Item
1.
|
Financial
Statements
|
Certain
information and footnote disclosures required under accounting principles generally accepted in the United States of America have
been condensed or omitted from the following financial statements pursuant to the rules and regulations of the Securities and
Exchange Commission. It is suggested that the following financial statements be read in conjunction with the year-end financial
statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2018.
The
results of operations for the three months ended July 31, 2018 and 2017 are not necessarily indicative of the results for the
entire fiscal year or for any other period.
ProGreen
US, Inc.
Condensed
Consolidated Balance Sheets
|
|
July 31, 2018
|
|
|
April 30, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Agricultural land
|
|
$
|
160,000
|
|
|
$
|
-
|
|
Land under development
|
|
|
500,000
|
|
|
|
500,000
|
|
Property
|
|
|
660,000
|
|
|
|
500,000
|
|
Cash
|
|
|
17,971
|
|
|
|
106,256
|
|
Accounts receivable, net of allowance of $36,910 and $37,960
|
|
|
-
|
|
|
|
-
|
|
Notes receivable - land contracts, net of allowance of $199,793 and $221,080
|
|
|
70,659
|
|
|
|
70,659
|
|
Other assets
|
|
|
46,223
|
|
|
|
82,909
|
|
Note receivable - related party
|
|
|
1,327,500
|
|
|
|
1,187,500
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Vehicles, furniture and equipment, net of accumulated depreciation of $46,792 and $46,703
|
|
|
3,804
|
|
|
|
3,804
|
|
Total assets
|
|
$
|
2,126,157
|
|
|
$
|
1,951,128
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
382,551
|
|
|
$
|
348,657
|
|
Reservation and tenant deposits
|
|
|
51,500
|
|
|
|
48,085
|
|
Notes payable
|
|
|
23,512
|
|
|
|
23,512
|
|
Note payable, related parties, net of discount of $0 and $0, respectively
|
|
|
840,555
|
|
|
|
882,555
|
|
Note payable - Ann Arbor
|
|
|
52,482
|
|
|
|
58,952
|
|
Derivative liabilities
|
|
|
1,952,971
|
|
|
|
772,895
|
|
Convertible debentures, net of discount of $272,590 and $32,682, respectively
|
|
|
1,019,191
|
|
|
|
839,247
|
|
Dividend payable
|
|
|
132,477
|
|
|
|
108,579
|
|
Liability under land contract – related
party
|
|
|
520,000
|
|
|
|
400,000
|
|
Total liabilities
|
|
|
4,975,239
|
|
|
|
3,482,482
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
Convertible preferred stock, Series A $.0001 par value, 1,000,000 shares authorized, 967,031 and 967,031 shares issued and outstanding, at July 31, 2018 and April 30, 2017
|
|
|
97
|
|
|
|
97
|
|
Convertible preferred stock, Series B $.0001 par value, 8,534,625 shares authorized, 8,534,625
and 8,534,625 shares issued and outstanding at July 31, 2018 and April 30, 2017
|
|
|
853
|
|
|
|
853
|
|
Common stock, $.0001 par value, 1,250,000,000 shares authorized, 432,120,413 and 421,577,283 outstanding at July 31, 2018 and April 30, 2017
|
|
|
43,211
|
|
|
|
42,157
|
|
Additional paid in capital
|
|
|
6,063,808
|
|
|
|
6,221,833
|
|
Accumulated other comprehensive income
|
|
|
(22,531
|
)
|
|
|
(30,999
|
)
|
Accumulated deficit
|
|
|
(8,860,506
|
)
|
|
|
(7,723,312
|
)
|
Total controlling interest
|
|
|
(2,775,068
|
)
|
|
|
(1,489,371
|
)
|
Noncontrolling interest in consolidated subsidiary
|
|
|
(74,014
|
)
|
|
|
(41,983
|
)
|
Total stockholders’ deficit
|
|
|
(2,849,082
|
)
|
|
|
(1,531,354
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
2,126,157
|
|
|
$
|
1,951,128
|
|
See
accompanying notes to these unaudited condensed consolidated financial statements
ProGreen
US, Inc.
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
Three Months Ended
|
|
|
|
July
|
|
|
|
2018
|
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
-
|
|
|
$
|
15,525
|
|
Net gain on sale of properties
|
|
|
-
|
|
|
|
39,905
|
|
Total Revenue
|
|
$
|
-
|
|
|
$
|
55,430
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Selling, General & administrative
|
|
|
156,015
|
|
|
|
112,475
|
|
Professional fees
|
|
|
135,233
|
|
|
|
59,200
|
|
Total operating expenses
|
|
$
|
291,248
|
|
|
$
|
171,675
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(291,248
|
)
|
|
|
(116,245
|
)
|
Other expenses and income:
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(536,754
|
)
|
|
|
(96,792
|
)
|
Loss on settlement of liabilities, common stock
|
|
|
(33,240
|
)
|
|
|
(44,659
|
)
|
Gain (loss) on change in fair value of derivative liabilities
|
|
|
(284,085
|
)
|
|
|
114,628
|
|
Loss before income tax expense
|
|
$
|
(1,145,327
|
)
|
|
$
|
(143,068
|
)
|
Net Loss
|
|
$
|
(1,145,327
|
)
|
|
$
|
(143,068
|
)
|
Less: Net loss attributable to noncontrolling interest
|
|
$
|
(32,031
|
)
|
|
$
|
(10,936
|
)
|
Net Loss attributable to parent
|
|
$
|
(1,113,296
|
)
|
|
$
|
(132,132
|
)
|
Deemed dividend on redeemable, convertible preferred stock, Series B
|
|
$
|
23,898
|
|
|
$
|
23,898
|
|
Net Loss attributable to parent common shareholders
|
|
$
|
(1,137,194
|
)
|
|
$
|
(156,030
|
)
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments
|
|
$
|
8,468
|
|
|
$
|
(639
|
)
|
Other comprehensive loss
|
|
$
|
8,468
|
|
|
$
|
(639
|
)
|
Comprehensive net loss attributable to parent
|
|
$
|
(1,128,726
|
)
|
|
$
|
(156,669
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and fully diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average shares outstanding - basic and fully diluted
|
|
|
424,088,103
|
|
|
|
350,596,197
|
|
See
accompanying notes to these unaudited condensed consolidated financial statements
ProGreen
US, Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Three Months Ended
|
|
|
|
July
|
|
|
|
2018
|
|
|
2017
|
|
Cash used in operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,145,327
|
)
|
|
$
|
(143,068
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Compensation - restricted stock units
|
|
|
-
|
|
|
|
1,000
|
|
Depreciation
|
|
|
-
|
|
|
|
7,730
|
|
Gain on sale of rental properties
|
|
|
-
|
|
|
|
(39,905
|
)
|
Loss (Gain) on change in fair value of derivative liabilities
|
|
|
284,085
|
|
|
|
(114,628
|
)
|
Loss on settlement of liabilities
|
|
|
33,240
|
|
|
|
44,659
|
|
Warrants issued
|
|
|
20,100
|
|
|
|
-
|
|
Amortization of debt discount
|
|
|
390,970
|
|
|
|
73,039
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
(17,162
|
)
|
Accounts payable and accrued expenses
|
|
|
42,341
|
|
|
|
11,031
|
|
Reservation and tenant deposits
|
|
|
3,415
|
|
|
|
6,000
|
|
Other current assets
|
|
|
36,686
|
|
|
|
(10,296
|
)
|
Cash Provided used in operating activities
|
|
|
(334,490
|
)
|
|
|
(181,600
|
)
|
Cash used in investing activities
|
|
|
|
|
|
|
|
|
Purchase of office equipment
|
|
|
-
|
|
|
|
(1,557
|
)
|
Proceeds from sale of properties
|
|
|
-
|
|
|
|
231,000
|
|
Purchase of land
|
|
|
(40,000
|
)
|
|
|
-
|
|
Loan for note receivable - related party
|
|
|
(140,000
|
)
|
|
|
(265,000
|
)
|
Cash provided by (used in) investing activities
|
|
|
(180,000
|
)
|
|
|
(35,557
|
)
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities
|
|
|
|
|
|
|
|
|
Proceeds from convertible preferred stock, Series A issued for cash from related party
|
|
|
-
|
|
|
|
-
|
|
Proceeds from the sale of common stock
|
|
|
50,000
|
|
|
|
-
|
|
Proceeds from notes payable-related party
|
|
|
-
|
|
|
|
104,970
|
|
Proceeds from notes payable
|
|
|
-
|
|
|
|
(336,426
|
)
|
Repayment of notes payable
|
|
|
(6,470
|
)
|
|
|
-
|
|
Repayment of notes payable related party
|
|
|
(42,000
|
)
|
|
|
-
|
|
Proceeds from convertible debentures
|
|
|
467,707
|
|
|
|
251,000
|
|
Repayment of convertible debentures
|
|
|
(51,500
|
)
|
|
|
(42,000
|
)
|
Decrease in obligations under capital leases
|
|
|
-
|
|
|
|
(1,343
|
)
|
Cash provided by financing activities
|
|
|
417,737
|
|
|
|
(23,799
|
)
|
Effect of foreign exchange on cash
|
|
|
8,468
|
|
|
|
(639
|
)
|
Net change in cash
|
|
|
(88,285
|
)
|
|
|
(241,595
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
106,256
|
|
|
|
289,095
|
|
Cash at end of period
|
|
$
|
17,971
|
|
|
$
|
47,500
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
226,006
|
|
|
$
|
9,318
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing transactions:
|
|
|
|
|
|
|
|
|
Reclassification of equity to derivative liability due to tainting
|
|
$
|
320,890
|
|
|
$
|
-
|
|
Reclassification of derivative liability to equity due to conversion
|
|
$
|
45,000
|
|
|
$
|
-
|
|
Dividend declared not paid, redeemable, convertible preferred stock, Series B
|
|
$
|
23,898
|
|
|
$
|
23,898
|
|
Discount on derivatives
|
|
$
|
600,000
|
|
|
$
|
41,312
|
|
Deferred gain on sale of rental properties
|
|
$
|
-
|
|
|
$
|
52,601
|
|
Note receivable - land contracts issued for sale of properties
|
|
$
|
-
|
|
|
$
|
124,000
|
|
Accrued interest rolled into principal
|
|
$
|
-
|
|
|
$
|
639
|
|
Derivative liability due to true up feature of common shares issued
|
|
$
|
-
|
|
|
$
|
-
|
|
Stock issued for convertible
debt and accrued interest
|
|
$
|
61,680
|
|
|
$
|
-
|
|
Purchase of land on account
|
|
$
|
120,000
|
|
|
$
|
-
|
|
See
accompanying notes to these unaudited condensed consolidated financial statements
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
Note
1. Financial Statement Presentation
The
unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted
accounting principles in the United States of America (“U.S. GAAP”) for interim information and in accordance with
the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (the “SEC”).
Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements and
they should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s
Annual Report on Form 10-K for the year ended April 30, 2018 (the “Annual Report”). The accompanying interim financial
statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of operations for the three month period ended July 31, 2018,
are not necessarily indicative of the results that may be expected for the year ending April 30, 2019.
Basis
of Presentation
The
Company’s significant accounting policies are summarized in Note 1 of the Annual Report. 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 interim unaudited condensed consolidated financial statements. There were no significant changes to these accounting policies
during the three months ended July 31, 2018, and the Company does not expect the adoption, as applicable, of other recent accounting
pronouncements will have a material impact on its financial statements.
Going
Concern
The
Company’s unaudited condensed consolidated financial statements for the period ended July 31, 2018, have been prepared on
a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal
course of business. The Company will require additional funding to execute its future strategic business plan. Successful business
operations and its transition to attaining profitability are dependent upon obtaining additional financing and achieving a level
of revenue adequate to support its cost structure. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern.
Reclassifications
Certain
amounts in previous periods have been reclassified to conform to fiscal year ending 2018 classifications.
Note
2. Agricultural Land, Land Under Development and Liability under Land Contract-Related Party
During
the quarter ended July 31, 2018, the Company acquired agricultural land and under the terms of a definitive purchase agreement,
the Company recorded agricultural land at cost in the amount of $160,000, paid $40,000 of the purchase price and recorded a liability
under land contract for the balance due in the amount of $120,000 and $0 as of July 31, 2018 and April 30, 2018, respectively.
No interest is due under the terms of the definitive purchase agreement. The Company held agricultural land in the amount of $160,000
and $0, as of July 31, 2018 and April 30, 2018, respectively.
The
Company held land under development in the amount of $500,000 as of July 31, 2018 and April 30, 2017. The liability under land
contract to purchase the land was $400,000 as of July 31, 2018 and April 30, 2018.
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
As
of July 31, 2018 payments under the agreements are due as follows for liability under land contract – related party:
2019
|
|
|
$
|
200,000
|
|
2020
|
|
|
|
120,000
|
|
2021
|
|
|
|
100,000
|
|
2022
|
|
|
|
100,000
|
|
Total
|
|
|
$
|
520,000
|
|
Note
3. Note Receivable - Related Party
During
the quarter ended July 31, 2018, the Company contributed an additional $140,000 to Inmobiliaria Contel S.R.L.C.V. Note Receivable
- Related Party totaled $1,327,500 and $1,187,500 as of July 31, 2018 and April 30, 2018, respectively.
Note
4. Notes Payable
During
the quarter ended July 31, 2018 no payments were made under Notes Payable. The amount due under the Southfield debt had a balance
outstanding of $14,512 as of July 31, 2018 and April 30, 2018. The amount outstanding under the unsecured promissory note with
an unrelated party note payable totaled $9,000 as of July 31, 2018 and April 30, 2018.
Note
5. Note Payable, Related Party
During
the quarter ended July 31, 2018, the Company paid $42,000 of amounts due under the Company’s credit line promissory notes
with its President and Chief Executive Officer.
Notes
payable related parties includes the amounts due under the Credit Lines with a total balance outstanding of $840,555 and $882,555
as of July 31, 2018 and April 30, 2018, respectively.
Amortization
of the related discount totaled $0 and $31,291 for the quarters ended July, 31, 2018 and 2017, respectively. The Company recorded
total interest expense in connection with the Credit Lines in the amount of $10,494 and $5,876 for the quarters ended July, 31,
2018 and 2017, respectively. Total accrued interest due under the Credit Lines was $61,111 and $50,617 as of July, 31, 2018 and
April 30, 2018, respectively.
Note
6. Note Payable to Bank of Ann Arbor
During
the quarter ended July 31,2018 the Company paid $6,470 under the note payable Ann Arbor and had a balance outstanding of $52,482
and $58,952 as of July 31, 2018 and April 30, 2018, respectively. The Company recorded interest expense in connection with this
note payable in the amount of $1,475 and $7,005 for the quarters ended July 31, 2018 and 2017, respectively. Accrued interest
due under the note payable totaled $1,109 and $304 as of July 31, 2018 and April 30, 2018, respectively.
Principal
payment requirements on the notes payable to Bank of Ann Arbor are as follows:
2019
|
|
$
|
30,035
|
|
2020
|
|
|
22,447
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
52,482
|
|
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
Note
7. 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.
|
The
Company held certain financial instruments that are measured at fair value on a recurring basis.
Financial
instruments measured at fair value are:
|
●
|
Convertible
debt totaling $768,531 and $0 at July 31 ,2018 and April 30,2018, respectively, with a derivative liability totaling $563,000
and $0 at July 31, 2018 and April 30, 2018, respectively, which are categorized as Level 3.
|
|
●
|
Equity
investments totaling $754,314 and $704,314 at July 31 ,2018 and April 30,2018, respectively, with a derivative liability totaling
$1,257,276 and $772,895 at July 31, 2018 and April 30, 2018, respectively, which are categorized as Level 3.
|
|
●
|
12,750,000
and 0 Common stock warrants at July 31 ,2018 and April 30,2018, respectively, with a derivative liability totaling $132,695
and $0 at July 31, 2018 and April 30, 2018, respectively, which are categorized as Level 3.
|
The
related (loss) gain on derivatives totaled ($284,085) and $114,628 for the quarters ended July 31, 2018 and 2017, respectively.
Note
8. Derivative Liabilities
During
the quarter ended July 31, 2018 the Company identified conversion features embedded within its convertible debt. The Company determined
that the conversion feature of the convertible notes represents an embedded derivative since the Notes are convertible into a
variable number of shares upon conversion. 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.
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
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 3 months ended July 31, 2018:
Stock Price
|
|
$
|
0.0115 - $0.0269
|
|
Exercise Price
|
|
$
|
0.0063 - $0.05
|
|
Risk Free Rate
|
|
|
1.93% - 2.81
|
%
|
Volatility
|
|
|
120% - 420
|
%
|
Term (Years)
|
|
|
.04 - 4.98
|
|
The
fair value of the embedded derivative liabilities on the subscription agreements at commitment date and remeasurement date are
based upon the following estimates and assumptions made by management for the 3 months ended July 31, 2018:
Stock Price
|
|
$
|
0.0115 - $0.0229
|
|
Exercise Price
|
|
$
|
0.0198 - $0.0472
|
|
Risk Free Rate
|
|
|
1.95% - 2.35
|
%
|
Volatility
|
|
|
114% - 508
|
%
|
Term (Years)
|
|
|
.11 - .99
|
|
The
fair value of the Company’s derivative liabilities at July 31, 2018 is as follows:
April 30, 2018 Balance
|
|
$
|
772,895
|
|
Discount on debt
|
|
|
600,000
|
|
Reclass to equity due to tainting
|
|
|
320,891
|
|
Reclass to equity due to conversions
|
|
|
(45,000
|
)
|
Warrants issued related to convertible debt
|
|
|
20,100
|
|
Fair value mark to market adjustment
|
|
|
284,085
|
|
Derivative liabilities, balance
|
|
$
|
1,952,971
|
|
The
fair values at the commitment dates and re-measurement dates for the convertible debt and warrants treated as derivative liabilities
are based upon the following estimates and assumptions made by management for the three months ended July 31, 2018.
Note
9. Financing Agreement and Convertible Debentures
During
the quarter ended July 31, 2018 the Company issued three unsecured convertible notes payable in a total amount of $467,707 in
cash, with original issue discounts and debt issuance costs totaling $30,878, interest rates of 12% per annum and due dates ranging
from November 22, 2018 to June 14, 2019. The Holders shall have the right, in their sole and absolute discretion, at various dates
to convert all or any part of the outstanding amount due under the Notes into fully paid and nonassessable shares of Common Stock.
The conversion prices range from 55% to 65% multiplied by the average of the two lowest trading prices of the common stock during
the 20 trading day period on two convertible notes and 15 trading day period on one convertible note, ending on the latest complete
Trading Day prior to the conversion. The Company may prepay the amounts outstanding to the holders at any time up to the 180th
day from issuance date.
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
During
the quarter ended July 31, 2018 the Company made cash payments totaling $51,500 and noncash payments totaling $61,680 in the form
of conversions to 8,025,383 shares of the Company’s common stock under the terms of its convertible notes.
During the quarter ended July 31, 2018 the
Company entered into an agreement to amend and restate the terms of an existing convertible note. In consideration the Company
(i) issued 400,000 shares of the Company’s common stock and (ii) increased the note principal amount by $26,000 and the
lender agreed to forbear its conversion rights until August 10, 2018. The company recognized $33,240 for loss on the settlement
of liabilities.
The
Company paid $5,000 to the Auctus fund to amend certain terms of their convertible note issued on November 29, 2017. This amount
was included in interest expense.
The
balance of the convertible notes, net of discounts was $1,019,191 and $839,247 at July 31, 2018 and April 30, 2018, respectively.
Amortization of debt discount was $390,970 for the 3 months ended July, 31, 2018.
Note
10. Subscription Agreements
During
the quarter ended July 31, 2018 the Company entered into a Subscription Agreement with Tangiers Global, LLC for the sale by the
Company to Tangiers Global LLC an aggregate of 2,117,747 shares of the Company’s Common Stock, with a cash investment in
the amount of $50,000, at a price of $0.02361 per share. See Note 13.
Note
11. Equity
During
the quarter ended July 31, 2018 the Company issued 8,425,383 shares of Common Stock, to settle conversions of $61,680 of principal
amounts of convertible notes and to amend and restate an existing note.
During
the quarter ended July 31, 2018 the Company issued in total 2,117,747 shares of Common Stock for in cash in the amount of $50,000.
As
of July 31, 2018, the total accrued dividend for the Series B Preferred stock was $132,477.
Note
12. Warrants
For
the three months ended July 31, 2018 750,000 warrants were issued, and none were exercised or forfeited. The Company’s outstanding
and exercisable warrants as of July 31, 2018 are presented below:
|
|
Number Outstanding
|
|
|
Weighted Average Exercise Price
|
|
|
Contractual Life in Years
|
|
|
Intrinsic Value
|
|
Warrants Outstanding as of April 30, 2018
|
|
|
15,000,000
|
|
|
$
|
0.03
|
|
|
|
3.65
|
|
|
|
|
|
Warrants Exercisable as of April 30, 2018
|
|
|
14,000,000
|
|
|
$
|
0.03
|
|
|
|
3.64
|
|
|
$
|
58,560
|
|
Warrants Granted
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding as of July 31, 2018
|
|
|
15,750,000
|
|
|
|
0.03
|
|
|
|
3.46
|
|
|
|
|
|
Warrants Exercisable as of July 30, 2018
|
|
|
14,750,000
|
|
|
|
0.04
|
|
|
|
3.46
|
|
|
$
|
1,000
|
|
Note
13. Subsequent Events
Subsequent
to July 31, 2018, convertible debt in the amount of $241,000 plus accrued interest totaling $8,760 were converted into 77,345,566
shares of the Company’s common stock.
Effective
August 31, 2018 the Company terminated its May 30, 2018 financing commitment agreement with Global Capital Partners Fund Limited.
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
RESULTS
OF OPERATIONS
The
following discussion of our financial condition and results of operations should be read in conjunction with the financial statements
and notes thereto and other financial information included elsewhere in this report.
Certain
statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,”
“expects” and words of similar import, constitute “forward looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors,
including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes
in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national
and local general economic and market conditions.
GENERAL
Throughout
this Form 10-Q, the terms “we,” “us,” “our,” “ProGreen” and the “Company”
refer to Progreen US, Inc., a Delaware corporation and, unless the context indicates otherwise, includes our subsidiaries.
The
Company was incorporated in Florida on April 23, 1998 and reincorporated in Delaware on December 12, 2008. Effective September
11, 2009, we changed our name from Diversified Product Inspections, Inc. to ProGreen Properties, Inc. to reflect the change in
our business operations to the purchase of income producing real estate assets, and changed our name effective July 22, 2016 to
Progreen US, Inc. to reflect initiation of development operations in Baja Mexico.
OUR
BUSINESS
We
have recently moved our offices from Oakland County, Michigan, to San Diego, California, proximate to our agricultural and Cielo
Mar 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 since our initial property purchases
in 2009 has been to acquire, refurbish and upgrade existing properties into more environmentally sustainable, energy efficient,
comfortable and healthier living spaces so that they meet standards that exceed what is often the norm for most single-family
homes, condominiums and apartments. Once a property has been acquired, refurbished and rented, the property would be put back
on the market, but now with a favorable environmental profile.
Since
all lease agreements in Oakland County, Michigan, have expired and rentals are on a month-to-month basis, the strategy of the
Company is to sell the current real estate portfolio in Michigan and concentrate on the same line of business in the Cielo Mar
development. At this time, we do not offer managed properties as investment properties.
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 has begun delivering chilies pepper
to Huy Fong Foods, Inc. an importer to the U.S. market under a produce purchase agreement for chili peppers.
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.
Status
of Current Bridge Financing
On
May 30, 2018 the Company entered into a financing commitment agreement with Global Capital Partners Fund Limited (the “Lender”)
for a 12 month and one 12 month extension $5,000,000 financing secured by a first mortgage lien on our Cielo Mar property in Baja
California, Mexico. On July 19, 2018, the Lender unilaterally granted a 60 day extension of its closing date commitment of July
15 to September 15, 2018. On August 28, 2018 we notified the Lender that we have terminated the financing commitment, effective
August 31, 2018, due to the Lender’s acknowledged inability to fulfill its obligations to provide the loan consistent with
the terms of the commitment.
We
are in negotiations with other firms for a bridge loan in the amount of $5,000,000, or in that size range, and expect to receive
positive responses from one or more of the firms.
Outstanding
Convertible Notes
We
have approximately $1,292,000 (unamortized discounts total approximately $273,000) in the aggregate of convertible debt outstanding,
in the form of convertible notes ranging in size from $33,000 to $306,804. $306,804 of these notes are past due and, although
we are in technical default, the lender has not sent us notice of default. Certain of the lenders are exercising their rights
to convert their loans in to common stock and selling the shares in the public market for our stock.
Default
terms in these notes generally provide for an increase in shares issuable pursuant to the lenders’ conversion rights, as
well as cross-default provisions and provisions reducing the conversion prices if our common stock sells below specified prices
in the over-the-counter market.
RESULTS
OF OPERATIONS
Three
months Ended July 31, 2018 Compared to Three Months Ended July 31, 2017
During
the three months ended July 31, 2018, we incurred a net loss of approximately $1,113,000 compared to a net loss of approximately
$132,000 for the three months ended July 31, 2017. Revenue decreased approximately $55,000 in the three months ended July 31,
2018 compared to the three months ended July 31, 2017.
Rental
revenue decreased to $0 as compared to approximately $16,000 during the three months ended July 31, 2017. The Company received
rental income from no properties during the three months ended July 31, 2018 as compared to seven in the comparable prior period.
All remaining rental properties were sold in fiscal 2018.
Proceeds
from the sale of properties decreased to $0 as compared to $231,000 during the three months ended July 31, 2017 and the corresponding
cost of properties sold decreased to $0 as compared to approximately $178,000 in the three months ended July 31, 2017, resulting
in a net loss from sale of properties of $0 during the three months ended July 31, 2018, as compared to a net gain of approximately
$40,000 during the three months ended July 31, 2017. The Company sold no properties in the three months ended July 31, 2018 as
compared to four in the comparable prior period.
There
have been fluctuations in certain expenses in the three months ended July 31, 2018, as compared to the three months ended July
31, 2017. In the three months ended July 31, 2018, selling, general and administrative expenses increased approximately $44,000
as compared to the comparable prior period mainly due to the following changes:
There
were increases in certain expenses:
Funding
fees expense increased by approximately $75,000 during the three months ended July 31, 2018 as compared to the comparable prior
period due to the Company’s payment of a nonrefundable fee in connection with a terminated financing commitment agreement.
Bank
charges expense increased by approximately $2,000 during the three months ended July 31, 2018 as compared to the comparable prior
period due to an increase in wire transfer fees in the current period.
Dues
and subscriptions increased by approximately $3,000 during the three months ended July 31, 2018 as compared to the comparable
prior period due to fees paid to the San Diego Chamber of commerce in the current period.
Investor
relations expense increased by approximately $4,000 during the three months ended July 31, 2018 as compared to the comparable
prior period due news wire access fees and fees charged for XBRL formatting services.
Other
taxes expense increased by approximately $13,000 during the three months ended July 31, 2018 as compared to the comparable prior
period due Michigan taxes and California franchise taxes in the amount of approximately $3,000 and taxes relating to Procon’s
operations of approximately $10,000.
Wage
related expenses increased by approximately $2,000 during the three months ended July 31, 2018 as compared to the comparable prior
period due to adjustments to salaries and payroll taxes in the prior comparable quarter. No wages were paid in the current quarter
however housing allowance decreased approximately $1,000 in the current period.
Office
rent expense increased by approximately $2,000 during the three months ended July 31, 2018 as compared to the comparable prior
period due to the Company’s lease in San Diego and the remaining lease payments due under the Michigan office lease.
Fees
and licensing expense increased by approximately $6,000 during the three months ended July 31, 2018 as compared to the comparable
prior period due costs incurred for the Cielo Mar development projects in Baja California.
These
increases were offset by decreases in certain expenses:
Commissions
and Closing costs decreased by approximately $32,000 during the three months ended July 31, 2018 as compared to the comparable
prior period due to the selling of no properties in the current period as compared to four properties in the prior comparable
period
Rental
property costs and depreciation decreased approximately $12,000 for the three months ended July 31, 2018 as compared to the comparable
prior period as a result of a reduction in costs incurred in connection with the rental properties the Company acquired from ARG
due to the sale of all remaining rental properties in fiscal 2018.
Travel
expense decreased approximately $3,000 during the three months ended July 31, 2018 as compared to the comparable prior period
due to moving the Company’s primary operations to Baja California, Mexico and the President’s move to Mexico resulting
in reduced travel needs.
Miscellaneous
office costs decreased by approximately $7,000 during the three months ended July 31, 2018 as compared to the comparable prior
period due budgetary constraints and closing of Michigan office.
Bad
debt recovery increased from $0 for the three month period ended July 31, 2017 to approximately $7,000 in the current three month
period ended July 31, 2018 as the Company received payments from past due tenants and collected amounts on three previously written
off land contract receivables.
Professional
fees increased approximately $76,000 for the three months ended July 31, 2018 as compared to the comparable prior period mainly
due to an increase in accounting, financial consulting, valuation services fees, legal fees and compliance fees.
Interest
expense, net increased approximately $440,000 for the three months ended July 31, 2018 as compared to the comparable prior period
mainly due to the increase in amortization of debt discounts, prepayment penalties and interest recognized in connection with
convertible notes in the current quarter of fiscal 2019 as compared to the comparable prior three month period.
Loss
on settlement of liabilities, common stock decreased to approximately $33,000 for the three months ended July 31, 2018 as compared
to $45,000 for the comparable prior period due to a forbearance payment and issuance of common stock relating to a convertible
note payable in the current quarter and the partial payoff of a convertible note payable and issuance of common stock under make
whole provision in the prior comparable quarter.
Derivatives
gain decreased to a loss of approximately $284,000 for the three months ended July 31, 2018 as compared to a derivatives gain
of $115,000 for the comparable prior period due to the fair value adjustments in connection with the convertible notes and common
stock warrants in the current three month period.
LIQUIDITY
AND CAPITAL RESOURCES
At
April 30, 2018, we had total assets of approximately $1,951,000 compared to total assets of approximately $2,126,000 at July 31,
2018. The increase in total assets was primarily due to:
Property
increased $160,000 due to Company’s acquisition of agricultural land under the terms of a definitive purchase agreement,
the Company recorded agricultural land at cost in the amount of $160,000 and Note Receivable- Related Party increased $140,000
as a result of the Company’s additional loan to Contel.
These
increases in assets were partially offset by decreases in: cash of approximately $88,000 and other assets decreased approximately
$37,000 mainly due to a decrease in Procon’s other assets of approximately $41,000 offset by an increase in Procon’s
prepaid expenses of approximately $4,000.
Cash
decreased to approximately $18,000 for the period ended July 31, 2018, compared to cash of $106,000 at April 30, 2018. Cash used
in operating activities was approximately $243,000 for the period ended July 31, 2018, as compared with cash used in operating
activities of approximately $182,000 in the comparable period in fiscal 2017.
At
July 31, 2018, we had stockholders’ deficit of approximately $2,849,000 compared to a deficit of approximately $1,531,000
at April 30, 2018.
Credit
Lines
The
Company has credit line promissory notes with its President and Chief Executive Officer Lines with a total balance outstanding
of $840,555 as of July 31, 2018.
Convertible
Note Financings
We
have approximately $1,292,000 (unamortized discounts total approximately $273,000) in the aggregate of convertible debt outstanding,
in the form of convertible notes.
Critical
Accounting Policies
The
summary of critical accounting policies below should be read in conjunction with the discussion of the Company’s accounting
policies included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2018. We consider the following
accounting policy to be the most critical going forward:
Basis
of Presentation - The Company’s financial statements for the year ended April 30, 2018, 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.