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 and nine months ended January 31, 2019 and 2018 are not necessarily indicative of the results
for the entire fiscal year or for any other period.
ProGreen
US, Inc.
Condensed
Consolidated Balance Sheets
|
|
January 31, 2019
|
|
|
April 30, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Agricultural land
|
|
$
|
160,000
|
|
|
$
|
-
|
|
Land under development
|
|
|
500,000
|
|
|
|
500,000
|
|
Property
|
|
|
660,000
|
|
|
|
500,000
|
|
Cash
|
|
|
12,688
|
|
|
|
106,256
|
|
Accounts receivable, net of allowance of $36,910 and $37,960
|
|
|
-
|
|
|
|
-
|
|
Notes receivable - land contracts, net of allowance of $221,371 and $221,080
|
|
|
70,659
|
|
|
|
70,659
|
|
Prepaid and other assets
|
|
|
176,675
|
|
|
|
82,909
|
|
Note receivable - related party
|
|
|
938,910
|
|
|
|
1,187,500
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Vehicles, furniture and equipment, net of accumulated
depreciation of $46,972 and $46,703
|
|
|
3,804
|
|
|
|
3,804
|
|
Total assets
|
|
$
|
1,862,736
|
|
|
$
|
1,951,128
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,736,721
|
|
|
$
|
348,657
|
|
Reservation and tenant deposits
|
|
|
49,559
|
|
|
|
48,085
|
|
Notes payable
|
|
|
233,978
|
|
|
|
23,512
|
|
Note payable, related parties, net of discount of $0 and $0, respectively
|
|
|
2,143,462
|
|
|
|
882,555
|
|
Note payable - Ann Arbor
|
|
|
29,329
|
|
|
|
58,952
|
|
Derivative liabilities
|
|
|
1,051,801
|
|
|
|
772,895
|
|
Convertible debentures, net of discount of $123,567 and $32,682, respectively
|
|
|
501,384
|
|
|
|
839,247
|
|
Dividend payable
|
|
|
-
|
|
|
|
108,579
|
|
Liability under land contract-related party
|
|
|
520,000
|
|
|
|
400,000
|
|
Total liabilities
|
|
|
6,266,234
|
|
|
|
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 January 31, 2019 and April 30, 2018
|
|
|
97
|
|
|
|
97
|
|
Convertible preferred stock, Series B $.0001 par value, 8,534,625 shares authorized,
0 and 8,534,625 shares issued and outstanding at January 31, 2019 and April 30, 2018
|
|
|
-
|
|
|
|
853
|
|
Common stock, $.0001 par value, 1,250,000,000 shares authorized, 1,217,279,154 and 421,577,283
outstanding
|
|
|
|
|
|
|
|
|
at January 31, 2019 and April 30, 2018
|
|
|
121,730
|
|
|
|
42,157
|
|
Additional paid in capital
|
|
|
6,220,356
|
|
|
|
6,221,833
|
|
Accumulated other comprehensive income
|
|
|
(1,852
|
)
|
|
|
(30,999
|
)
|
Accumulated deficit
|
|
|
(10,640,124
|
)
|
|
|
(7,723,312
|
)
|
Total controlling interest
|
|
|
(4,299,793
|
)
|
|
|
(1,489,371
|
)
|
Noncontrolling interest in consolidated subsidiary
|
|
|
(103,705
|
)
|
|
|
(41,983
|
)
|
Total stockholders' deficit
|
|
|
(4,403,498
|
)
|
|
|
(1,531,354
|
)
|
Total liabilities and stockholders' deficit
|
|
$
|
1,862,736
|
|
|
$
|
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
|
|
|
Nine Months Ended
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
-
|
|
|
$
|
13,088
|
|
|
$
|
-
|
|
|
$
|
44,138
|
|
Net gain (loss) on sale of properties
|
|
|
-
|
|
|
|
(24,719
|
)
|
|
|
-
|
|
|
|
15,186
|
|
Management fees
|
|
|
9,606
|
|
|
|
-
|
|
|
|
60,890
|
|
|
|
-
|
|
Total Revenue
|
|
$
|
9,606
|
|
|
$
|
(11,631
|
)
|
|
$
|
60,890
|
|
|
$
|
59,324
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative
|
|
|
103,437
|
|
|
|
87,856
|
|
|
|
332,232
|
|
|
|
283,249
|
|
Professional fees
|
|
|
80,146
|
|
|
|
99,053
|
|
|
|
305,823
|
|
|
|
249,343
|
|
Total operating expenses
|
|
$
|
183,583
|
|
|
$
|
186,909
|
|
|
$
|
638,055
|
|
|
$
|
532,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(173,977
|
)
|
|
|
(198,540
|
)
|
|
|
(577,165
|
)
|
|
|
(473,268
|
)
|
Other expenses and income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(981,146
|
)
|
|
|
(131,737
|
)
|
|
|
(2,430,356
|
)
|
|
|
(910,716
|
)
|
Loss on settlement of liabilities, common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(33,240
|
)
|
|
|
(44,659
|
)
|
Gain (Loss) on change in fair value of derivative liabilities
|
|
|
(63,441
|
)
|
|
|
177,929
|
|
|
|
119,114
|
|
|
|
806,854
|
|
Loss before income tax expense
|
|
$
|
(1,218,564
|
)
|
|
$
|
(152,348
|
)
|
|
$
|
(2,921,647
|
)
|
|
$
|
(621,789
|
)
|
Net Loss
|
|
|
(1,218,564
|
)
|
|
$
|
(152,348
|
)
|
|
$
|
(2,921,647
|
)
|
|
$
|
(621,789
|
)
|
Less: Net loss attributable to noncontrolling interest
|
|
$
|
(16,334
|
)
|
|
$
|
(20,768
|
)
|
|
$
|
(61,722
|
)
|
|
$
|
(28,011
|
)
|
Net Loss attributable to parent
|
|
$
|
(1,202,230
|
)
|
|
$
|
(131,580
|
)
|
|
$
|
(2,859,925
|
)
|
|
$
|
(593,778
|
)
|
Deemed dividend on redeemable, convertible preferred stock, Series
B
|
|
$
|
9,091
|
|
|
$
|
23,898
|
|
|
$
|
56,887
|
|
|
$
|
71,694
|
|
Net Loss attributable to parent common shareholders
|
|
$
|
(1,211,321
|
)
|
|
$
|
(155,478
|
)
|
|
$
|
(2,916,812
|
)
|
|
$
|
(665,472
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments
|
|
$
|
19,085
|
|
|
$
|
16,737
|
|
|
$
|
29,147
|
|
|
$
|
(5,825
|
)
|
Total other comprehensive income (loss)
|
|
$
|
19,085
|
|
|
$
|
16,737
|
|
|
$
|
29,147
|
|
|
$
|
(5,825
|
)
|
Comprehensive net loss attributable to parent
|
|
$
|
(1,192,236
|
)
|
|
$
|
(138,741
|
)
|
|
$
|
(2,887,665
|
)
|
|
$
|
(671,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and fully diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average shares outstanding - basic and fully diluted
|
|
|
1,092,670,982
|
|
|
|
386,464,585
|
|
|
|
687,713,466
|
|
|
|
366,594,324
|
|
See accompanying Notes to these Unaudited
Condensed Consolidated Financial Statements
ProGreen
US, Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
January 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash used in operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,921,647
|
)
|
|
$
|
(621,789
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Compensation - restricted stock units
|
|
|
-
|
|
|
|
1,000
|
|
Depreciation
|
|
|
-
|
|
|
|
15,720
|
|
Gain on sale of rental properties
|
|
|
-
|
|
|
|
(15,186
|
)
|
Recovery of bad debt, net
|
|
|
(10,425
|
)
|
|
|
-
|
|
Gain on change in fair value of derivative liabilities
|
|
|
(119,114
|
)
|
|
|
(806,854
|
)
|
Loss on settlement of liabilities
|
|
|
33,240
|
|
|
|
44,659
|
|
Warrant expense
|
|
|
20,700
|
|
|
|
-
|
|
Amortization of debt discount
|
|
|
864,978
|
|
|
|
637,006
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,050
|
|
|
|
(37,541
|
)
|
Accounts payable and accrued expenses
|
|
|
1,405,214
|
|
|
|
9,384
|
|
Reservation and tenant deposits
|
|
|
1,474
|
|
|
|
24,509
|
|
Prepaid and other assets
|
|
|
(93,766
|
)
|
|
|
(19,843
|
)
|
Cash used in operating activities
|
|
|
(818,296
|
)
|
|
|
(768,935
|
)
|
Cash provided by investing activities
|
|
|
|
|
|
|
|
|
Purchase of office equipment
|
|
|
-
|
|
|
|
(2,984
|
)
|
Proceeds from sale of properties
|
|
|
-
|
|
|
|
423,000
|
|
Cash received from notes receivable - land contracts
|
|
|
9,375
|
|
|
|
4,458
|
|
Purchase of land
|
|
|
(40,000
|
)
|
|
|
-
|
|
Loan for note receivable - related party
|
|
|
(585,852
|
)
|
|
|
(302,000
|
)
|
Loan repayment by related party
|
|
|
834,442
|
|
|
|
50,000
|
|
Cash provided by investing activities
|
|
|
217,965
|
|
|
|
172,474
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
|
|
|
|
|
|
Proceeds from the sale of common stock
|
|
|
50,000
|
|
|
|
399,602
|
|
Proceeds from notes payable-related party
|
|
|
-
|
|
|
|
480,155
|
|
Proceeds from notes payable
|
|
|
287,300
|
|
|
|
49,000
|
|
Repayment of notes payable
|
|
|
(106,457
|
)
|
|
|
(510,267
|
)
|
Repayment of notes payable related party
|
|
|
(166,355
|
)
|
|
|
(20,000
|
)
|
Proceeds from convertible debentures
|
|
|
467,707
|
|
|
|
886,938
|
|
Repayment of convertible debentures
|
|
|
(54,579
|
)
|
|
|
(829,164
|
)
|
Decrease in obligations under capital leases
|
|
|
-
|
|
|
|
(3,373
|
)
|
Cash provided by financing activities
|
|
|
477,616
|
|
|
|
452,891
|
|
Effect of foreign exchange on cash
|
|
|
29,147
|
|
|
|
(5,825
|
)
|
Net change in cash
|
|
|
(93,568
|
)
|
|
|
(149,395
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
106,256
|
|
|
|
289,095
|
|
Cash at end of period
|
|
$
|
12,688
|
|
|
$
|
139,700
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
100,163
|
|
|
$
|
251,389
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing transactions:
|
|
|
|
|
|
|
|
|
Reclassification of equity to derivative liability due to tainting
|
|
$
|
301,453
|
|
|
$
|
151,166
|
|
Reclassification of derivative liability to equity due to conversion
|
|
$
|
847,855
|
|
|
$
|
374,354
|
|
Dividend declared not paid, redeemable, convertible preferred stock, Series
B
|
|
$
|
56,887
|
|
|
$
|
71,694
|
|
Debt discount on derivative liability
|
|
$
|
924,985
|
|
|
$
|
490,371
|
|
Purchase of land on account
|
|
$
|
120,000
|
|
|
$
|
-
|
|
Conversion of debt and accrued interest into common stock
|
|
$
|
848,749
|
|
|
$
|
101,098
|
|
Deferred gain on the sale of rental properties
|
|
$
|
-
|
|
|
$
|
52,601
|
|
Notes receivable - land contracts issued for sale of properties
|
|
$
|
-
|
|
|
$
|
124,000
|
|
Accrued interest rolled into principal
|
|
$
|
-
|
|
|
$
|
681
|
|
Reclassification of equity to derivative liability due to common stock
true up feature
|
|
$
|
19,437
|
|
|
$
|
748,537
|
|
Redemption of Preferred Series B
|
|
$
|
1,427,262
|
|
|
$
|
-
|
|
See accompanying Notes to these Unaudited
Condensed Consolidated Financial Statements
Progreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL 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 nine month period ended January 31, 2019,
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 nine months ended January 31, 2019, 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 January 31, 2019, 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. If the Company is unable to acquire additional funding, our ability to finance
current operations, fund loans to Contel and/or continue development of the Cielomar project would be adversely affected. Progeeen
Farm’s Purchaser notified the Company that it has located another source of chili peppers for 2019 and would not need produce
from Progreen Farms. In the event Contel’s farm is unable to identify another buyer for their produce or are unable to grow
product, the repayment of Notes Receivable-Related party of approximately $939,000 as of January 31, 2019 may not occur. Further,
the Company has short term notes payable for which, due to the lack of funds, the Company has not been able to meet the daily
withdrawal requirements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
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.
There
are significant risks and uncertainties which could negatively affect the Company’s operations. These are principally related
to the existence of events of default under the Company’s outstanding debt obligations, which could trigger penalties. Furthermore,
if our current indebtedness is not restructured, paid or converted into equity, which is at the debt holder’s discretion,
our current operations do not generate sufficient cash to pay interest and principal on these obligations when they become due.
Accordingly, there can be no assurance that we will be able to pay these or other obligations which we may incur in the future.
In the event we are unable to restructure, pay or convert into equity the balance of our outstanding indebtedness, the holders
may obtain judgments against us and seek to enforce such judgments against our assets, in which event we will be required to cease
our business activities and the equity of our stockholders will be effectively wiped out.
Progreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 its operations if the Company is unsuccessful in generating positive cash flow
or financing for the Company’s operations through the issuance of securities.
Revenue,
Cost of Sales, Management Fees and Concentration
The
Company’s wholly owned subsidiary Progreen Farms LLC (“Progreen Farms “) entered an agreement with an outside
party (the “Purchaser”) to delivery 2,500 tons of chili peppers at .24 cents a pound. It was anticipated Contel would
be the sole supplier and Progreen Farms act as the distributor. However, it was determined Contel could not deliver the required
volume and other producers were contacted. The price charged by Contel to Progreen Farms was the same price (i.e. .24 cents)
as Progreen Farms charges to the Purchaser thus revenue and cost of sales net to zero. Revenue and expenses are recorded when
delivery is made to the Purchaser and truck weight certificates are received.
The
Company charged 10% of invoice amounts to producers, other than Contel, for billing services which is recorded as a management
fee. During the nine months ended January 31, 2019 management fees totaled $60,890.
During
the nine months ended January 31, 2019, the Purchaser notified the Company that it located another source of chili peppers for
2019 and would not need produce from Progreen Farms.
Reclassifications
Certain
amounts in previous periods have been reclassified to conform to fiscal year ending 2019 classifications.
Note
2. Agricultural Land, Land Under Development and Liability under Land Contract-Related Party
During
the nine months ended January 31, 2019, 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 January 31, 2019 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 January 31, 2019 and April 30, 2018, respectively.
The
Company held land under development in the amount of $500,000 as of January 31, 2019 and April 30, 2018. The liability under land
contract to purchase the land was $400,000 as of January 31, 2019 and April 30, 2018.
As
of January 31, 2019 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 nine months ended January 31, 2019, the Company contributed an additional $585,852 to Inmobiliaria Contel S.R.L.C.V. (“Contel”)
and received $834,442 from Contel from the proceeds on the sale of chili peppers. Note Receivable - Related Party Note totaled
$938,910 and $1,187,500 as of January 31, 2019 and April 30, 2018, respectively.
Progreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
4. Notes Payable
During the nine months ended January 31, 2019
the Company borrowed $287,300 (including fees of $11,588) with interest rates ranging from 25.00% per annum to 138.30% per annum
and due dates ranging from March 27, 2019 to January 24, 2020 and made payments of $76,834 under four unsecured promissory
notes.
The
amount outstanding under five unsecured promissory notes with unrelated parties note payable totaled $219,466 and $9,000 as of
January 31, 2019 and April 30, 2018, respectively. The Company recorded total interest expense in connection with these five
unsecured promissory notes in the amount of $58,054 and $1,548 for the nine months ended January 31, 2019 and January 31, 2018,
respectively. Total accrued interest due under these five unsecured promissory notes was $2,000 and $1,661 as of January 31, 2019
and April 30, 2018.
The amount due under the Southfield debt had a balance outstanding of $14,512 as of January 31, 2019 and April
30, 2018.
Note
5. Note Payable, Related Party
During the nine months ended January 31, 2019,
the Company converted 8,534,625 shares of Preferred Stock Series B and the related dividend payable in the amount of $165,466
into an unsecured note payable due to AMREFA (“AMREFA NP”) in the amount of $1,427,262. A note “Original
Note” for $1,427,262 dated December 31, 2017 was issued to AMREFA for the redemption of the Preferred Stock Series B. The
Original Note provided for the principal to be paid in installments on June 30, 2018, December 31, 2018 and June 30, 2019. The
Original Note was amended on December 5, 2018 (“December Note”), but was not recognized as the note holder did not
return the Preferred Stock Series B. The December Note provided that the Company and the Holder agreed to cancel the Preferred
Stock Series B and for a waiver of any past defaults under the Original Note with all principal and interest be paid on or before
June 30, 2019.
Notes
payable related parties includes the amount due under AMREFA NP with a total balance outstanding of $1,427,262 and $0 as of January
31, 2019 and April 30, 2018, respectively.
The Company recorded total interest expense
in connection with AMREFA NP in the amount of $108,560 and $0 for the nine months ended January 31, 2019 and 2018, respectively.
Total accrued interest due under AMREFA NP was $108,560 and $0 as of January 31, 2019 and April 30, 2018, respectively. The
amount of the AMREFA NP exceeded the stated value of the Preferred Stock Series B as of the conversion date by $50,847, which
was applied to the accrued dividend payable of $165,466. The excess of dividend payable over the AMREFA NP of $114,619 was reversed
against interest expense.
During
the nine months ended January 31, 2019, the Company paid $166,355 of amounts due under the Company’s unsecured 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 $716,200 and $882,555
as of January 31, 2019 and April 30, 2018, respectively.
Amortization
of the related discount totaled $0 and $61,674 for the nine months ended January 31, 2019 and 2018, respectively. The Company
recorded total interest expense in connection with the Credit Lines in the amount of $29,362 and $27,720 for the nine months ended
January 31, 2019 and 2018, respectively. Total accrued interest due under the Credit Lines was $79,979 and $50,617 as of January
31, 2019 and April 30, 2018, respectively.
Note
6. Note Payable to Bank of Ann Arbor
During
the nine months ended January 31, 2019 the Company paid $29,623 under the note payable Ann Arbor and had a balance
outstanding of $29,329 and $58,952 as of January 31, 2019 and April 30, 2018, respectively. The Company recorded interest
expense in connection with this note payable in the amount of $2,836 and $16,744 for the nine months ended January 31, 2019
and 2018, respectively. Accrued interest due under the note payable totaled $8 and $304 as of January 31, 2019 and April 30,
2018, respectively.
Principal
payment requirements on the notes payable to Bank of Ann Arbor are as follows:
2019
|
|
$
|
10,219
|
|
2020
|
|
|
19,110
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
29,329
|
|
Progreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
7. Fair Value Measurement
Financial
Accounting Standards Board (“FASB”) ASC Topic 820,
Fair Value Measurements and Disclosures
, requires disclosure
of the fair value (“FV”) of financial instruments held by the Company. FASB ASC Topic 825,
Financial Instruments
,
defines FV, and establishes a three-level valuation hierarchy for disclosures of FV measurement that enhances disclosure requirements
for FV 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 FVs 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 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices
for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly
or indirectly, for substantially the full term of the financial instrument.
|
|
|
●
|
Level
3 inputs to the valuation methodology us one or more unobservable inputs which are significant to the FV measurement.
|
The
Company analyzes all financial instruments with features of both liabilities and equity under FASB ASC Topic 480,
Distinguishing
Liabilities from Equity
, and FASB ASC Topic 815,
Derivatives and Hedging
.
The Company uses Level 3 inputs for its valuation
methodology for its derivative liability as its FV was determined by using the Binomial pricing model based on various
assumptions for convertible debt and Black-Scholes model based on various assumptions for the warrants and equity investments.
The Company’s derivative liability is adjusted to reflect FV at each period end, with any increase or decrease in the FV
being recorded in results of operations as adjustments to FV of derivatives.
The
Company held certain financial instruments that are measured at fair value on a recurring basis as follows:
|
●
|
Convertible
debt totaling $624,951 and $0 at January 31, 2019 and April 30, 2018 respectively,
with a derivative liability totaling $355,056 and $0 at January 31, 2019 and April
30, 2018, respectively, which are categorized as Level 3.
|
|
●
|
Equity
investments totaling $754,602 and $704,602 at January 31, 2019 and April 30, 2018, respectively, with a derivative liability
totaling $689,129 and $772,895 at January 31, 2019 and April 30, 2018, respectively, which are categorized as Level 3.
|
|
●
|
7,000,000
and 0 Common stock warrants at January 31, 2019 and April 30, 2018, respectively, with
a derivative liability totaling $7,616 and $0 at January 31, 2019 and April 30,
2018, respectively, which are categorized as Level 3.
|
The related gain on change in fair value of
derivatives totaled $119,114 and $806,854 for the nine months ended January 31, 2019 and 2018, respectively.
Note
8. Derivative Liabilities
During the nine months ended January 31, 2019
the Company identified conversion features embedded within its convertible debt. The Company determined 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 Binomial
model on the issuance dates with the assumptions in the table below.
Progreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 nine months ended January 31, 2019:
Stock Price
|
|
$
|
.0009-$.0021
|
|
Exercise Price
|
|
$
|
.000079-$.05
|
|
Risk Free Rate
|
|
|
2.23%-3.00
|
%
|
Volatility
|
|
|
0%-412.9
|
%
|
Term (Years)
|
|
|
0-4.5
|
|
The
fair value of the embedded derivative liabilities on the subscription agreements at commitment date and re-measurement date are
based upon the following estimates and assumptions made by management for the nine months ended January 31, 2019:
Stock Price
|
|
$
|
0.0011
|
|
Exercise Price
|
|
$
|
.0198
- $.0574
|
|
Risk Free Rate
|
|
|
2.20%
- 2.51
|
%
|
Volatility
|
|
|
0%
- 250
|
%
|
Term (Years)
|
|
|
0
- .55
|
|
The
fair value of the Company’s derivative liabilities at January 31, 2019 is as follows:
April 30, 2018 - Balance
|
|
|
772,895
|
|
Discount on debt
|
|
|
924,985
|
|
Reclass from equity due to tainting
|
|
|
301,453
|
|
Reclass to equity due to conversion
|
|
|
(847,855
|
)
|
Reclass from equity due to common stock true up feature
|
|
|
19,437
|
|
Fair value mark to market adjustment
|
|
|
(119,114
|
)
|
|
|
|
1,051,801
|
|
Note
9. Financing Agreement and Convertible Debentures
During
the nine months ended January 31, 2019 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 non-assessable 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.
During the nine months ended January 31, 2019
the Company made cash payments totaling $54,579 and noncash payments totaling $716,984 (along with $131,765
accrued interest and fees) in the form of conversions to 793,184,124 shares of the Company’s common stock under the terms
of its convertible notes.
During
the nine months ended January 31, 2019 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 accounted for this amendment under FASB Accounting Standards
Codification ("ASC") 470-50 "Accounting for Debt Modifications and Extinguishments" as a debt modification.
Progreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
During
the nine months ended January 31, 2019 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 $501,384 and $839,247 at January 31, 2019 and April 30, 2018, respectively. Amortization of debt discount was
$864,978 and $575,332 for the nine months ended January 31, 2019 and 2018 respectively.
The
Company recorded total interest expense in connection with convertible debentures in the amount of $200,051 and $94,441 for the
nine months ended January 31, 2019 and 2018, respectively. Total accrued interest due under the convertible debentures was $88,320
and $44,735 as of January 31, 2019 and April 30, 2018, respectively.
Effective
August 31, 2018 the Company terminated its May 30, 2018 financing commitment agreement with Global Capital Partners Fund Limited.
Note
10. Equity
During the nine months ended January 31, 2019
the Company issued 793,584,124 shares of Common Stock, to settle conversions of $848,749 of principal and interest of convertible
notes and to amend and restate an existing note.
During
the nine months ended January 31, 2019 the Company issued in total 2,117,747 shares of Common Stock for in cash in the amount
of $50,000.
During the nine months ended January 31, 2019,
the Company amended (the “Amendment”) the December 31, 2017 7% promissory note in the principal amount of $1,427,262,
payable to American Residential Fastigheter AB (“AMREFA”), issued by the Company in redemption of 8,534,625 shares
of Series B Convertible Preferred Stock held by AMREFA. (See Note 5)
As of January 31, 2019, the total accrued
dividend for the Series B Preferred stock was $0. For the nine months ended January 31, 2019, $56,887 of dividends was
recorded. The total accrued dividend was $165,466 as of December 5, 2018 and was exchanged for the AMREFA note (see Note 5).
As of January 31, 2019 and April 30, 2018,
amounts accrued for the true up feature of equity investments was $1,278,627 and $0, respectively. This amount was included in
accounts payable and accrued liabilities in the condensed consolidated balance sheet and recorded as part of interest expense in
the condensed consolidated statement of operations as of January 31, 2019.
Progreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
11. Warrants
For the nine months ended January 31, 2019,
40,750,000 warrants were issued, and none were exercised or forfeited. The 40,750,000 warrants were fair valued for $56,100 and
$20,700 was recorded as professional fees on the face of income statement for the warrants that have vested as of January
31, 2019. The Company’s outstanding and exercisable warrants as of January 31, 2019 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
|
|
|
40,750,000
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
Warrants
Cancelled
|
|
|
(5,000,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding as of January31, 2019
|
|
|
50,750,000
|
|
|
$
|
0.01
|
|
|
|
4.50
|
|
|
|
|
|
Warrants
Exercisable as of January 31, 2019
|
|
|
9,750,000
|
|
|
$
|
0.03
|
|
|
|
2.93
|
|
|
$
|
-
|
|
Included in the 40,750,000 warrants issued
during the nine months ended January 31, 2019 are 25,000,000 warrants issued to the Company’s Chief Executive Officer. 5,000,000
warrants issued to the Chief Executive Officer was cancelled due to the valuation cost and high exercise price.
The fair value of the warrants was calculated
using the Black-Scholes valuation model and are based upon the following estimates and assumptions made by management for the
nine months ended January 31, 2019.
Stock Price
|
|
$
|
0.0011
|
|
Exercise Price
|
|
$
|
.02 - $.05
|
|
Risk Free Rate
|
|
|
2.43
|
%
|
Volatility
|
|
|
155.6% - 412.9
|
%
|
Term (Years)
|
|
|
2.39 - 4.24
|
|
Note
12. Subsequent Events
On
February 23, 2019, the number, designation, rights, preferences and privileges of a new Series of Preferred Stock, the Series
C Preferred Stock were established by the Board of Directors of the Company. The designation, rights, preferences and privileges
that the Board established for the Series C Preferred Stock are set forth in a Certificate of Designations that was filed with
the Secretary of State of the State of Delaware on February 27, 2019. Among other things, the Certificate of Designation provides
that each one share of Series C Preferred has voting rights equal to (x) (i) 0.019607 multiplied by the total issued and outstanding
Common Stock eligible to vote at the time of the respective vote (the number of determined by this clause (i), the “Numerator”),
divided by (ii) 0.49, minus (y) the Numerator. These voting rights apply only to matters of Company capitalization (i.e. increase
in authorized shares of common stock, stock splits, etc.), and similar matters upon which stockholders are entitled to vote or
to which stockholders are entitled to give consent. The Series C has a par value of $0.0001 per share, no rights to dividends
but provides for liquidation rights which entitle the holder to a pro-rata share of net assets. Each Series C share is convertible,
at the option of the holder, into one share of Common Stock. The Company issued 51 shares of the Series C Preferred to the Company’s
Chief Executive Officer.
Subsequent
to January 31, 2018, convertible debt in the amount of $21,294 was converted into 36,713,000 shares of the Company’s common
stock.
During March 2019, The Company received an advance of $50,000 from Sactum AB. This advance carries an
interest rate of 10%, to be repaid on or before January 15, 2020.
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 in 2017, 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 in our initial operations commencing
in 2009 was 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 would be put back on the market, but now with
a favorable environmental profile.
We
have sold all properties in Michigan, but still have outstanding payments due from five properties, as the properties were sold
on land contracts, and we now concentrate on the same line of business in the Cielo Mar development. At this time, we do not offer
managed properties as investment properties.
Our
real estate development operations are now concentrated in Baja California, Mexico. On February 11, 2016, we signed a definitive
agreement with Inmobiliaria Contel S.R.L.C.V. (“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
operations have been conducted, the produce being sold through an importer into the U.S. markets.
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 took 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,
borders 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 has been
created for a resort-type retirement and vacation community with the name “Cielo Mar”. The first phase of the development
of the master plan was presented to the authorities for approval, during the summer and is expected to be approved shortly.
Status
of Current Bridge Financing
We
are in executed a term sheet with a firm for a bridge loan in the amount of $2,500,000. This loan is for 36 months at an interest
rate of 9.25% fixed. The anticipated closing date for funding is April 2019.
Outstanding
Convertible Notes
We
have approximately $501,000 (unamortized discounts total approximately $124,000) in the aggregate of convertible debt outstanding,
in the form of convertible notes ranging in size from $22,766 to $236,085. $493,601 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.
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. 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
its operations if the Company is unsuccessful in generating positive cash flow or financing for the Company’s operations
through the issuance of securities.
We will require additional common stock
to issue to potential equity investors in the Company. On February 23, 2019 our Board of Directors approved the filing with the
Delaware Secretary of State of an amendment to our Certificate of Incorporation providing for a new Series C Preferred Stock,
with special majority voting rights. Effective March 18, 2019, the Board authorized the issuance of these preferred shares with
special voting rights to our Chief Executive Officer, so that the Company could proceed with a stockholder vote to approve an
increase in the Company’s authorized common stock.
Outstanding
Notes Payable
We
have five short term notes in the aggregate of $219,464, ranging in size from $9,000 to $123,150. Three notes require a daily
withdrawal of $3,499 from the Company’s bank account. One requires a quarterly payment of $1,517. One note was due on July
19, 2018. Due to the lack of funds, the Company has not been able to meet the daily withdrawal requirement for the three short
term notes. Although we are in technical default, the lenders have not sent us notice of default.
Cielomar
Development
On
January 17, 2019, the Company executed an exclusive broker/agent agreement with EXIT Southeast’s Marketing Group LLC (“EXIT”)
.
This agreement grants EXIT the exclusive right to sell property within Cielomar. Beginning on March1, 2019. EXIT will
begin direct marketing efforts for the sale of single family/multi-family condo/resort homes.
RESULTS
OF OPERATIONS
Three
months Ended January 31, 2019 Compared to Three Months Ended January 31, 2018
During the three months ended January 31,
2019, we incurred a net loss of approximately $1,219,000 compared to a net loss of approximately $152,000 for the three
months ended January 31, 2018. Revenue increased approximately $21,000 in the three months ended January 31, 2019 compared to
the three months ended January 31, 2018.
Rental
revenue decreased to $0 in the three months ended January 31, 2019 as compared to approximately $13,000 during the three months
ended January 31, 2018. The Company received rental income from no properties during the three months ended January 31, 2019 as
compared to five in the comparable prior period. All remaining rental properties were sold in fiscal 2018. Net loss on sale of
properties decreased to $0 as compared to a loss of approximately $25,000 during the three months ended January 31, 2018, during
which the Company sold three properties as compared to none in the current period. Management fee revenue increased to approximately
$9,600 as compared to $0 during the three months ended January 31, 2018. The Company received management fees, for billing services,
from outside producers on sales of the producers’ chili peppers.
Selling,
general & administrative increased to approximately $103,000 as compared to approximately $88,000 during the three months
ended January 31, 2018, mainly due to the following: Expenses relating to the rental properties decreased approximately $18,000
as compared to the three months ended January 31, 2018 because all properties were sold in fiscal 2018. Automobile expenses decreased
by approximately $1,000 due to less maintenance costs. Insurance expenses decreased by approximately $1,500 due to a decrease
in rates. Miscellaneous expenses decreased by approximately $9,600 due to efforts at the ProCon to contain expenses. Rent expense
decreased by approximately $1,400 due to the elimination of the Michigan office. Travel expenses decreased by approximately $8,000
due to moving the Company’s primary operations to Baja California, Mexico and the President’s move to Mexico. These
decreases were offset by the following increase in expenses. Bank fees increased by approximately $1,300 due to the increased
number of wire transactions. Dues increased by approximately $3,000 due to membership in the San Diego Chamber of Commerce. Investor
relations increased by approximately $8,000 due to increased rate charged by a consultant. Fees increased by approximately $2,400
due to increase in fees to Newswire fees. Housing allowance increased by approximately $6,000 due to increased rent in San Diego.
Funding fees increased approximately $29,000 due to the Company’s payment of a nonrefundable fee in connection with a terminated
financing commitment agreement. Taxes increased by approximately $2,200 due to increase in VAT taxes incurred by ProCon. Bad debt
expense increased by approximately $2,600 due to less payment received from land contracts.
Professional fees decreased approximately
$19,000 for the three months ended January 31, 2019 as compared to the comparable prior period mainly due to a decrease in
audit, accounting and legal fees, partially offset by an increase in financial consulting, valuation services fees and Procon
architecture fees.
Nine
months Ended January 31, 2019 Compared to Nine Months Ended January 31, 2018
During
the nine months ended January 31, 2019, we incurred a net loss of approximately $2,922,000 compared to a net loss of approximately
$622,000 for the nine months ended January 31, 2018. Revenue increased approximately $1,600 in the nine months ended January
31, 2019 compared to the nine months ended January 31, 2018.
Rental
revenue decreased to $0 as compared to approximately $44,000 during the nine months ended January 31, 2018. The Company received
rental income from no properties during the nine months ended January 31, 2019 as compared to five in the comparable prior period.
All remaining rental properties were sold in fiscal 2018. Net gain on sale of properties decreased to $0 as compared to approximately
$15,000 during the nine months ended January 31, 2018. Management fee revenue increased to approximately $61,000 as compared to
$0 during the nine months ended January 31, 2018 due to management fees, for billing services, from outside producers on sales
of the outside producers’ chili peppers received by the Company.
There
have been fluctuations in certain expenses in the nine months ended January 31, 2019, as compared to the nine months ended January
31, 2018. In the nine months ended January 31, 2019, selling, general and administrative expenses increased approximately $49,000
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 $104,000 during the nine months ended January 31, 2019 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.
Housing
allowance expense increased approximately $9,500 during the nine months ended January 31, 2019 as compared to the comparable prior
period due to increased rent in San Diego
Miscellaneous
expense increased by approximately $4,000 during the nine months ended January 31, 2019 as compared to the comparable prior period
due to Procon’s activity.
Fees
related to the firm which disseminates the Company’s press release increased by approximately $8,000 during the nine months
ended January 31, 2019 as compared to the comparable prior period due to an increase in newswire fees.
Other
taxes expense increased by approximately $28,000 during the nine months ended January 31, 2019 as compared to the comparable prior
period due to value added taxes relating to Procon’s operations.
Office
rent expense increased by approximately $10,000 during the nine months ended January 31, 2019 as compared to the comparable prior
period due to the Company’s leases in San Diego and in Ensenada.
Dues
expense increased by approximately $5,000 during the nine months ended January 31, 2019 as compared to the comparable prior period
due costs incurred for membership in the San Diego Chamber of Commerce,
Bank
Charges increased by approximately $3,000 due to increase in the number of wire transfers.
Investor
relations increased by approximately $8,000 due to increased fees paid to a consultant.
Payroll
taxes increased by approximately $4,500 due to employment taxes incurred in Michigan.
These
increases were offset by decreases in certain expenses:
Commissions
and Closing costs decreased by approximately $45,000 during the nine months ended January 31, 2019 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 $48,000 for the nine months ended January 31, 2019 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.
Wage
related expenses decreased by approximately $12,000 during the nine months ended January 31, 2019 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.
Travel
expense decreased approximately $8,600 during the nine months ended January 31, 2019 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 $9,700 during the nine months ended January 31, 2019 as compared to the comparable prior
period due budgetary constraints, reduced Ensenada expenses and closing of Michigan office.
Automobile
expenses decreased approximately $2,700 due to less required maintenance.
Office
and insurance expense decreased approximately $2,000 due primarily to the elimination of a consultant and decrease in insurance
rates.
Bad
debt recovery increased from $0 for the nine month period ended January 31, 2018 to approximately $7,000 in the current nine month
period ended January 31, 2019 as the Company received payments from past due tenants and collected amounts on nine previously
written off land contract receivables.
Professional
fees increased approximately $56,000 for the nine months ended January 31, 2019 as compared to the comparable prior period mainly
due to an increase in financial consulting, valuation services fees and Procon architecture fees, partially offset by a decrease
in audit, accounting and legal fees.
Interest
expense, net increased approximately $1,520,000 for the nine months ended January 31, 2019 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 nine month period as compared to the comparable prior nine month period.
Loss
on settlement of liabilities, common stock decreased to approximately $33,000 for the nine months ended January 31, 2019 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 approximately
$688,000 to approximately $119,000 for the nine months ended January 31, 2019 as compared to a derivatives gain
of $807,000 for the comparable prior period due to the fair value adjustments in connection with the convertible notes, common
stock warrants and equity subscriptions in the current nine 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 $1,863,000 at January 31, 2019. The decrease 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.
Other
assets increased approximately $94,000 mainly due to an in increase in Procon’s prepaid expenses of approximately $21,000,
interest receivable from land contracts of approximately $40,000 and funding fees of $33,000.
These
increases in assets were partially offset by decreases in cash of approximately $93,000 and Note Receivable- Related Party decreased
approximately $249,000 as a result of the Company’s additional loan to Contel in the amount of approximately $585,000 partially
offset by repayments made in connection with the cost of chili peppers the amount of approximately $834,000.
Cash decreased to approximately $13,000 for
the period ended January 31, 2019, compared to cash of $106,000 at April 30, 2018. Cash used in operating activities was approximately
$818,000 for the period ended January 31, 2019, as compared with cash used in operating activities of approximately $769,000
in the comparable period in fiscal 2018.
At January 31, 2019, we had stockholders’
deficit of approximately $4,403,000 compared to a deficit of approximately $1,531,000 at April 30, 2018.
Trends
in Increasing or Decreasing Company’s Liquidity
The
Company’s liquidity risk is principally associated with the financing of the Company’s operations with short-term
convertible debt and short term notes payable.
Should
the Company be unable to repay the convertible notes and/or the convertible note holder are unable to convert the note into common
shares, a default may be declared, causing an adverse change in our liquidity position. Should the Company be unable to pay the
short term note holders, a default may be declared and a judgment held against the assets of the Company.
The
Company’s wholly owned subsidiary Progreen Farms LLC (“Progreen Farms”) entered an agreement with an outside
party (the “Purchaser”) to delivery 2,500 tons of chili peppers at .24 cents a pound. The Company was notified the
Purchaser has located another source of product and would not need product from Progreen Farms for 2019. Purchaser was the only
vendor of Progreen Farms and the loss of revenues and cash flow had an adverse affect on the Company’s liquidity.
If
the Company is unable to acquire additional funding, our ability to finance current operations, fund loans to Contel and/or continue
development of the Cielomar project would be adversely affected.
Known
Trends Or Uncertainties That Would Be Projected To Affect The Company’s Operations Materially In An Unfavorable Or Favorable
Manner
The
Company’s wholly owned subsidiary Progreen Farms LLC (“Progreen Farms “) entered an agreement with an outside
party (the “Purchaser”) to delivery 2,500 tons of chili peppers at .24 cents a pound. It was anticipated that Contel
would be the sole supplier and Progreen Farms act as the distributor. However, it was determined that Contel could not deliver
the required volume and other producers were contacted.
The
Company charged 10% of invoice amounts to producers, other than Contel, for billing services which is recorded as a management
fee. During the nine months ended January 31, 2019 management fees totaled $60,890.
During
the nine months ended January 31, 2019, the Purchaser notified the Company that it has located another source of chili peppers
for 2019 and would not need produce from Progreen Farms.
In
the event Contel’s farm is unable to identify another buyer for their produce or are unable to grow product, the repayment
of Notes Receivable-Related party of approximately $939,000 as of January 31, 2019 may not occur.
Outstanding
Debt Obligations and Credit Lines
The
Company has credit line promissory notes with its President and Chief Executive Officer Lines with a total balance outstanding
of $716,200 as of January 31, 2019.
The
Company has short term notes with five lenders four of which are in arrears. The Company has been in contact with each one to
delay any legal action. The intent of the Company is to pay these short term notes with the proceeds from the bridge financing,
Convertible
Note Financings
We
have approximately $501,000 (unamortized discounts total approximately $124,000) in the aggregate of convertible debt outstanding,
in the form of convertible notes.
Capital
Lease and other Contractual Obligations
Effective
April 1, 2016, the Company entered into a lease agreement for office space for a period of thirty-six (36) months for its Michigan
office. 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. The Company is no longer occupying
the Michigan office and is waiting for the landlord to present the final rent notice.
On
May 30, 2017, the Company leased 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 month-to-month lease.
On
May 16, 2017, ProCon leased an office in Ensenada, Mexico of approximately 3,300 Sq. Ft, at a current monthly rent of $30,000
pesos per month, the rent will increase to $40,000 peso per month on May 16, 2018. The lease commenced on May 16, 2017 and will
expire on May 15, 2020.
Commitments
For Estimated Capital Expenditure Requirements
The
Company does not have any commitments for estimated capital expenditure requirements.
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.