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 March 31, 2017

or

 

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

 

For the transition period from ___________ to ______________

 

Commission File Number: 000-53047

 

GREENKRAFT, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		20-8767728
(State or other jurisdiction of incorporation)		(IRS Employer Identification Number)

 

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    o 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).  x Yes    o 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.

 

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

 

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

 

As of June 20, 2017, there were outstanding 96,432,718 shares of the registrant’s common stock, $.001 par value.

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TABLE OF CONTENTS

 

		Page
PART I	Financial Information
Item 1.	Financial Statements.
	Balance Sheets	3
	Statements of Operations	4
	Statements of Cash Flows	5
	Notes to Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Controls and Procedures	13
PART II	Other Information
Item 1.	Legal Proceedings	14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.	Default Upon Senior Securities	14
Item 4.	Mine Safety Disclosures	14
Item 5.	Other Information	14
Item 6.	Exhibits	15
Signatures		16

 

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PART I -- FINANCIAL INFORMATION

 

ITEM 1 -- FINANCIAL STATEMENTS

 

GREENKRAFT, INC.

BALANCE SHEETS

 (Unaudited)

 

		March 31,				December 31,
		2017				2016
ASSETS		(unaudited)
Current assets:
Cash		$	559,016			$	379,078
Accounts receivable, net of allowance for doubtful account of $0			3,600				47,791
Inventories, net			1,242,458				1,354,866
Total current assets			1,805,074				1,781,735
Inventory long term, net			539,229				539,229
Property and equipment, net			73,613				73,613
Total non-current assets			612,842				612,842
Total assets		$	2,417,916			$	2,394,577
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	59,973			$	85,745
Accounts payable - related party			60,000				846,334
Accrued liabilities			142,044				139,743
Deferred income			1,795,495				1,785,295
Convertible note payable			7,500				7,500
Other liabilities			75,000				75,000
Deferred rent - current			831				1,332
Related party debt			-				1,901,916
Total current liabilities			2,140,843				4,842,865
Deferred rent – net of current			8,000				8,000
Long term payable – related party			816,334				-
Long term loan -related party			1,901,916				-
Total non-current liabilities			2,726,250				8,000
Total liabilities			4,867,093				4,850,865
Stockholders’ deficit:
Common stock authorized 400,000,000 shares, 96,432,718 shares issued and outstanding at March 31, 2017 and December 31, 2016.			96,433				96,433
Additional paid-in capital			3,245,147				3,245,147
Accumulated deficit			(5,790,757)				(5,797,868)
Total stockholders' deficit			(2,449,177)				(2,456,288)
Total liabilities and stockholders' deficit		$	2,417,916			$	2,394,577

 

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

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GREENKRAFT, INC.

 STATEMENTS OF OPERATIONS

 (Unaudited)

 

		Three Months Ended March 31,
		2017				2016
Revenue		$	331,244			$	396,775
Cost of revenue			197,176				314,500
Gross Profit			134,068				82,275
Operating Expenses:
Research and development			162				15,989
Selling, general, and administrative			126,709				286,000
Total Operating Expenses			126,871				301,989
Income (Loss) from operations			7,197				(219,714)
Other Income (Expenses):
Interest expense			(87)				(30,394)
Interest income			1				755
Total Other Expense			(86)				(29,639)
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES		$	7,111			$	(249,353)
NET INCOME (LOSS) PER BASIC AND DILUTED SHARES		$	0.00			$	0.00
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED			96,432,718				88,882,718

 

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

 

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GREENKRAFT, INC.

 STATEMENT OF CASH FLOWS

 (Unaudited)

 

		Three Months Ended March 31,
			2017				2016
Operating Activities:
Net income (loss)			$	7,111			$	(249,353)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Contributed officer salary				-				18,000
Amortization of debt discount from beneficial conversion feature				-				15,000
Depreciation expense				-				2,735
Change in operating assets and liabilities
Accounts receivable				44,191				317,325
Inventory				112,408				8,537
Accounts payable				(25,772)				(1,121,525)
Accounts payable- related party				30,000				55,000
Accrued expense				2,301				1,607
Deferred rent expense				(501)				-
Deferred income				10,200				(121,815)
Net cash provided by (used in) operating activities				179,938				(1,074,489)
Investing Activities:
Decrease in restricted cash				-				1,505,245
Net cash provided by investing activities				-				1,505,245
Financing Activities:
Repayments under lines of credit				-				(2,000,000)
Net cash used in financing activities				-				(2,000,000)
Net increase (decrease) in cash				179,938				(1,569,244)
Cash, Beginning of period				379,078				2,261,648
Cash, End of period			$	559,016			$	692,404
Non-Cash Transactions
Contributed officer salary			$	-			$	18,000
Notes Payable issued for services received				-				15,000
Supplemental cash flow information
Cash paid for interest			$	87			$	15,394
Cash paid for income taxes			$	-			$	-

 

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

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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. 

Recently issued accounting pronouncements 

Leases

 

In February 2016, the FASB issued guidance that requires a lessee to recognize assets and liabilities arising from leases on the balance sheet. Previous GAAP did not require lease assets and liabilities to be recognized for most leases. Additionally, companies are permitted to make an accounting policy election not to recognize lease assets and liabilities for leases with a term of 12 months or less. For both finance leases and operating leases, the lease liability should be initially measured at the present value of the remaining contractual lease payments. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change under this new guidance. This new guidance is effective for us as of the first quarter of fiscal year 2020. The Company is evaluating the effect that this ASU will have on its financial statements and related disclosures.

 

Stock-Based Compensation

 

On March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which includes amendments to accounting for income taxes at settlement, forfeitures, and net settlements to cover withholding taxes. The amendments in ASU 2016-09 are effective for public companies for fiscal years beginning after December 31, 2016, and interim periods within those annual periods. Early adoption is permitted but requires all elements of the amendments to be adopted at once rather than individually. The Company is evaluating the effect that ASU No. 2016-09 will have on the Company’s financial statements and related disclosures.

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Revenue from Contracts with Customers

 

In May 2014, the FASB issued No. 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. These ASUs clarify the implementation guidance on a few narrow areas and adds some practical expedients to the guidance Topic 606. The Company is evaluating the effect that these ASUs will have on its financial statements and related disclosures.

 

Ability to Continue as a Going Concern

 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Presentation of Financial Statements — Going Concern. This standard requires management to evaluate for each annual and interim reporting period whether it is probable that the reporting entity will not be able to meet its obligations as they become due within one year after the date that the financial statements are issued. If the entity is in such a position, the standard provides for certain disclosures depending on whether or not the entity will be able to successfully mitigate its going concern status. This guidance is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. The Company does not anticipate that this adoption will have a significant impact on its financial position, results of operations, or cash flows.

 

Inventory

 

In July 2015, the FASB issued Accounting Standards Update ("ASU") No. 2015-11, Inventory, which requires an entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The effective date for the standard is for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.

Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements and related disclosures.

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Income Tax

In October 2016, the FASB issued ASU No. 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its financial statements.

 

The Company believes that other recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

NOTE 2 - SIGNIFICIANT ACCOUNTING POLICIES AND PRACTICE

Reclassifications - Certain prior year amounts have been reclassified to conform with the current year presentation. 

Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States necessarily requires management to make estimates and assumptions that affect the amounts reported in the financial statements. We regularly evaluate estimates and judgments based on historical experience and other relevant facts and circumstances. Actual results could differ from those estimates.

Fair Value Measurements

 

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Fair Value of Financial Instruments

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2017 and December 31, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

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Concentration of credit risk –Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and trade receivables. The Company places its cash with high credit quality financial institutions. At times, such cash may be in excess of the FDIC limit. With respect to trade receivables, the Company routinely assesses the financial strength of its customers and, as a consequence, believes that the receivable credit risk exposure is limited.

Accounts Receivable – Trade accounts receivable consist of amounts due from the sale of trucks. Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 90 days of receipt of the invoice. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable. At March 31, 2017 and December 31, 2016, the Company characterized $0 and $0 as uncollectible, respectively. At March 31, 2017, the accounts receivable, $3,600 represents one customer from the sale of parts..

Inventories – Inventories are primarily raw materials. Inventories are valued at the lower of, cost as determined on a first-in-first-out (FIFO) basis, or market.  Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if it is below cost. Management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required. Costs of raw material inventories include purchase and related costs incurred in bringing the products to their present location and condition. The estimated cost of inventory not expected to be converted to cash within one year is reflected as “Inventory, long term” in the balance sheet.

Property and equipment – Property and equipment are carried at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with repair and maintenance are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of the property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are ten years for all the equipment’s held by the Company. Depreciation expense of $0 and $2,735 are recognized for the quarter ended March 31, 2017 and 2016.

Research and development – Costs incurred in connection with the development of new products and manufacturing methods are charged to selling, general and administrative expenses as incurred. During the quarter ended March 31, 2017 and 2016, $162 and $15,989, respectively, were expensed as research and development costs.

Long Lived Assets - In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicated that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and a current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.

Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances.

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Revenue recognition - Greenkraft recognizes revenue when persuasive evidence of an arrangement exists, products and/or services have been delivered, the sales price is fixed or determinable, and collectability is reasonably assured. This typically occurs when the product is shipped or delivered to the customer. Cash payments received prior to delivery of products are deferred until the products are delivered. Also, there was funding for the incremental cost of the vehicles was provided by the California Energy Commission (CEC). The CEC provides up to (i) $20,000 per vehicle that are up to 26,000 LBS GVWR and (ii) $26,000 per vehicle that are over 26,000 LBS GVWR. These funds are paid directly to the Company and taken in as deposits until actual delivery of the vehicles at which time it is deemed revenue. The Company has received $1.284 million and $1.140 million from the CEC related to the sale of CNG and propane trucks as of March 31, 2017 and December 31, 2016.

Income taxes - Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.

We have net operating loss carry forwards available to reduce future taxable income. Future tax benefits for these net operating losses carry forwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that we will not realize a future tax benefit, a valuation allowance is established.

Earning or Loss per Share - The Company accounts for earnings per share pursuant to ASC 260, Earnings per Share, which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year. As there was a net income for the quarter ended March 31, 2017 and net loss for the quarter ended March 31, 2016, basic and diluted losses per share are the same for the quarter ended March 31, 2017 and 2016.

Related Parties - A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

NOTE 3 – INVENTORY

Inventory principally consists of the cost of parts purchased and assembled during the three months ended March 31, 2017 and year ended December 31, 2016 for the assembly of the fuel-efficient vehicles to sell to the customers.

		March 31, 2017				December 31, 2016
Raw materials		$	1,781,687			$	1,894,095
Total Inventory			1,781,687				1,894,095
Less carrying value of inventory			-				-
not deemed to be current			539,229				539,229
Inventory, included in current assets		$	1,242,458			$	1,354,866

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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 4 – RELATED PARTY TRANSACTIONS 

The Defiance Company, LLC is owned by the Company’s president and controlling stockholder. As of March 31, 2017, 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, 2016.

As of March 31, 2017, and December 31, 2016, 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.   

The Company’s president is a member of CEE, LLC which performs emission testing services. During the three months ended March 31, 2017, Greenkraft did not have any services performed by CEE, LLC and as of March 31, 2017 and December 31, 2016, Greenkraft owed 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.  The president of the company 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, 2017.

First Warner Properties LLC is the owner of 2215 S. Standard Ave Santa Ana Ca 92707. The company’s 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. As of March 31, 2017 and December 31, 2016, Greenkraft owed $525,000 to First Warner Properties LLC.  Greenkraft terminated 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. As of March 31, 2017 and December 31, 2016, Greenkraft owed $60,000 and $30,000 to First Standard Real Estate LLC, respectively.

The Company reclassified accounts payable- related parties of $816,334 and related parties’ debt of $1,901,916 as non- current liabilities as of March 31, 2017, which were addressed by the financial support letter from the CEO.

The Company’s CEO does not charge Greenkraft a salary and therefore the company has recognized $0 and $18,000 for the three months ended March 31, 2017 and 2016, respectively of contributed salary expense.

NOTE 5 – 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 is no longer require a restricted cash balance.

NOTE 6 – 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.

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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 three months ended March 31, 2017, debt discount of $15,000 was amortized. As of March 31, 2017, convertible note has a balance of $7,500 net of $0 unamortized debt discount.

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

NOTE 7 – 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.

		March 31,				December 31,
		2017				2016
		(unaudited)
Deferred tax assets		$	1,591,543			$	1,593,960
Less: Valuation allowance			(1,591,543)				(1,593,960)
Net deferred tax assets		$	-			$	-
			March 31,				December 31,
			2017				2016
Accumulated net operating loss		$	4,681,008			$	4,688,119
Tax rate			34%				34%
Deferred tax assets		$	1,591,543			$	1,593,960

NOTE 8 – 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:

Years ending December 31,		Amount
2017		88,500
2018		118,000
2019		118,000
2020		118,000
2021 and thereafter		78,667
Total	$	521,167

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NOTE 9 – SUBSEQUENT EVENTS

Based on the Issuance Resolution on May 25, 2017, Greenkraft issued 6,670,000 new shares to employees and advisors.

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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

Results of Operations for the three months ended March 31, 2017 compared to the three months ended March 31, 2016

Working Capital

		Three Months Ended		Three Months Ended
		March 31,		March 31,
		2017		2016
Current Assets	$	1,805,074	$	2,143,592
Current Liabilities		2,140,843		4,782,793
Working Deficit		(335,769)		(2,639,201)

As at March 31, 2017, we had a working capital deficit of $335,769 compared with the working capital deficit of $2,639,201 as at March 31, 2016.

Cash Flows
		Three Months Ended March 31,  2017		Three Months Ended March 31, 2016
Cash Flows Provided by (Used in) Operating Activities	$	179,938	$	(1,074,489)
Cash Flows Provided by Investing Activities		-		1,505,245
Cash Flows Used in Financing Activities		-		(2,000,000)
Net Increase (Decrease) in Cash During Period		179,938		(1569,244)

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Cash flow from Operating Activities

During the quarter ended March 31, 2017, the net cash provided by operating activities total $179,938 compared to the cash used in total $1,704,489 during the quarter ended March 31, 2016. The cash was primarily used to pay out accounts payable in 2016 related to the inventory purchase for the e-vehicle project.

 

Cash flow from Investing Activities

During the quarter ended March 31, 2017, the net cash provided by investing activities total $0 compared to the net cash used in total $1,505,245 during the quarter ended March 31, 2016. Annual amounts primarily consist of capital expenditures to support our manufacturing efforts, which was $1,505,245 related to changes in restricted cash to support collateral requirements for the line of credit facility.

Cash flow from Financing Activities

During the quarter ended March 31,2017, the net cash provided by financing activities total $0 compared with total $2,000,000 during the quarter ended March 31, 2016, which was repayment under the line of credit facility.

Operation
		Three Months Ended March 31,  2017			Three Months Ended March 31, 2016
Revenue	$	331,244		$	396,755
Cost of revenue		197,176			314,500
Gross profit		134,068			82,275
Operation expense		126,871			301,989
Income (loss) from operation	$	7,197		$	(219,714)

Revenues

We earned revenues of $331,244 during the three months ended March 31, 2017 compared to earning revenues of $396,775 during the same period in 2016, which is due to few contract and e vehicles orders for the three months ended March 31, 2017, but more parts sold for in the first quarter of 2017.

Operation Expenses

Our total operating expenses decreased from $301,989 to $126,871 for the three months ended March 31, 2017 compared to the same period in 2016.  This decrease in expenses was mostly due to less selling and general and administrative fees in the first quarter of 2017.  

Other income and (expense)
		Three Months Ended March 31,  2017			Three Months Ended March 31, 2016
Interest expense	$	(87)		$	(30,394)
Interest income		1			755
Net other income (expense)	$	(86)		$	(249,353)

Interest Expense

The interest expenses increased from $87 to $15,394 for the three months ended March 31, 2017 compared to the same period in 2016. 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.

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Liquidity

During the quarter ended March 31, 2017, the Company earned an income from continuing operation of $7,197 and a net income $7,111, and the stockholders’ deficit was $2,449,177 and the working capital deficit was $335,769. The working capital deficit have been majority funded by accounts payable to its related parties and related party debt.  Based on the financial support letter from the CEO of Greenkraft, he and his related party entities, has no present or future plans or intentions to (A) liquidate Greenkraft, Inc.; (B) sell or otherwise dispose of all, or a significant portion of, its investment in the Company or otherwise change its capital structure; (C) discontinue providing financial support to Greenkraft, Inc; or (D) pursue the collection if the company has cash flow issues. Also, the company has 1.7 million government incentives as deferred revenue in current liability. Based on the cash burn calculation, the Company is expected to have sufficient cash flow to cover the normal business operation for the twelve month-ended March 31, 2018. In the next 12 months, the Company will continue to receive sales orders, recognize revenue by selling the qualified trucks for the government incentive program, committed financial support from the owner and his related parties to fund its ongoing operation until the Company is able to meet its own obligation as they become due.

Management believes they will have sufficient funds to support their business based on the following: (a) revenues derived from signing up new dealers’ contracts and delivering alternative fuel trucks to them; (b) reclassified accounts payable-related parties of $816,334 and related parties’ debt of $1,901,916, as non-current liabilities which were addressed by the financial support letter from the CEO,  and (c) the CEO can raise additional funds needed to support our business plan. Management intends to seek new capital from owners and related parties to provide needed funds, as necessary. However, there can be no assurance that the Company can raise any additional funds, or if it can, that such funds will be on terms acceptable to the Company.

Off-Balance Sheet Arrangements

As of March 31, 2017, 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

We carried out an evaluation required by Rule 13a-15 of the Exchange Act under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” and “internal control over financial reporting” as of the end of the period covered by this Report.

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Evaluation of disclosure controls and procedures.  

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this Annual Report (the “Evaluation Date”), pursuant to Rule 13a-15(b) under the Exchange Act.

Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure, due to material weaknesses in our control environment and financial reporting process.

Limitations on the Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision- making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. 

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in internal controls.  

There were no changes in our internal control over financial reporting during the three months ended March 31, 2017 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Changes in internal controls.  

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.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As of June 20 ,2017 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5.  OTHER INFORMATION

Not applicable.

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ITEM 6. EXHIBITS.

 

(a) The following exhibits are filed herewith:

 

Exhibit	Exhibit
Number	Description
31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14 of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-101.INS	XBRL Instance Document
EX-101.SCH	XBRL Taxonomy Extension Schema
EX-101.CAL	XBRL Taxonomy Extension Calculation Linkbase
EX-101.LAB	XBRL Taxonomy Extension Label Linkbase
EX-101.PRE	XBRL Taxonomy Extension Presentation Linkbase
EX-101.DEF	XBRL Taxonomy Extension Definition Linkbase

 

 

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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.

 

	GREENKRAFT, INC.
Date: June 28,2017	By:	/s/  George Gemayel
		George Gemayel
		President, Chief Executive
		Officer and Director
Date: June 28,2017	By:	/s/ Sosi Bardakjian
		Sosi Bardakjian
		Chief Financial Officer
		and Director

 

 

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