UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

 

 

 

FORM 10-Q/A

 

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

 

For the quarterly period ended January 31, 2016

 

OR

 

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

 

For the transition period from ____________ to _________________

 

Commission File Number 000-25429

 

PROGREEN PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

 

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

 

6355 E. Surrey Road, Bloomfield, MI   48301
(Address of Principal Executive Offices)   (Zip Code)

 

(248) 805-3652

 

  (Registrant’s Telephone Number, Including Area Code)

 

 

 

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

 

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

YES☒     NO ☐

 

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

YES☒     NO ☐

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

☐ Yes     ☒ No

 

The number of shares outstanding the issuer's common stock, par value $.0001 per share, was 306,756,732 as of March 14, 2016.

 

 

 

 

 

 

PROGREEN PROPERTIES, INC.

 

INDEX

 

    Page
Part I.  Financial Information   1
     
Item 1. Financial Statements   1
     
Condensed Consolidated Balance Sheets as of January 31, 2016 (unaudited) and as of April 30, 2015   2
     
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2016 and 2015 (unaudited)   3
     
Condensed Consolidated Statements of Stockholders’ Deficit  (unaudited) as of January 31, 2016 (unaudited) and as of April 30, 2015   4
     
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2016 and 2015 (unaudited)   5
     
Notes to Unaudited Condensed Consolidated Financial Statements   6
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.   15
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk   21
     
Item 4. Controls and Procedures.   21
     
Part II. Other Information   22
     
Item 6.  Exhibits.   22
     
Signatures   23

 

 

 

 

EXPLANATORY NOTE

 

AS A PART OF THE REVIEW BY THE SECURITIES AND EXCHANGE COMMISSION OF THE COMPANY’S PAST FILINGS UNDER THE SECURITIES EXCHANGE ACT OF 1934, WE ARE FILING THIS AMENDMENT NO. 1 TO OUR FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2016 (THE “FORM 10-Q”). THIS AMENDMENT NO. 1 AMENDS ONLY ITEM 4—CONTROLS AND PROCEDURES, TO STATE THAT THE EVALUATION BY OUR CHIEF EXECUTIVE OFFICER AT THE END OF THE PERIOD COVERED BY THE FORM 10-Q OF THE EFFECTIVENESS OF THE COMPANY’S DISCLOSURE CONTROLS AND PROCEDURES PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-15 CONCLUDED THAT THE COMPANY’S DISCLOSURE CONTROLS AND PROCEDURES WERE NOT EFFECTIVE IN ENSURING THAT INFORMATION REQUIRED TO BE DISCLOSED BY THE COMPANY IN THE REPORTS THAT IT FILES OR SUBMITS UNDER THE SECURITIES EXCHANGE ACT IS RECORDED, PROCESSED, SUMMARIZED AND REPORTED, WITHIN THE TIME PERIODS SPECIFIED IN THE SEC’S RULES AND FORMS. IN ORDER TO PRESERVE THE NATURE AND CHARACTER OF THE DISCLOSURES SET FORTH IN THE FORM 10-Q AS OF MARCH 21, 2016, THE DATE ON WHICH THE FORM 10-Q WAS FILED, NO ATTEMPT EXCEPT AS DESCRIBED ABOVE HAS BEEN MADE IN THIS AMENDMENT NO. 1 TO MODIFY OR UPDATE DISCLOSURES.

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following financial statements be read in conjunction with the year-end financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended April 30, 2015.

 

The results of operations for the three and nine months ended January 31, 2016 and 2015 are not necessarily indicative of the results for the entire fiscal year or for any other period.

 

 1 

 

 

ProGreen Properties, Inc.

 

Condensed Consolidated Balance Sheets

 

   January 31  April 30,
   2016  2015
   (Unaudited)   
           
Assets          
Cash  $41,525   $99,325 
Other receivables - related party   2,915    2,915 
Accounts receivable   15,638    27,365 
Note receivable - rental property   -    2,137 
Prepaid expenses   1,000    3,346 
Deposits   -    5,000 
Property and equipment:          
  Vehicles, furniture and equipment, net of accumulated depreciation of $33,927 and $45,347   13,465    24,395 
Total assets  $74,543   $164,483 
           
Liabilities and Stockholders' Deficit          
           
Accounts payable and accrued expenses  $156,735   $100,500 
Accrued interest   220,021    165,668 
Payable under management agreement   -    36,884 
Obligations under capital leases   13,249    19,005 
Notes payable   275,256    303,452 
Tenant deposits   16,030    18,610 
Related party advance   59,000    -   
Derivative liability   745,570    -   
Convertible notes, net of unamortized discount of $50,794 and $0   28,624    76,000 
Convertible debenture   476,000    476,000 
Total liabilities   1,990,485    1,196,119 
Stockholders' deficit          
Preferred stock, $.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding   -    - 
Common stock, $.0001 par value, 250,000,000 shares authorized, 209,843,447 and 110,329,703 outstanding          
at January 31, 2016 and April 30, 2015   20,984    11,033 
Additional paid in capital   3,367,661    3,189,666 
Less: amount due from related party subscriber under subscription agreement   -    (52,961)
Accumulated deficit   (5,304,587)   (4,179,374)
Total stockholders' deficit   (1,915,942)   (1,031,636)
Total liabilities and stockholders' deficit  $74,543   $164,483 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

                 

 2 

 

 

ProGreen Properties, Inc.

 

Condensed Consolidated Statements of Operations

UNAUDITED

 

   Three Months Ended   Nine Months Ended 
   January 31,   January 31, 
   2016   2015   2016   2015 
Revenues:                
                 
Proceeds from sale of properties  $-   $-   $-   $200,000 
Proceeds from sale of properties, related party   -    75,000    -    75,000 
Commissions revenue   -    4,750    -    23,995 
Management fee revenue   3,686    2,676    10,844    7,241 
Construction services revenue   28,874    -    180,476    - 
Construction services revenue, related party   -    24,040    -    24,040 
Other income   155    150    885    1,554 
Total Revenue   32,715    106,616    192,205    331,830 
Expenses:                    
Cost of properties sold   -    -    -    167,444 
Cost of properties sold, related party   -    73,688    -    73,688 
Cost of construction services   29,354    -    167,108    - 
Cost of construction services, related party   -    21,855    -    21,855 
Rental property operating costs   1,297    124    3,038    394 
Reserve for rent guarantee (recovery)   -    -    (10,000)   1,250 
Advertising   243    1,048    484    2,281 
Depreciation   2,281    3,398    9,077    10,194 
Compensation expense   2,125    11,125    9,375    21,542 
General & administrative   48,190    52,767    147,102    156,702 
Professional fees   73,501    46,011    171,485    135,014 
Total operating expenses   156,991    210,016    497,669    590,364 
                     
Operating loss   (124,276)   (103,400)   (305,464)   (258,534)
Other expenses and income:                    
Interest expense   (72,970)   (25,270)   (166,699)   (84,573)
Interest income   (102)   57    (17)   211 
Bad Debt Expense   (2,137)   -    (2,137)   - 
Gain on Sale of Asset   8,147    -    8,147    - 
Derivatives loss   (664,820)   -    (659,043)   - 
Loss before income tax expense   (856,158)   (128,613)   (1,125,213)   (342,896)
Income tax expense   -    -    -    - 
Net Loss  $(856,158)  $(128,613)  $(1,125,213)  $(342,896)
Net loss per share - basic and fully diluted  ($0.01)  ($0.00)  ($0.01)  ($0.00)
Weighted average shares outstanding - basic and fully diluted   164,888,511    104,329,703    141,013,688    104,329,703 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 3 

 

 

ProGreen Properties, Inc.

 

Condensed Consolidated Statement of Stockholders' Deficit

UNAUDITED

 

   Number of           Amount Due         
   Shares       Additional   Under       Net 
   Issued and   Common   Paid In   Subscription   Accumulated   Stockholders' 
   Outstanding   Stock   Capital   Agreement   Deficit   Deficit 
                         
Balance at April 30, 2015   110,329,703   $11,033   $3,189,666   $(52,961)  $(4,179,374)  $(1,031,636)
                               
Amount due from subscriber under subscription agreement             1,038    (1,038)          
Amount received from subscriber under subscription agreement                  53,999         53,999 
Stock issued under convertible debenture   92,013,744    9,201    60,434              69,635 
Derivative liability extinguished on conversion             102,645              102,645 
Reclass of APIC to derivative due to tainting             (260,941)             (260,941)
Reclass from derivative to APIC due to tainting ended             212,694              212,694 
Stock issued under services contracts   7,500,000    750    52,750              53,500 
Compensation - restricted stock units             9,375              9,375 
Net loss                       (1,125,213)   (1,125,213)
                               
Balance at January 31, 2016   209,843,447   $20,984   $3,367,661   $-   $(5,304,587)  $(1,915,942)

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 4 

 

 

ProGreen Properties, Inc.

 

Condensed Consolidated Statements of Cash Flows

(UNAUDITED)

 

   Nine Months Ended 
   January  31, 
   2016   2015 
Cash provided by (used in) operating activities        
Net loss  $(1,125,213)  $(342,896)
Adjustments to reconcile net loss to net cash used in operating activities:          
      Compensation - restricted stock units   9,375    21,542 
      Depreciation   9,077    10,194 
      Bad debt expense   2,137    - 
      Gain on sale of asset   (8,147)   - 
      Gain on sale of properties   -    (33,868)
      Loss on derivatives   659,043    - 
      Amortization of discounts on debenture to related party   -    4,031 
      Amortization of discounts on convertible notes   93,464    - 
      Acquisition and development of properties   -    (134,296)
      Proceeds from sale of properties   -    75,000 
      Common shares issued for services   53,500    - 
       Changes in operating assets and liabilities:          
           Accounts receivable   11,727    2,136 
           Prepaid expenses   2,346    (4,734)
           Deposits   2,420    - 
           Accounts payable and accrued expenses   112,308    96,380 
           Payable under management agreement   (36,884)   23,026 
        Cash used in operating activities   (214,847)   (283,485)
           
Cash provided by investing activities          
Proceeds from sale of asset   10,000    - 
Advance note receivable   -    1,159 
       Cash provided by investing activities   10,000    1,159 
           
Cash provided by (used in) financing activities          
Proceeds from notes payable   -    96,329 
Repayment of notes payable   (28,196)   - 
Proceeds from advance related party   59,000    - 
Repayment of notes payable related party   -    (40,000)
Proceeds from convertible debentures   68,000    43,000 
Decrease in obligations under capital leases   (5,756)   (9,572)
Collection of amount due under stock subscription   53,999    109,120 
       Cash provided by financing activities   147,047    198,877 
           
Net change in cash   (57,800)   (83,449)
Cash at beginning of period   99,325    176,760 
Cash at end of period   41,525    93,311 
Supplemental information:          
Cash paid for interest  $17,162   $24,886 
           
Noncash investing and financing transactions:          
Noncash transaction: consolidation of note payable  $261,150   $- 
Noncash transaction: stock issued under convertible debenture  $69,635   $- 
Noncash transaction: discount on derivatives  $140,925   $- 
Noncash transaction:  derivative liability extinguished on conversion  $102,645   $- 
Noncash transaction:  reclass of APIC to derivative due to tainting  $(260,941)  $- 
Noncash transaction: reclass from derivative to APIC due to tainting ended  $212,694   $- 
Noncash transaction: proceeds from notes payable upon sale of properties  $-   $184,322 
Noncash transaction: repayment of notes payable upon sale of properties  $-   $350,000 
Noncash transaction: payment of accrued interest payable upon sale of properties  $-   $20,219 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

 

 5 

 

 

ProGreen Properties, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2016

Unaudited

 

Note 1. Financial Statement Presentation

 

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements and they should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended April 30, 2015 (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 and nine month periods ended January 31, 2016, are not necessarily indicative of the results that may be expected for the year ending April 30, 2016.

 

Basis of Presentation

 

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

 

Fair Value of Financial Instruments

 

The Company records convertible debt at fair value on a recurring basis.  Estimated fair values of the Company's convertible debt and derivatives liability were calculated based upon quoted market prices. See Notes 7, 8, and 9.

 

Going Concern

 

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

 

The Company’s ability to continue as a going concern is dependent upon the success of management’s plans and the Company’s ability to use its common stock to raise working capital. At January 31, 2016, the Company had outstanding three convertible notes in the aggregate principal amount of approximately $28,600 all of which notes provide for the holder to convert outstanding principal and accrued interest on the holder’s note at a discount from the market price of our common stock. In addition the Company had outstanding a convertible debenture in the aggregate principal amount of approximately $476,000. We expect conversions of outstanding convertible notes to depress the market prices of our common stock for the next nine months to one year and to dilute substantially the ownership of our common stock by existing holders. The accompanying unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities in the event management’s plans are not successful.

 

The Company will continue to incur costs that are necessary for it to remain an active public company. In the current fiscal year, the Company used approximately $215,000 of cash to support its operations, and such cash needs are expected to continue in the upcoming year. As of January 31, 2016, the Company has approximately $42,000 in cash.

 

 6 

 

 

ProGreen Properties, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2016

Unaudited

 

Note 1. Financial Statement Presentation– continued

 

Reclassifications

 

Certain amounts in previous periods have been reclassified to conform to fiscal year ending 2016 classifications.

 

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) (the “ASU”). The ASU requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The ASU allows for early adoption, however, management is currently evaluating the potential impact of these changes in the consolidated financial statements of the Company.

 

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

 

Note 2. Note receivable - rental property

 

On August 21, 2012 the Company sold one property with a sales price of $60,000 of which $10,000 was financed by the Company which is recorded as a note receivable with a balance of $0 and $2,137 as of January 31, 2016 and April 30, 2015, respectively. During the current quarter management determined the note is uncollectible and it was written off in full. The amount of $2,137 was charged to bad debt expense in the nine months ended January 31, 2016.

 

Note 3. Payable Under Management Agreement

 

ProGreen Management has entered into management agreements with certain property owners whereby the Company manages, leases, operates, maintains and repairs the properties for which it receives a management fee of ten percent of the monthly rent. ProGreen Management collects rent and remits the property owners’ portion of collected rent, net of a management fee to the owners. At January 31, 2016 and April 30, 2015 net rent amounts due totaled $0 and $36,884 respectively.

 

In addition, for certain properties the Company guaranteed rents, in accordance with the terms of each lease, through various dates through January 1, 2016. During this fiscal year, the rent guarantees expired with no payments required, thus the recorded reserves in the amount of $10,000 were reversed and included in reserve for rent recovery in the accompanying Unaudited Condensed Consolidated Statement of Operations for the nine months ended January 31, 2016. Recorded reserves totaled $10,000 as of April 30, 2015 which are included in accounts payable and accrued expenses in the accompanying Unaudited Condensed Consolidated Balance Sheet.

 

 7 

 

 

ProGreen Properties, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2016

Unaudited

 

Note 4. Notes Payable

 

The Company is indebted as follows:

 

   January 31,   April 30, 
   2016   2015 
Note Payable to City of Southfield dated October 29, 2014 bears a fixed rate of interest of 3.00% and requires interest only annual payments for the first three years of the note. Commencing in year four principal and interest are due in fifteen annual installments. The note payable is secured by a property located at 23270 Helen Street,  Southfield Michigan.  $6,000   $6,000 
           
Note Payable to City of Southfield dated September 19, 2014 bears a fixed rate of interest of 3.00% and requires interest only annual payments for the first three years of the note. Commencing in year four principal and interest are due in fifteen annual installments. The note payable is secured by a property located at 23270 Helen Street,  Southfield Michigan.   8,106    8,106 
           
Note Payable to AMREFA dated June 25, 2015 bears a fixed rate of interest of 8.00%. Payments plus accrued interest are due biannually as follows; January 15, 2016 $61,150, July 15, 2016 $65,000, January 15, 2017 $65,000 and July 15, 2017 $70,000. The note payable is guaranteed by a majority shareholder.   261,150    - 
           
Note Payable to AMREFA dated March 6, 2015 bears a fixed rate of interest of 8.00% and requires no monthly payments.  The principal and interest are due on or before March 6, 2016.  The note payable is unsecured.   -    22,800 
           
Note Payable to AMREFA dated January 8, 2015 bears a fixed rate of interest of 8.00% and requires no monthly payments.  The principal and interest are due on or before January 8, 2016. The note payable is unsecured.   -    67,750 
           
Note Payable to AMREFA dated October 1, 2014 bears a fixed rate of interest of 8.00% and requires no monthly payments.  The principal and interest are due on or before October 1, 2015.  The note payable is unsecured.   -    27,009 
           
Note Payable to AMREFA dated October 1, 2014 bears a fixed rate of interest of 8.00% and requires no monthly payments.  The principal and interest are due on or before October 1, 2015.  The note payable is unsecured.   -    75,457 
           
Note Payable to AMREFA dated June 25, 2014 bears a fixed rate of interest of 8.00% and requires no monthly payments.  The principal and interest are due on or before June 25, 2015.  The note payable is unsecured.   -    96,330 
           
   $275,256   $303,452 

 

 8 

 

 

ProGreen Properties, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2016

Unaudited

 

Note 4. Notes Payable - continued

 

On March 8, 2016, the Company restructured its working arrangements with AMREFA. As a result of this restructuring AMREFA converted $70,000 of Progreen’s outstanding debt and all accrued interest on the debt to AMREFA in exchange for shares of Series B Preferred Stock and the delivery of a non-interest bearing Mortgage Note, for the amount of $200,000 (representing the balance of the debt owed to AMREFA). Also the existing Note payable to AMREFA was paid in full and cancelled as of the March 8, 2016 effective date of the transaction.

 

See Note 13.

 

Note 5. Related Party Advance

 

In July 2015 EIG, a major shareholder of the Company, advanced the Company $46,000. In November 2015 EIG advanced the Company an additional $13,000. By agreement, which is in negotiation, between EIG and the Company, these advances have no established repayment terms nor do they earn interest. Related party advance totaled $59,000 at January 31, 2016. See Note 13.

 

Note 6. Fair Value Measurement

 

The Company utilizes the accounting guidance for fair value measurements and discloses for all financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis during the reporting period.

 

The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability.  ASC 820, "Fair Value Measurements and Disclosures", establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers are defined as follows:  

 

Level 1 - Observable inputs such as quoted market prices in active markets.

 

Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable.

 

Level 3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

As of January 31, 2016, the Company held certain financial instruments that are measured at fair value on a recurring basis. These consisted of convertible debt totaling $504,624 with a derivative liability totaling $745,570 at January 31, 2016 which are categorized as Level 3. The related loss on derivatives totaled $659,043 for the nine month period ended January 31, 2016.

 

Note 7 - Derivative Liability

 

During the nine months ended January 31, 2016, the Company identified conversion features embedded within its convertible debt. The Company has determined that the conversion feature of the Notes represents an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the Notes are not considered to be conventional debt and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Therefore, the fair value of the derivative instruments have been recorded as liabilities on the balance sheet with the corresponding amount recorded as discounts to the Notes. Such discounts will be accreted from the issuance date to the maturity date of the Notes. The change in the fair value of the derivative liabilities will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet. The fair value of the embedded derivative liabilities were determined using the Black-Scholes valuation model on the issuance dates with the assumptions in the table below.

 

The fair value of the Company’s derivative liabilities at January 31, 2016 is as follows:

 

April 30, 2015 balance  $- 
Discount on Debt   140,925 
Derivative liability extinguished on conversion   (102,645)
Reclass of APIC to derivative due to tainting   260,941 
Reclass from derivative to APIC due to tainting ended   (212,694)
Fair value mark - to market adjustment   659,043 
Derivatives liability, net of discount  $745,570 

  

 9 

 

 

ProGreen Properties, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2016

Unaudited

 

Note 7 - Derivative Liability - continued

 

In the second quarter of fiscal 2016 the KBM Note had a variable conversion price resulting in a derivative liability of $139,785 being reclassed from equity to liability which further resulted in a discount on the all of the convertible notes of $70,928 and a day one loss of 23,365. The KBM note was later converted resulting in $212,694 of derivative liability being reclassified to equity.

 

The JMJ note in September 2015 had a variable conversion price resulting in a derivative of liability of $121,156 being reclassed from equity to liability which further resulted in a discount on the Note of $69,997 and a day one loss of 22,083.

 

The change in fair value of all derivatives for the nine months was $613,595 and when added to the day one loss of $45,448 above, the loss for the nine months totaled $695,043.

 

The fair values at the commitment dates and remeasurement dates for the convertible debt treated as derivative liabilities are based upon the following estimates and assumptions made by management for the nine months ended January 31, 2016:

 

Exercise prices  See Notes 8 and 9
Expected dividends  0%
Expected Volatility  138%- 972%
Expected terms  See Notes 8 and 9
Discount rate  .04%-.75%

 

See Notes 8 and 9.

 

Note 8 - Convertible Notes

 

Effective September 10, 2015 the Company entered into a Convertible Promissory Note (“JMJ Note”) with JMJ Financial pursuant to which the Company issued JMJ Financial a convertible note in the amount of $250,000 with an original issue discount in the amount of $25,000. The principal amount due JMJ is based on the consideration paid. The maturity date is two years from the effective date of each payment. On September 10, 2015 the Company received consideration of $30,000 for which an original issue discount of $3,333 was recorded. There were no additional borrowings under the JMJ Note during the quarter ended January 31, 2016. The Company did not repay the JMJ Note on or before 90 days from the effective date, thus the Company may not make further payments on this JMJ Note prior to the maturity date and a one-time interest charge of 12% was applied to the principal amount. The JMJ Note provides JMJ Financial the right at any time, to convert the outstanding balance (including accrued and unpaid interest) into shares of the Company’s common stock at 60% of the average of two lowest trade prices in the 20 trading days previous to the conversion, additional discounts may apply in the case that conversion shares are not deliverable or if the shares are ineligible. As a result of the derivatives calculation an additional discount of $30,000 was recorded. Amortization of the related discount totaled $26,158 for the nine months ended January 31, 2016. The principal balance due, net of the amortized discount under the JMJ Note was $7,175 at January 31, 2016. The effective interest rate on the JMJ Note as a result of the discount was 37.25% which resulted in interest expense of approximately $11,176 for the period ending January 31, 2016. Accrued interest due under the JMJ Note totaled $4,000 at January 31, 2016.

 

On May 26, 2015 KBM converted $12,000 of the KBM Convertible Note into a total of 1,967,213 shares of Common Stock at a fair value of $.0061 per share. On July 20, 2015 KBM converted $16,135 of the KBM Convertible Note into a total of 5,204,839 shares of Common Stock at a fair value of $.0031 per share. On August 14, 2015 KBM converted $8,730 of the KBM Convertible Note into a total of 6,235,714 shares of Common Stock at a fair value of $.0014 per share. On August 17, 2015 KBM converted $7,855 including accrued interest of $1,720 of the KBM Convertible Note into a total of 5,610,714 shares of Common Stock at a fair value of $.0014 per share. Amortization of the related discount totaled $42,670 for the nine months ended January 31, 2016. There was no remaining principal balance or accrued interest due under the KBM Convertible Note at January 31, 2016. See Note 11.

 

 10 

 

 

ProGreen Properties, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2016

Unaudited

 

Note 8 - Convertible Notes – continued

 

Effective March 25, 2015, the Company entered into a Securities Purchase Agreement with Vis Vires pursuant to which the Company issued Vis Vires a convertible note in the amount of $33,000, bearing interest at the rate of 8% per annum (the “March 2015 Vis Vires Convertible Note”). During the nine months ended January 31, 2016 Vis Vires converted $24,915 of the March 2015 Vis Vires Convertible Note into a 2015 total of 72,995,264 shares of Common Stock at a fair value as follows:

 

Conversion Date  Number of Shares of Common Stock   Principal Amount Converted   Price per Share 
September 24, 2015   13,655,738   $8,330   $0.00061 
December 29, 2015   15,020,833    3,605   $0.00024 
December 30, 2015   15,020,833    3,605   $0.00024 
January 13, 2016   18,027,027    6,670   $0.00037 
January 29, 2016   11,270,833    2,705   $0.00024 
Totals - Nine Months ended January 31, 2016   72,995,264   $24,915      

 

See Note 11. Amortization of the related discount totaled $7,899 for the nine months ended January 31, 2016. The principal balance due under the March Vis Vires Convertible Note, net of the amortized discount was $186 at January 31, 2016.

 

Effective May 11, 2015, the Company entered into a second Securities Purchase Agreement with Vis Vires pursuant to which the Company issued Vis Vires a convertible note in the amount of $38,000, bearing interest at the rate of 8% per annum (the “May 2015 Vis Vires Convertible Note”)”. The May 2015 Vis Vires Convertible Note provides Vis Vires the right, during the period beginning on the date which is one hundred eighty (180) days following the date of the Vis Vires Convertible Note, to convert the outstanding balance (including accrued and unpaid interest) into shares of the Company’s common stock at a 39% discount from the market price of the common stock and is payable, together with interest thereon, on April 23, 2016. The Company can repay the Vis Vires Convertible Note prior to maturity (or conversion), provided that it pays 110% of such the outstanding principal amount and accrued and unpaid interest thereon) if the note is repaid within the first 30 days after the issuance date. The prepayment penalty increases to 115% if repayment is during the period which is 31 to 60 days after the issuance date; 120%, if repayment is during the period which is 61 to 90 days after the issuance date; 125%, if repayment is during the period which is 91 to 120 days after the issuance date; 130%, if repayment is during the period which is 121 days to 150 days after the issuance date and 135% if repayment is during the period which is 151 days to 180 days after the issuance date. After 180 days have elapsed from the issuance date, the Company has no right to prepay the Vis Vires Convertible Note. Amortization of the related discount totaled $16,737 for the nine months ended January 31, 2016. The principal balance due, under the May 2015 Vis Vires Convertible Note, net of the amortized discount, was $21,263 at January 31, 2016.

 

Accrued interest for both Vis Vires Convertible Notes totaled $4,174 at January 31, 2016.

 

The KBM convertible notes’ variable conversion rates qualified the convertible notes for derivative accounting. Consequently, the derivative liability was marked to market as of the conversion dates. This tainted all other outstanding convertible notes which resulted in the conversion option on these notes to be bifurcated and accounted for as derivative liabilities. On August 17, 2015 the remainder of the KBM convertible notes’ balances was converted to Company Common Stock which untainted the other convertible debt. The September 10, 2015 JMJ Note retained all the other outstanding convertible notes. At January 31, 2016 the derivative liability balance was $745,569 amortization of the derivative discount totaled $140,925 and the derivative loss totaled $659,043 for the current fiscal period. See Notes 7 and 9.

 

 11 

 

 

ProGreen Properties, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2016

Unaudited

 

Note 9 - Convertible Debenture

 

The effective interest rate on the convertible debenture as a result of discounts was 13.50% and 15.13 % which resulted in interest expense of approximately $48,600 and $55,100 for the periods ended January 31, 2016 and 2015, respectively. Accrued interest due totaled approximately $199,300 and $150,700 at January 31, 2016 and April 30, 2015, respectively. The balance due totaled $476,000 at January 31, 2016 and April 30, 2015. See Notes 7, 8 and 13.

 

Note 10 - Related Party Subscription Agreement

 

In connection with the related party Subscription Agreement, in the nine months ended January 31, 2016 the Company recorded $1,038 of interest. The remaining balance of the purchase price and the applicable interest in the amount of approximately $54,000 was received on July 3, 2015 to complete payment of the Phase III purchase price.

 

Note 11 - Common Stock

 

On May 26, 2015 KBM converted $12,000 of the KBM Convertible Note into a total of 1,967,213 shares of Common Stock at a fair value of $.0061 per share. On July 20, 2015 KBM converted $16,135 of the KBM Convertible Note into a total of 5,204,839 shares of Common Stock at a fair value of $.0031 per share. See Note 8.

 

On May 7, 2015 2,500,000 shares of Common Stock which was recorded at fair value of $ .010 per common stock share, were issued to an outside investor in payment of professional services in the amount of $ 25,000.

 

On June 4, 2015 5,000,000 shares of Common Stock, which was recorded at fair value of $ .00057 per common stock share, were issued to an outside investor in payment of professional services in the amount of $28,500.

 

On August 14, 2015 KBM converted $8,730 of the KBM Convertible Note into a total of 6,235,714 shares of Common Stock at a fair value of $.0014 per share. On August 17, 2015 KBM converted $6,135 plus accrued interest of $1,720 of the KBM Convertible Note into a total of 5,610,714 shares of Common Stock at a fair value of $.0014 per share. See Note 8.

 

On September 24, 2015 Vis Vires converted $8,330 of the March 2015 Vis Vires Convertible Note into a total of 13,655,738 shares of Common Stock at a fair value of $.00061 per share. See Note 8.

 

On December 29, 2015 Vis Vires converted $3,605 of the March 2015 Vis Vires Convertible Note into a total of 15,020,833 shares of Common Stock at a fair value of $.00024 per share. See Note 8.

 

On December 30, 2015 Vis Vires converted $3,605 of the March 2015 Vis Vires Convertible Note into a total of 15,020,833 shares of Common Stock at a fair value of $.00024 per share. See Note 8.

 

On January 13, 2016 Vis Vires converted $6,670 of the March 2015 Vis Vires Convertible Note into a total of 18,027,027 shares of Common Stock at a fair value of $.00037 per share. See Note 8.

 

On January 29, 2016 Vis Vires converted $2,705 of the March 2015 Vis Vires Convertible Note into a total of 11,270,833 shares of Common Stock at a fair value of $.00024 per share. See Note 8.

 

 12 

 

 

ProGreen Properties, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2016

Unaudited

 

Note 12 - Employee Stock Option Plan

 

Restricted Stock Units

 

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

 

   January 31, 
   2016 
Number of restricted stock units issued on June 1, 2012   3,600,000 
Stock price on grant date  $0.03 
Vesting Period    3 years  
Estimated fair value at issuance  $108,000 
      
May 1, 2015 through January 31, 2016 Compensation Expense  $3,000 
      
Number of restricted stock units issued on December 3, 2012   600,000 
Stock price on grant date  $0.03 
Vesting Period   4 years
Estimated fair value at issuance  $18,000 
      
May 1, 2015 through January 31, 2016 Compensation Expense  $3,375 
      
Number of restricted stock units issued on June 1, 2014   600,000 
Stock price on grant date  $0.02 
Vesting Period    3 years  
Estimated fair value at issuance  $12,000 
      
May 1, 2015 through January 31, 2016 Compensation Expense  $3,000 
      
Total compensation expense  $9,375 

 

Note 13 - Subsequent Events

 

Subsequent to January 31, 2016 Vis Vires converted the remainder of the Vis Vires Convertible Notes, in the amount of $46,085, into 82,338,285 shares of Common Stock.

 

Subsequent to January 31, 2016 JMJ converted a portion of the JMJ Note, in the amount of $3,498, into 14,575,000 shares of Common Stock.

 

 13 

 

 

ProGreen Properties, Inc.

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2016

Unaudited

 

Note 13 - Subsequent Events – continued

 

Restructure of Rupes Futura Debenture and EIG Debt

 

On February 9, 2016, the Board of Directors of the Company authorized a new series of preferred stock, the Series A Convertible Preferred Stock, with a stated value of $1.00 per share, and we filed a Certificate of Designations for the Series A Preferred Stock with the Secretary of State of Delaware on February 17, 2016. Also, effective on February 9, 2016, our Board approved and the Company entered into two agreements with the Company’s largest stockholder, EIG Venture Capital Ltd (EIG), to reduce the amount of the Company’s outstanding debt, and improve our balance sheet. First, EIG assumed all of the Company’s obligations under the 13.5% convertible debenture of the Company due to Rupes Futura AB (Sweden), which has agreed to assumption of the convertible debenture obligations by EIG. The outstanding principal of the debenture, together with two years of accumulated unpaid interest, totals $608,031, and EIG was compensated by the issuance of shares of Series A Preferred Stock with a total stated value equal to that of the principal and accrued interest of the debt assumed. See Note 9.

 

Second, the Company negotiated a debt conversion agreement effective February 9, 2016 with EIG, under which $59,000 of non-interest bearing advances made to the Company by EIG in July and November 2015 were converted into shares of Series A Preferred Stock with a total stated value of $59,000. See Note 5.

 

Subscription Agreements for Shares of Series A Preferred Stock

 

The Company has entered into subscription agreements with three stockholders, Jan Telander, the Company’s President and CEO; Ulf Telander, the CEO of EIG; and Frederic Telander, the CEO of SolTech Energy Sweden AB, which provides solar energy solutions for all types of properties. The subscription agreements provide for the investment in the Company by each of the three stockholders of $100,000 through the purchase of 100,000 shares each of Series A Preferred Stock, such purchases to be completed on or before April 30, 2016.

 

Baja California Joint Venture Agreement

 

In connection with expanding our real estate development operations to include Baja California, Mexico, on February 12, 2016, we signed a definitive joint venture agreement with INMOBILIARIA CONTEL S.R.L.C.V. (CONTEL) for the first tract of land of approximately 300 acres for agriculture use, as well as a Debt Mortgage Guarantee for the initial amount of $300,000 for the joint venture.

 

Restructure of Amrefa Debt and Purchase of AMREFA Properties

 

On March 8, 2016, the Company restructured its working arrangements with AMREFA through entry into a purchase agreement, amended March 16, 2016, with AMREFA for the purchase of AMREFA’s U.S. subsidiary, ARG LLC, which holds real estate properties in Birmingham, Michigan, that were purchased by AMREFA and which we have managed for AMREFA. We paid the purchase price of $1,285,000 by the issuance to AMREFA of 8,093,541 shares of a new Series B Preferred Stock. AMREFA also converted $70,000 of Progreen’s outstanding debt and all accrued interest on the debt to AMREFA in exchange for 441,084 shares of Series B Preferred Stock and the delivery of a non-interest bearing Mortgage Note to the Seller, for the amount of $200,000 (representing the balance of the debt owed to AMREFA) secured by a mortgage on one of the ARG LLC properties. The existing 8% Note of the Company payable to AMREFA was paid in full and cancelled as of the March 8, 2016 effective date of the transaction, in consideration of Progreen’s deliveries of said $200,000 Mortgage Note together with the 441,084 shares of Series B Preferred Stock. See Note 4. The Company has authorized the issuance of an aggregate of 8,534,625 shares of the Series B Preferred Stock to AMREFA in these transactions.

 

 14 

 

  

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto and other financial information included elsewhere in this report.

 

Certain statements contained in this report, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.

 

GENERAL

 

Throughout this Form 10-Q, the terms "we," "us," "our," “ProGreen” and the "Company" refer to ProGreen Properties, Inc., a Delaware corporation and, unless the context indicates otherwise, includes our subsidiaries.

 

The Company was incorporated in Florida on April 23, 1998 and reincorporated in Delaware on December 12, 2008. Effective September 11, 2009, we changed our name from Diversified Product Inspections, Inc. to ProGreen Properties, Inc. to reflect the change in our business operations from the conduct of investigations and laboratory

 

The Company maintained its conduct of investigations and laboratory analyses operations until the April 30, 2009 closing of a Settlement and Asset Purchase Agreement (the “Agreement”). On April 30, 2009, we ceased operations and closed the Agreement pursuant to which $230,000 was paid to a plaintiff to settle material litigation, and the remaining assets and liabilities were transferred to a separate entity owned by the previous executive officers of the Company. Prior to the closing of the Agreement, the Company specialized in conducting investigations and laboratory analysis of a wide variety of products to determine the cause and origin of product failures. The Company is now controlled by the former plaintiffs in the now settled litigation. We were inactive from April 30, 2009 through October 28, 2009 when we acquired a condominium unit in suburban Detroit, Michigan.

 

OUR BUSINESS

 

The purchase of a condominium unit on July 28, 2009 initiated our planned new business operations directed at purchasing income-producing residential real estate apartment homes, condominiums and houses in the State of Michigan, where we believe favorable investment opportunities exist based on current market conditions.

 

Our business model since our initial property purchases has been to acquire, refurbish and upgrade existing properties into more environmentally sustainable, energy efficient, comfortable and healthier living spaces so that they meet standards that exceed what is often the norm for most single family homes, condominiums and apartments. Once a property has been acquired, refurbished and rented, the property would be put back on the market, but now as a fully managed investment property, with a favorable environmental profile and yield. These investment properties are marketed exclusively by ProGreen Realty LLC, a wholly-owned subsidiary of ProGreen and managed by ProGreen Properties Management LLC, another wholly owned subsidiary.

 

On July 19, 2013, the Company entered into an Investment Agreement with AMREFA, which provided for 100% property acquisition and refurbishment financing by in the form of property loans, and that the properties would show a minimum initial return of 9.5% per annum and then be sold income producing investment properties, managed by ProGreen.  Effective December 22, 2014 the Company entered into an interim operating agreement (the “Interim PAJV Operating Agreement”) with American Residential GAP, LLC (“ARG”) to form PAJV LLC (“PAJV”), a Michigan limited liability company. American Residential Fastigheter AB (“AMREFA”) is ARG’s sole member. The Company and ARG each owned 50% of PAJV. There were no capital contributions. During the year ended April 30, 2015 the Company sold its remaining property under development in the amount of $73,688 to PAJV. The selling price was $75,000. Our agreement with AMREFA was restructured through a March 15, 2015, amendment to the Investment Agreement with AMREFA, superseding the December 2014 Interim PAJV Operating Agreement. The amendment provided for ARG LLC (the U.S. real estate subsidiary) to fund 100% of all financing requirements for real estate projects, which would be owned by specific joint ventures or ARG LLC, with Progreen handling everything from acquisition to sale and receiving a profit participation payment for a return on the property above 9.5%.

 

 15 

 

 

Purchase of Investment Properties from AMREFA

 

On March 8, 2016, the Company restructured its working arrangements with AMREFA through entry into a purchase agreement, amended March 16, 2016, with AMREFA for the purchase of AMREFA’s U.S. subsidiary, ARG LLC, which holds real estate properties in Birmingham, Michigan, that were purchased by AMREFA and which we have managed for AMREFA. The purchase price for ARG LLC was $1,285,000 (the net asset value of that company, as determined by the parties), which was paid by the issuance to AMREFA of 8,093,541 shares of a new Series B Convertible Preferred Stock (“Series B Preferred Stock”) of Progreen. The stated value, for purposes of liquidation or redemptions, of the shares of Series B Preferred Stock to be issued to AMREFA equals the purchase price for ARG LLC. AMREFA also converted $70,000 of Progreen’s outstanding debt and all accrued interest on the debt to AMREFA in exchange for 441,084 shares of Series B Preferred Stock the delivery of a non-interest bearing Mortgage Note to the Seller, for the amount of $200,000 (representing the balance of the debt owed to AMREFA) secured by a mortgage on the property owned by ARG known as Kinsel. The existing 8% Note of Buyer payable to AMREFA was paid in full and cancelled as of the March 8, 2016 effective date of the transaction, in consideration of Progreen’s deliveries of said $200,000 Mortgage Note together with the 441,084 shares of Series B Preferred Stock.

 

The Company authorized the issuance of an aggregate of 8,534,625 shares of the Series B Preferred Stock to AMREFA in these transactions.

 

The Company believes that the AMREFA transactions will contribute substantially to our financial liquidity in our real estate operations in Michigan.

 

Baja California Joint Venture Agreement

 

In connection with expanding our real estate development operations to include Baja California, Mexico, on February 12, 2016, we signed a definitive joint venture agreement with INMOBILIARIA CONTEL S.R.L.C.V. (CONTEL) for the first tract of land of approximately 300 acres for agriculture use, as well as a Debt Mortgage Guarantee for the initial amount of $300,000 for the joint venture

 

The agreement provides for CONTEL to contribute the land to the JV at extremely low cost and favorable terms, as well as handling all planning, permits, preparation and construction, in order for the property to be marketed as prime farm land. Progreen will be responsible for providing the financing. Resulting profits from the resale of the property as developed farm land will be split equally between the two parties. Work on this first tract of land has already commenced, which will include clearing and levelling of the land, construction of a large water reservoir and piping for irrigation. Water pumps will be powered by solar energy for sustainability. We anticipate completing the work over the coming two months, in order to offer the land for sale for this season’s farming.

 

RESULTS OF OPERATIONS

 

Three months Ended January 31, 2016 Compared to Three months Ended January 31, 2015

 

During the three months ended January 31, 2016, we incurred a net loss of approximately $856,000 compared to a net loss of approximately $129,000 for the three months ended January 31, 2015. Revenue decreased approximately $74,000 in the three months ended January 31, 2016 compared to the three months ended January 31, 2015. Proceeds from the sale of properties, related party decreased to $0 as compared to $75,000 during the three months ended January 31, 2015 due to a decrease in proceeds from the sale of one property in the amount of $75,000 to PAJV, a related party in the quarter ended January 31, 2015. There were no such sales during the three months ended January 31, 2016. Commission revenue decreased to $0 as compared to $4,700 during the three months ended January 31, 2015. The Company received commissions on the sale of one property, and commissions on the purchase of four properties in the three months ended January 31, 2015. There were no such commissions earned during the three months ended January 31, 2016. Revenue also decreased due to a decrease in revenue from construction services, related party from approximately $24,000 in three months ended January 31, 2015 to $0 in the three months ended January 31, 2016, as a result of the Company’s services to PAJV, a related party. Effective March 15, 2015 the Company is no longer an owner in PAJV, thus there were no such sales in the current quarter.

 

 16 

 

 

The decrease in revenue was partially offset by an increase in construction services revenue which increased from $0 in three months ended January 31, 2015 to approximately $29,000 in the three months ended January 31, 2016, as a result of the Company’s formation of the construction company subsidiary and its services to ARG LLC.

 

There have been fluctuations in certain expenses in the three months ended January 31, 2016, as compared to the three months ended January 31, 2015. In the three months ended January 31, 2016 cost of properties sold, related party decreased to $0 as compared to approximately $74,000 in the three months ended January 31, 2015 due to the sale of one property to PAJV in the quarter ended January 31, 2015. There were no properties sold to PAJV in the current quarter. In the three months ended January 31, 2016 cost of construction services increased to approximately $29,000 as compared to $0 in the three months ended January 31, 2015, as a result of the Company’s formation of the construction company subsidiary and its services to ARG LLC. In the three months ended January 31, 2016 cost of construction services, related party decreased from approximately $22,000 in three months ended January 31, 2015 to $0 in the three months ended January 31, 2016. The costs incurred in the prior period related to the Company’s services to PAJV, a related party. Effective March 15, 2015 the Company is no longer an owner in PAJV, thus there were no such costs in the current quarter.

 

Compensation expense decreased approximately $9,000 for the three months ended January 31, 2016 as compared to the comparable prior period. This decrease is attributable to the full vesting of a portion of restricted stock units (“RSUs”) in the current period as compared to the comparable prior quarter.

 

General and administrative expenses decreased approximately $5,000 for the three months ended January 31, 2016 as compared to the comparable prior period due to decreased Company activity in the three months ended January 31, 2015.

 

Professional fees increased approximately $27,500 for the three months ended January 31, 2016 as compared to the comparable prior period mainly due to increased outside consulting and legal fees for the three months ended January 31, 2015 due to the Company’s funding sources and ongoing search for equity and financing sources for the nine months ended January 31, 2016.

 

Interest expense increased approximately $48,000 for the three months ended January 31, 2016 as compared to the comparable prior period mainly due to increased convertible debt in the current quarter and the related interest and amortization of debt discounts for the three months ended January 31, 2016.

 

Bad debt expense increased from $0 in the comparable prior period to approximately $2,100 for the three months ended January 31, 2016 due to the write off of the note receivable rental property which management deemed uncollectible in the current quarter.

 

Gain on sale of asset increased from $0 in the comparable prior period to approximately $8,100 for the three months ended January 31, 2016 due to the sale of a vehicle in the current quarter.

 

Derivatives loss increased from $0 in the comparable prior period to approximately $665,000 for the three months ended January 31, due to the derivatives loss on the tainting of convertible debt in the current quarter.

 

Nine months Ended January 31, 2016 Compared to Nine months Ended January 31, 2015

 

During the nine months ended January 31, 2016, we incurred a net loss of approximately $1,125,000 compared to a net loss of approximately $343,000 for the nine months ended January 31, 2015. Revenue decreased approximately $140,000 in the nine months ended January 31, 2016 compared to the nine months ended January 31, 2015. Proceeds from the sale of properties decreased to $0 as compared to $200,000 during the nine months ended January 31, 2015. The Company sold two properties in the nine months ended January 31, 2015. There were no such sales during the nine months ended January 31, 2016. Proceeds from the sale of properties, related party decreased to $0 as compared to $75,000 during the nine months ended January 31, 2015 due to a decrease in proceeds from the sale of one property in the amount of $75,000 to PAJV, a related party in the quarter ended January 31, 2015. There were no such sales during the nine months ended January 31, 2016. Commission revenue decreased to $0 as compared to approximately$24,000 during the nine months ended January 31, 2015. The Company received commissions on the sale of three Company owned properties and on one managed property in the nine months ended January 31, 2015. There were no such commissions earned during the nine months ended January 31, 2016. Revenue also decreased due to a decrease in revenue from construction services, related party from approximately $24,000 in nine months ended January 31, 2015 to $0 in the nine months ended January 31, 2016, as a result of the Company’s services to PAJV, a related party. Effective March 15, 2015 the Company is no longer an owner in PAJV, thus there were no such sales in the current quarter.

 

 17 

 

 

The decrease in revenue was partially offset by an increase in construction services revenue which increased from $0 in the nine months ended January 31, 2015 to approximately $180,000 in the nine months ended January 31, 2016, as a result of the Company’s formation of the construction company subsidiary and its services to ARG LLC. Management fee revenue also increased from approximately $7,200 in the nine months ended January 31, 2015 to approximately $10,800 in the nine months ended January 31, 2016 due to the addition of thirteen managed properties in the current fiscal period.

 

There have been fluctuations in certain expenses in the nine months ended January 31, 2016, as compared to the nine months ended January 31, 2015. In the nine months ended January 31, 2016 cost of properties sold decreased to $0 as compared to approximately $167,000 in the nine months ended January 31, 2015 due to the sale of no properties in the current period. In the nine months ended January 31, 2016 cost of properties sold, related party decreased to $0 as compared to approximately $74,000 in the nine months ended January 31, 2015 due to the sale of one property to PAJV in the nine months ended January 31, 2015. There were no properties sold to PAJV in the current period. Cost of construction services increased from $0 in the nine months ended January 31, 2015 to approximately $167,000 in the nine months ended January 31, 2016, as a result of the Company’s formation of the construction company subsidiary and its services to ARG LLC. In the nine months ended January 31, 2016 cost of construction services, related party decreased from approximately $22,000 in nine months ended January 31, 2015 to $0 in the nine months ended January 31, 2016. The costs incurred in the prior period related to the Company’s services to PAJV, a related party. Effective March 15, 2015 the Company is no longer an owner in PAJV, thus there were no such costs in the current quarter.

 

Rental operating costs increased approximately $2,600 for the nine months ended January 31, 2016 as compared to the same period in fiscal 2015 due to the refund of insurance premiums in fiscal 2015. The reserve for rent guarantee decreased to a recovery of approximately $10,000 for the nine months ended January 31, 2016 as compared to expense of approximately $1,300 in the same period in fiscal 2015. There were no sales of rental properties in the current period and the rental guarantees on two prior period property sales expired with no payment required resulting in a credit of approximately $10,000.

 

Compensation expense decreased approximately $12,200 for the nine months ended January 31, 2016 as compared to the comparable prior period. This decrease is attributable to a former Director’s expired restricted stock units (“RSUs”) and to the full vesting of a portion of other RSUs in June of fiscal 2016.

 

General and administrative expense decreased approximately $9,600 for the nine months ended January 31, 2016 as compared to the comparable prior period due to decreased Company activity in the current nine months.

 

Professional fees increased approximately $36,500 for the months ended January 31, 2016 as compared to the comparable prior period mainly due to increased consulting and legal fees paid in connection with activities relating to the Company’s funding sources and ongoing search for equity and financing sources for the nine months ended January 31, 2016.

 

Interest expense increased approximately $82,100 for the nine months ended January 31, 2016 as compared to the comparable prior period mainly due to increased convertible debt in the current period and the related interest and amortization of debt discounts for the nine months ended January 31, 2016.

 

Bad debt expense increased from $0 in the comparable prior period to approximately $2,100 for the nine months ended January 31, 2016 due to the write off of the note receivable rental property which management deemed uncollectible in the current period.

 

Gain on sale of asset increased from $0 in the comparable prior period to approximately $8,100 for the nine months ended January 31, 2016 due to the sale of a vehicle in the current period.

 

Derivatives loss increased from $0 in the comparable prior period to approximately $659,000 for the nine months ended January 31, due to the derivatives loss on the tainting of convertible debt in the current period.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

At January 31, 2016, we had total assets of approximately $75,000 compared to total assets of approximately $164,000 at April 30, 2015. The decrease in total assets was mainly due to the following; cash decreased approximately $57,800, accounts receivable decreased approximately $11,800 mainly due to amounts received from ARG, the note receivable - rental property in the amount of approximately $2,100 was written off as it was deemed uncollectible, prepaid expenses decreased approximately $2,300, deposits decreased $5,000 as the lease expired and was not renewed, property and equipment decreased approximately $11,000 due to the sale of a vehicle and current period depreciation expense.

 

Cash decreased from approximately $99,000 as of April 30, 2015 to approximately $42,000 as of January 31, 2016. At January 31, 2016, we had stockholders’ deficit of approximately $1,916,000 compared to deficit of approximately $ 1,032,000 as of April 30, 2015. The increase in stockholders’ deficit was primarily due to a net loss of approximately $1,125,000 which was offset by compensation expense relating to RSUs of approximately $9,400, an amount received from a subscriber under a stock subscription agreement of approximately $54,000, stock issued under convertible debenture of approximately $69,600, a derivative liability of $54,400 and stock issued under service agreements of approximately $54,000 in the nine month period ended January 31, 2016.

 

Restructure of Rupes Futura and AMREFA Debt

 

On February 9, 2016, the Board of Directors of the Company authorized a new series of preferred stock, the Series A Convertible Preferred Stock, with a stated value of $1.00 per share, and we filed a Certificate of Designations for the Series A Preferred Stock with the Secretary of State of Delaware on February 17, 2016. Also, effective on February 9, 2016, our Board approved and the Company entered into two agreements with the Company’s largest stockholder, EIG Venture Capital Ltd (EIG), to reduce the amount of the Company’s outstanding debt, and improve our balance sheet. First, EIG assumed all of the Company’s obligations under the 13.5% convertible debenture of the Company due to Rupes Futura AB (Sweden), which has agreed to assumption of the convertible debenture obligations by EIG. The outstanding principal of the debenture, together with two years of accumulated unpaid interest, totals $608,031, and EIG was compensated by the issuance of shares of Series A Preferred Stock with a total stated value equal to that of the principal and accrued interest of the debt assumed. Second, the Company negotiated a debt conversion agreement effective February 9, 2016 with EIG, under which $59,000 of non-interest bearing advances made to the Company by EIG in July and November 2015 were converted into shares of Series A Preferred Stock with a total stated value of $59,000.

 

Subscription Agreements for Shares of Series A Preferred Stock

 

The Company has entered into subscription agreements with three stockholders, Jan Telander, the Company’s President and CEO; Ulf Telander, the CEO of EIG; and Frederic Telander, the CEO of SolTech Energy Sweden AB, which provides solar energy solutions for all types of properties. The subscription agreements provide for the investment in the Company by each of the three stockholders of $100,000 through the purchase of 100,000 shares each of Series A Preferred Stock, such purchases to be completed on or before April 30, 2016.

 

Purchase of AMREFA Properties

 

On March 8, 2016, the Company restructured its working arrangements with AMREFA through entry into a purchase agreement with AMREFA for the purchase of AMREFA’s U.S. subsidiary, ARG LLC, which holds real estate properties in Birmingham, Michigan, that were purchased by AMREFA and which we have managed for AMREFA. We paid the purchase price of $1,285,000 by the issuance to AMREFA of 8,093,541 shares of a new Series B Preferred Stock AMREFA also converted $70,000 of Progreen’s outstanding debt plus accrued interest on all debt to AMREFA in exchange for shares of Series B Preferred Stock. The Company has authorized the issuance of an aggregate of 8,534,625 shares of the Series B Preferred Stock to AMREFA in these transactions.

 

Going Concern

 

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.

 

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The Company’s ability to continue as a going concern is dependent upon the success of management’s plans and the Company’s ability to use its common stock to raise working capital. At present, the Company has outstanding three convertible notes in the aggregate principal amount of $28,600 all of which notes provide for the holder to convert outstanding principal and accrued interest on the holder’s note at a discount from the market price of our common stock. We expect conversions of these outstanding notes to depress the market prices of our common stock for the next three months and to dilute substantially the ownership of our common stock by existing holders.

 

We have increased our authorized number of shares of common stock to 1,500,000,000 shares, following SEC review of the amended Preliminary Information Statement, we filed with the SEC and mailed to our stockholders a Definitive Information Statement and a further Amended Definitive Information Statement for the increase in authorized common stock, and to amend our Certificate of Incorporation accordingly.   The Company believes that the increase in authorized common stock is necessary to assure that there is a sufficient number of shares of common stock available for conversions of outstanding convertible debt.

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. The unaudited 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 this uncertainty

 

Note receivable - rental property

 

On August 21, 2012 the Company sold one property with a sales price of $60,000 of which $10,000 was financed by the Company which is recorded as a note receivable with a balance of $0 and $2,137 as of January 31, 2016 and April 30, 2015, respectively. During the current quarter management determined the note is uncollectible and it was written off in full. The amount of $2,137 was charged to bad debt expense in the nine months ended January 31, 2016.

 

Related Party Subscription Agreement and Related Party Advance

 

We have limited working capital.  In December 2014, the Company received $50,000 of the remaining Phase III $100,000 purchase price balance under a Subscription Agreement with EIG Venture Capital, Ltd. (“EIG”) and $59,120 of related interest. The remaining balance of the purchase price in the amount of $54,000 was received on July 3, 2015 to complete payment of the Phase III purchase price. EIG on July 14, 2015, separately advanced the Company $46,000, and in November, 2015 advanced an additional $13,000. The $59,000 of non-interest bearing advances made to the Company by EIG were converted into shares of Series A Preferred Stock with a total stated value of $59,000.

 

Notes Payable and AMREFA Restructure

 

Pursuant to an Instalment Payment Agreement entered into on June 25, 2015 with AMREFA, the Company refinanced its outstanding principal and interest on loans to the Company from AMREFA. This agreement replaced all outstanding notes by a single 8% promissory note in the principal amount of $289,246, due July 15, 2017, amortized by instalment payments of principal and interest commencing with an initial payment in July 2015 of $45,000, including accrued interest, which payment was made on July 15, 2015. EIG, a major shareholder of the Company, guaranteed Progreen’s obligations under the Instalment Payment Agreement. The AMREFA Instalment Payment Agreement was paid in full and cancelled as of the March 8, 2016 effective date of the transaction for the exchange of Series B Preferred Stock for the AMREFA properties held by its U.S. subsidiary, American Residential Gap LLC, in consideration of Progreen’s deliveries of a $200,000 Mortgage Note together with the 441,084 shares of Series B Preferred Stock. 

 

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Convertible Note Financing

 

Effective on September 2, 2015, the Company entered into an agreement with JMJ Financial (“JMJ”), for a $250,000 convertible note financing facility with a maximum draw of $225,000, pursuant to which the Company at the initial closing under this agreement issued JMJ a convertible note in the principal amount of $250,000 for loans pursuant to the facility (“Note”). The initial draw was $30,000 under this financing facility, subsequent draws being subject to approval of the lender and the Company. The maximum disbursement of funds to the Company would be $225,000 with a $25,000 original issue discount and with interest at the rate of 12% per annum. The agreement with JMJ also requires the Company to use its reasonable best efforts to make filings with the SEC of Information Statements necessary to increase the number of its authorized shares of common stock, or to conduct a reverse split of its outstanding shares of common stock, to provide an adequate number of shares for conversions of principal of and interest on amounts owing under the Note pursuant to this agreement.

 

In the current fiscal year, to continue purchasing properties for renovation, the Company is looking to AMREFA and other financing sources to provide the necessary capital.  With any purchases of larger apartment complex properties, we estimate that we will be required to find investment partners to provide financing in the range of $5 million to $25 million over the next 12-24 months.

 

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, 2015. We consider the following accounting policy to be the most critical going forward:

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   
Not applicable.
   
ITEM 4. CONTROLS AND PROCEDURES

 

a. Disclosure controls and procedures.

 

As of the end of period covered by this report, the Company carried out an evaluation, with the participation of the Company's Chief Executive Officer and Principal Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.

 

b. Changes in internal controls over financial reporting.

 

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

 

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PART II—OTHER INFORMATION

 

ITEM 6. EXHIBITS.

 

10.31a   Amendment No. 1 to Purchase Agreement, dated March 8, 2016, between the Company and American Residential Fastigheter AB.
     
10.32   Joint Venture Contract, dated February 12, 2016, between Immobiliaria Contel and the Company.
     
10.33   Recognition Agreement with Debt Mortgage Guarantee, dated February 12, 2016, between Immobiliaria Contel and the Company.
     
31*   Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
     
32**   Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

     

* Filed herewith

** Furnished herewith

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  PROGREEN PROPERTIES, INC.
     
  BY: /s/ Jan Telander
    Jan Telander
    President and Chief Executive Officer

 

Dated: April 25, 2016

 

 

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