I believe this is what is going on.
Nothing needs to be reported based upon how they structured the financing deal with Contel.
On February 11, 2016, the Company signed a definitive agreement with Inmobiliaria Contel S.R.L.C.V. (“Contel”) to finance the first tract of land of approximately 300 acres which is being developed by Contel for agriculture use in Baja California, Mexico. The Company’s Chief Executive Officer has made personal investments in this project, and has a 49.5% minority partnership interest in Contel. The Company and its Chief Executive Office have no management or governance authority in Contel. Contel’s manager is not required to consult with our Chief Executive Officer on any management decisions in the conduct of Contel’s business.
A portion of the property acquired by Contel is currently developed for agricultural purposes. The remaining parcels will be developed for agricultural use or developed as a multi-use property. The Company initially committed to a loan of up to the amount of $350,000 and on February 1, 2017, the Company increased its loan commitment to Contel to up to $1,000,000 from $350,000.
The Company evaluated Contel for consolidation based on the provisions of FASB ASC 810 - Consolidation (“ASC 810”). ASC 810 approach is to determine a variable interest entity’s (“VIE”) primary beneficiary and requires companies to more frequently reassess whether they must consolidate or deconsolidate VIEs. The accounting standard requires a qualitative, rather than quantitative, analysis to determine the primary beneficiary of a VIE for consolidation purposes. The primary beneficiary of a VIE is the enterprise that has (a) the power to direct the VIE activities that most significantly affect the VIE’s economic performance, and (b) the right to receive benefits of the VIE that could potentially be significant to the VIE or the obligation to absorb losses of the VIE that could potentially be significant to the VIE. The Company has determined that Contel does have the characteristics of a VIE. ProGreen has no direct ownership in Contel and no power to direct the activities of Contel, and its relationship to Contel is limited to a loan, secured by land. As ProGreen has no power over management of Contel, ProGreen is not the primary beneficiary and therefore does not need to consolidate Contel. The maximum exposure for loss is limited to the outstanding loan balance.
The Company is entitled a share of Contel’s profits and losses after all outstanding loan amounts are repaid
