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 six months ended October 31, 2018 and 2017 are not necessarily indicative of the results
for the entire fiscal year or for any other period.
ProGreen
US, Inc.
Condensed
Consolidated Balance Sheets
|
|
October
31, 2018
|
|
|
April
30, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Agricultural
land
|
|
$
|
160,000
|
|
|
$
|
-
|
|
Land
under development
|
|
|
500,000
|
|
|
|
500,000
|
|
Property
|
|
|
660,000
|
|
|
|
500,000
|
|
Cash
|
|
|
23,299
|
|
|
|
106,256
|
|
Accounts
receivable, net of allowance of $36,910 and $37,960
|
|
|
58,791
|
|
|
|
-
|
|
Notes
receivable - land contracts, net of allowance of $218,743 and $221,080
|
|
|
70,659
|
|
|
|
70,659
|
|
Other
assets
|
|
|
96,675
|
|
|
|
82,909
|
|
Note
receivable - related party
|
|
|
1,014,270
|
|
|
|
1,187,500
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
|
Vehicles,
furniture and equipment, net of accumulated depreciation of $46,881 and $46,703
|
|
|
3,804
|
|
|
|
3,804
|
|
Total
assets
|
|
$
|
1,927,498
|
|
|
$
|
1,951,128
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
876,530
|
|
|
$
|
348,657
|
|
Reservation
and tenant deposits
|
|
|
52,471
|
|
|
|
48,085
|
|
Notes
payable
|
|
|
23,512
|
|
|
|
23,512
|
|
Note
payable, related parties, net of discount of $0 and $0, respectively
|
|
|
781,200
|
|
|
|
882,555
|
|
Note
payable - Ann Arbor
|
|
|
39,363
|
|
|
|
58,952
|
|
Derivative
liabilities
|
|
|
1,175,090
|
|
|
|
772,895
|
|
Convertible
debentures, net of discount of $99,309 and $32,682, respectively
|
|
|
698,803
|
|
|
|
839,247
|
|
Dividend
payable
|
|
|
156,375
|
|
|
|
108,579
|
|
Liability
under land contract-related party
|
|
|
520,000
|
|
|
|
400,000
|
|
Total
liabilities
|
|
|
4,323,344
|
|
|
|
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 October 31, 2018 and April 30, 2018
|
|
|
97
|
|
|
|
97
|
|
Convertible
preferred stock, Series B $.0001 par value, 8,534,625 shares authorized, 8,534,625 and 8,534,625 shares issued and outstanding
at October 31, 2018 and April 30, 2018
|
|
|
853
|
|
|
|
853
|
|
Common
stock, $.0001 par value, 1,250,000,000 shares authorized, 739,576,346 and 421,577,283 outstanding
|
|
|
|
|
|
|
|
|
at
October 31, 2018 and April 30, 2018
|
|
|
73,959
|
|
|
|
42,157
|
|
Additional
paid in capital
|
|
|
7,066,356
|
|
|
|
6,221,833
|
|
Accumulated
other comprehensive income
|
|
|
(20,937
|
)
|
|
|
(30,999
|
)
|
Accumulated
deficit
|
|
|
(9,428,803
|
)
|
|
|
(7,723,312
|
)
|
Total
controlling interest
|
|
|
(2,308,475
|
)
|
|
|
(1,489,371
|
)
|
Noncontrolling
interest in consolidated subsidiary
|
|
|
(87,371
|
)
|
|
|
(41,983
|
)
|
Total
stockholders’ deficit
|
|
|
(2,395,846
|
)
|
|
|
(1,531,354
|
)
|
Total
liabilities and stockholders’ deficit
|
|
$
|
1,927,498
|
|
|
$
|
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
|
|
|
Six
Months Ended
|
|
|
|
October
31,
|
|
|
October
31,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenue
|
|
$
|
-
|
|
|
$
|
15,525
|
|
|
$
|
-
|
|
|
$
|
31,050
|
|
Net
gain on sale of properties
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,905
|
|
Management
fees
|
|
|
51,284
|
|
|
|
-
|
|
|
|
51,284
|
|
|
|
-
|
|
Total
Revenue
|
|
$
|
51,284
|
|
|
$
|
15,525
|
|
|
$
|
51,284
|
|
|
$
|
70,955
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general & administrative
|
|
|
72,780
|
|
|
|
82,918
|
|
|
|
228,795
|
|
|
|
195,393
|
|
Professional
fees
|
|
|
90,444
|
|
|
|
91,090
|
|
|
|
225,677
|
|
|
|
150,290
|
|
Total
operating expenses
|
|
$
|
163,224
|
|
|
$
|
174,008
|
|
|
$
|
454,472
|
|
|
$
|
345,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(111,940
|
)
|
|
|
(158,483
|
)
|
|
|
(403,188
|
)
|
|
|
(274,728
|
)
|
Other
expenses and income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(912,456
|
)
|
|
|
(682,187
|
)
|
|
|
(1,449,210
|
)
|
|
|
(778,979
|
)
|
Loss
on settlement of liabilities, common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(33,240
|
)
|
|
|
(44,659
|
)
|
Gain
on change in fair value of derivative liabilities
|
|
|
466,640
|
|
|
|
514,297
|
|
|
|
182,555
|
|
|
|
628,925
|
|
Loss
before income tax expense
|
|
$
|
(557,756
|
)
|
|
$
|
(326,373
|
)
|
|
$
|
(1,703,083
|
)
|
|
$
|
(469,441
|
)
|
Net
Loss
|
|
|
(557,756
|
)
|
|
$
|
(326,373
|
)
|
|
$
|
(1,703,083
|
)
|
|
$
|
(469,441
|
)
|
Less:
Net loss attributable to noncontrolling interest
|
|
$
|
(13,357
|
)
|
|
$
|
3,693
|
|
|
$
|
(45,388
|
)
|
|
$
|
(7,243
|
)
|
Net
Loss attributable to parent
|
|
$
|
(544,399
|
)
|
|
$
|
(330,066
|
)
|
|
$
|
(1,657,695
|
)
|
|
$
|
(462,198
|
)
|
Deemed
dividend on redeemable, convertible preferred stock, Series B
|
|
$
|
23,898
|
|
|
$
|
23,898
|
|
|
$
|
47,796
|
|
|
$
|
47,796
|
|
Net
Loss attributable to parent common shareholders
|
|
$
|
(568,297
|
)
|
|
$
|
(353,964
|
)
|
|
$
|
(1,705,491
|
)
|
|
$
|
(509,994
|
)
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in foreign currency translation adjustments
|
|
$
|
1,594
|
|
|
$
|
(21,923
|
)
|
|
$
|
10,062
|
|
|
$
|
(22,562
|
)
|
Total
other comprehensive income (loss)
|
|
$
|
1,594
|
|
|
$
|
(21,923
|
)
|
|
$
|
10,062
|
|
|
$
|
(22,562
|
)
|
Comprehensive
net loss attributable to parent
|
|
$
|
(566,703
|
)
|
|
$
|
(375,887
|
)
|
|
$
|
(1,695,429
|
)
|
|
$
|
(532,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - basic and fully diluted
|
|
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted
average shares outstanding - basic and fully diluted
|
|
|
546,381,314
|
|
|
|
361,764,956
|
|
|
|
485,234,708
|
|
|
|
355,858,490
|
|
See
accompanying notes to these unaudited condensed consolidated financial statements
ProGreen
US, Inc.
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
October
31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash
used in operating activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,703,083
|
)
|
|
$
|
(469,441
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Compensation
- restricted stock units
|
|
|
-
|
|
|
|
1,000
|
|
Depreciation
|
|
|
-
|
|
|
|
12,268
|
|
Gain
on sale of rental properties
|
|
|
-
|
|
|
|
(39,905
|
)
|
Recovery
of bad debt, net
|
|
|
(10,425
|
)
|
|
|
-
|
|
Gain
on change in fair value of derivative liabilities
|
|
|
(182,555
|
)
|
|
|
(628,925
|
)
|
Loss
on settlement of liabilities
|
|
|
33,240
|
|
|
|
44,659
|
|
Warrant
expense
|
|
|
20,100
|
|
|
|
-
|
|
Amortization
of debt discount
|
|
|
744,251
|
|
|
|
607,189
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(57,741
|
)
|
|
|
(33,364
|
)
|
Accounts
payable and accrued expenses
|
|
|
584,706
|
|
|
|
10,292
|
|
Reservation
and tenant deposits
|
|
|
4,386
|
|
|
|
15,499
|
|
Other
current assets
|
|
|
(13,766
|
)
|
|
|
(13,351
|
)
|
Cash
used in operating activities
|
|
|
(580,887
|
)
|
|
|
(494,079
|
)
|
Cash
provided by investing activities
|
|
|
|
|
|
|
|
|
Purchase
of office equipment
|
|
|
-
|
|
|
|
(2,584
|
)
|
Proceeds
from sale of properties
|
|
|
-
|
|
|
|
231,000
|
|
Cash
received from notes receivable - land contracts
|
|
|
9,375
|
|
|
|
1,786
|
|
Purchase
of land
|
|
|
(40,000
|
)
|
|
|
-
|
|
Loan
for note receivable - related party
|
|
|
649,473
|
|
|
|
(272,000
|
)
|
Loan
repayment by related party
|
|
|
(476,243
|
)
|
|
|
50,000
|
|
Cash
provided by investing activities
|
|
|
142,605
|
|
|
|
8,202
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by financing activities
|
|
|
|
|
|
|
|
|
Proceeds
from the sale of common stock
|
|
|
50,000
|
|
|
|
75,000
|
|
Proceeds
from notes payable-related party
|
|
|
-
|
|
|
|
410,070
|
|
Proceeds
from notes payable
|
|
|
-
|
|
|
|
49,000
|
|
Repayment
of notes payable
|
|
|
(19,589
|
)
|
|
|
(342,115
|
)
|
Repayment
of notes payable related party
|
|
|
(101,355
|
)
|
|
|
-
|
|
Proceeds
from convertible debentures
|
|
|
467,707
|
|
|
|
615,438
|
|
Repayment
of convertible debentures
|
|
|
(51,500
|
)
|
|
|
(559,664
|
)
|
Decrease
in obligations under capital leases
|
|
|
-
|
|
|
|
(3,373
|
)
|
Cash
provided by financing activities
|
|
|
345,263
|
|
|
|
244,356
|
|
Effect
of foreign exchange on cash
|
|
|
10,062
|
|
|
|
(22,562
|
)
|
Net
change in cash
|
|
|
(82,957
|
)
|
|
|
(264,083
|
)
|
|
|
|
|
|
|
|
|
|
Cash
at beginning of period
|
|
|
106,256
|
|
|
|
289,095
|
|
Cash
at end of period
|
|
$
|
23,299
|
|
|
$
|
25,012
|
|
Supplemental
information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
147,452
|
|
|
$
|
159,574
|
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing transactions:
|
|
|
|
|
|
|
|
|
Reclassification
of equity to derivative liability due to tainting
|
|
$
|
320,890
|
|
|
$
|
151,166
|
|
Reclassification
of derivative liability to equity due to conversion
|
|
$
|
516,140
|
|
|
$
|
374,354
|
|
Dividend
declared not paid, redeemable, convertible preferred stock, Series B
|
|
$
|
47,796
|
|
|
$
|
47,796
|
|
Discount
on derivatives
|
|
$
|
780,000
|
|
|
$
|
490,371
|
|
Purchase
of land on account
|
|
$
|
120,000
|
|
|
$
|
-
|
|
Conversion
of debt and accrued interest into common stock
|
|
$
|
603,731
|
|
|
$
|
101,098
|
|
See
accompanying notes to these unaudited condensed consolidated financial statements
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
Note
1. Financial Statement Presentation
The
unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted
accounting principles in the United States of America (“U.S. GAAP”) for interim information and in accordance with
the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (the “SEC”).
Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements and
they should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s
Annual Report on Form 10-K for the year ended April 30, 2018 (the “Annual Report”). The accompanying interim financial
statements are unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of operations for the six month period ended October 31, 2018,
are not necessarily indicative of the results that may be expected for the year ending April 30, 2019.
Basis
of Presentation
The
Company’s significant accounting policies are summarized in Note 1 of the Annual Report. These accounting policies conform
to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation
of the interim unaudited condensed consolidated financial statements. There were no significant changes to these accounting policies
during the six months ended October 31, 2018, and the Company does not expect the adoption, as applicable, of other recent accounting
pronouncements will have a material impact on its financial statements.
Going
Concern
The
Company’s unaudited condensed consolidated financial statements for the period ended October 31, 2018, have been prepared
on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal
course of business. The Company will require additional funding to execute its future strategic business plan. Successful business
operations and its transition to attaining profitability are dependent upon obtaining additional financing and achieving a level
of revenue adequate to support its cost structure. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern.
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 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 price charged by Contel to Progreen is 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 six months ended October 31, 2018 management fees totaled $51,284.
During
the six months ended October 31, 2018, the Purchaser notified the Company that it has 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.
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
Note
2. Agricultural Land, Land Under Development and Liability under Land Contract-Related Party
During
the six months ended October 31, 2018, the Company acquired agricultural land and under the terms of a definitive purchase agreement,
the Company recorded agricultural land at cost in the amount of $160,000, paid $40,000 of the purchase price and recorded a liability
under land contract for the balance due in the amount of $120,000 and $0 as of October 31, 2018 and April 30, 2018, respectively.
No interest is due under the terms of the definitive purchase agreement. The Company held agricultural land in the amount of $160,000
and $0, as of October 31, 2018 and April 30, 2018, respectively.
The
Company held land under development in the amount of $500,000 as of October 31, 2018 and April 30, 2018. The liability
under land contract to purchase the land was $400,000 as of October 31, 2018 and April 30, 2018.
As
of October 31, 2018 payments under the agreements are due as follows for liability under land contract – related party:
2019
|
|
$
|
200,000
|
|
2020
|
|
|
120,000
|
|
2021
|
|
|
100,000
|
|
2022
|
|
|
100,000
|
|
Total
|
|
$
|
520,000
|
|
Note
3. Accounts Receivable
Accounts
receivable, in the amount of $58,791, is due in connection with the Company’s wholly owned subsidiary, ProGreen Farms LLC’s
administrative services rendered to third parties and sale of chili peppers during the six months ended October 31, 2018. Accounts
Receivable totaled $58,791 and $0 as of October 31, 2018 and April 30, 2018, respectively.
Note
4. Note Receivable - Related Party
During
the six months ended October 31, 2018, the Company contributed an additional $476,243 to Inmobiliaria Contel S.R.L.C.V.
(“Contel”) and received $649,473 from Contel from the proceeds on the sale of chili peppers. Note Receivable - Related
Party Note totaled $1,014,270 and $1,187,500 as of October 31, 2018 and April 30, 2018, respectively.
Note
5. Notes Payable
During
the six months ended October 31, 2018 no payments were made under Notes Payable. The amount due under the Southfield debt had
a balance outstanding of $14,512 as of October 31, 2018 and April 30, 2018. The amount outstanding under the unsecured promissory
note with an unrelated party note payable totaled $9,000 as of October 31, 2018 and April 30, 2018.
Note
6. Note Payable, Related Party
During
the six months ended October 31, 2018, the Company paid $101,355 of amounts due under the Company’s credit line promissory
notes with its President and Chief Executive Officer.
Notes
payable related parties includes the amounts due under the Credit Lines with a total balance outstanding of $781,200 and $882,555
as of October 31, 2018 and April 30, 2018, respectively.
Amortization
of the related discount totaled $0 and $47,635 for the six months ended October, 31, 2018 and 2017, respectively. The Company
recorded total interest expense in connection with the Credit Lines in the amount of $20,336 and $14,557 for the six months ended
October, 31, 2018 and 2017, respectively. Total accrued interest due under the Credit Lines was $70,953 and $50,617 as of October,
31, 2018 and April 30, 2018, respectively.
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
Note
7. Note Payable to Bank of Ann Arbor
During
the six months ended October 31, 2018 the Company paid $19,589 under the note payable Ann Arbor and had a balance outstanding
of $39,363 and $58,952 as of October 31, 2018 and April 30, 2018, respectively. The Company recorded interest expense in
connection with this note payable in the amount of $1,914 and $11,918 for the six months ended October 31, 2018 and 2017,
respectively. Accrued interest due under the note payable totaled $0 and $304 as of October 31, 2018 and April 30, 2018,
respectively.
Principal
payment requirements on the notes payable to Bank of Ann Arbor are as follows:
2019
|
|
$
|
16,859
|
|
2020
|
|
|
22,504
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
39,363
|
|
Note
8. 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 2 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 $798,112 and $0 at October 31, 2018 and April 30, 2018 respectively, with
a derivative liability totaling $42,000 and $0 at October 31, 2018 and April 30, 2018,
respectively, which are categorized as Level 3.
|
|
|
|
|
●
|
Equity
investments totaling $754,602 and $704,602 at October 31, 2018 and April 30, 2018, respectively, with a
derivative liability totaling $1,117,586 and $772,895 at October 31, 2018 and April 30, 2018, respectively, which are
categorized as Level 3.
|
|
|
|
|
●
|
12,000,000
and 0 Common stock warrants at October 31 ,2018 and April 30,2018, respectively, with a derivative liability totaling $15,504
and $0 at October 31, 2018 and April 30, 2018, respectively, which are categorized as Level 3.
|
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
The
related gain on change in fair value of derivatives totaled $182,555 and $628,925 for the six months ended October 31,
2018 and October 31, 2017, respectively.
Note
9. Derivative Liabilities
During
the six months ended October 31, 2018 the Company identified conversion features embedded within its convertible debt. The Company
determined that the conversion feature of the convertible notes represents an embedded derivative since the Notes are convertible
into a variable number of shares upon conversion. The fair value of the embedded derivative liabilities on the convertible notes
were determined using a multinomial lattice models on the issuance dates with the assumptions in the table below.
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 6 months ended October 31, 2018:
Stock
Price
|
|
$
|
.0019
- $.0155
|
|
Exercise
Price
|
|
$
|
.001
- $.0574
|
|
Risk
Free Rate
|
|
|
2.20%
- 12.00
|
%
|
Volatility
|
|
|
0%
- 370
|
%
|
Term
(Years)
|
|
|
(.08)
- .55
|
|
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 6 months ended October 31, 2018:
Stock
Price
|
|
$
|
0.00
|
|
Exercise
Price
|
|
$
|
.02
- $.05
|
|
Risk
Free Rate
|
|
|
2.90%
- 3.00
|
%
|
Volatility
|
|
|
155.60%
- 211.90
|
%
|
Term
(Years)
|
|
|
2.64
- 4.50
|
|
The
fair value of the Company’s derivative liabilities at October 31, 2018 is as follows:
April 30, 2018- Balance
|
|
$
|
772,895
|
|
Discount on debt
|
|
|
780,000
|
|
Reclass to equity due to tainting
|
|
|
320,890
|
|
Reclass to equity due to conversions
|
|
|
(516,140
|
)
|
Fair Value mark to market adjustment
|
|
|
(182,555
|
)
|
|
|
$
|
1,175,090
|
|
Note
10. Financing Agreement and Convertible Debentures
During
the six months ended October 31, 2018 the Company issued three unsecured convertible notes payable in a total amount of $467,707
in cash, with original issue discounts and debt issuance costs totaling $30,878, interest rates of 12% per annum and due dates
ranging from November 22, 2018 to June 14, 2019. The Holders shall have the right, in their sole and absolute discretion, at various
dates to convert all or any part of the outstanding amount due under the Notes into fully paid and 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.
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
During
the six months ended October 31, 2018 the Company made cash payments totaling $51,500 and noncash payments totaling $546,906
(along with $56,829 accrued interest) in the form of conversions to 315,481,316 shares of the Company’s common
stock under the terms of its convertible notes.
During
the six months ended October 31, 2018 the Company entered into an agreement to amend and restate the terms of an existing convertible
note. In consideration, the Company (i) issued 400,000 shares of the Company’s common stock and (ii) increased the note
principal amount by $26,000 and the lender agreed to forbear its conversion rights until August 10, 2018. The Company recognized
$33,240 for loss on the settlement of liabilities.
During
the six months ended October 31, 2018 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 $698,803 and $839,247 at October 31, 2018 and April 30, 2018, respectively.
Amortization of debt discount was $744,251 and $559,554 for the six months ended October, 31, 2018 and 2017,
respectively.
The
Company recorded total interest expense in connection with the convertible debentures in the amount of $101,442 and $43,926 for
the six months ended October, 31, 2018 and 2017, respectively. Total accrued interest due under the convertible debentures was
$72,146 and $144,388 as of October, 31, 2018 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
11. Subscription Agreements
During
the six months ended October 31, 2018 the Company entered into a Subscription Agreement with Tangiers Global, LLC for the sale
by the Company to Tangiers Global LLC an aggregate of 2,117,747 shares of the Company’s Common Stock, with a cash investment
in the amount of $50,000, at a price of $0.02361 per share.
Note
12. Equity
During
the six months ended October 31, 2018 the Company issued 315,881,316 shares of Common Stock, to settle conversions of $603,731
of principal and interest of convertible notes and to amend and restate an existing note.
During
the six months ended October 31, 2018 the Company issued in total 2,117,747 shares of Common Stock for in cash in the amount of
$50,000.
As
of October 31, 2018, the total accrued dividend for the Series B Preferred stock was $156,375.
As
of October 31, 2018 and April 30, 2018, amounts accrued for the true up feature of equity investments was $564,672 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 October 31, 2018.
ProGreen
US, Inc.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINACIAL STATEMENTS
Note
13. Warrants
For
the six months ended October 31, 2018, 750,000 warrants were issued, and none were exercised or forfeited. The 750,000
warrants were fair valued for $20,100 and recorded as professional fees on the face of income statement. The Company’s
outstanding and exercisable warrants as of October 31, 2018 are presented below:
|
|
Number
outstanding
|
|
|
Weighted
Average Exercise Price
|
|
|
Contractual
Life in Years
|
|
|
Intrinsic
Value
|
|
Warrants
Outstanding as of April 30, 2018
|
|
|
15,000,000
|
|
|
$
|
0.03
|
|
|
|
3.65
|
|
|
|
|
|
Warrants
Exercisable as of April 30, 2018
|
|
|
14,000,000
|
|
|
$
|
0.03
|
|
|
|
3.64
|
|
|
$
|
58,560
|
|
Warants
Granted
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Foreited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warants
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Outstanding as of October 30, 2018
|
|
|
15,750,000
|
|
|
$
|
0.03
|
|
|
|
3.21
|
|
|
|
|
|
Warrants
Exercisable as of October 30, 2019
|
|
|
14,750,000
|
|
|
$
|
0.04
|
|
|
|
3.21
|
|
|
$
|
-
|
|
Note
14. Subsequent Events
Subsequent
to October 31, 2018, convertible debt in the amount of $127,516 plus accrued interest totaling $71,824 were converted
into 376,296,705 shares of the Company’s common stock.
On November 12, 2018, the Company entered into
a Business Loan in the principal amount of $100,000, with an interest rate of 28% per annum requiring 102 payments of $1,242.72
daily. In addition, there was an origination fee of $2,000.
On December 14, 2018, the Company entered
into a Merchant Agreement in the principal amount of $150,000, with an interest rate of 39% per annum requiring 120 payments of
$1,737.50 daily. In addition, there was an banking fee of $7,500.
On
December 5, 2018, 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.
The Series B Stock has not been assigned by AMREFA to the Company for cancellation and
AMREFA is the registered owner of the Series B Stock. As AMREFA had not assigned the Preferred Series B Stock for
cancellation and the Preferred Series B stock remained outstanding as of October 31, 2018 and April 30, 2018, the note was
not considered outstanding. Under the Amendment, the Company and AMREFA have agreed;
i) to cancel the Series B Stock in redemption of the Series B Stock; ii) to waive
all defaults under the Original Note, iii)the principal amount of the Original Note
and related interest are due and payable on June 30, 2019 and iv) the Company shall
provide for payment to AMREFA of all amounts due under the Original Note, as
amended, from the proceeds of the Company’s Bridge Financing currently in progress.
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 since our initial property purchases
in 2009 has been to acquire, refurbish and upgrade existing properties into more environmentally sustainable, energy efficient,
comfortable and healthier living spaces so that they meet standards that exceed what is often the norm for most single-family
homes, condominiums and apartments. Once a property has been acquired, refurbished and rented, the property would be put back
on the market, but now with a favorable environmental profile.
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 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.
We
have expanded our real estate development operations to include Baja California, Mexico. On February 11, 2016, we signed a definitive
agreement with Contel for Progreen to finance the first tract of land of approximately 300 acres which is being developed by Contel
for agriculture use. Four wells have been drilled on the first tract, and the growing operation has begun delivering chili peppers
to Huy Fong Foods, Inc. an importer to the U.S. market under a produce purchase agreement for chili peppers.
In
addition, we have formed the Procon joint venture subsidiary, which is the holding company for further non-agricultural land and
real estate developments. On January 23, 2017, Procon entered into a definitive purchase agreement for, and has taken possession
of, a large tract of land situated near the town of El Rosario in Baja California. The land, planned for residential real estate
development, is bordering the Pacific Ocean and covers a total area of 2,016 ha (5,000 acres) with 7.5 km (4.5 miles) of ocean
front.
The
transfer of deed for the 5,000-acre oceanfront property to Procon was completed on March 15, 2017, and a Master Plan has been
created for a very large resort-type retirement and vacation community with the name “Cielo Mar”. The first phase
of the development of the master plan was presented to the authorities for approval, during the summer and is expected to be approved
shortly.
Status
of Current Bridge Financing
On
May 30, 2018 the Company entered into a financing commitment agreement with Global Capital Partners Fund Limited (the “Lender”)
for a $5,000,000 financing secured by a first mortgage lien on our Cielo Mar property in Baja California, Mexico. On August 28,
2018 we notified the Lender that we were terminating the financing commitment, effective August 31, 2018, due to the Lender’s
acknowledged inability to fulfill its obligations to provide the loan consistent with the terms of the commitment.
We
are in negotiations with other firms for a bridge loan in the amount of $5,000,000, or in that size range, and expect to receive
positive responses from one or more of the firms.
Outstanding
Convertible Notes
We
have approximately $699,000 (unamortized discounts total approximately $99,000) in the aggregate of convertible debt outstanding,
in the form of convertible notes ranging in size from $2,400 to $236,085. $139,738 of these notes are past due and, although we
are in technical default, the lender has not sent us notice of default. Certain of the lenders are exercising their rights to
convert their loans in to common stock and selling the shares in the public market for our stock.
Default
terms in these notes generally provide for an increase in shares issuable pursuant to the lenders’ conversion rights, as
well as cross-default provisions and provisions reducing the conversion prices if our common stock sells below specified prices
in the over-the-counter market.
RESULTS
OF OPERATIONS
Three
months Ended October 31, 2018 Compared to Three Months Ended October 31, 2017
During
the three months ended October 31, 2018, we incurred a net loss of approximately $558,000 compared to a net loss of approximately
$326,000 for the three months ended October 31, 2017. Revenue increased approximately $36,000 in the three months ended October
31, 2018 compared to the three months ended October 31, 2017.
Rental
revenue decreased to $0 as compared to approximately $15,000 during the three months ended October 31, 2017. The Company received
rental income from no properties during the three months ended October 31, 2018 as compared to five in the comparable prior period.
All remaining rental properties were sold in fiscal 2018. Management fee revenue increased to approximately $51,000 as compared
to $0 during the three months ended October 31, 2017. The Company received management fees, for billing services, from outside
producers on sales of the producers’ chili peppers.
Selling,
general & administrative decreased to approximately $73,000 as compared to approximately $83,000 during the three months ended
October 31, 2017, mainly due to the following: Expenses relating to the rental properties decreased approximately $31,000 as compared
to the three months ended October 31, 2017 because all properties were sold in fiscal 2018. Salary expense decreased approximately
$14,000 as compared to the three months ended October 31, 2017 because the Company’s President no longer receives a salary.
During the three months ended October 31, 2018, the Company recorded a bad debt recovery of approximately $3,000 due to payments
received on certain land contracts. These decreases were offset by increases in expenses as follows: Expenses relating to the
Cielo Mar office in Ensenada and the move to San Diego increased approximately $10,000 as compared to the three months ended October
31, 2017. Taxes increased approximately $13,000 as compared to the three months ended October 31, 2017 due to Michigan taxes and
California Franchise taxes. Expenses relating to Procon increased approximately $15,000 as compared to the three months ended
October 31, 2017.
Professional fees decreased approximately
$645 for the three months ended October 31, 2018 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.
Six
months Ended October 31, 2018 Compared to Six Months Ended October 31, 2017
During
the six months ended October 31, 2018, we incurred a net loss of approximately $1,703,000 compared to a net loss of approximately
$469,000 for the six months ended October 31, 2017. Revenue decreased approximately $20,000 in the six months ended October 31,
2018 compared to the six months ended October 31, 2017.
Rental
revenue decreased to $0 as compared to approximately $31,000 during the six months ended October 31, 2017. The Company received
rental income from no properties during the six months ended October 31, 2018 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
$40,000 during the six months ended October 31, 2017. The Company sold no properties in the six months ended October 31, 2018
as compared to four in the comparable prior period. Management fee revenue increased to approximately $51,000 as compared to $0
during the six months ended October 31, 2017 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 six months ended October 31, 2018, as compared to the six months ended October
31, 2017. In the six months ended October 31, 2018, selling, general and administrative expenses increased approximately $33,000
as compared to the comparable prior period mainly due to the following changes:
There
were increases in certain expenses:
Funding
fees expense increased by approximately $75,000 during the six months ended October 31, 2018 as compared to the comparable prior
period due to the Company’s payment of a nonrefundable fee in connection with a terminated financing commitment agreement.
Housing
allowance expense increased approximately $3,000 during the six months ended October 31, 2018 as compared to the comparable prior
period due to increased rent in San Diego
Miscellaneous
expense increased by approximately $15,000 during the six months ended October 31, 2018 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 $5,000 during the six months
ended October 31, 2018 as compared to the comparable prior period due to an increase in newswire fees.
Other
taxes expense increased by approximately $25,000 during the six months ended October 31, 2018 as compared to the comparable prior
period due to value added taxes relating to Procon’s operations.
Office
rent expense increased by approximately $11,000 during the six months ended October 31, 2018 as compared to the comparable prior
period due to the Company’s leases in San Diego and in Ensenada.
Fees
and licensing expense increased by approximately $3,000 during the six months ended October 31, 2018 as compared to the comparable
prior period due costs incurred for the Cielo Mar development projects in Baja California.
These
increases were offset by decreases in certain expenses:
Commissions
and Closing costs decreased by approximately $32,000 during the six months ended October 31, 2018 as compared to the comparable
prior period due to the selling of no properties in the current period as compared to four properties in the prior comparable
period
Rental
property costs and depreciation decreased approximately $43,000 for the six months ended October 31, 2018 as compared to the comparable
prior period as a result of a reduction in costs incurred in connection with the rental properties the Company acquired from ARG
due to the sale of all remaining rental properties in fiscal 2018.
Wage
related expenses decreased by approximately $7,000 during the six months ended October 31, 2018 as compared to the comparable
prior period due to adjustments to salaries and payroll taxes in the prior comparable quarter. No wages were paid in the current
quarter.
Travel
expense decreased approximately $4,000 during the six months ended October 31, 2018 as compared to the comparable prior period
due to moving the Company’s primary operations to Baja California, Mexico and the President’s move to Mexico resulting
in reduced travel needs.
Miscellaneous
office costs decreased by approximately $8,000 during the six months ended October 31, 2018 as compared to the comparable prior
period due budgetary constraints, reduced Ensenada expenses and closing of Michigan office.
Bad
debt recovery increased from $0 for the six month period ended October 31, 2017 to approximately $10,000 in the current six month
period ended October 31, 2018 as the Company received payments from past due tenants and collected amounts on six previously written
off land contract receivables.
Professional
fees increased approximately $75,000 for the six months ended October 31, 2018 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 $670,000 for the six months ended October 31, 2018 as compared to the comparable prior period
mainly due to the increase in amortization of debt discounts, prepayment penalties and interest recognized in connection with
convertible notes in the current six month period as compared to the comparable prior six month period.
Loss
on settlement of liabilities, common stock increased to approximately $33,000 for the six months ended October 31, 2018
as compared to $45,000 for the comparable prior period due to a forbearance payment and issuance of common stock relating to a
convertible note payable in the current quarter and the partial payoff of a convertible note payable and issuance of common stock
under make whole provision in the prior comparable quarter.
Derivatives
gain decreased approximately $446,000 to approximately $183,000 for the six months ended October 31, 2018 as compared
to a derivatives gain of $629,000 for the comparable prior period due to the fair value adjustments in connection with the convertible
notes and common stock warrants in the current six 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 $1,927,000 at October
31, 2018. 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.
Accounts
receivable increased approximately $59,000 as a result of amounts due to the Company for chili pepper sales.
Other
assets increased approximately $13,000 mainly due to an in decrease in Procon’s other asset of approximately $35,000 offset
by an increase in Procon’s prepaid expenses of approximately $15,000 and funding fees of $33,000.
These
increases in assets were partially offset by decreases in: cash of approximately $83,000 and Note Receivable- Related Party decreased
approximately $173,000 as a result of the Company’s additional loan to Contel in the amount of approximately $476,000 partially
offset by repayments made in connection with the cost of chili peppers the amount of approximately $649,000.
Cash
decreased to approximately $23,000 for the period ended October 31, 2018, compared to cash of $106,000 at April 30, 2018. Cash
used in operating activities was approximately $581,000 for the period ended October 31, 2018, as compared with cash used
in operating activities of approximately $494,000 in the comparable period in fiscal 2017.
At
October 31, 2018, we had stockholders’ deficit of approximately $2,396,000 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.
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.
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 will have 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 charges 10% of invoice amounts to producers, other than Contel, for billing services which is recorded as a management
fee. During the six months ended October 31, 2018 management fees totaled $51,284.
During
the six months ended October 31, 2018, the Purchaser notified the Company that it has located another source of chili peppers
for 2019 and would not need produce from Progreen Farms.
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 $781,200 as of October 31, 2018.
Convertible
Note Financings
We
have approximately $699,000 (unamortized discounts total approximately $99,000) 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.
On
May 30, 2017, the Company lease our offices at 2667 Camino del Rio South, Suite 312, San Diego, CA 92108, of approximately 740
sq. ft., at a current monthly rent of $1,250, under a 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.