GREENKRAFT, INC. - Quarter Report: 2016 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2016

or

 

 

For the transition period from ___________ to ______________

 

Commission File Number: 000-53047

 

GREENKRAFT, INC.

(Exact name of registrant as specified in its charter)

 

 

2530 S. Birch Street

Santa Ana, CA 92707 USA

(Address of principal executive offices)

 

(714) 545-7777

(Registrant's telephone number, including area code)

 

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 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.  x 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, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer", "accelerated filer" and smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

 

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

 

As of November 21, 2016, there were outstanding 96,432,718 shares of the registrant's common stock, $.001 par value.

 

 

 

 

TABLE OF CONTENTS

 

 

PART I -- FINANCIAL INFORMATION

 

ITEM 1 -- FINANCIAL STATEMENTS

 

GREENKRAFT, INC.

BALANCE SHEETS

 as of September 30, 2016 (Unaudited) and December 31, 2015

 

 

 

 

GREENKRAFT, INC.

 STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2016 and 2015

(Unaudited)

 

 

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

 

 

GREENKRAFT, INC.

 STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2016 and 2015

(Unaudited)

 

 

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

 

 

GREENKRAFT, INC.

Notes to the Unaudited Financial Statements

 

NOTE 1 – BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS

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. 

Leases

 

In February 2016, the FASB issued an accounting standards update which modifies the accounting for leasing arrangements, particularly those arrangements classified as operating leases. This update will require entities to recognize the assets and liabilities arising from operating leases on the balance sheet. This guidance is effective for fiscal and interim periods beginning after December 15, 2018 and is required to be applied retrospectively to all leasing arrangements. The Company is currently assessing the effects this guidance may have on its consolidated financial statements.

 

Stock-Based Compensation

 

In March 2016, the FASB issued an accounting standards update which simplifies the accounting for share-based payment transactions, inclusive of income tax accounting and disclosure considerations. This guidance is effective for fiscal and interim periods beginning after December 15, 2016 and is required to be applied retrospectively to all impacted share-based payment arrangements. The adoption of this guidance is not expected to have a significant impact on the Company's consolidated financial statements.

Revenue from Contracts with Customers

 

In May 2014, the FASB issued an accounting standards update which modifies the requirements for identifying, allocating, and recognizing revenue related to the achievement of performance conditions under contracts with customers. This update also requires additional disclosure related to the nature, amount, timing, and uncertainty of revenue that is recognized under contracts with customers. This guidance is effective for fiscal and interim periods beginning after December 15, 2017 and is required to be applied retrospectively to all revenue arrangements. The Company is currently assessing the effects this guidance may have on its consolidated financial statements.

 

Ability to Continue as a Going Concern

 

In August 2014, the FASB issued an accounting standards update which requires an assessment of an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently addressed by U.S. auditing standards. This standard is effective for the fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption of this guidance is not expected to have a significant impact on the Company's consolidated financial statements.

 

Inventory

 

In July 2015, the FASB issued an accounting standards update which modifies the requirements for measuring the value of inventory on a periodic basis. The new requirement will be to measure inventory at the lower of cost or net realizable value. This standard is effective for the fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. The adoption of this guidance is not expected to have a significant impact on the Company's consolidated financial statements.

 

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

NOTE 2 – INVENTORY

Inventory principally consists of the cost of parts purchased and assembled during the nine months ended September 30, 2016 and year ended December 31, 2015 for the assembly of the fuel-efficient vehicles to sell to the customers.

At the end of each reporting period, management has estimated that portion of inventory not expected to be converted to cash within one year and reflected that amount as "Inventory, long term" in the accompanying balance sheets.

 

NOTE 3 – RELATED PARTY TRANSACTIONS 

The Defiance Company, LLC is owned by our President and controlling stockholder. As of September 30, 2016, 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, 2015.

As of September 30, 2016 and December 31, 2015, 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.   

Our President is a member of CEE, LLC which performs emission testing services. During the nine months ended September 30, 2016, Greenkraft did not have any services performed by CEE, LLC and as of September 30, 2016 and December 31, 2015, 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 nine months ended September 30, 2016.

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 nine months ended September 30, 2016 and 2015 was $165,000, and 247,500 respectively. As of September 30, 2016 and December 31, 2015, $525,000, and $385,000, respectively, was owed to First Warner.  Greenkraft cancelled the lease agreement with First Warner Properties LLC at the end of August, 2016.

First Standard Real Estate LLC is the owner of 2530 South Birch Street, Santa Ana, CA 92707. Greenkraft president is a member of First Standard Real Estate LLC. Greenkraft leased a portion of the building designated as 20,000 square feet garage area. The term of the lease agreement is from September 1, 2016 to September 30, 2021, with a monthly rent of $10,000.

Our CEO does not charge us a salary and therefore we have recognized $36,000 and $54,000 for the nine months ended September 30, 2016 and 2015, respectively of contributed salary expense.

NOTE 4 – LINE OF CREDIT 

In March 2016, the Company cancelled the letter of credit of $3,500,000 and paid off the line of credit balance of $2,000,000 with Pacific Premier Bank. Due to the cancellation of letter of credit, the Company no longer require a restricted cash balance.

 

NOTE 5 – CONVERTIBLE NOTES

Convertible promissory notes were issued in the aggregate amount of $15,000 in October 2015 for the marketing and advertising services received in 2015. During the quarter ended March 31, 2016, the Company re-classed the balance from accounts payable to notes payable. The term of the notes is due on demand. Simple interest of 1% is payable upon demand. Prior to maturity the notes may be converted for common stock at a conversion price of $0.001.

The Company evaluated the embedded conversion feature within the above convertible notes under ASC 815-15 and ASC 815-40 and determined embedded conversion feature does not meet the definition of a liability. Then the Company evaluated the conversion feature for a beneficial conversion feature at inception. The Company accounted for the intrinsic value of a Beneficial Conversion Feature inherent to the convertible note payable and a total debt discount of $15,000 was recorded.

During the nine months ended September 30, 2016, debt discount of $15,000 was amortized. As of September 30, 2016, convertible note has a balance of $7,500 net of $0 unamortized debt discount.

On April 22, 2016, Greenkraft converted $7,500 of convertible note payable to 7,500,000 common shares.

 

NOTE 6 – PROVISION FOR INCOME TAXES

Greenkraft uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During fiscal 2016, the company incurred net losses and, therefore, had no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved.

NOTE 6 – COMMITMENT AND CONTINGENCIES

The Company leases space for its offices and warehouse under lease expiring 5 years after September 1, 2016. Rent expense was $120,000 per year, payable in installments of $10,000 per month. The company has an agreement with landlord and first month rent is free. The future minimum lease payments under these operating leases are as follows:

 

 

 

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

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 September 30, 2016, we had cash and cash equivalents of $265,032 and a working capital deficit of $3,203,148.  As of September 30, 2016 our accumulated deficit was $5,849,176.

We used net cash of $1,503,918 from operating activities for the nine months ended September 30, 2016 compared to used net cash of $612,728 in operating activities for the same period in 2015.

 

Results of Operations for the three months ended September 30, 2016 compared to the three months ended September 30, 2015

Revenues

We earned revenues of $63,053 during the three months ended September 30, 2016 compared to earning revenues of $4,111,700 during the same period in 2015 , which is due to few contract orders for the three months ended September 30, 2016.

Net Loss

We had a net loss of $145,906 for the three months ended September 30, 2016, compared to a net loss of $328,109 for the same period in 2015.  Our basic and diluted loss per share was $0.00 for the three months ended September 30, 2016, and $0.00 for the same period in 2015.

Expenses

Our total operating expenses decreased from $586,072 to $169,772 for the three months ended September 30, 2016 compared to the same period in 2015.  This decrease in expenses is mostly due to less selling and general and administrative fees in 2016.

Results of Operations for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015

Revenues

We earned revenues of $509,062 during the nine months ended September 30, 2016 compared to earning revenues of $10,982,351 during the same period in 2015, which is due to few contract orders for the nine months ended September 30, 2016.

Net Income/Loss

We had a net loss of $844,270 for the nine months ended September 30, 2016, compared to a net loss of $468,783 for the same period in 2015.  Our basic and diluted loss per share was $0.00 for the nine months ended September 30, 2016, and $0.01 for the same period in 2015.

Expenses

Our total operating expenses decreased from $1,117,537 to $717,917 for the nine months ended September 30, 2016 compared to the same period in 2015.  This decrease in expenses is mostly due to less selling and general and administrative fees in 2016.

Interest Expense

The interest expenses increased from $83,659 to $166,305 for the nine months ended September 30, 2016 compared to the same period in 2015. The increase in interest expense is primarily due to the amount of debt finance cost for the line of credit which we paid off during 1^st quarter, 2016.

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 September 30, 2016, 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.  

 

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4.  CONTROLS AND PROCEDURES

Our Internal control over financial reporting is a process that, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, was designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our trustees; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that our controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As management, it is our responsibility to establish and maintain adequate internal control over financial reporting.  As of September 30, 2016, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting using criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").  Based on our evaluation, we concluded that the Company maintained effective internal control over financial reporting as of September 30, 2016, based on criteria established in the Internal Control Integrated Framework issued by the COSO.

This quarterly report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this quarterly report.

As of September 30, 2016, the Company's chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act.  Based upon the evaluation of these controls and procedures, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the date of filing this annual report applicable for the period covered by this report.

During the period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

As of November 21, 2016 there are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we or any of our subsidiaries are a party or of which any of our properties is the subject.  Also, our management is not aware of any legal proceedings contemplated by any governmental authority against us.

ITEM 5.  OTHER INFORMATION

Not applicable.

 

ITEM 6. EXHIBITS.

 

(a) The following exhibits are filed herewith:

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.