GREENKRAFT, INC. - Quarter Report: 2015 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT

For the transition period from _________ to _________

Commission File Number: 000-53047

GREENKRAFT, INC.

(Name of Small Business Issuer in its charter)

(714) 545-7777

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   þ   No o

 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   þ   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o      Accelerated filer o     Non-accelerated filer o     Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ 

APPLICABLE ONLY TO CORPORATE ISSUERS

As of May 20, 2015 the registrant had 88,882,718 shares of common stock outstanding.

GREENKRAFT, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

GREENKRAFT, INC.

FINANCIAL STATEMENTS

March 31, 2015

Unaudited

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENTS OF CASH FLOWS

NOTES TO UNAUDITED FINANCIAL STATEMENTS

GREENKRAFT, INC.

BALANCE SHEETS

Unaudited

The accompanying notes are an integral part of these unaudited financial statements.

GREENKRAFT, INC.

STATEMENTS OF OPERATIONS

Unaudited

The accompanying notes are an integral part of these unaudited financial statements.

STATEMENTS OF CASH FLOWS

Unaudited

The accompanying notes are an integral part of these unaudited financial statements.

GREENKRAFT, INC.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

March 31, 2015

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of Greenkraft, Inc. a Nevada corporation (“we”, “our,”, “Greenkraft” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period have been omitted.

NOTE 2 – RELATED PARTY TRANSACTIONS

The Defiance Company, LLC is owned by our President and controlling stockholder.   As of March 31, accounts payable to Defiance is $285,389 for amounts paid by Defiance Company, LLC on behalf of Greenkraft, which is the same amount as of December 31, 2014.

As of March 31, 2015 and December 31, 2014, Greenkraft has notes payable for a total of $1,901,916, to its President and his related entities.  All amounts are due on demand, unsecured and do not bear interest.  

CEE, LLC performed testing for Greenkraft for engine certifications and also shared employees with Greenkraft in the past. Our President is an owner of CEE, LLC. During the three months ended March 31, 2015, Greenkraft did not have any services performed by CEE, LLC and as of March 31, 2015 and December 31, 2014, Greenkraft owes CEE the amount of $5,945 for insurance.  

G&K Automotive Conversion Inc. is an automotive safety compliance company that can provide services to Greenkraft as necessary.  Our President is also the president and controlling shareholder of G&K.  No Services were provided by G&K for Greenkraft during the three months ended March 31, 2015.

First Warner Properties LLC is the owner of 2215 S. Standard Ave Santa Ana Ca 92707. Our President is a member of First Warner. Greenkraft leased the property as assembly plant from First Warner. The term of the lease agreement is from July 2014 to July 2019, with a monthly rent of $27,500. The total rent expense for the three months ended March 31, 2015, and 2014 was $82,500, and 52,500 respectively. As of March 31, 2015 and December 31, 2014, $220,000, and $137,500, respectively, was owed to First Warner.

Our CEO does not charge us a salary and therefore we have recognized $18,000 and $0 for the three months ended March 31, 2015 and 2014, respectively of contributed salary expense

NOTE 3 – LINE OF CREDIT

In March 2012, Greenkraft entered into an agreement with Pacific Premier Bank for a $3,500,000 line of credit.  The line of credit was due on April 10, 2013 and bears interest at the prime rate plus 1%.  The line of credit is secured by certain real property owned by the majority shareholder and inventory.   

A condition to the line of credit is a full banking relationship. If the conditions are not met or should cease to be met, then interest rate and interest ceiling provided under the note shall immediately increase by 5.000 percentage points.

On July 15, 2013, the maturity date of the facility was extended to December 10, 2013 and the maximum amount available under such facility was reduced to $2 million.  On December 26, 2013, Greenkraft and Pacific Premier entered into a loan modification agreement extending the maturity date to June 10, 2014.

On August 22, 2014, Greenkraft entered into a Loan Modification Agreement with Pacific Premier Bank under which it extended the Maturity Date until August 22, 2015.  The cost to modify the loan for 2014 was $4,052.50.  In addition, under the Modification Agreement, Pacific Premier agreed to issue a $3,000,000 standby letter of credit in favor a supplier from whom Greenkraft purchases products in connection with its production of alternative fuel trucks.  In connection with this letter of credit, Greenkraft authorized Pacific Premier to draw an additional $1,500,000 under its note for any funds paid or required to be paid by Pacific Premier under the letter of credit.  Thus the current maximum amount available under the line of credit is $3,500,000.  There was a fee of $30,000 in connection with the letter of credit.  In addition Greenkraft has a restricted deposit of $1,500,000 with pacific premier that is being used as collateral for letter of credit.  The letter of credit will expire in August 2015.  The $30,000 fee is classified as deferred financing cost on balance sheet, and it is amortized over the term of the letter of credit.

The Company analyzed the modification of the term under ASC 470-60 “Trouble Debt Restructurings” and ASC 470-50 “Extinguishment of Debt”.  The Company determined the modification is not substantial and did not result in an extinguishment.

Along with the August 22, 2014 Loan Modification, the Company acknowledged that it was in breach of (a) its covenant to maintain a ratio of Global Debt Coverage in excess of 1.250 to 1.0, (b) its covenant to maintain a ratio of Business Debt Coverage Ratio in excess of 1.25 to 1; (c) its covenant to maintain a ratio of Debt/Worth not in excess of 3.0 to 1.0 and (d) its covenant to maintain a Tangible Net Worth of not less than $350,000 (collectively the “Covenant Violations”).  Pacific Premier agreed to forbear enforcement of its rights arising out of these Covenant Violations until receipt of the Company’s financial statements for the year ended December 31, 2014.  Pacific Premier reserved its rights to strictly enforce these covenants on us after their receipt of the Company’s December 31, 2014 financial statements.  The Company is not in compliance with the debt covenants as of March 31, 2015.  The Company is in the process of obtaining a waiver from the bank, but it is not guaranteed that a waiver will be issued.

During the three months ended March 31, 2015, Greenkraft did not make any draws on the line.  As of March 31, 2015 and December 31, 2014, the total amount outstanding is $1,999,558. Deferred financing cost amortized during the three months ended March 31, 2015 is $7,212. As of March 31, 2015, the available amount under the letter of credit had not been used. However the total unused available amount under the line of credit is about $400 as of March 31, 2015.

GREENKRAFT, INC.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

March 31, 2015

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and notes. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from Management's expectations. Factors that could cause differences include, but are not limited to, continued reliance on external sources on financing, development risks for new products and services, commercialization delays and customer acceptance risks when introducing new products and services, fluctuations in market demand, pricing for raw materials as well as general conditions of the energy and oilfield marketplace.

Corporate Overview and History

We were incorporated on September 27, 2006 in Nevada as Sunrise Global, Inc. Until closing of the Acquisition of Greenkraft, Inc. on December 6, 2013 (as described below), we were a recycled industrial waste resale company. On December 27, 2013, we changed our corporate name to Greenkraft, Inc. from Sunrise Global, Inc., which name change reflects our acquisition of Greenkraft resulting in us now conducting Greenkraft’s business. Concurrent with the name change, we effectuated a 2-for-1 forward split, also effective December 27, 2013. All share amounts have been adjusted to give effect to the 2-for-1 forward split.

We are a manufacturer and distributor of automotive products. We manufacture commercial forward trucks for vehicle classes 3, 4, 5, and 6 (GVW ranging from 10,001 lbs. to 26,000 lbs.) in alternative fuels. We also manufacture and sell alternative fuel systems to convert petroleum based vehicles to run on natural gas and propane fuels.

Our address is 2530 S. Birch Street, Santa Ana, CA and our telephone number is (714) 545-7777.

Safe Harbor Statement

This report on Form 10-Q contains certain forward-looking statements.  All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.

These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of declining revenues.  Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors.  These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements.  The following discusses our financial condition and results of operations based upon our financial statements which have been prepared in conformity with accounting principles generally accepted in the United States.  It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.

The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q.  The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.

Results of Operation

Liquidity and Capital Resources

As of March 31, 2015, and December 31, 2014 we had cash and cash equivalents of $2,239,830 and $2,113,832 respectively, and a working capital deficit of $960,311 and $1,147,648 respectively.  As of March 31, 2015 and December 31, 2014 our accumulated deficit was $4,099,366 and $4,265,967 respectively.  

We received net cash of $127,109 from operating activities for the three months ended March 31, 2015 compared to receiving net cash of $1,613,929 in operating activities for the same period in 2014.  We used net cash of $1,111 in investing activities for the three months ended March 31, 2015 compared to using net cash of $0 in investing activities for the same period of 2014.  We did not receive any cash from financing activities for the three months ended March 31, 2015 compared to receiving net cash of $1,690,000 for the same period in 2014.  The reason for the decrease is because in first quarter of 2014 was the first time Greenkraft offered stocks for sale in a private placement.

Results of Operations for the three months ended March 31, 2015 compared to the three months ended March 31, 2014

Revenues

We earned revenues of $5,086,615 during the three months ended March 31, 201 compared to earning revenues of $1,282,461 during the same period in 2014.  The reason for the increase is Greenkraft worked on additional projects with vehicles.

Net Income

We earned net income of $166,601 for the three months ended March 31, 2015, compared to earning net income of $38,629 for the same period in 2014.  The reason for the increase is due to additional projects.  Our basic and diluted loss per share was $0.00 for the three months ended March 31, 2015, and $0.00 for the same period in 2014.  

Expenses

Our total operating expenses decreased from $353,511 to $334,754 for the three months ended March 31, 2015 compared to the same period in 2014.  This decrease in expenses is mostly due to lower selling and general and administrative fees.  

Plan of Operation

Our plan of operation for the next twelve months is to grow our business.  We are a manufacturer and distributor of automotive products.  We manufacture commercial forward trucks for vehicle classes 3, 4, 5, 6, and 7 (GVW ranging from 10,001 lbs. to 33,000 lbs.) in alternative fuels.  We also manufacture and sell alternative fuel systems to convert petroleum based fuels to natural gas and propane fuels.

Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position.  The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

Off-Balance Sheet Arrangements

As of March 31, 2015, we had no off-balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.