Notes to Condensed Financial Statements (unaudited)
NOTE 1 – BASIS OF PRESENTATION
The included (a) condensed balance sheet as of December 31, 2017, which has been derived from audited financial statements, and (b) the unaudited condensed financial statements as of September 30, 2018 and 2017, 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, 2017 Form 10-K on April 16, 2018. 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, 2017 as filed on April 16, 2018 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
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.
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 became effective for annual periods beginning after December 15, 2017 and for interim periods within those annual periods. ASU 2017-09 is not expected to have any impact on the Company’s financial statement presentation or disclosures.
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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. The Company believes there is no impact related to 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. The Company does not anticipate that the adoption of this ASU will have a significant impact on its financial statements.
The Company believes that other recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
NOTE 2 - SIGNIFICIANT ACCOUNTING POLICIES AND PRACTICE
Reclassifications
- Certain prior year amounts have been reclassified to conform with the current year presentation.
Use of estimates
– The preparation of financial statements in conformity with accounting principles generally accepted in the United States necessarily requires management to make estimates and assumptions that affect the amounts reported in the financial statements. We regularly evaluate estimates and judgments based on historical experience and other relevant facts and circumstances. Actual results could differ from those estimates.
Fair Value Measurements
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed 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. As of September 30, 2018 and December 31, 2017 there were no derivative financial instruments recorded in the financial statements.
Fair Value of Financial Instrument
s
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
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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, 2018 and December 31, 2017. 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.
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, 2018 and December 31, 2017, the Company characterized $0 and $0 as uncollectible, respectively. At September 30, 2018, and December 31, 2017 the accounts receivable, $3,600 represents one customer from the sale of parts.
Inventories
– Inventories are primarily raw materials. Inventories are valued at the lower of, cost as determined on a 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.
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 three months ended September 30, 2018 and 2017, respectively. The depreciation expense for nine months ended September 30, 2018 and 2017 is $8,207 and $5,472, 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 three months ended September 30, 2018 and 2017, $0 and $0, respectively, and for nine months ended September 30, 2018 and 2017 the amounts were $0 and $162, respectively.
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Long Lived Assets
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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.
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 $2,024,000 million from the CEC related to the sale of CNG and propane trucks as of December 31, 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 $1.284 million to debt as of December 31, 2017. This incentive amount will be returned at a rate of $20,000 per month for 64 months. The company has already returned $280,000. 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 $240,000 and long term debt is $924,000 as of December 31, 2017. As of September 30, 2018 the short term debt is $80,000 and long term debt of $924,000.
Income taxes -
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.
We have net operating loss carry forwards available to reduce future taxable income. Future tax benefits for these net operating losses carry forwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that we will not realize a future tax benefit, a valuation allowance is established.
Earning or Loss per Share
- The Company accounts for earnings per share pursuant to ASC 260, Earnings per Share, which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year. As there was a net loss for the three months ended and nine months ended September 30, 2018, basic and diluted loss per share are the same.
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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, 2018 and year ended December 31, 2017 for the assembly of the fuel-efficient vehicles to sell to the customers.
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September 30, 2018
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December 31, 2017
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Raw materials
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$
2,021,283
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$
1,496,082
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Prepaid Inventory
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-
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509,365
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$
2,021,283
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$
2,005,447
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NOTE 4 – RELATED PARTY TRANSACTIONS
The Defiance Company, LLC is owned by the Company’s president and controlling stockholder. As of September 30, 2018, 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, 2017.
As of September 30, 2018, and December 31, 2017, Greenkraft has notes payable for a total of $1,901,916, to its President and his related entities. All amounts are due on demand, unsecured and do not bear interest.
The Company’s president is a member of CEE, LLC which performs emission testing services. During the three months ended September 30, 2018, Greenkraft did not have any services performed by CEE, LLC and as of September 30, 2018 and December 31, 2017, Greenkraft owed CEE the amount of $5,945 for insurance.
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 September 30, 2018 and December 31, 2017, Greenkraft owed $525,000 to First Warner Properties LLC. Greenkraft terminated the lease agreement with First Warner Properties LLC at the end of August 2017.
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, 2017 to September 30, 2021, with a monthly rent of $10,000. As of September 30, 2018 and December 31, 2017, Greenkraft owed $220,000 and $130,000 to First Standard Real Estate LLC, respectively.
NOTE 5 – LINE OF CREDIT
During the nine months ended September 30, 2018 the company used a line of credit for $425,000 from the CEO. The line of credit is non-interest bearing and currently there are no repayment terms.
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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 the embedded conversion feature does not meet the definition of a derivative 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.
As of September 30, 2018 and December 31, 2017, convertible notes had a balance of $5,500 and $7,500 respectively net of $0 unamortized debt discount.
During the nine months ended September 30, 2018, the holder of a convertible note converted $2,000 of the convertible note payable into 2,000,000 common shares.
NOTE 7 – COMMITMENT AND CONTINGENCIES
The Company leases space for its offices and warehouse under a lease expiring 5 years after September 1, 2017. Rent expense was $120,000 per year, payable in installments of $10,000 per month. The future minimum lease payments under the operating lease is listed below. The rent expense for three and nine months ended September 30, 2018 and 2017 was $30,000 and $90,000 respectively.
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Years ending December 31,
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Amount
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2018
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30,000
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2019
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120,000
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2020
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120,000
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2021 and thereafter
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70,000
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Total
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$
340,000
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NOTE 8 - Equity
Common Stock
The Company has authorized 400,000,000 shares and has 105,102,718 shares of common stock issued and outstanding as of September 30, 2018. No shares were issued during the 3 months ended September 30, 2018 and that 2,000,000 shares were issued during the 9 months ended September 30, 2018 for the conversion of a convertible note and 6,670,000 shares were issued during year ended December 31, 2017 as stock based compensation.
NOTE 9 – Short term and Long term Debt
As of September 30, 2018 we have short term debt of $80,000 and long term debt of $924,000 to the CEC and as of December 31, 2017 we have a short term debt of $240,000 and long term debt of $924,000.
NOTE 10 – 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 transpired.
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