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 June 30, 2016

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.  ☒ Yes    ☐ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was Required to submit and post such files).  ☒ Yes    ☐ No

 

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

 

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 September 23, 2016 there were outstanding 96,432,718 shares of the registrant’s common stock, $.001 par value.

 

 

 

TABLE OF CONTENTS

 

		Page
PART I	Financial Information
Item 1.	Financial Statements.
	Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015	3
	Statements of Operations for the three and six months ending June 30, 2016 and 2015 (Unaudited)	4
	Statements of Cash Flows for the six months ending June 30, 2016 and 2015 (Unaudited)	5
	Notes to Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4.	Controls and Procedures	9
PART II	Other Information
Item 1.	Legal Proceedings	10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3.	Default Upon Senior Securities	10
Item 4.	Mine Safety Disclosures	10
Item 5.	Other Information	10
Item 6.	Exhibits	11
Signatures		12

 

 

 

 

 

 

 

PART I -- FINANCIAL INFORMATION

 

ITEM 1 -- FINANCIAL STATEMENTS

 

GREENKRAFT, INC.

BALANCE SHEETS

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

 

 

		June 30,				December 31,
		2016				2015
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	386,030			$	2,261,648
Cash restricted			—				1,506,152
Accounts receivable, net			6,600				323,925
Inventories, net			1,461,886				1,452,218
Total current assets:			1,854,516				5,543,943
Inventory long term, net			621,939				621,939
Property, plant and equipment, net			76,348				81,818
Total non-current assets:			698,287				703,757
Total assets		$	2,552,803			$	6,247,700
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable		$	88,170			$	1,248,777
Accounts payable - related party			816,334				758,834
Accrued liabilities			261,618				100,379
Deferred income			1,763,955				1,885,770
Convertible note payable			7,500				—
Other liabilities			75,000				75,000
Line of credit			—				1,998,850
Related party debt			1,901,916				1,901,916
Total current liabilities			4,914,493				7,969,526
Total liabilities			4,914,493				7,969,526
Stockholders’ deficit:
Common stock authorized 400,000,000 shares, 96,432,718 and 88,882,718 shares issued and outstanding at June 30, 2016 and December 31, 2015.			96,433				88,883
Additional paid-in capital			3,245,147				3,194,197
Accumulated deficit			(5,703,270	)			(5,004,906	)
Total stockholders' deficit			(2,361,690	)			(1,721,826	)
Total liabilities and stockholders' deficit		$	2,552,803			$	6,247,700

 

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

 

 

 

GREENKRAFT, INC.

STATEMENTS OF OPERATIONS

For the Three and Six Months Ended June 30, 2016 and 2015

(Unaudited)

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2016				2015				2016				2015
Revenue		$	49,234			$	1,784,036			$	446,009			$	6,870,651
Cost of revenue			116,199				1,867,748				430,699				6,424,957
Gross Profit (Loss)			(66,965	)			(83,712	)			15,310				445,694
Operating Expenses:
Research and development			586				1,550				16,575				3,101
Selling, general, and administrative			245,570				195,161				531,570				528,364
Total Operating Expenses			246,156				196,711				548,145				531,465
Loss from operations			(313,121	)			(280,423	)			(532,835	)			(85,771	)
Other Income (Expenses):
Interest expense			(135,892	)			(27,978	)			(166,286	)			(57,141	)
Interest income			2				1,126				757				2,238
Total Other Expense			(135,890	)			(26,852	)			(165,529	)			(54,903	)
NET LOSS APPLICABLE TO COMMON SHARES		$	(449,011	)		$	(307,275	)		$	(698,364	)		$	(140,674	)
NET LOSS PER BASIC AND DILUTED SHARES		$	—			$	—			$	—			$	—
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC AND DILUTED			94,611,839				88,882,718				91,747,278				88,882,718

 

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

 

 

 

 

GREENKRAFT, INC.

STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2016 and 2015

(Unaudited)

 

		Six Months Ended June 30,
		2016				2015
Operating Activities:
Net loss		$	(698,364.00	)		$	(140,674.00	)
Adjustments to reconcile net loss to net cash used in operating activities:
Contributed officer salary			36,000.00				36,000.00
Amortization of debt discount from beneficial conversion feature			15,000.00				—
Amortization of deferred financing cost			—				14,424.00
Depreciation expense			5,470.00				5,472.00
Change in operating assets and liabilities
Accounts receivable			317,325.00				(133,791.00	)
Inventory			(9,668.00	)			460,334.00
Accounts payable			(1,145,607.00	)			35,969.00
Accounts payable- related party			57,500.00				165,000.00
Accrued expense			161,239.00				7,940.00
Deferred income			(121,815.00	)			(253,887.00	)
Net cash provided by (used in) operating activities			(1,382,920.00	)			196,787.00
Investing Activities:
(Increase) decrease in restricted cash			1,506,152.00				(2,235.00	)
Net cash provided by (used in) investing activities			1,506,152.00				(2,235.00	)
Financing Activities:
Repayments under lines of credit			(1,998,850.00	)			(708.00	)
Net cash used in financing activities			(1,998,850.00	)			(708.00	)
Net increase (decrease) in cash			(1,875,618.00	)			193,844.00
Cash, Beginning of period			2,261,648.00				2,113,832.00
Cash, End of period		$	386,030.00			$	2,307,676.00
Non-Cash Transactions
Contributed officer salary		$	36,000			$	36,000
Notes Payable issued for services received			15,000				—
Supplemental cash flow information:
Cash paid for interest		$	15,394			$	35,638
Cash paid for income taxes		$	—			$	—

 

 

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

 

 

 

GREENKRAFT, INC.

Notes to the Unaudited Financial Statements

 

NOTE 1 – BASIS OF PRESENTATION 

 

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

 

NOTE 2 – INVENTORY

 

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

		June 30, 2016				December 31, 2015
Raw materials		$	2,083,825			$	1,963,404
Work in progress			—				—
Finished goods			—				110,753
Total Inventory			2,083,825				2,074,157
Less carrying value of inventory
not deemed to be current			621,939				621,939
Inventory, included in current assets		$	1,461,886			$	1,452,218

 

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

 

NOTE 3 – RELATED PARTY TRANSACTIONS 

 

The Defiance Company, LLC is owned by our President and controlling stockholder.   As of June 30, 2016, accounts payable to Defiance is $285,389 for amounts paid by Defiance Company, LLC on behalf of Greenkraft, which is the same amount as of December 31, 2015.

 

As of June 30, 2016 and December 31, 2015, Greenkraft has notes payable for a total of $1,901,916, to its President and his related entities.  All amounts are due on demand, unsecured and do not bear interest.   

 

Our President is a member of CEE, LLC which performs emission testing services. During the six months ended June 30, 2016, Greenkraft did not have any services performed by CEE, LLC and as of June 30, 2016 and December 31, 2015, Greenkraft owes CEE the amount of $5,945 for insurance.  

 

G&K Automotive Conversion Inc. is an automotive safety compliance company that can provide services to Greenkraft as necessary.  Our President is also the president and controlling shareholder of G&K.  No Services were provided by G&K for Greenkraft during the six months ended June 30, 2016.

 

First Warner Properties LLC is the owner of 2215 S. Standard Ave Santa Ana Ca 92707. Our President is a member of First Warner. Greenkraft leased the property as assembly plant from First Warner. The term of the lease agreement is from July 2014 to July 2019, with a monthly rent of $27,500. The total rent expense for the six months ended June 30, 2016, and 2015 was $74,250, and $165,000 respectively. As of June 30, 2016 and December 31, 2015, $525,000, and $467,500, respectively, was owed to First Warner. 

 

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

  

NOTE 4 – LINE OF CREDIT 

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

  

NOTE 5 – CONVERTIBLE NOTES

 

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

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

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

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

NOTE 6 – PROVISION FOR INCOME TAXES

 

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

 

		June 30,				December 31,
		2016				2015
		(unaudited)
Deferred tax assets		$	1,561,797			$	1,324,353
Less: Valuation allowance			(1,561,797	)			(1,324,353	)
Net deferred tax assets		$	—			$	—
			June 30,				December 31,
			2016				2015
Accumulated net operating loss		$	4,593,521			$	3,895,157
Tax rate			34	%			34	%
Deferred tax assets		$	1,561,797			$	1,324,353

 

 

 

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 June 30, 2016, we had cash and cash equivalents of $386,030 and a working capital deficit of $3,059,977. As of June 30, 2016 our accumulated deficit was $5,703,270.

We used net cash of $1,382,920 from operating activities for the six months ended June 30, 2016 compared to receiving net cash of $196,787 in operating activities for the same period in 2015. 

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

Revenues

We earned revenues of $49,234 during the three months ended June 30, 2016 compared to earning revenues of $1,784,036 during the same period in 2015, which is due to few contract orders for the three months ended Jun 30, 2016.

Net Loss

We had a net loss of $449,011 for the three months ended June 30, 2016, compared to a net loss of $307,275 for the same period in 2015. Our basic and diluted loss per share was $0.00 for the three months ended June 30, 2016, and $0.00 for the same period in 2015.

Expenses

Our total operating expenses increased from $196,711 to $246,156 for the three months ended June 30, 2016 compared to the same period in 2015. This increase in expenses is mostly due to more selling and general and administrative fees.

Results of Operations for the six months ended June 30, 2016 compared to the six months ended June 30, 2015

Revenues

We earned revenues of $446,009 during the six months ended June 30, 2016 compared to earning revenues of $6,870,651 during the same period in 2015, which is due to few contract orders for the six months ended Jun 30, 2016.

Net Income/Loss

We had a net loss of $698,364 for the six months ended June 30, 2016, compared to a net loss of $140,674 for the same period in 2015. Our basic and diluted loss per share was $0.00 for the six months ended June 30, 2016, and $0.00 for the same period in 2015.

Expenses

Our total operating expenses increased from $531,465 to $548,145 for the six months ended June 30, 2016 compared to the same period in 2015. This increase in expenses is mostly due to slightly higher selling and general and administrative fees.

Interest Expense

The interest expenses increased from $57,141 to $166,286 for the six months ended June 30, 2016 compared to the same period in 2015. The increase in interest expense is primarily due to the amount of debt finance cost for the line of credit which we paid off during 1^st quarter, 2016.

Plan of Operation

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

Inflation

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

Off-Balance Sheet Arrangements

As of June 30, 2016, we had no off-balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.   

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

ITEM 4. CONTROLS AND PROCEDURES

Management's Report on Internal Control over Financial Reporting.

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

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

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

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

Evaluation of disclosure controls and procedures.

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

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.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

 

As of September 15, 2016 there are no material pending legal proceedings, other than ordinary routine litigation incidental to our business, to which we or any of our subsidiaries are a party or of which any of our properties is the subject. Also, our management is not aware of any legal proceedings contemplated by any governmental authority against us.

 

Item 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.

 

 

 

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

 

 

 

 

 

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: September 23, 2016	By:	/s/  George Gemayel
		George Gemayel
		President, Chief Executive
		Officer and Director
Date: September 23, 2016	By:	/s/ Sosi Bardakjian
		Sosi Bardakjian
		Chief Financial Officer
		and Director