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, 2019

 

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)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock

  GKIT   OTCQB

 

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 [X] 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 [X] Smaller Reporting company [X] Emerging Growth reporting company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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

 

As of January 13, 2020 there were outstanding 103,102,718 shares of the registrant’s common stock, $.001 par value.

 

 

 

     
 

 

TABLE OF CONTENTS

 

  Page
PART I Financial Information  
     
Item 1. Financial Statements.  
     
  Condensed Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018 3
     
  Condensed Statements of Operations for three months and Nine months ended September 30, 2019 and 2018 (unaudited) 4
     
  Condensed statement of changes in stockholders’ deficit for the three months ended September 30, 2019 and September 30 2018 (unaudited) 5
     
  Condensed Statements of Cash Flows for the Nine months Ended September 30, 2019 and 2018 (unaudited) 6
     
  Notes to Condensed Financial Statements (unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
     
Item 4. Controls and Procedures 15
     
PART II Other Information  
     
Item 1. Legal Proceedings 16
     
Item 1A. Risk Factors 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 17
     
Item 5. Other Information 17
     
Item 6. Exhibits 17
     
Signatures 18

 

  2  
 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1 — FINANCIAL STATEMENTS

 

GREENKRAFT, INC

CONDENSED BALANCE SHEETS

 

    As of     As of  
    9/30/2019     12/31/18  
    (unaudited)     (audited)  
             
Assets                
Current Assets                
Cash   $ 209,408     $ 23,876  
Accounts receivable, net of allowance for doubtful account of $0     3,600       3,600  
Inventories, net     1,771,692       1,806,056  
Total Current Assets     1,984,700       1,833,532  
                 
Property and equipment, net     146,176       154,383  
Right of use     218,889       -  
Total Non- Current Assets     365,064       154,383  
                 
Total Assets   $ 2,349,764     $ 1,987,915  
                 
Liabilities and Stockholders’ Deficit                
Current Liabilities                
Accounts payable   $ 25,479     $ 3,399  
Accounts payable - related party     340,000       250,000  
Accrued liabilities     115,834       111,745  
Deferred income     469,955       475,995  
Convertible notes payable     3,500       5,500  
Other liabilities     83,427       75,000  
Short term debt CEC     240,000       240,000  
Short term debt related party     100,000       -  
Lease Liability - current     111,589       -  
Deferred rent - current     -       831  
Total Current Liabilities     1,489,784       1,162,470  
                 
Non-Current Liabilities                
Deferred rent - net of current     -       8,000  
Long term payable related party     1,901,916       1,901,916  
Long term payable - related party Defiance     285,389       285,389  
Long term payable - related party FWP     525,000       525,000  
Long term payable - related party CEE     5,945       5,945  
Long term debt CEC     503,981       704,000  
Lease Liability - Long Term     107,299       -  
Total Non-Current Liabilities     3,329,530       3,430,250  
                 
Total Liabilities     4,819,314       4,592,720  
                 
Commitments and Contingencies     -       -  
Shareholders’ Deficit                
Common Stock, 400,000,000 shares authorized, 103,102,718 and 105,102,718 shares issued and outstanding, respectively     103,103       105,103  
Additional Paid-In Capital     4,809,777       4,812,778  
Accumulated Deficit     (7,382,430 )     (7,522,686 )
Total Stockholders’ Deficit     (2,469,550 )     (2,604,805 )
                 
Total Liabilities and Stockholders’ Deficit   $ 2,349,764     $ 1,987,915  

 

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

 

  3  
 

 

GREENKRAFT, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

    3 months ended September 30,     9 months ended September 30,  
    2019     2018     2019     2018  
Revenue   $ 191,729     $ 14,691     $ 913,252     $ 333,649  
Cost of revenue     94,462       5,947       424,872       264,272  
Gross Profit     97,267       8,744       488,380       69,377  
Costs and expenses:                                
Payroll Expenses     51,179       51,164       131,173       138,076  
Rent     25,667       30,000       81,169       90,000  
Selling, general and administrative     35,351       39,166       135,782       161,959  
Total costs and expenses     112,197       120,330       348,124       390,035  
Income (Loss) from operations     (14,930 )     (111,586 )     140,256       (320,658 )
                                 
Net Income / (Loss)   $ (14,930 )   $ (111,586 )   $ 140,256     $ (320,658 )
                                 
Basic Income (Loss) per share     (0.00 )     (0.00 )     0.00       (0.00 )
Weighted average number of common shares outstanding- Basic     105,102,718       -       105,102,718       -  
                                 
Diluted Income per Share     (0.00 )     (0.00 )     0.00       (0.00 )
Weighted average number of common shares outstanding - Diluted     105,102,718       105,102,713       108,602,718       105,102,713  

 

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

 

  4  
 

 

GREENKRAFT, INC.

Condensed Statement of changes in stockholders’ deficit

Three months and nine months ended September 30, 2019 and 2018

(Unaudited)

 

                Additional           Total  
    Common Stock     Paid-In     Accumulated     Stockholders’  
    Shares     Amount     Capital     Deficit     Deficit  
Balance December 31, 2017     103,102,718     $ 103,103     $ 4,105,577     $ (6,829,745 )   $ (2,621,065 )
Shares issued on conversion of debt     2,000,000       2,000       182,200               184,200  
Net loss                             (129,095 )     (129,095 )
Balance March 31, 2018     105,102,718       105,103       4,287,777       (6,958,840 )     (2,565,960 )
Net loss                             (79,976 )     (79,976 )
Balance June 30, 2018     105,102,718       105,103       4,287,777       (7,038,816 )     (2,645,936 )
Net loss                             (111,586 )     (111,586 )
Balance September 30, 2018     105,102,718       105,103       4,287,777       (7,150,403 )     (2,757,523 )
Forgiveness of debt - related party                     525,000               525,000  
Net loss                             (372,281 )     (372,281 )
Balance December 31, 2018     105,102,718       105,103       4,812,777       (7,522,684 )     (2,604,805 )
Net income                             281,211       281,211  
Balance March 31, 2019     105,102,718       105,103       4,812,777       (7,241,473 )     (2,323,594 )
Stock repurchase     (2,000,000 )     (2,000 )     (3,000 )             (5,000 )
Net Loss                             (126,024 )     (126,024 )
Balance June 30, 2019     103,102,718     $ 103,103     $ 4,809,777     $ (7,367,497 )   $ (2,454,618 )
Net Loss                             (14,930 )     (14,930 )
Balance September 30, 2019     103,102,718     $ 103,103     $ 4,809,777     $ (7,382,427 )   $ (2,469,550 )

 

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

 

  5  
 

 

GREENKRAFT, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    September 30,  
    2019     2018  
             
Operating Activities:                
Income (loss)   $ 140,256     $ (320,658 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Stock compensation Expense             -  
Depreciation expense     8,207       8,207  
Change in operating assets and liabilities     -          
Inventory     34,364       (525,201 )
Prepaid Inventory     -       509,365  
Right of use asset     (218,889 )     -  
Accounts payable     22,080       (16,189 )
Accounts payable- related party     90,000       90,000  
Accrued expense             (4,104 )
Accrued Liabilities     12,516          
Deferred Income     (6,040 )     -  
Deferred Rent current     (831 )     -  
Deferred Rent non current     (8,000 )     -  
Short Term debt CEC     -          
Long Term debt CEC     (200,019 )        
Lease Liability , current     111,589       -  
Lease Liability, Long term     107,299       -  
Short term debt             (160,000 )
Net cash (used) in provided by operating activities     92,532       (418,580 )
                 
Investing Activities:                
Purchase of Machinery and Equipment             -  
      -       -  
Financing Activities:                
Stock repurchase     (5,000 )     -  
convertible repayment     (2,000 )     -  
Borrowings under lines of credit-related party     100,000       425,000  
Net cash provided by financing activities     93,000       425,000  
                 
Net increase in cash     185,532       6,420  
                 
Cash, Beginning of period     23,876       18,339  
                 
Cash, End of period   $ 209,408     $ 24,759  
Cash paid for interest   $ -     $ -  
Cash paid for income taxes   $ -     $ -  
Non cash investing or financing activities                
Debt converted to Common Stock   $ -     $ 2,000  

 

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

 

  6  
 

 

GREENKRAFT, INC.

Notes to Condensed Financial Statements (unaudited)

 

NOTE 1 – BASIS OF PRESENTATION

 

The included (a) condensed balance sheet as of December 31, 2018, which has been derived from audited financial statements, and (b) the unaudited condensed financial statements as of September 30, 2019 and 2018, 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, 2018 Form 10-K on May 10, 2019. 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 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, 2018 as filed on May 10, 2019 have been omitted.

 

The accompanying condensed 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

 

FASB ASU 2016-02 Leases (Topic 842) – In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but has been updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have adopted the above ASU as of January 1, 2019. The right of use asset and lease liability have been recorded at the present value of the future minimum lease payments, utilizing a 5% average borrowing rate.

 

The Company is using the transition relief provided by the Financial Accounting Standards Board (FASB) for ASU 2016-02 at their November 29, 2017 meeting related to applying ASC 840 for comparative periods, and providing the disclosures required by ASC 840 for the comparative periods. The Company did not recognize the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2019 as the amount was not considered to be material.

 

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.

 

  7  
 

 

NOTE 2 - SIGNIFICIANT ACCOUNTING POLICIES AND PRACTICES

 

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 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 820, 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 September 30, 2019 and December 31, 2018. The respective carrying value of certain on-balance-sheet financial instruments approximate 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 except as noted in the table shown below.

 

The following table summarize items measured at fair market value during the period ended September 30, 2019:

 

    Level 1     Level 2     Level 3     Total  
Lease   $   -     $   -     $ 218,889     $ 218,889  
Total   $ -     $ -     $ 218,889     $ 218,889  

 

  8  
 

 

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 and parts. 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, 2019 and December 31, 2018, the Company characterized $0 and $0 as uncollectible, respectively. At September 30, 2019, 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 weighted average cost 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. No allowance was deemed necessary by management as of September 30, 2019 and 2018, respectively.

 

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 held by the Company. Depreciation expense of $2,735 and $2,735 are recognized for the quarters ended September 30, 2019 and 2018, 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. During the quarter ended September 30, 2019 and 2018, $0 and $0, 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. No allowance was deemed necessary by management as of September 30, 2019 and 2018, respectively.

 

  9  
 

 

Revenue recognition – The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”). In accordance with ASC 606, the Company applies the following methodology to recognize revenue:

 

  i. Identify the contract with a customer.
     
  ii. Identify the performance obligations in the contract.
     
  iii. Determine the transaction price.
     
  iv. Allocate the transaction price to the performance obligations in the contract.
     
  v. Recognize revenue when (or as) the entity satisfies a performance obligation.

 

Accordingly, the Company recognizes specific components of revenue as described below:

 

1. Parts – Performance obligation to deliver “X” parts are recognized as products are shipped. Typically there is not a large volume of parts (recently), thus contract price allocated to performance obligations (ratable parts) as shipped.

 

2. Service – “Right to invoice” practical expedient pursuant to 606-10-55-18, billed at hourly rates plus parts.

 

3. Trucks – Performance obligation to deliver system. Recognition of revenue at a point in time, given recognition over time criteria not met pursuant to 606-10-25-24. Final transfer of control passed to customer upon receipt and final acceptance. When the truck is accepted by the customer the final invoice is issued and all deferred revenue is recognized along with the related work in process costs for the truck. Trucks generally take 90 days to manufacture, assemble and then ship to our various customers. As of September 30, 2019 and December 31, 2018 customer deposits were $469,955 and $475,995 respectively.

 

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 net income for the Nine months ended September 30, 2019, basic and diluted income per share are calculated separately. As there was a net loss for the quarter ended September 30, 2019, basic and diluted loss per share are the same.

 

  10  
 

 

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 nine months ended September 30, 2019 and year ended December 31, 2018 for the assembly of the fuel-efficient vehicles to sell to the customers.

 

    September 30, 2019     December 31, 2018  
Raw materials   $ 1,771,692     $ 1,806,056  
Total Inventory     1,771,692       1,806,056  

 

NOTE 4- PROPERTY AND EQUIPMENT

 

For the three months ended September 30, 2019 and December 31, 2018, depreciation expense of fixed assets totaled approximately $2,735 and $2,735, respectively.

 

For the nine months ended September 30, 2019 and December 31, 2018, depreciation expense of fixed assets totaled approximately $8,207 and $8,207 respectively.

 

    September 30, 2019     December 31, 2018  
Equipment   $ 229,193     $ 229,193  
Less: Accumulated Depreciation     (83,017 )     (74,810 )
Total   $ 146,176     $ 154,383  

 

NOTE 5 – RELATED PARTY TRANSACTIONS

 

The Defiance Company, LLC is owned by the Company’s president and controlling stockholder. As of September 30, 2019, 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, 2018.

 

As of September 30, 2019, and December 31, 2018, 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. This amount is classified as a long-term liability as 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 nine months ended September 30, 2019, Greenkraft did not have any services performed by CEE, LLC and as of September 30, 2019 and December 31, 2018, Greenkraft owed CEE the amount of $5,945 for insurance.

 

  11  
 

 

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 was from July 2014 to July 2019, with a monthly rent of $27,500. Greenkraft terminated the lease agreement with First Warner Properties LLC at the end of August 2016. As of September 30, 2019 and December 31, 2018, Greenkraft owed $525,000 to First Warner Properties LLC. The 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’s 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, 2019 and December 31, 2018, Greenkraft owed $340,000 and $250,000 to First Standard Real Estate LLC, respectively.

 

NOTE 6 – LINE OF CREDIT

 

During the nine months ended September 30, 2019 the company used a line of credit for $100,000 from the CEO.

 

NOTE 7 – CONVERTIBLE NOTES

 

As of September 30, 2019 and December 31, 2018 convertible notes had a balance of $3,500 and $5,500 respectively.

 

The outstanding note is convertible at a rate of $0.001 into shares of common stock $2,000 of the convertible note was paid back during the nine months ended March 31, 2019.

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

The Company leases space for its offices and warehouse under a lease expiring 5 years after September 1, 2017. Rent expense is $120,000 per year, payable in installments of $10,000 per month. The future minimum lease payments under the operating lease is as follows:

 

Years ending December 31,   Amount  
       
2019     30,000  
2020     120,000  
2021     80,000  
         
Total   $ 230,000  

 

As discussed in Note 1, the Company adopted ASU 2016-02 related to leases as of January 1, 2019. The Company is using the transition relief discussed in Note 1 for lease accounting treatment. Rent expense was $81,169   and $90,000 for the nine months ended September 30, 2019 and 2018, respectively.

 

NOTE 9 – SUBSEQUENT EVENTS

 

Management has evaluated subsequent events from the balance sheet date through the date the financial statements were available to be issued and determined that no material subsequent events have transpired.

 

  12  
 

 

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 Operations for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018

 

Working Capital

 

    Nine months Ended
September 30, 2019 		    Nine months Ended
September 30, 2018 		 
Current Assets   $ 1,984,700     $ 2,049,642  
Current Liabilities     1,489,784       1,393,577  
Working capital (deficit)     494,916       656,065  

 

  13  
 

 

As at September 30, 2019, we had working capital of $494,916 and $656,065 at September 30, 2018.

 

Cash Flows

 

    Nine months Ended September 30, 2019     Nine months Ended September 30, 2018  
             
Cash Flows Provided by (Used in) Operating Activities   $ 92,532     $ (418,580 )
Cash Flows Provided by Investing used in Activities     -       -  
Cash Flows provided (used) in Financing Activities     93,000       425,000  
Net Increase in Cash During Period     185,532       6,420  

 

Cash flow from Operating Activities

 

During the nine months ended September 30, 2019, the net cash provided by operating activities totaled $92,532 compared to the cash used total of ($418,580) during the quarter ended September 30, 2018.

 

Cash flow from Investing Activities

 

During the three months ended September 30, 2019 and 2018, the net cash provided by investing activities totaled $0.

 

During the nine months ended September 30, 2019 and 2018, the net cash provided by investing activities totaled $0.

 

Cash flow from Financing Activities

 

During the three months ended September 30, 2019, the net cash provided by financing activities totaled $93,000 compared with total of $425,000  during the nine months ended September 30, 2018.

 

Operations

 

    Three Months Ended
September 30, 2019 		    Three Months Ended
September 30, 2018 		 
             
Revenue   $ 191,729     $ 14,691  
Cost of revenue     94,462       5,947  
Gross profit     97,267       8,744  
Operation expense     (112,197 )     (120,330 )
Income (loss) from operation   $ (14,930 )   $ (111,586 )

 

    Nine months Ended
September 30, 2019 		    Nine months Ended
September 30, 2018 		 
             
Revenue   $ 913,252     $ 333,649  
Cost of revenue     424,872       264,272  
Gross profit     488,380       69,377  
Operation expense     (348,124 )     (390,035 )
Income (loss) from operation   $ 140,256     $ (320,658 )

 

Revenues

 

We earned revenues of $191,729 during the three months ended September 30, 2019 compared to earning revenues of $14,691 during the same period in 2018. In 2018 we had less sales as we were focused on launching a new product.

 

We earned revenues of $913,252 during the nine months ended September 30, 2019 compared to earning revenues of $333,649 during the same period in 2018, which is due more truck sales of our new product for the nine months ended September 30, 2019. 

 

Operation Expenses

 

Our total operating expenses decreased from $120,330  to $112,197 for the three months ended September 30, 2019 compared to the same period in 2018. The reason for the decrease was in an effort to decrease operational costs.

 

Our total operating expenses decreased from $390,035  to $348,124   for the nine months ended September 30, 2019 compared to the same period in 2018. The reason for the decrease was due to less expenses.

 

  14  
 

 

Liquidity

 

During the nine months ended September 30, 2019, the Company had revenue from continuing operations of $913,252 , net income of $140,256 stockholders’ deficit of $2,469,550 and working capital of $494,916.

 

Based on the financial support letter from the CEO of Greenkraft, he and his related party entities have 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 $240,000 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 September 30, 2019. 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, and committed financial support from the owner and his related parties to fund its ongoing operations until the Company is able to meet its own obligation as they become due.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2019, 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

 

As a smaller reporting company we are not required to provide the information called for by this Item 3.

 

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.

 

  15  
 

 

Limitations on the Effectiveness of Controls

 

Our management, including our principal executive officer and principal financial officer, do 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 nine months ended September 30, 2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

As of September 30, 2019 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 1A. Risk Factors

 

As a smaller reporting company we are not required to provide the information called for by this Item 1A.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

  16  
 

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

ITEM 6. EXHIBITS.

 

(a) The following exhibits are filed herewith:

 

Exhibit

Number

 

Exhibit

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

 

  17  
 

 

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: January 17, 2020 By: /s/ George Gemayel
    George Gemayel
    President, Chief Executive
    Officer and Director
     
Date: January 17, 2020 By: /s/ Sosi Bardakjian
    Sosi Bardakjian
    Chief Financial Officer
    and Director

 

  18  
 

 

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