UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 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    [  ] 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   [  ] 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	[x]

 

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

 

As of December 29, 2017 there were outstanding 103,102,718 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 as of September 30, 2017 (Unaudited) and December 31, 2016	3
	Statements of Operations for the three and nine months ending September 30, 2017 and 2016 (Unaudited)	4
	Statements of Cash Flows for the nine months ending September 30, 2017 and 2016 (Unaudited)	5
	Notes to Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
PART II	Other Information
Item 1.	Legal Proceedings	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Default Upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	17
Signatures		18

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PART I -- FINANCIAL INFORMATION

ITEM 1 -- FINANCIAL STATEMENTS

 

GREENKRAFT, INC.

BALANCE SHEETS

 as of September 30, 2017 (Unaudited) and December 31, 2016

		As of		As of
		9/30/2017		12/31/16
Assets
Current Assets
Cash		$ 338,033		$ 379,078
Accounts receivable, net of allowance for doubtful account of $0		3,600		47,791
Inventories, net		1,300,202		1,354,866
Prepaid Expense		132,000
Total Current Assets		1,773,835		1,781,735
Inventories long term, net		539,229		539,229
Property and equipment, net		68,141		73,613
Total Non- Current Assets		607,370		612,842
Total Assets		$ 2,381,205		$ 2,394,577
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts payable		$ 123,185		$ 85,745
Accounts payable - related party		110,000		846,334
Accrued liabilities		144,425		139,743
Deferred income		475,995		1,785,295
Convertible notes payable		7,500		7,500
Other liabilities		75,000		75,000
Related party debt		-		1,901,916
Short term debt		180,000		-
Deferred rent- current		831		1,332
Total Current Liabilities		1,116,936		4,842,865
Non-Current Liabilities
Deferred rent - net of current		$ 8,000		$ 8,000
Long term payable - related party Defiance		816,334		-
Long term loan - related party FWP		525,000		-
Long term debt – related party CEE		1,044,000		-
Long term loan – related party		1,901,916		-
Long term debt CEC		1,044,000		-
Total Non-Current Liabilities		3,770,250		8,000
Total Liabilities		$ 4,887,186		$ 4,850,865
Shareholders' Deficit
Common Stock, 400,000,000 shares authorized, 103,102, 718 and 96,432,718 shares issued and outstanding, respectively		103,103		96,433
Additional Paid-In Capital		4,105,577		3,245,147
Accumulated Deficit		(6,714,661)		(5,797,868)
Total Stockholders' Deficit		(2,505,981)		(2,456,288)
Total Liabilities and Stockholders' Deficit		$ 2,381,205		$ 2,394,577

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

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GREENKRAFT, INC.

 STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2017 and 2016

(Unaudited)

 

		3 Months Ended September 30,				9 Months Ended September 30,
		2017		2016		2017		2016
Revenue		$ 210,666		$ 63,053		$ 600,921		$ 509,062
Cost of revenue		154,881		39,169		414,533		469,868
Gross Profit		55,985		23,884		187,758		39,194
Commission revenue		180,152				180,152
Costs and expenses:
Research and development		-		485		162		17,060
Selling, general and administrative		144,635		169,287		1,296,888		700,857
Total costs and expenses		144,635		169,772		1,297,050		717,917
Income (Loss) from operations		91,502		(145,888)		(929,140)		(678,723)
Other income (expense)
Interest (expense)		-		(19)		(87)		(166,305)
Interest income		12,432		1		12,434		758
Total Other income (expense)		12,432		(18)		12,347		(165,547)
Net Income / (Loss)		$ 103,934		$ (145,906)		$ (916,793)		$ (844,270)
Basic and Diluted Income (Loss) per share		-		-		-		-
Weighted average number of common shares outstanding - Basic		103,102,718		96,432,718		99,596,064		93,348,046
Weighted average number of common shares outstanding – Diluted		110,602,718

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

 

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GREENKRAFT, INC.

 STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2017 and 2016

(Unaudited) 

		For the Nine Months Ended September 30
		2017		2016
Operating Activities:
Net loss		$ (916,793)		$ (844,270)
Adjustments to reconcile net loss to net cash used in operating activities:
Contributed officer salary		-		36,000
Amortization of debt discount from beneficial conversion feature		-		15,000
Depreciation expense		5,472		8,205
Stock based compensation expense		867,100		-
Change in operating assets and liabilities
Accounts receivable		44,191		317,325
Inventory		54,664		(22,988)
Accounts payable		37,440		(1,145,607)
Accounts payable- related party		80,000		57,500
Accrued expense		4,682		161,006
Deferred income		(85,300)		(95,922)
Deferred Rent Expense		(501)		9,833
Prepaid Expense		(132,000)		-
				-
Net cash provided by (used in) operating activities		(41,045)		(1,503,918)
Investing Activities:
Decrease in restricted cash		-		1,506,152
Net cash provided by investing activities		-		1,506,152
Financing Activities:
(Repayments) under lines of credit		-		(1,998,850)
Net cash used in financing activities		-		(1,998,850)
Net increase (decrease) in cash		(41,045)		(1,996,616)
Cash, Beginning of period		379,078		2,261,648
Cash, End of period		$ 338,033		$ 265,032
Non-cash finance and investing activities:
Non cash conversion from deferred income to  long term debt		1,224,000
Non-Cash Transactions
Contributed officer salary		-		36,000
Notes Payable issued for services received		-		15,000
Issuance of new stocks		867,100		-
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

 

GREENKRAFT, INC.

Notes to the Unaudited Financial Statements

 

NOTE 1 – BASIS OF PRESENTATION 

The included (a) condensed consolidated balance sheet as of December 31, 2016, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated financial statements as of September 30, 2017 and 2016, 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 (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s December 31, 2016 Form 10-K on May 3, 2017. 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 periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for future quarters or for the full year. Notes to the condensed consolidated financial statements which substantially duplicate the disclosure contained in the financial statements as reported in the Annual Report on Form 10-K for the year ended December 31, 2016 as filed on May 3, 2017, have been omitted.

   

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

 

The Company currently operates in one business segment. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer, who comprehensively manages the entire business. The Company does not currently operate any separate lines of businesses or separate business entities.

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.

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.

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Compensation – Stock Compensation

In May 2017, the FASB issued Accounting Standards Update No. 2017-09 (ASU 2017-09), Compensation — Stock Compensation (Topic 718) Scope of Modification Accounting. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The adoption of ASU 2017-09 which will become effective for annual periods beginning after December 15, 2017 and for interim periods within those annual periods.  is not expected to have any impact on the Company’s unaudited condensed financial statement presentation or disclosures.

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.

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

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 September 30, 2017 and December 31, 2016, the Company characterized $0 and $0 as uncollectible, respectively. At September 30, 2017, the accounts receivable, $3,600 represents one customer from the sale of parts.

Property and equipment – Property and equipment are carried at the cost of acquisition 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. For the three months ended September 30, 2017 and 2016, depreciation expense was $2,735 and $2,735, respectively. For the nine months ended September 30, 2017 and 2016, depreciation expense was $5,472 and $8,205, respectively.

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. For the three months ended September 30, 2017 and 2016, research and development expense was $0 and $485, respectively. For the nine months ended September 30, 2017 and 2016, research and development was $162 and $17,060, respectively

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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.  Management determined that no impairment indication of its long lived assets as of September 30, 2017.

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 previously $1.284 million and $1.140 million from the CEC related to the sale of CNG and propane trucks as of September 30, 2017 and December 31, 2016.  Because of the age of the incentives received, the previously received $1.284 million from CEC will be returned in order to be replaced with new current incentives that buyers can apply for.  Therefore, company has converted the deferred income of $1.224 million to debt as of September 30, 2017. This incentive amount will be returned at a rate of $20,000 per month for 62 months.  The company has already returned in $60,000. The new current incentives are available at a rate of $11,000 per vehicle for over 14,000 lbs that buyers can apply to for Greenkraft CNG truck purchases.  There are also other new incentives available for Greenkraft trucks through other agencies from $25,000 to $100,000. The amount of short term debt is $180,000 and long term debt is $1,044,000 as of September 30, 2017.

The Company has received certain payment upfront provided by various vendors for trucks and records theses advance payments to perform future services as deferred revenue and decreases deferred revenue and invoiced upon the completion of work and delivery of the product.

Gem Works LLC is a related party to Greenkraft, Inc due to the owner of Gem Works LLC is related to the Company’ CEO (see Note4).  Pursuant to ASC 605 Company acted as an agent and recognized commission on sales of products as a net basis instead of gross basis the total transaction was 2.1 million of which we recognized $180,152.  As a result, the Company recognized the total net sales amount $180,152 in three and nine months ended September 30, 2017

Deferred Liability - In the past company received incentives for Alternative Fuel vehicles from the CEC, and recognized these as deferred revenue. These amounts were to be used per truck.  Several incentives were received and revenues were recognized.  From the amounts received $1.284 million was in company’s books as deferred income.  In 3^rd quarter 2017, the Company agree to return the total amount of $1.284 million.

Company agreed to return these amounts because of the age of the incentives and apply for new ones.  Therefore company has converted this amount from deferred income to debt and once new incentives are received company will apply the new incentives as income per vehicle once the vehicles are sold.  Company will return the funds to the CEC at a rate of $20,000 per month for approximately 64 months or until paid up to $1.284 million.  Company has also received deposits on vehicles that can be ordered from current dealers.

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.

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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. For the three months ended September 30, 2017, the weighted average diluted shares includes all potentially dilutive common stock equivalents. For the three and nine months ended September 30,2016 and nine months ended September 30,2017 , we excluded 750,000 common stock equivalents of convertible notes from the weighted average diluted shares outstanding as the effect of including such shares would be anti-dilutive

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 September 30, 2017 and year ended December 31, 2016 for the assembly of the fuel-efficient vehicles to sell to the customers. Management believes cost approximate net realized value. The inventory consists of the following as at:

		September 30, 2017			December 31, 2016
Raw materials		$ 1,839,431				$ 1,894,095
Total Inventory		1,839,431				1,894,095
Less carrying value of inventory not deemed to be current		539,229				539,229
Inventory, included in current assets		$ 1,300,202				$ 1,354,866

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 a distribution company owned by the Company’s president and controlling stockholder. As of September 30, 2017 and December 31, 2016, accounts payable to the Defiance was $285,389 and $285,389, respectively.  The amount of $285,389 was reclassified to long term accounts payable related party in first quarter 2017.  This debt does not require interest and there is no maturity date at this time.

As of September 30, 2017 and December 31, 2016, the Company has note payable for the amount of $1,901,916 and $1,901,916, to its President and his related entities.  All amounts are due, are unsecured and do not bear interest.   This amount was to reclassified to long term related party debt because the company’s president does not expect repayment during the next 12 months.

The Company’s president is a member of CEE, LLC which performs emission testing services. During the three and nine months ended September 30, 2017, Greenkraft did not have any services performed by CEE, LLC.  Greenkraft does owes $ 5,944.91, to CEE,LLC as of September 30, 2017 and December 31, 2016, for previous service services provided by CEE, LLC however this amount was also reclassified to long term related party debt in 2017.  This debt does not require interest and there is no maturity date at this time.

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 amount due to G&K for Greenkraft as of September 30, 2017 and December 31, 2016.

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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 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.  As of September 30, 2017 and December 31, 2016, Greenkraft owed First Warner Properties $525,000 and $525,000, respectively. This debt does not require interest and there is no maturity date at this time.

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 September 30, 2017 and December 31, 2016, Greenkraft owes rent expense of $110,000 and $30,000 to First Standard Real Estate LLC, respectively. For the three and nine months ended September 30, 2017, the rent expense was $30,000 and $90,000, respectively. This debt does not require interest and there is no maturity date at this time.

Gem Works LLC is a separate company in the automotive business for vehicles and its owner is related to our Company’s CEO.  Greenkraft charged Gem Work, LLC $180, 152 net sales of e-vehicle acting as agent after gross and net revenue analysis Instead of recognizing 2.1 million gross revenue.  During the three and nine months ended September 30, 2017, the Company recognized the amount of net sales of e-vehicle was $180,152.

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. This amount was to reclassified to long term related party debt because the company’s president does not expect repayment through 2017. This debt does not require interest and there is no maturity date at this time.

The CEO contributed his payroll to the company about $0 and $36,000 as the three and nine months September 30, 2016. The CEO does not charge the Company salary for three and nine months as of September 30, 2017

NOTE 5 – LINE OF CREDIT 

In March 2016, the Company cancelled the line 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 line 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. 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.  $150,000 was recorded, directly to interest expense at inception.

As of September 30, 2017 and December 31, 2016, 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.

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NOTE 7 - LONG TERM DEBT

Company has long term debt of $1,044,500 from amounts converted from deferred income of $1.284 million to long term debt which consist of incentives received by the CEC that were converted to debt due to age of incentives and for the company to apply to new incentives available by the CEC. The payment terms require $20,000 per month for approximately 62 months and the terms do not require interest.

NOTE 8 -  SHORT TERM DEBT

Company has short term debt of $180,000 which is 12 months of amounts to be paid for incentives from the 1.284 million company received in the past.

NOTE 9 – 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 below, with the balance of deferred rent was de minimis.

Years ending December 31,		Amount
2017		29,508
2018		118,000
2019		118,000
2020		118,000
2021 and thereafter		88,524
Total	$	472,128

NOTE 10 - STOCK ISSUANCE

On May 27, 2017, the Company issued 6,670,000 shares of its common stock pursuant to a Board Resolution that provided for the stock issuance to officers, employees, and directors of the Company. There is no vesting period, restricted to sell in 12 months. As a result the Company recorded the stock based compensation expense $867,100 based on the closed price on the date of grand date.

NOTE 11 – SUBSEQUENT EVENTS

There are no subsequent events that occurred subsequent to September 30, 2017 and up do the date of the issuance date of the report that would require disclosed.

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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

As of September 30, 2017, we had cash and cash equivalents of $338,033 and a working capital deficit of $656,899.

We used net cash of $41,045 in operating activities for the nine months ended September 30, 2017 which includes stock compensation expense of $867,100 compared to company used net cash of $1,503,918 in operating activities for the same period in 2016.   

 

Results of Operations for the three months ended September 30, 2017 compared to the three months ended September 30, 2016

Revenues

We earned revenues of $390,818 during the three months ended September 30, 2017 compared to earning revenues of $63,053 during the same period in 2016, which were due to higher sales in parts. The increase is due to more sales of Greenkraft trucks and a one time special  project company worked on with Gem Works LLC.  The revenue is higher because this project was done in 3^rd quarter of 2017 and a similar project was not completed in 3^rd quarter of 2016 that is the reason for the difference.

In the past company received incentives for Alternative Fuel vehicles from the CEC, and recognized these as deferred revenue. These amounts were to be used per truck.  Several incentives were received and revenues were recognized.  From the amounts received $1.284 million was in company’s books as deferred income.  In 3^rd quarter company agreed to return these amounts because of the age of the incentives and apply for new ones.  Therefore company has converted this amount from deferred income to debt and once new incentives are received company will apply the new incentives as income per vehicle once the vehicles are sold.  Company will return the funds to the CEC at a rate of $20,000 per month.  Company has also received deposits on vehicles that can be ordered from current dealers.

Net Loss

We had a net income of $91,502 for the three months ended September 30, 2017, compared to a net loss of $145,888 for the same period in 2016.  Our basic and diluted income (loss) per share was $0.00 for the three months ended September 30, 2017, and $0.00 for the same period in 2016.  

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Expenses

Our total operating expenses decreased from $169,287 to $144,635 for the three months ended September 30, 2016 compared to the same period in 2017.  The decrease is due to less expenses such as rent and other items in three months ended September 30, 2017.  

Results of Operations for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016

Revenues

We earned revenues of $781,073 during the nine months ended September 30, 2017 compared to earning revenues of $509,062 during the same period in 2016. The increase is due to sales with more Greenkraft trucks and special projects Company worked on with related Gem Works LLC. A small portion of the deferred revenue was recognized in this period the remaining amount of $1,224,000 was converted to debt due to age of incentives received by the CEC. New incentives are available by the CEC that company is applying to.  In the past company received incentives for Alternative Fuel vehicles from the CEC, and recognized these as deferred revenue. These amounts were to be used per truck.  Several incentives were received and revenues were recognized.  From the amounts received $1.284 million was in company’s books as deferred income.  In 3^rd quarter company agreed to return these amounts because of the age of the incentives and apply for new ones.  Therefore company has converted this amount from deferred income to debt and once new incentives are received company will apply the new incentives as income per vehicle once the vehicles are sold.  Company will return the funds to the CEC at a rate of $20,000 per month.  Company has also received deposits on vehicles that can be ordered from current dealers.

Net Loss

We had a net income (loss) of $916,793 for the nine months ended September 30, 2017, compared to a net loss of $844,270 for the same period in 2016. The reason for the higher loss is due to higher selling and general expenses from stock compensation amount in 2^nd quarter, 2017.  Our basic and diluted loss per share was $0.00 for the nine months ended September 30, 2017, and $0.00 for the same period in 2016.  

Expenses

Our total operating expenses increased from $717,917 to $1,297,050 for the nine months ended September 30, 2016 compared to the same period in 2017.  This increase in expenses is mostly due to stock compensation expense for stocks of $867,100 that were issued in 2^nd quarter, 2017.

Interest Expense

The interest expenses decreased from $166,305 to $87 for the nine months ended September 30, 2016 compared to the same period in 2017. The decrease 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, 2017.

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 4, 5, 6, and 7 (GVW ranging from 14,001 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

We do not believe that inflation has had a material effects result on our operations.

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Liquidity

During the nine months ended September 30, 2017, the Company had a loss from operating of $929,140 and a net loss $916,793 and the stockholders’ deficit was $2,505,981 and the working capital deficit was $656,899. 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 had 1.7 million government incentives as deferred revenue in current liability of which 1.284 was converted to debt. 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 September 30, 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 September 30, 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

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.

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Management’s Report on Internal Controls over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-l5(f) of the Securities Exchange Act). Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013). Based on that assessment, management believes that, as of September 30, 2017 the Company’s internal control over financial reporting was ineffective based on the COSO criteria, due to the following material weaknesses listed below.

 

The specific material weaknesses identified by the company’s management as of end of the period covered by this report include the following:

 

·

we have not performed a risk assessment and mapped our processes to control objectives;

·

we have not implemented comprehensive entity-level internal controls;

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transaction;

Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of

financial statements in accordance with generally accepted accounting principles, and that receipts and

expenditures of the Company are being made only in accordance with authorization of management and

directors of the Company;

lack of sufficient personnel with appropriate training and expertise in accounting principles generally

accepted in the United States and reporting requirements with the Securities and Exchange Commission;

·

we have not implemented adequate system and manual controls; and

·

we do not have sufficient segregation of duties. As such, the officers approve their own related business

expense reimbursements

 

Despite the material weaknesses reported above, our management believes that our consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

 

This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Commission that permit us to provide only management’s report in this report.

 

Management's Remediation Plan

 

The weaknesses and their related risks are not uncommon in a company of our size because of the limitations in the size and number of staff. Due to our size and nature, segregation of all conflicting duties has not always been possible and may not be economically feasible.

 

However, we plan to take steps to enhance and improve the design of our internal control over financial reporting.  During the period covered by this interim report of Form 10-Q , we have not been able to remediate the material weaknesses identified above.  To remediate such weaknesses, we plan to implement the following changes in the current fiscal year as resources allow:

 

	(i)	appoint additional qualified personnel to address inadequate segregation of duties and implement modifications to our financial controls to address such inadequacies;

 

The remediation efforts set out herein will be implemented in the current 2017 fiscal year.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our 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 simple error or mistake.

 

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As of the end of our most recent fiscal year, management assessed the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework 2013 and SEC guidance on conducting such assessments. Based on that evaluation, management concluded that, as of September 30, 2017, such internal control over financial reporting was not effective. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

 

The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; and (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of assets. The aforementioned material weaknesses were identified by our Chief Financial Officer in connection with the review of our financial statements as of September 30, 2017.

 

To address the material weaknesses set forth above, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

As of September 30, 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

During the second quarter ended September 30, 2017, the Company issued 6,670,000 shares of its common stocks to officers, employees, and directors, with an estimated fair market value of $867,100 based on the stocks prices on the date of grand.

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: December 29, 2017	By:	/s/  George Gemayel
		George Gemayel
		President, Chief Executive
		Officer and Director
Date: December 29, 2017	By:	/s/ Sosi Bardakjian
		Sosi Bardakjian
		Chief Financial Officer
		and Director

 

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