanding principal amount and accrued and unpaid interest thereon) if the note is repaid within
the first 30 days after the issuance date. The prepayment penalty increases to 115% if repayment is during the period which is
31 to 60 days after the issuance date; 120%, if repayment is during the period which is 61 to 90 days after the issuance date;
125%, if repayment is during the period which is 91 to 120 days after the issuance date; 130%, if repayment is during the period
which is 121 days to 150 days after the issuance date and 135% if repayment is during the period which is 151 days to 180 days
after the issuance date. After 180 days have elapsed from the issuance date, the Company had no right to prepay the March 2015
Convertible Note.
Effective
May 11, 2015, the Company entered into a second Securities Purchase Agreement with Vis Vires pursuant to which the Company issued
Vis Vires a convertible note in the amount of $38,000, bearing interest at the rate of 8% per annum (the “May 2015 Vis Vires
Convertible Note”). The May 2015 Vis Vires Convertible Note provides Vis Vires the right, during the period beginning on
the date which is one hundred eighty (180) days following the date of the Vis Vires Convertible Note, to convert the outstanding
balance (including accrued and unpaid interest) into shares of the Company’s common stock at a 39% discount from the market
price of the common stock and is payable, together with interest thereon, on April 23, 2016. The Company had the right to repay
the Vis Vires Convertible Note prior to maturity (or conversion), provided that it pays 110% of such the outstanding principal
amount and accrued and unpaid interest thereon) if the note is repaid within the first 30 days after the issuance date. The prepayment
penalty increases to 115% if repayment is during the period which is 31 to 60 days after the issuance date; 120%, if repayment
is during the period which is 61 to 90 days after the issuance date; 125%, if repayment is during the period which is 91 to 120
days after the issuance date; 130%, if repayment is during the period which is 121 days to 150 days after the issuance date and
135% if repayment is during the period which is 151 days to 180 days after the issuance date. After 180 days have elapsed from
the issuance date, the Company had no right to prepay the Vis Vires Convertible Note.
Note
16. Financing Agreement and Convertible Debentures
-
continued
During
the year ended April, 2016 Vis Vires converted all of the March 2015 Vis Vires Convertible Note and May 2015 Vis Vires Convertible
Note into a total of 155,333,549 shares of Common Stock at a fair value as follows:
Conversion
Date
|
|
Number
of Shares of Common Stock
|
|
|
Principal
Amount Converted (i)
|
|
|
Price
per Share
|
|
September 24, 2015
|
|
|
13,655,738
|
|
|
$
|
8,330
|
|
|
$
|
0.00061
|
|
December 29, 2015
|
|
|
15,020,833
|
|
|
|
3,605
|
|
|
$
|
0.00024
|
|
December 30, 2015
|
|
|
15,020,833
|
|
|
|
3,605
|
|
|
$
|
0.00024
|
|
January 13, 2016
|
|
|
18,027,027
|
|
|
|
6,670
|
|
|
$
|
0.00037
|
|
January 29, 2016
|
|
|
11,270,833
|
|
|
|
2,705
|
|
|
$
|
0.00024
|
|
February 16, 2016
|
|
|
20,935,484
|
|
|
|
6,490
|
|
|
$
|
0.00031
|
|
February 17, 2016
|
|
|
7,878,378
|
|
|
|
1,595
|
|
|
$
|
0.00020
|
|
February 17, 2016
|
|
|
13,081,081
|
|
|
|
4,840
|
|
|
$
|
0.00037
|
|
February 18, 2016
|
|
|
25,147,887
|
|
|
|
17,855
|
|
|
$
|
0.00071
|
|
February 22,
2016
|
|
|
15,295,455
|
|
|
|
15,305
|
|
|
$
|
0.00100
|
|
Totals
- Year ended April 30, 2016
|
|
|
155,333,549
|
|
|
$
|
71,000
|
|
|
|
|
|
(i)
Includes accrued interest of $2,840
See
Note 21.
Interest
expense relating to the Vis Vires debentures totaled approximately $0 and $4,174 for years ended April 30, 2017 and 2016, respectively.
Accrued interest due totaled $0 at April 30, 2017 and April 30, 2016, respectively.
Note
17. Related Party Advances
In
July 2015 EIG, a major shareholder of the Company, advanced the Company $46,000. In November 2015 EIG advanced the Company an
additional $13,000. By agreement between EIG and the Company, these advances had no established repayment terms nor did they earn
interest and they were unsecured. During the year ended April 30, 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 year ended April 30, 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 Consolidated Statements of Operations. Related party advances
totaled from EIG totaled $0 and $59,000 at April 30, 2017 and 2016, respectively.
The
Company has entered into subscription agreements with three stockholders, Jan Telander, the Company’s President and CEO;
Ulf Telander, the CEO of EIG; and Frederic Telander, the CEO of SolTech Energy Sweden AB
.
The subscription agreements provided for
the investment in the Company by each of the three stockholders of $100,000 through the purchase of 100,000 shares each of Series
A Preferred Stock. During the last quarter of fiscal 2016, the Company received $200,000 as payment for 200,000 of the shares.
The shares were issued subsequent to April 30, 2016 thus the Company recorded an amount due stockholders in the amount of $200,000
at April 30, 2016.
The
remaining 100,000 shares in the amount of $100,000 were purchased subsequent to April 30, 2016. During the year ended April 30,
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 April 30, 2017 and April 30, 2016, respectively.
Note
18. Corporate Lease Agreement
Effective
April 1, 2016, the Company entered into a lease agreement for office space for a period of thirty-six (36) months. The monthly
lease payments for the period April 1, 2016 through March 1, 2017 total $872, for the period April 1, 2017 through March 1, 2018
total $903 and the period April 1, 2018 through March 1, 2019 total $934. Lease payments are as follows:
Year ending April 30,
|
|
Rental
Amount
|
|
2018
|
|
$
|
10,867
|
|
2019
|
|
|
10,274
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
21,141
|
|
At
the beginning of the lease the Company paid a security deposit of $934, which is reflected as other assets on the April 30, 2017and
2016 balance sheets.
During
2017 and 2016, the Company recorded $10,464 and $18,342 in rental expense which includes rent from the prior lease which expired
during fiscal 2016.
See
Note 25
Note
19. Income Taxes
For
tax purposes the Company has federal net operating loss (“NOL”) carryovers of $3,300,000 that are available to offset
future taxable income. These NOL carryovers expire beginning in the year 2030. As a result of the Company’s reorganization,
as further described in Note 1, the NOL carryovers generated prior to the reorganization are limited by Section 382 of the Internal
Revenue Code resulting in no NOL carryover for the years prior to reorganization. Deferred income taxes reflect the net tax effects
of the temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Significant
components of the Company’s deferred tax assets and liabilities are as follows:
|
|
April
30, 2017
|
|
|
April
30, 2016
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL carryovers
|
|
$
|
628,762
|
|
|
$
|
412,432
|
|
Amortization of debt discount
|
|
|
(33,048
|
)
|
|
|
(23,670
|
)
|
Accrued interest
|
|
|
-
|
|
|
|
(7,359
|
)
|
Loss on settlement of related party liabilities, Series
A
|
|
|
(64,216
|
)
|
|
|
-
|
|
Warrants issued for services
|
|
|
(2,477
|
)
|
|
|
-
|
|
Gain on settlement of liabilities, Series
B
|
|
|
1,620
|
|
|
|
-
|
|
Loss from
sale of rental properties
|
|
|
(3,095
|
)
|
|
|
-
|
|
Gain/Loss on change in FV of derivative liabilities
|
|
|
(1,169
|
)
|
|
|
(25,635
|
)
|
Compensation - Restricted stock units
|
|
|
(994
|
)
|
|
|
(1,725
|
)
|
Bad debt expense
|
|
|
(1,494
|
)
|
|
|
-
|
|
Stock issued under services contracts
|
|
|
-
|
|
|
|
(8,025
|
)
|
Impairment of goodwill
|
|
|
(27,002
|
)
|
|
|
-
|
|
Depreciation expense
|
|
|
(5,749
|
)
|
|
|
(2,558
|
)
|
Total deferred
tax assets
|
|
|
491,138
|
|
|
|
343,460
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(491,138
|
)
|
|
|
(343,460
|
)
|
Net deferred tax
assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to reduce the
deferred tax assets. The ultimate realization of these assets is dependent upon generation of future taxable income sufficient
to offset the related deductions and NOL carryovers within the applicable carryover periods as previously discussed. Management
is unsure of the Company’s ability to generate sufficient taxable income to realize the deferred tax assets. As such, the
Company has recorded a valuation allowance for the entire net deferred tax asset.
The
effective rate used for estimation of deferred taxes was 15% for the years ended April 30, 2017 and 2016.
The
tax years that remain subject to taxing authorities’ examination at April 30, 2017 are 2010 through 2017. The Company’s
policy is to classify penalties and interest associated with uncertain tax positions, if required, as a component of its income
tax provisions.
Note
20. Preferred Stock
On
July 8, 2009 the Company’s Articles of Incorporation were amended to authorize the issuance of Ten Million (10,000,000)
shares of Preferred Stock with a par value $0.0001 per share (“Preferred Stock”). Shares of the Preferred Stock of
the Company may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive
designation, number of shares, or title as shall be fixed by the Board of Directors prior to the issuance of any shares thereof.
Each such class or series of Preferred Stock shall consist of such number of shares, and have such voting powers, full or limited,
or no voting powers and such preferences and relative, participating optional or other special rights and such qua1ifications,
limitations or restrictions thereof. as shall be stated in such resolution or resolutions providing for the issue of such series
of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof pursuant
to the; authority hereby expressly vested in it, all in accordance with the laws of the State of Delaware.
As
of April 30, 2017 and 2016, 9,501,656 and no shares, respectively, were issued and outstanding. See Notes 22 and 23.
Note
21. Common Stock
On
February 9, 2016 the Company’s Articles of Incorporation were amended to authorize the issuance of One Billion Five Hundred
Million (1,500,000,000) shares of Common Stock with a par value $0.0001 per share (“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.
The
terms and provisions of the Common Stock are as follows:
Voting
Rights
The
holders of shares of Common Stock shall be entitled to one vote for each share held with respect to all matters voted on by the
stockholders of the Corporation.
Liquidation
Rights
Subject
to the prior and superior right of the Preferred Stock upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Corporation, the holders of Common Stock shall be entitled to receive that portion of the remaining funds
to be distributed. Such funds to be paid to the holder of Common Stock shall be paid to the holders of Common Stock on the basis
of the number of shares of Common Stock held by each of them.
Dividends
Dividends
may be paid on the Common Stock as and when declared by the Board of Directors.
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 16.
On
May 7, 2015 2,500,000 shares of Common Stock which was recorded at fair value of $ .010 per common stock share, were issued to
an outside investor in payment of professional services in the amount of $ 25,000.
On
June 4, 2015 5,000,000 shares of Common Stock, which was recorded at fair value of $ .00057 per common stock share, were issued
to an outside investor in payment of professional services in the amount of $28,500.
During
fiscal year 2016, the Company issued 219,090,236 Common stock to settle conversions of $155,893 of the principal amounts of convertible
debentures and accrued interest.
As
of April 30, 2017 and 2016, 349,811,110 and 336,919,939 shares of Common Stock were issued and outstanding, respectively.
On February 1, 2017 the Company issued a total
of 3,000,000 of common stock warrants to two outside consultants. The warrants have an exercise price of $.0110 and expire
on February 1, 2022. The warrants vest in one-third increments on April 30, 2017, 2018 and 2019. The fair value of the warrants
was calculated using a Black-Scholes valuation model. As a result of this fair value calculation the Company recognized a loss
in the amount of $16,516 for the year ended April 30, 2017.
Note
22. Series A Preferred Stock
On
February 9, 2016, the Board of Directors of the Company authorized the issuance of an aggregate of 1,000,000 shares of Series
A Convertible Preferred Stock (“Series A Preferred Stock”); par value $.0001 per share, and a Stated Value of $1.00
per share (the “Stated Value”) with the following terms:
Distributions:
So
long as any shares of Series A Preferred Stock remain outstanding, neither the Company nor any subsidiary thereof shall, without
the consent of the Holders of ninety percent (90%) of the shares of Series A Preferred Stock
then
outstanding (the “Requisite Holders”), (a) redeem, repurchase or otherwise acquire directly or indirectly any Common
Stock of the Company (“Common Stock”) (b) directly or indirectly pay or declare any dividend or make any distribution
upon, nor shall any distribution be made in respect of, any Common Stock or (c) set, aside any monies to the purchase or redemption
(through a sinking fund or otherwise) of any Common Stock. The sale, conveyance or transfer (for cash, shares of stock, securities
or other consideration) of all or substantially all of the property and assets of the Company shall be deemed a voluntary liquidation,
dissolution or winding up of the Company for purposes of this paragraph. The merger or consolidation of the Company into or with
any other corporation, or the merger or consolidation of any other corporation into or with the Company shall not he deemed to
be an event of liquidation, dissolution or winding up, if the holders of the Series A Preferred Stock outstanding upon the effectiveness
of such merger or combination, receive for each share of Series A Preferred Stock one share of preference stock of the resulting
or surviving corporation, which share of preferred stock will have rights and privileges roughly equivalent to the rights and
privileges of the Series A Preferred Stock.
Dividends:
Holders
of Series A Preferred Stock shall be entitled to receive dividends, when and as declared by the Board of Directors out of funds
legally available therefor.
Voting
Rights and Negative Covenants
The
Series A Preferred Stock shall have the right to vote together with holders of Common Stock on an as “as converted basis”,
on any matter that the Company’s shareholders may be entitled to vote on, either by written consent or by proxy. So long
as any shares of Series A Preferred Stock are outstanding, the Company shall not and shall cause its subsidiaries not to, without
the affirmative vote of the Requisite Holders, (a) alter or change adversely the powers, preferences or rights given to the Series
A Preferred Stock, (b) alter or amend the Certificate of Designation, (c) amend its certificate of incorporation, bylaws or other
charter documents so as to effect adversely any rights of any holders of the Series A Preferred Stock, (d) increase the authorized
or designated number of shares of Series A Preferred Stock. (e) issue any additional shares of Series A Preferred Stock (including
the reissuance of any shares of Series A Preferred Stock converted for Common Stock), (f) issue any Senior Securities, or (g)
enter into any agreement with respect to the foregoing.
Liquidation
Upon
any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary or a sale (a “Liquidation”),
the holders of the Series A Preferred Stock shall be entitled to receive out of the assets of the Company, whether such assets
are capital or surplus, for each share of Series A Preferred Stock an amount equal to the Stated Value. and all other amounts
in respect thereof of then due and payable prior to distribution or payment shall be made to the holders of any Common Stock,
and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to
the holders of Series A Preferred Stock shall be distributed among the holders of Series A Preferred Stock ratably in accordance
with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Conversion
Conversion
at the Option of the Holder - On and after January 1, 2017, each share of Series A Preferred Stock shall be convertible into Common
Stock at a conversion price of S0.0033 per share (“Conversion Price”). To effect a conversion of Converted Shares,
the Holder must deliver or fax an executed Notice of Conversion to the Company (“Conversion Notice”). The Conversion
Notice shall be executed by the Holder of one or more shares of Series A Preferred Stock and shall indicate the Holder’s
intention to convert the specific number of Converted Shares, representing all or a portion of the Holder’s shares of Series
A Preferred Stock, the date on which the conversion is to be effected, which may not be before the date the Holder delivers the
Conversion Notice (“Conversion Date”). The Conversion price is subject to adjustment in the event of a Sale of the
Company a spinoff or if the Company effectuates a stock split, a reverse stock split or declares a stock dividend.
Rank
The
shares of Series A Preferred Stock shall rank junior to any stock of all other series of preferred stock currently issued, as
to liquidation, winding up or dissolution, as applicable, in preference or priority to the holders of such other class or classes.
During
the year ended April 30, 2017, the Company issued 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 year ended April 30, 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 fiscal year ended April 30, 2017.
See
Notes 12, 17 and 20.
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.
As
of April 30, 2016 no shares of Series A Preferred Stock were issued and outstanding.
Note
23. Series B Convertible Preferred Stock
On
March 8, 2016 the Board of Directors of the Company authorized the issuance of an aggregate of 8,534,625 shares of Series B Convertible
Preferred Stock (“Series B Preferred Stock”); par value $.0001 per share and a Stated Value of $0.1587 per share (the
“Stated Value”) with the following terms:
Dividends:
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. Additionally, holders
of Series B Preferred Stock shall be entitled to receive dividends, when and as declared by the Board of Directors out of funds
legally available therefor. For any other dividends or distributions, the Series B Preferred Stock will participate with the Corporation’s
Common Stock on an as-converted basis.
Liquidation
Preference
:
In
the event of any liquidation of Progreen, or merger or sale in which the shareholders of Progreen do not own a majority of the
outstanding shares of the surviving corporation, the holders of Series B Preferred Stock will be entitled to receive in preference
to the holders of Progreen Common Stock an amount per share equal to their Stated Value plus all accrued but unpaid dividends
(“Liquidation Preference”).
Conversion
and Redemption Rights:
The
shares of Series B Preferred Stock shall be convertible into shares of Progreen common stock, par value $.0001 per share (“Progreen
Common Stock”) at a conversion price per share of the Progreen Common Stock equal to the weighted average closing prices
of the Progreen Common Stock for the 20 trading days immediately prior to the one-year anniversary of the Effective Date (the
“Conversion Price”) on which date the Series B Preferred Stock shall first become convertible. Further terms of the
Series B Preferred Stock shall be as follows:
The Series B Preferred Stock shall
have full voting rights in accordance with the underlying conversion shares of Progreen Common Stock and full rights to
all dividends and distributions with respect to such shares of Series B Preferred Stock as declared by the Progreen Board of Directors;
The
Conversion Price shall be proportionately adjusted to reflect all stock splits or combinations of shares generally applicable
to the Progreen Common Stock;
The
Series B Preferred Stock shall provide for option of the holder or holders of the Series B Preferred Stock to notify Progreen
within the period commencing February 1, 2017 and ending February 15, 2017, of their election to redeem their shares of Series
B Preferred Stock at the Stated Value thereof, Progreen to effect payment for shares as to which the redemption is requested by
the holder or holders thereof on or prior to August 31, 2017; and
On
and after September 1, 2017, the shares of Series B Preferred Stock shall automatically convert into Progreen Common Stock if
the market price for the Progreen Common Stock is 150% of the Conversion Price for a period of 20 trading days.
Other
provisions:
Anti-dilution:
The
conversion price of the Series B Preferred Stock will be adjusted on a “broad-based weighted-average” basis, in the
event that the Progreen issues additional shares of Common Stock or Common equivalents (other than for stock option grants and
other customary exclusions) at a purchase price less than the applicable Series B Preferred Stock conversion price. Proportional
anti-dilution protection for stock splits, stock dividends, combinations, recapitalizations, etc.
Voting
Rights
For
so long as shares of Series B Preferred Stock remain outstanding, the prior vote or written consent of a majority of the Series
B Preferred Stock will be required for any action that , (a) alter or change adversely the powers, preferences or rights given
to the Series B Preferred Stock, (b) alter or amend the Certificate of Designation, (c) amend its certificate of incorporation,
bylaws or other charter documents so as to affect adversely any rights of any Holders of the Series B Preferred Stock, (d) increase
the authorized or designated number of shares of Series B Preferred Stock, (e) issue any additional shares of Series B Preferred
Stock (including the reissuance of any shares of Series B Preferred Stock converted for Common Stock), (f) issue any Senior Securities,
or (g) enter into any agreement with respect to the foregoing.
During
the year ended April 30, 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:
Series
B Shares
Issued and
Outstanding
|
|
Preferred
Stock
Series B
|
|
|
Additional
Paid In
Capital Series B
|
|
|
Total
Series B
|
|
|
Gain
on Settlement
of Liabilities
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 6, 11 and 20.
From
the date of issuance of the Series B Preferred Shares through April 30, 2017 the Company accreted $98,025 of the purchase discount.
As April 30, 2017, the Series B Preferred Shares had a fair value of $1,354,445.
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 year ended
April 30, 2017, the Company paid Series B cash dividends in the amount of $94,812 and accrued an additional $13,767 for a total
dividend of $108,579 as of April 30, 2017.
Series
B was presented as temporary equity in the accompanying Consolidated Balance Sheet pursuant to ASC 480 as it was not initially
redeemable until September 1, 2017 however no holders of the Series B Preferred Stock notified the Company within the period commencing
February 1, 2017 and ending February 15, 2017, of their election to redeem their shares of Series B Preferred Stock thus Series
B was transferred to equity in the accompanying Consolidated Balance Sheet asof April 30, 2017. As of April 30, 2017 and 2016,
8,534,625 and no shares of Series B Preferred Stock were issued and outstanding, respectively.
The
Company further analyzed the conversion option for beneficial conversion features consideration under ASC 470-20 “Convertible
Securities with Beneficial Conversion Features” and noted beneficial conversion features do not exist.
Note
24. Employee Stock Option Plan
Restricted
Stock Units
As
of April 30, 2012, the Board of Directors approved the Company’s 2012 Employee Stock Option Plan, pursuant to which 10,000,000
shares of Common Stock are reserved for issuance to employees and officers and directors of, and consultants to, the Company.
Effective June 1, 2012 the Board of Directors approved the award of 4,200,000 restricted stock units (“RSUs”) under
the Company’s 2012 Employee Stock Option Plan as follows: 3,000,000 RSUs were awarded to the Company’s Chief Executive
Officer; 600,000 RSUs to a director of the Company; and 600,000 RSUs to the manager of the Company’s real estate operations.
On October 22, 2014, Henrik Sellmann resigned as a director of the Company. The 600,000 RSUs awarded to him on June 1, 2012 were
not fully vested and they expired with his resignation. Effective December 3, 2012 Company retained a Controller to whom 600,000
RSUs were issued as part of his initial remuneration package. The Board approved effective June 1, 2014, the award of 600,000
restricted stock units under the Company’s 2012 Employee Stock Option Plan to a director of the Company.
The
RSUs were awarded pursuant to restricted stock units agreements (“RSU Agreement”) which provide for a period of five
years from the date of the award during which, once vesting conditions are satisfied, that the shares of our common stock underlying
the RSU at the option of the holder of the RSU can be released. The vesting conditions set forth in the three RSU Agreements approved
June 1, 2012 are as follows: The interest of the holder of the RSU’s pursuant to a RSU Agreement shall become non-forfeitable
or vested in 1/3 increments on the later of (i) the first, second and third anniversary dates of the grant of the award, and (ii)
the trading price of our common stock for a period of twenty days having equaled or exceeded $0.15 per share for the first annual
vesting date, $0.25 per share for the second annual vesting date, and $0.35 per share for the third annual vesting date.
The
vesting set forth in the RSU Agreement dated December 3, 2012 is as follows: The interest of the holder of the RSU’s shall
become non-forfeitable or vested as follows: (i)150,000 shall become Vested as of December 1, 2013, or such later date as of which
the Common Stock Market Price shall have equaled or exceeded $0.15 per share; (ii) 150,000 shall become Vested as of December
1, 2014, or such later date as of which the Common Stock Market Price shall have equaled or exceeded $0.25 per share; (iii) 150,000
of the RSU’s shall become Vested as of December 1,2015, or such later date as of which the Common Stock Market Price shall
have equaled or exceeded $0.35 per share; and (iv) 150,000 of the RSU ‘s shall become Vested as of December 1, 2016, or
such later date as of which the Common Stock Market Price shall have equaled or exceeded $0.45 per share. The Agreement also requires
the controller be the financial controller of the Company (or alternatively have been appointed an executive officer of the Company)
as of the applicable Vesting Date and have been so engaged throughout the period beginning on the date of the Agreement and ending
on the applicable Vesting Date and (b) that the common stock has traded for a period of twenty trading days at the market price
as specified in Agreement.
See
Note 25
As
of April 30, 2017 and 2016 compensation expense of $6,626 and $11,500 respectively, was recorded as follows:
|
|
April,
2017
|
|
|
April,
2016
|
|
Number of restricted stock
units issued on June 1, 2012
|
|
|
|
|
|
|
3,600,000
|
|
Stock price on grant date
|
|
|
|
|
|
$
|
0.03
|
|
Vesting Period
|
|
|
|
|
|
|
3
years
|
|
Estimated fair
value at issuance
|
|
|
|
|
|
$
|
108,000
|
|
May 1, 2015 through April 30, 2016
Compensation Expense
|
|
|
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
Number of restricted stock units issued
on December 3, 2012
|
|
|
600,000
|
|
|
|
600,000
|
|
Stock price on grant date
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
Vesting Period
|
|
|
4
years
|
|
|
|
4
years
|
|
Estimated fair
value at issuance
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
May 1, 2016 through April 30, 2017
Compensation Expense
|
|
$
|
2,626
|
|
|
|
|
|
May 1, 2015 through April 30, 2016
Compensation Expense
|
|
|
|
|
|
$
|
4,500
|
|
|
|
|
|
|
|
|
|
|
Number of restricted stock units issued
on June 1, 2014
|
|
|
600,000
|
|
|
|
600,000
|
|
Stock price on grant date
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
Vesting Period
|
|
|
3
years
|
|
|
|
3
years
|
|
Estimated fair
value at issuance
|
|
$
|
12,000
|
|
|
$
|
12,000
|
|
May 1, 2016 through April 30, 2017
Compensation Expense
|
|
$
|
4,000
|
|
|
|
|
|
May 1, 2015 through April 30, 2016
Compensation Expense
|
|
|
|
|
|
$
|
4,000
|
|
|
|
|
|
|
|
|
|
|
Total compensation
expense
|
|
$
|
6,626
|
|
|
$
|
11,500
|
|
Note
25. Subsequent Events
In May 2017, the non-interest bearing Mortgage
Note to AMREFA in the amount of $200,000 was paid in full upon the sale of the Kinsel Street Property. See Note 11.
On May 10,
2017, the Company issued to JSJ Investments Inc. a 12% Convertible
Promissory
Note in the principal amount of $ 113,000, due February 20, 2018. At any time after 180 days after the issuance date, this Note
shall be convertible into shares of the Company’s common stock with a conversion price equal to a 52% discount to the lowest
trading price during the previous fifteen (15) trading days to the date of a Conversion Notice.
On May 3,
2017, the Company issued to Vista Capital Investments LLC an 8% Fixed Rate Convertible Debenture
in
the principal amount of $110,000 with an Original Issue Discount of $10,000, due November 29, 2017. At any time which is one hundred
eighty days from the Closing Date, this Note shall be convertible into shares of the Company’s common stock with a conversion
price equal to $0.035. In addition, the Company granted Vista Capital Investments LLC 2,000,000
Warrant
Shares of the Company’s common stock, par value $0.0001 per share.
On May 15,
2017, the Company issued to Power Up Lending Group Ltd. a 12% Fixed Rate Convertible Pr
omissory
Note in the principal amount of $46,500 due on February 15, 2018. The Holder shall have the right from time to time, at any time
during the period beginning on the date which is one hundred eighty (180) days following the date of the Note, to convert all
or any part of the outstanding and unpaid principal amount of this Note into fully paid and nonassessable shares of Common Stock.
The conversion price shall equal 58% multiplied by the average of the lowest two (2) Trading Prices for the Common Stock during
the fifteen (15) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.
On June 30,
2017, the Board of Directors of the Company adopted and approved the Company’s 2017 Employee Stock Option Plan (the “Plan”),
for which we will seek approval of our stockholders. The Company terminated its 2012 Stock Option Plan following the expiration
of all outstanding restricted stock units issued under that plan.
See
Note 24.
We
lease our offices at 2667 Camino del Rio South, Suite 312, San Diego, CA 92108, of approximately 740 sq. ft., at a current monthly
rent of $1,250, under a four month lease, after which, the lease will become month-to-month.
Subsequent
to April 30, 2017 the Company sold four of its rental properties.
On
June 8, 2017 the Company formed a wholly-owned subsidiary Cielo Mar Reservations, LLC to receive the Reservation Deposits for
Procon’s planned development of a residential community. See Note 10.
On
July 17, 2017 the Company entered into a Settlement Agreement for the Hopple Promissory Note issued on January 20, 2017 and due
on July 20, 2017. (See Note 16 - Financing Agreement and Convertible Debentures).
In
exchange for Mr. Hoppel’s settlement and release of the Settled Claims, the Company issued Mr. Hoppel 926,000 shares
of the Company’s common stock and shall make three equal cash payments of $44,940. The first cash payment shall be due on
or before August 1st, 2017. The second cash payment shall be due on or before August 10th 2017 and the third and final cash payment
shall be due on or before August 20th, 2017. Upon the issuance of 926,000 shares and payment of $134,820, the Note shall be considered
fully repaid.