Item 1. Description of Business
Forward-looking Statements
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable laws, including the securities laws of the United States, we do not intend to update any of the forward-looking statements so as to conform these statements to actual results.
As used in this annual report, the terms "we", "us", "our", “the Company”, and "Greenkraft" mean Greenkraft, Inc., unless otherwise indicated.
All dollar amounts refer to US dollars unless otherwise indicated.
Overview
We were incorporated on September 27, 2006 in Nevada as Sunrise Global, Inc. Until closing of the Acquisition of Greenkraft on December 6, 2013 (as described below), we were a recycled industrial waste resale company. On December 27, 2013, we changed our corporate name to Greenkraft, Inc. from Sunrise Global, Inc., which name change reflects our acquisition of Greenkraft resulting in us now conducting Greenkraft’s business. Concurrent with the name change, we effectuated a 2-for-1 forward split, also effective December 27, 2013. All share amounts have been adjusted to give effect to the reverse split.
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.
Our executive offices are located at 2530 S. Birch Street, Santa Ana, CA 92707. Our telephone number is (714) 545-7777 and our Internet address is www.greenkraftinc.com.
Acquisition of Greenkraft, Inc.
On December 5, 2013, we entered into a Share Exchange Agreement (the “Purchase Agreement”) with the sole stockholder (the “Stockholder”) of Greenkraft, Inc., a California corporation (“Greenkraft”), pursuant to which, on December 6, 2013 (the “Closing Date”), we issued 83,000,000 shares (as adjusted to give effect for the 2-for-1 forward split effectuated on December 27, 2013) of our common stock to the Stockholder in consideration of the Stockholder’s transfer of all of his Greenkraft shares to our wholly-owned acquisition subsidiary, Greenkraft, Inc, a Nevada corporation (the “Acquisition Subsidiary)., at which time Greenkraft became Acquisition Subsidiary’s wholly owned subsidiary (the “Acquisition”).
Prior to the Acquisition, Greenkraft was our controlling stockholder, owning approximately 68% of our common stock which it purchased in May 2014. In addition, George Gemayel, Greenkraft’s sole shareholder, president and director, was appointed as our president and sole director in connection with their purchase of the controlling interest in May 2013.
As a condition to the closing of the Acquisition, on the Closing Date, 4,600,000 shares (as adjusted to give effect for the 2-for-1 forward split effectuated on December 27, 2013) of our issued and outstanding common stock previously held by Greenkraft were cancelled pursuant to the terms of the Purchase Agreement (the “Cancelled Shares”).
Following the Acquisition, we now conduct operations through our wholly-owned subsidiary, Greenkraft.
Industry Overview
The combination of environmental pressures, regulations, and alternative fuel vehicle initiatives has resulted in the transportation industry offering environmentally friendly, fuel-efficient vehicles. Currently automotive manufacturers are actively engaged in the competitive pursuit of innovative, clean, alternative fuel vehicles - particularly as they strive to meet new emissions rules and contribute to reducing greenhouse gases. These alternative fuel vehicles can provide needed performance, sustained mobility, and immediate emissions reductions in the industry. Compressed natural gas (CNG) and liquefied petroleum gas (LPG) are abundantly available in the US, and a growing network of fueling stations exists in California. Light- and medium-duty service trucks are utilized by a growing business sector. Developing these vehicles to run on CNG, LPG, and electric will offer a cleaner fuel choice for these business operators without sacrificing availability, safety, or convenience.
Natural gas powers about 112,000 vehicles in the United State and roughly 14.8 million vehicles worldwide. Natural gas vehicles which can run on compressed natural gas are good choices for high mileage centrally fueled fleets which operate within a limited area. For vehicles needing to travel long distances, liquefied natural gas is a good choice. CNG and LNG are considered alternative fuels under the Energy Policy Act of 1992.
Today’s fleets are increasingly interested in medium and heavy duty vehicles that use alternative fuels or advanced technologies that can help reduce operating costs, meet emission requirements and support US energy independence. Vehicle and engine manufacturers are responding to this interest with a wide range of options across a steadily growing number of vehicle applications.
Our business expects to benefit from the availability of government tax incentives, such as tax credits and grants to encourage the use of natural gas in trucks, buses and other vehicles. On December 31, 2012, the United States Congress passed the American Tax Relief Act of 2012, which extended the Alternative Fuels Excise Tax Credit of U.S. $0.50 per gallon for LNG and U.S. $0.50 per GGE of CNG until December 31, 2014 and also made those credits retroactive to January 1, 2012. In addition, the Alternative Fuel Vehicle
Fueling Infrastructure Credit of 30% of the cost of any qualified alternative fuel vehicle refueling property placed in service during the taxable year, not to exceed U.S. $30,000 in the case of a property of a character subject to an allowance for depreciation, and U.S. $1,000 in any other case, was also extended until December 31, 2014 and made retroactive to January 1, 2012. There were other incentives available for fueling infrastructure with different agencies as well during 2015 and to present.
In the absence of federal legislation, individual states have initiated and passed bills to provide incentives to encourage the use of domestic energy sources such as natural gas. Texas Senate Bills 20 and 385 have been passed and authorize funding for approximately U.S. $16 million for natural gas vehicle rebates, which includes converting heavy-duty fleet vehicles to natural gas, and U.S. $4 million per year for the next two years for the establishment of natural gas stations between the cities of Dallas, San Antonio and Houston. California, through the CEC with funds through Assembly Bill 118, has established the Natural Gas Vehicle Buy-Down Program, a rebate program to incentivize the deployment of natural gas and propane vehicles in all weight classes in California. Funding for this program for 2012 was U.S. $12.7 million. No date for 2014 applications has been announced. California also has programs authorized by Proposition 1B that periodically make funding available to promote the use of cleaner heavy-duty trucks within the state. Pennsylvania through House Bill 1950 authorizes U.S. $20 million over three years in vehicle and transit grants of up to U.S. $20,000 per vehicle. Other states such as Louisiana, Oklahoma, and West Virginia offer state income tax credits for the purchase of alternative fuel vehicles including natural gas.
Our Principal Products and Services
We currently offer two main products and services at this time:
1.Commercial forward cabin trucks that run on alternative fuels such as compressed natural gas (CNG) or liquefied propane gas (LPG)
2.Conversion of existing vehicles to run on alternative fuels such as CNG, or LPG.
Commercial Forward Cab Trucks with Alternative Fuels
We currently offer commercial trucks (Classes 3, 4, 5, 6, 7) with dedicated natural gas fuel system for 6.0 liter Greenkraft/General Motor (GM) engines for 14,000 lbs. and above gross vehicle weight rating (GVWR) trucks and custom chassis manufacturers. We offer a range of Class 3-7 cab-forward trucks based on chassis from JAC, China’s Anhui Jianghuai Automobile Company. We then install 6.0-liter GM engines and our CNG fuel systems and adds Quantum Technologies’ tanks in the vehicle. The CNG fuel systems are assembled by Greenkraft using parts manufactured by various suppliers. The chassis and cabin are imported from overseas and the powertrain is assembled in the chassis. Prior to order of the chassis, we provided specific design specifications to JAC to ensure that the chassis comply with US guidelines and specifications. We have received California Air Resources Board (CARB) and U.S. Environmental Protection Agency (EPA) certification of 2014 and 2015 dedicated-compressed natural gas fuel systems for its 6.0-liter GM engines for 14,000 lbs. and above GVWR trucks. We complete assembly (through the use of employees provided by CEE, LLC, an entity controlled by our president, George Gemayel) of the trucks and CNG fuel systems at its location in Santa Ana, CA. We use our strategic partner, CEE, LLC for the testing of its engines prior to applying for the CARB and EPA certifications referred to above. In addition, we used CEE, LLC and G&K Automotive, another strategic partner, in connection with research and development activities. See “-Strategic Partners” below.
Customers
Our customers include Ryder, Superior Transportation, AR Natural Gas Fueling systems, Propane distribution companies and others. We also had customers in vehicle sales that contributed to our sales in 2015.
Funding for the incremental cost of the vehicles was provided by the California Energy Commission (CEC) and the Mobile Source for Pollution Reduction Review Committee. 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 us and taken in as deposits until actual delivery of the vehicles at which time it is deemed revenue. We have received $1.140 million from the CEC related to the sale of CNG and propane trucks.
In addition, we have dealer relationships with each of (i) Superior Transportation for sales of CNG vehicles in Texas (ii) A.R. Natural Gas Fueling Systems for sales of our CNG vehicles in Pennsylvania. We are adding new dealers in 2016. We expect to deliver trucks to all our dealers in 2016. We have had discussions with other dealers throughout the United States and intend to enter into formal relationships with these dealers upon completion and assembly of additional truck inventory. There is no guarantee that we will enter into additional contracts or formal relationships with its current customers and additional dealers.
Convert Vehicles for Alternative Fuels
In addition to our offering of new commercial trucks in alternative fuels, we can convert other existing vehicles (such as vehicles manufactured by Ford or GM that do not currently run on alternative fuels) to allow engines to run on CNG or LPG instead of gas or diesel. We have converted vehicles for other dealers including, without limitation, Tom’s Truck Center, Borhner Trucks, Rush Trucks and Rentals, and Thorson Motors.
Suppliers
We have supplier relationships with each of Anhui Jianghuai Automobile Company (JAC Motors), General Motors and Quantum Technologies for supply of the chassis, engine and CNG tanks, respectively.
Anhui Jianghuai Automobile Company (JAC Motors)-Chassis
In October 2012, Greenkraft entered into an agreement with JAC Motors, a Chinese Truck Chassis Manufacturer for the supply of its chassis and cabins. Greenkraft is entitled to use the JAC brand name for manufacturing and distribution of its trucks. The Agreement is for a term of 5-years and will automatically be renewed for an additional 5-years if the product targets are met.
Greenkraft has relationships with other chassis suppliers. In the event that its relationship with JAC Motors was terminated, Greenkraft is confident that it could procure a relationship with an alternative chassis supplier on commercially reasonable terms.
General Motors (GM)-Engines/Power Trains
In October 2011, Greenkraft entered into an agreement with GM under which Greenkraft will have access to GM motors and power trains for insertion into their alternative fuel trucks. The agreement is for a 3-year term and expires on December 31, 2015. However this agreement was extended to December 31, 2017. Greenkraft has relationships with other suppliers of engines and power trains. In the event that Greenkraft’s agreement with GM is terminated, it is confident that it could execute agreements with other suppliers for its engines on commercially reasonable terms.
Quantum Technologies-CNG tanks and tank assemblies
In December 2012, Greenkraft entered into $2.5 million purchase order and summary of terms with Quantum Fuel Systems, Inc. under which Quantum agreed to supply Greenkraft with 250 Type 4 30 GGE CNG cylinder tanks including assembly. Greenkraft would be placing orders as needed for its trucks and conversions. Greenkraft would continue placing Purchase orders up to the 250 tank packages.
Greenkraft obtains most components for the alternative fuel trucks from various suppliers as discussed above. In addition, the fuel systems are put together with different components from various suppliers. All components are either procured from suppliers or made specifically by suppliers for Greenkraft. Greenkraft does design certain components and brackets for use in its alternative fuel trucks and conversion systems and then contracts suppliers to make these items based on Greenkraft’s design and specification.
Strategic Partners
We have a strategic relationship with CEE, LLC, an emission laboratory of which George Gemayel is the managing member. CEE, LLC is recognized by EPA and CARB and has certified vehicles over 30 years. CEE has also provided its employees to Greenkraft for its truck assembly and conversion jobs with the salaries paid for by CEE which is reflected as a capital contribution to Greenkraft by Mr. Gemayel. Greenkraft does not have a written agreement with CEE LLC governing this relationship. In 2014, Greenkraft hired its employees directly for truck assembly. Greenkraft will continue to use CEE for testing of its engines to ensure CARB compliance.
We also work with an automotive technical division in the automotive safety compliance industry. G&K Automotive Conversion Inc. (“G&K”). G&K is a California based company founded in 1982 to modify and certify foreign motor vehicles to meet the stringent vehicle safety and emission standards of the United States. G&K is certified as a Registered Importer (“RI”) by the Department of Transportation (“DOT”) and is certified as an Independent Commercial Importer (“ICI”) by the Environmental Protection Agency (“EPA”). G&K is also recognized by the California Air Resources board (“CARB”) as an approved motor vehicle modifier. G&K is able to provide DOT, EPA, and CARB certification services at a full-service state-of-the-art facility in Santa Ana, California. Mr. George Gemayel is the president and controlling shareholder of G&K. We do not have a written agreement with G&K governing this relationship.
Sales Distribution Strategy
As discussed above, we already have distribution agreements in place with each of (i) Superior Transportation for sales of CNG and LPG vehicles in Texas and (ii) A.R. Natural Gas Fueling Systems for sales of our CNG vehicles in Pennsylvania. In the event that our relationship with either of these dealers terminated, we have relationships with other dealers that we can activate and believes we could enter into additional agreements on commercially reasonable terms. We intend to enter into distribution agreements with other dealers for other territories in the United States. We already had discussions with distributors in New York, New Jersey, California and Oregon for formal distribution relationships, which it intends to formalize upon reaching a critical mass of inventory of its alternative fuel trucks. We believe partnering with dealers for distribution of its trucks will have certain advantages such as, experienced trained sales force; service network, existing customer base and should also serve to reduce marketing costs.
Employees
As of December 31, 2015, we have 18 employees, including our executive officers George Gemayel and Sosi Bardakjian.
Intellectual Property
We believe that intellectual property protection will be important to our ability to successfully compete in the alternative fuel truck industry. We currently own all rights and patents associated with the Invention “LPG Fuel System” described under Application Number 61908022. This invention relates to the conversion of vehicles to run on LPG. We are currently in the process of recording a formal notice of assignment related to this invention with the United States Patent and Trademark Office.
We intend to rely on a combination of trademark, copyright, certifications and trade secret laws and disclosure restrictions to protect our intellectual property rights. We intend to maintain a policy requiring our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and to control access to software, documentation and other proprietary information.
We will enter into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with parties with whom we conduct business in order to limit access to and disclosure of our proprietary information.
We will aggressively protect our intellectual property rights by relying on federal, state and common law rights, as well as a variety of administrative procedures. We will pursue the registration of our trademarks, copyrights, and domain names in the U.S. and international jurisdictions.
The steps we have taken to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our proprietary rights. Competitors may also independently develop technologies that are substantially equivalent or superior to the technologies we employ in our services. Failure to protect our proprietary rights adequately could significantly harm our competitive position and results of operations.
Governmental Programs, Incentives and Regulations
California Energy Commission (CEC)
The California Energy Commission is currently providing buy-downs related to the purchase of alternative fuel trucks to cover the incremental cost of purchasing alternative fuel vehicles. Greenkraft received $1,140,000 from the CEC of which (i) $400,000 was applied to the buy-down of 20 CNG vehicles of 16,000 lbs.; (ii) $340,000 was applied to the buy down of 17 CNG vehicles of 14,500 lbs. and (iii) $400,000 was applied to the buy down of 40 propane vehicles of 14,500 lbs. Greenkraft continues to apply for grants and more incentives that are available.
California Alternative Energy and Advanced Transportation Financing Authority Tax Incentives
We intend to apply for an arrangement with the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) that could result in an exemption from California state sales and use taxes for sale of our trucks.
Regulatory Credits
In connection with the delivery and placement into service of our alternative fuel vehicles in the United Sates, we may be able to earn various tradable regulatory credits that can be sold to other manufacturers.
Under the Environmental Protection Agency’s (EPA) national greenhouse gas (GHG) emission standards, vehicle manufacturers are required to meet fleet-wide average carbon dioxide emissions standards for cars and trucks at increasingly lower levels annually from 2012 - 2025. Those manufacturers whose fleet wide average fails to meet such standards have a deficit in their emission profile. Those manufacturers whose fleet wide average performs better than such standards may earn credits. Manufacturers may sell excess credits to other manufacturers who can apply such credits to comply with these regulatory requirements. As a manufacturer solely of zero emission vehicles, we earn the full amount of GHG credits established by the standards on each vehicle sold. We have entered into agreements with another automobile manufacturer to sell the credits that we earn.
We may enter into contracts for the sale of credits with several automotive manufacturers, if and when such credits are earned by us.
Regulation-EPA Emissions & Certificate of Conformity
Our products are sold to commercial users. Our alternative fuel engines are subject to approval for the U.S. EPA as well as state agencies such as the CARB. We have received Certificates of Conformity from the EPA for our natural gas engines that go into vehicles (in excess of 14,000 lbs.) in 2012, 2013, 2014 and 2015. In addition the CARB has issued executive orders for 4.8 liter, and 6.0 liter CNG engines in 2012 and 6.0 liter propane engines in 2015 and 6.0 liter and 6.8 liter CNG engines in 2014 and 2015. For 2015, Greenkraft also applied for 6.0 liter and 8.0 liter GM and Ford Fuel delivery system certifications with EPA and CARB.
Competition
Competition in the automotive industry is intense and evolving. We believe the impact of new regulatory requirements for vehicle emissions, technological advances in powertrain and shifting customer needs and expectations are causing the industry to evolve in the direction alternative fuel vehicles. We believe the primary competitive factors in our markets include but are not limited to:
·product quality and safety;
·service options;
·product performance;
·product price; and
·manufacturing efficiency.
The worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become even more so in the future.
Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.
Item 1A.
Item 1A. Risk Factors
Not required.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
Our corporate headquarters are located at 2530 S. Birch Street, Santa Ana, CA 92707 and our telephone number is (714) 545-7777. The property where our corporate offices are located is owned by First Standard Real Estate LLC, an entity which is controlled by our President George Gemayel. We do not have a lease with First Standard Real Estate, LLC. However, an amount equal to $400 per month has been accounted for as an additional capital contribution by Mr. Gemayel. We have a lease for approximately 51,942 square feet of office and warehouse space at a rate of $27,500 per month with First Warner Properties, LLC, an entity controlled by our President George Gemayel. Our lease ends on June 30, 2019. We do not own any property.
Item 3.
Item 3. Legal Proceedings
We know of no material pending or active legal proceedings to which we are a party or concerning any of our properties. We are not aware of any legal proceedings contemplated by any governmental authority against us.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
There is a limited public market for our common shares. Our common shares are quoted on the OTCQB Sheets under the symbol “GKIT”. Trading in stocks quoted on the OTCQB is often thin and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated to a company’s operations or business prospects. We cannot assure you that there will be a market in the future for our common stock.
OTCQB securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTCQB securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTCQB issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
The following table sets forth the high and low sale prices for our Common Stock per quarter as reported by the OTCQB for the period from January 1, 2014 through December 31, 2015, based on our fiscal year end December 31. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.
Number of Holders
As of April 8, 2016, we had approximately 67 shareholders of record of our common stock.
Dividend Policy
We have not declared any cash dividends on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payments of dividends will depend on our earnings and financial position and such other facts, as the Board of Directors deems relevant.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
We did not sell any equity securities which were not registered under the Securities Act during the year ended December 31, 2015 that were not otherwise disclosed on our quarterly reports on Form 10-Q or our current reports on Form 8-K filed during the year ended December 31, 2015.
Equity Compensation Plan Information
We do not have in effect any compensation plans under which our equity securities are authorized for issuance and we do not have any outstanding stock options.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during our fourth quarter of our fiscal year ended December 31, 2015.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Safe Harbor
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including, "could" "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this Annual Report.
Overview
RESULTS OF OPERATIONS
Working Capital
Cash Flows
Operating Revenues
During the year ended December 31, 2015 we earned revenues of $12,340,280 compared to revenues of $2,496,474 for the year ended December 31, 2014.
Operating Expenses and Net Loss
During the year ended December 31, 2015, we incurred operating expenses of $942,871 compared with operating expenses of $1,043,166 during the year ended December 31, 2014. The reason for the decrease is due to less expenses in selling and administrative costs,
For the year ended December 31, 2015, we incurred a loss from operations of $738,939 compared with a net loss of $1,109,291 for the year ended December 31, 2014.The decrease in loss is due to decrease in selling and general expenses.
Liquidity and Capital Resources
As at December 31, 2015, we had a cash and cash equivalents balance of $2,261,648 and total assets of $6,247,700 compared with $2,113,832 of cash and total assets of $6,553,270 as at December 31, 2014. The increase in cash was due to funds being injected into our company.
As at December 31, 2015, we had total liabilities of $7,969,526 compared with total liabilities of $7,608,157 at December 31, 2014. The increase is due to increased accounts payable at the end of the year in 2015.
As at December 31, 2015, we had a working capital deficit of $2,425,583 compared with a working capital deficit of $1,147,648 as at December 31, 2014.
Cash flow from Operating Activities
During the year ended December 31, 2015, we gained cash of $153,035 for operating activities as compared to gaining $814,158 during the year ended December 31, 2014. The change is due to having a higher accounts payable in 2015.
Cash flow from Investing Activities
During the year ended December 31, 2015 we used net cash of $4,511 in investing activities compared to use of $1,517,195 during the year ended December 31, 2014.
Cash flow from Financing Activities
During the year ended December 31, 2015, we repaid line of credit of $708 from financing activities compared with use of $2,234,000 during the year ended December 31, 2014.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Item 8.
Item 8. Financial Statements and Supplementary Data
GREENKRAFT, INC.
FINANCIAL STATEMENTS
December 31, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Greenkraft, Inc.
Santa Ana, California
We have audited the accompanying balance sheets of Greenkraft, Inc. (the “Company”) as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2014, and the related results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas
May 23,, 2016
GREENKRAFT, INC.
	NOTES TO THE FINANCIAL STATEMENTS
December 31, 2015
NOTES TO FINANCIAL STATEMENTS:
NOTE 1 - ORGANIZATION AND BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Greenkraft, Inc. is a manufacturer and distributor of automotive products. We manufacture commercial forward cabin trucks for vehicles weighing 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.
Basis of Presentation - The accompanying financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
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.
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.
Cash and cash equivalents - Cash equivalents are highly liquid investments with an original maturity of three months or less. The Company has no cash equivalents as of December 31, 2015 and 2014. We do have restricted cash in the amount of $1,506,152 and $1,501,641 as of December 31, 2015 and 2014, respectively which will be utilized for a stand by letter of credit requested by suppliers.
Accounts Receivable - Trade accounts receivable consist of amounts due from the sale of trucks. Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 90 days of receipt of the invoice. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts based on historical collection experience and a review of the current status of trade accounts receivable. At December 31, 2015 and 2014, the Company characterized $0 and $0 as uncollectible, respectively. At December 31, 2015, the accounts receivable represent three customer from the sale of trucks.
Inventories - Inventories are primarily raw materials and finished goods. Inventories are valued at the lower of, cost as determined on a first-in-first-out (FIFO) basis, or market. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if it is below cost. Management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required. Costs of raw material inventories include purchase and related costs incurred in bringing the products to their present location and condition. The estimated cost of inventory not expected to be converted to cash within one year is reflected as “Inventory, long term” in the balance sheet.
Property and equipment - Property and equipment are carried at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with repair and maintenance are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are ten years for all the equipment’s held by the Company. Depreciation expense of 10,943 and $10,309 are recognized for the year ended December 31, 2015 and 2014.
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 years ended December 31, 2015 and 2014, $55,956 and $26,184, 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.
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 us and taken in as deposits until actual delivery of the vehicles at which time it is deemed revenue. We have received $1.2 million from the CEC related to the sale of CNG and propane trucks as of December 31, 2015 and 2014.
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 carryforwards available to reduce future taxable income. Future tax benefits for these net operating loss carryforwards 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 year ended December 31, 2015 and 2014, basic and diluted losses per share are the same for the year ended December 31, 2015 and 2014.
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.
Recently issued accounting pronouncements - We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow
NOTE 2 - RELATED PARTY TRANSACTIONS
First Standard Real Estate LLC is the owner of 2530 S. Birch Street, Santa Ana, California 92707 where Greenkraft uses office space. Our CEO is an owner of First Standard Real Estate. There is no space rented from First Standard Real Estate in 2015 and 2014.
The Defiance Company, LLC is owned by our CEO. As of December 31, 2015 and December 31, 2014, accounts payable to Defiance is $285,389 and $285,389, respectively, for amounts paid by Defiance Company, LLC on behalf of Greenkraft.
As of December 31, 2015 and December 31, 2014 Greenkraft owed a total of $1,901,916 and $1,901,916, respectively, to our owner and his related entities. All amounts are due on demand, unsecured and do not bear interest. During 2015, the Company did not repay any amount. During 2014, the Company repaid $15,000 under these related party notes.
G&K Automotive Conversion Inc. is an automotive safety compliance company that can provide services to Greenkraft as necessary. No Services were provided by G&K for Greenkraft during the years ended December 31, 2015, or 2014.
CEE, LLC performed testing for Greenkraft for engine certifications and also shared employees with Greenkraft. Our President is an owner of CEE, LLC. During 2015, and 2014, Greenkraft recognized $0 and $120,768, respectively, of contributed payroll expense related to the shared employees. Also Greenkraft owes CEE for insurance that CEE paid for employees of Greenkraft in the amount of $5,945 as of December 31, 2015 and 2014.
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 1, 2015 to June 30, 2019, with a monthly rent of $27,500. The total rent expense for December 31, 2015 and 2014 was $330,000 and $270,000, respectively. As of December 31, 2015 First Warner Properties LLC was owed $467,500 and for 2014 the amount owed was $137,500.
Our CEO does not charge us a salary and therefore we have recognized $72,000 and $72,000 for 2015 and 2014, respectively of contributed salary expense.
NOTE 3 - FIXED ASSETS
For the years ended December 31, 2015 and 2014, depreciation expense of fixed assets totaled approximately $10,943 and $10,309, respectively. For the year 2015 we did not purchase fixed assets. The amount purchased in 2014 was $15,554. Fixed assets comprised the following as of December 31, 2015 and 2014.
NOTE 4 - INVENTORY
Inventory principally consists of the cost of parts purchased and assembled during the years ended December 31, 2015 and 2014 for the assembly of the fuel efficient vehicles to sell to the customers.
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 5 - LINE OF CREDIT
In March 2012, Greenkraft entered into an agreement with Pacific Premier Bank for a $3,500,000 line of credit. The line of credit was due on April 10, 2013 and bears interest at the prime rate plus 1%. The line of credit is secured by certain real property owned by the majority shareholder and inventory.
A condition to the line of credit is a full banking relationship. If the conditions are not met or should cease to be met, then interest rate and interest ceiling provided under the note shall immediately increase by 5.000 percentage points. As of December 31, 2015 Greenkraft is deemed to have a full banking relationship with Pacific Premier Bank.
On July 15, 2013, the maturity date of the facility was extended to December 10, 2013 and the maximum amount available under such facility was reduced to $2 million.
On August 22, 2014, Greenkraft entered into a Loan Modification Agreement with Pacific Premier Bank under which it extended the Maturity Date until August 22, 2015. The cost to modify the loan for 2014 was $4,052.50. In addition, Pacific Premier Bank agreed to issue a $3,000,000 standby letter of credit in favor a supplier from whom Greenkraft purchases products in connection with its production of alternative fuel trucks. In connection with this letter of credit, Greenkraft authorized Pacific Premier to draw an additional $1,500,000 under its note for any funds paid or required to be paid by Pacific Premier under the letter of credit. Thus the current maximum amount available under the line of credit is $3,500,000. There was a fee of $30,000 in connection with the letter of credit. In addition Greenkraft has a restricted deposit of $1,500,000 with pacific premier that is being used as collateral for letter of credit. The letter of credit expired in August 2015 and was automatically renewed for another year. In 2014 the $30,000 fee is classified as deferred financing cost on balance sheet, and it is amortized over the term of the letter of credit.
On September 21, 2015, Greenkraft entered into a short term extension with Pacific Premier Bank under which it extended the Maturity Date of its line until December 10, 2015.
On January 14, 2016 Greenkraft entered into a short term extension with Pacific Premier Bank under which it extended the Maturity Date of its the line of credit to March 10, 2016.
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.
The Company analyzed the modification of the term under ASC 470-60 “Trouble Debt Restructurings” and ASC 470-50 “Extinguishment of Debt”. The Company determined the modification is not substantial and did not result in an extinguishment.
Along with the short term extension on September 21st 2015, and on January 14, 2016 the Company acknowledged that it was in breach of (a) its covenant to maintain a ratio of Global Debt Coverage in excess of 1.250 to 1.0, (b) its covenant to maintain a ratio of Business Debt Coverage Ratio in excess of 1.25 to 1; (c) its covenant to maintain a ratio of Debt/Worth not in excess of 3.0 to 1.0 and (d) its covenant to maintain a Tangible Net Worth of not less than $350,000 (collectively the “Covenant Violations”). Pacific Premier reserved its rights to strictly enforce these covenants on us after their receipt of the Company’s December 31, 2015 financial statements.
During 2014, the Company made draws of $394,000 and amortized $10,767 of deferred financing cost. During 2015, the Company did not make any draws and have repayment of $708. The total amount borrowed under the line of credit was $1,998, 850 and $1,999,558 as of December 31, 2015 and 2014, respectively. As of December 31, 2015 and 2014, the available amount under the letter of credit had not been used. However the total unused available amount under the line of credit is about $1,150 and $400 as of December 31, 2015 and 2014, respectively.
NOTE 6 - CONTINGENT EQUITY LINE OF CREDIT
On February 11, 2014, the Company entered into an Investment Agreement with Kodiak Capital LLC. The agreement provides the Company with financing whereby the Company can issue and sell to Kodiak, from time to time, shares of the Company’s common stock up to an aggregate purchase price of $5.0 million (put shares) during a defined period of time. The Company has the right to deliver from time to time a put notice to Kodiak stating the dollar amount of put shares the Company intends to sell to Kodiak with the price per share based on the following formula: eighty three percent (83%) of the lowest volume weighted average price of the Company’s common stock during the period beginning on the date of the put notice and ending five (5) days thereafter.
Under the Investment Agreement, the Company may not deliver the put notice until after the resale of the put shares has been registered pursuant to a registration statement filed with the Securities and Exchange Commission. Additionally, provided that the Investment Agreement does not terminate earlier, during the period beginning on the trading day immediately following the effectiveness of the registration statement and ending eighteen months after effectiveness of the registration statement covering the securities registered the resale of the put shares, the Company may deliver the put notice or Notices to Kodiak. On each put notice submitted to the Investor by the Company, the Company shall have the option to specify a suspension price for that Put. In the event the common stock price falls below the suspension price, the Put shall be temporarily suspended. The Put shall resume at such time as the common stock trading price is above the suspension price, provided the dates for the pricing period for that particular Put are still valid. In the event the pricing period has been completed, any shares above the suspension price due to Kodiak shall be sold to Kodiak by the Company at the suspension price. The suspension price for a Put may not be changed by the Company once submitted to Kodiak. In addition, the Company cannot submit a new put notice until the closing of the previous put notice, and in no event shall Kodiak be entitled to purchase that number of put shares which when added to the sum of the number already beneficially owned by Kodiak would exceed 4.99% of the number of shares outstanding on the applicable closing date.
The Investment Agreement also provides that the Company shall not be entitled to deliver a put notice and Kodiak shall not be obligated to purchase any put shares unless each of the following conditions are satisfied: (i) a registration statement has been declared effective and remains effective for the resale of the put shares until the closing with respect to the subject put notice; (ii) at all times during the period beginning on the date of the put notice and ending on the date of the related closing, the Company’s common stock has been listed on the Principal Market as defined in the Investment Agreement (which includes, among others, the Over-the-Counter Bulletin Board and the OTC Market Group’s OTC Link quotation system) and shall not have been suspended from trading thereon for a period of two (2) consecutive trading days during the Open Period; (iii) the Company has complied with its obligations and is otherwise not in breach of or in default under the Investment Agreement, the Registration Rights Agreement or any other agreement executed in connection therewith; (iv) no injunction has been issued and remains in force, and no action has been commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the put shares; and (v) the issuance of the put shares will not violate any shareholder approval requirements of the market or exchange on which the Company’s common stock are principally listed.
The Investment Agreement will terminate when any of the following events occur: (i) Kodiak has purchased an aggregate of $5.0 million of the Company’s common stock, (ii) on the date which is eighteen months following the Effective Date, or (iii) upon written notice from the Company to Kodiak. Similarly, the Investment Agreement, may, at the option of the non-breaching party, terminate if Kodiak or the Company commits a material breach, or becomes insolvent or enters bankruptcy proceedings.
In connection with the Investment Agreement, on February 12, 2014, we issued Kodiak 147,058 shares as a commitment fee. The Company estimated the fair value of the common stock issued to be $73,529. This value is decided based on market trading price of the Company’s common stock on stock grant date. The shares are accounted for as a fund raising expense which is included in statement of operations. Due to the reaching the time frame of 18 months from the date following the effective date the agreement with Kodiak was terminated as of December 31, 2015.
NOTE 7 - COMMON STOCK
During 2015 the company sold no shares. During 2014 the company sold 3,620,000 shares at $0.50 per share for gross proceeds of $1,810,000.
During 2014, the Company received $75,000 in deposits to be applied to the purchase of 150,000 shares pending successful completion of the subscription process. Subsequently in 2016, $25,000 of the deposits was applied to the subscription of 50,000 shares.
Total issued shares were 3,767,058 for the year 2014 and none for 2015.
NOTE 8 - MAJOR CUSTOMERS
In 2015, revenues for selling fuel efficient vehicles were from few different customers and were accounted for 92% of the total revenues. Of the 92%, we had two customers each making up 10% or more of total truck sales revenue. The customers individually made up 52% and 21%.
In 2014, revenues were from a few different customers for Greenkraft trucks who accounted for 83% of the revenues. We had three customers each making up 10% or more of total truck sales revenue. The customers individually made up 31%, 27%, and 10%. The remaining revenues were from several vehicle dealers for conversions of Isuzu and Ford trucks at a percentage of 17%.
NOTE 9 - COMMITMENT AND CONTINGENCIES
Greenkraft has a lease agreement with First Warner for rent. See Note 2. Future rental payments payable to the landlord under the lease as of December 31, 2015 were as follows:
NOTE 10 - 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 2015, we incurred net losses and, therefore, had no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $3,252,371 at December 31, 2015, and will expire beginning in the years 2031. At December 31, 2015 and 2014, deferred tax assets consisted of the following:
NOTE 11 - SUBSEQUENT EVENTS
In first quarter of 2016, Greenkraft cancelled its Letter of Credit as it did not need the instrument and also got the $1,506,152 restricted cash released from Pacific Premier Bank.
In second quarter of 2016 Greenkraft paid off its line of credit of approximately $2 million with pacific premier bank.
In second quarter of 2016 Greenkraft issued 50,000 shares to an investor who provided funds in the amount of $25,000 in 2014.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2015 (the “Evaluation Date”). Based upon the evaluation of our disclosure controls and procedures as of the Evaluation Date, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective because of the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
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 the 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 accounting principles generally accepted in the United States of America, and our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; 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 the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting and Management has concluded that our internal controls over financial reporting are ineffective as of December 31, 2015. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness which existed as of December 31, 2015 are:
Financial Reporting Systems: We did not have a robust financial consolidation system throughout the period and as a result, adjustments were required in order to produce financial statements for external reporting purposes.
Segregation of Duties: A complete accounting system is needed to support standalone external financial reporting under public company or SEC requirements. Specifically, the Company did not segregate certain accounting duties due to the small size of its accounting staff.
MaloneBailey, LLP, our registered independent public accounting firm, was not required to and has not issued a report concerning the effectiveness of our internal control over financial reporting as of December 31, 2015.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Officers
Our bylaws allow the number of directors to be fixed by the Board of Directors. Our Board of Directors has fixed the number of directors at five.
Our current directors and officers are as follows:
The directors will serve as directors until our next shareholder meeting or until a successor is elected who accepts the position. Officers hold their positions at the will of the Board of Directors. There are no arrangements, agreements or understandings between non-management shareholders and management under which non-management shareholders may directly or indirectly participate in or influence the management of our affairs.
George Gemayel, President, Secretary and Chairman of the Board of Directors. Mr. Gemayel was appointed as President, Secretary and Chairman of our Board of Director on May 16, 2013. Mr. Gemayal has extensive knowledge and experience in the automotive industry and in the fields of automotive emissions and testing. In 2008, Mr. Gemayel founded Greenkraft, Inc., a privately held manufacturer of trucks, engines, and alternative fuel systems that are powered by natural gas and propane fuels, and has been its Chief Executive Officer since that time. Since 1982, Mr. Gemayel has also been the President and sole director and shareholder of G & K Automotive, Inc., a California corporation that modifies and certifies foreign motor vehicles. Since 2000, Mr. Gemayel has been a member of CEE, LLC, a California limited liability company and full service vehicle and engine testing facility.
Sosi Bardakjian, Chief Financial Officer and Director. Ms. Bardakjian was appointed as our Chief Financial Officer and as a director in connection with the consummation of the Acquisition. Ms. Bardakjian has been Chief Financial Officer of Greenkraft since its formation in October 2008.
Evan Ginsburg, Director. Mr. Ginsburg was appointed as a Director in connection with the consummation of the Acquisition. Mr. Ginsburg is an attorney, licensed to practice and in good standing in the State of California. Since 1998, Mr. Ginsburg has been the name partner in the Evan L. Ginsburg Law Offices. Mr. Ginsburg received his undergraduate degree from Western Michigan University and his law degree from Western State University.
Assadour (Ace) Sarafian, Director. Mr. Sarafian was appointed as a Director in connection with the consummation of the Acquisition. Since 1990, Mr. Sarafian has owned and operated Media Imports, Inc., a wholesale jewelry company.
Miguel Pulido, Director. Mr. Pulido was appointed as a Director in connection with the consummation of the Acquisition. Mr. Pulido currently serves as the Mayor of Santa Ana, a position he has occupied since 1994. Prior to his election as Mayor of Santa Ana, Mr. Pulido served on the Santa Ana City Council from 1986 to 1984. Mr. Pulido also currently serves on the Governing Board of the South Coast Air Quality Management District (AQMD), which is responsible for air pollution control and clean air standards to protect public health. Mr. Pulido also serves as the Chair of the Energy Committee within the U.S. Conference of Mayors, a national organization dedicated to advocating public policy initiatives and funding programs to benefit cities. He is also a board member of the Fullerton Community Bank, Great Park Corporation, Pacific Symphony, Discovery Science Center, the UCI Foundation, and the Bowers Museum President’s Advisory Council.
Director Independence and Qualifications
Our Board of Directors has determined that Messrs. Ginsburg, Sarafian and Pulido are “independent” as defined under the standards set forth in Section 121A of the American Stock Exchange Company Guide. In making this determination, the Board of Directors considered all transactions set forth under “Certain Relationships and Related Transactions” below.
We considered Mr. Gemayel’s prior experience in the automotive industry, including his positions with G & K Automotive, Inc., a California corporation that modifies and certifies foreign motor vehicles and CEE, LLC, a California limited liability company and full service vehicle and engine testing facility in concluding that he was qualified to serve as one of our directors. Regarding Ms. Bardakjian, we considered her experience in financial and accounting experience as important factors in concluding that she was qualified to serve as one of our directors. Regarding Mr. Ginsburg, we considered his legal experience as an important factor in concluding that he was qualified to serve on our board of directors. Regarding Mr. Sarafian, we considered his experience in owning and operating a successful business for over 30 years as important factors in concluding that he was qualified to serve on our board of directors. Regarding Mr. Pulido, we considered his experience on the Energy Committee as well as the contacts and experience as Mayor of Santa Ana as important factors in concluding that he was qualified to serve as one of our directors.
Significant Employees
There are no individuals other than our directors and officers who make a significant contribution to our business.
Family Relationships
There are no family relationships among our officers or directors.
Legal Proceedings
None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:
·any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
·any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
·being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
·being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Section 16(a) Beneficial Ownership Compliance Reporting
Section 16(a) of the Securities Exchange Act of 1934 requires a company’s directors and officers, and persons who own more than ten-percent (10%) of our common stock, to file with the Securities and Exchange Commission reports of ownership on Form 3 and reports of change in ownership on Forms 4 and 5. Such officers, directors and ten-percent stockholders are also required to furnish the company with copies of all Section 16(a) reports they file. Based solely on our review of the copies of such forms received by us and on written representations from certain reporting persons, we believe that all Section 16(a) reports applicable to our officers, directors and ten-percent stockholders with respect to the fiscal year ended December 31, 2015 were filed.
Code of Ethics
We have not yet adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions because we have not yet finalized the content of such a code. Companies whose equity securities are listed for trading on the OTCQB are not currently required to implement a code of ethics.
Director Nominees
As of December 31, 2015 there have been no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.
Audit Committee
The functions of the Audit Committee are currently carried out by our Board of Directors. Our Board of Directors has determined that we do not presently need an audit committee financial expert on our Board of Directors carrying out the duties of the Audit Committee. Our Board of Directors has determined that the cost of hiring a financial expert to act as one of our directors and to be a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on the Audit Committee.
Item 11.
Item 11. Executive Compensation.
The following Summary Compensation Table sets forth the total annual compensation paid or accrued by us to or for the account of the Principal Executive Officer (“PEO”) and our Principal Financial Officer (“PFO”). None of our other executive officers received compensation in excess of $100,000 during the fiscal year ended December 31, 2015.
Summary Compensation
Our executive officers and directors did not receive any other compensation as directors or officers or any benefits.
Outstanding Equity Awards at Fiscal Year End
As of December 31, 2015, we did not have any unexercised stock options held by any of our shareholders.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information known to us with respect to the beneficial ownership (as defined in Instruction 4 to Item 403 of Regulation S-K under the Securities Exchange Act of 1934) of our common stock as of April 14, 2015 by (i) each person who is known by us to be the beneficial owner of more than 5% of any class of our voting securities, (ii) each of our directors and named executive officers, and (iii) all of our executive officers and directors as a group. Except as otherwise listed below, the address of each person is 2530 S. Birch Street, Santa Ana, CA 92707.
(1)Calculated based on issued and outstanding shares of 88,882,718 as April 8, 2016
Pension, Retirement or Similar Benefit Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits to our directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the Board of Directors or a committee thereof.
Compensation Committee
We currently do not have a compensation committee of the Board of Directors or a committee performing a similar function. It is the view of the Board that it is appropriate for us not to have such a committee because of our size and because the Board as a whole determines executive compensation. Each of our directors is also is a senior officer of the company.
Compensation Committee Report
Our Board of Directors as a whole has revised and discussed the compensation discussion and analysis disclosed in this Form 10-K and based on this review and discussion, has determined that the disclosure be included in this annual report.
Compensation of Directors
We do not pay our directors any fees for attendance at Board meetings or similar remuneration or reimburse them for any out-of-pocket expenses incurred by them in connection with our business.
Change of Control
As of December 31, 2015 we had no pension plans or compensatory plans or other arrangements which provide compensation in the event of a termination of employment or a change in our control.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Director Independence
The OTCQB on which our common shares are listed on does not have any director independence requirements. We also do not have a definition of independence as our directors also hold positions executive officer positions with us. Once we engage further directors and officers, we plan to develop a definition of independence and scrutinize our Board of Directors with regards to this definition.
Item 14.
Item 14. Principal Accounting Fees and Services
Audit, Audit-Related and Non-Audit Fees
The following table represents fees for the professional audit services and fees billed for other services rendered by our current auditors, MaloneBailey, LLP for the audit of our annual financial statements for the years ended December 31, 2015 and December 31, 2014 and any other fees billed for other services rendered during that period.
Audit Committee Approval
Since our inception, our Board of Directors, performing the duties of the audit committee, has reviewed all audit and non-audit related fees at least annually. The Board, acting as the audit committee, pre-approved all audit related services for the year ended December 31, 2015
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
The financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or related notes thereto.
Exhibits
(1) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on December 10, 2014 (File No. 000-53047) and incorporated herein by reference.
(2) Filed as an exhibit to our Registration Statement on Form SB-2 filed with the SEC on May 11, 2007 (File No. 333-142836) and incorporated herein by reference.
(3) Filed as an exhibit to our Quarterly Report on Form 10-Q filed with the SEC on December 16, 2014 (File No. 000-53047) and incorporated herein by reference.
(4) Filed as an exhibit to our Amendment No. 1 to Current Report on Form 8-K filed with the SEC on January 29, 2015 and incorporated herein by reference.
(5) Filed as an exhibit to our Current Report on Form 8-K filed with the SEC on February 12, 2015 and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.
Pursuant to the requirements of the Exchange Act this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ George Gemayel
George Gemayel
President, Chief Executive Officer and Director
(Principal Executive Officer)
May 23, 2016
/s/ Sosi Bardakjian
Sosi Bardakjian
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)
May 23, 2016
/s/ Evan Ginsburg Director May 23, 2016
Evan Ginsburg
/s/ Assadour Sarafian Director May 23, 2016
Assadour Sarafian
/s/ Miguel A. Pulido Director May 23, 2016
Miguel A. Pulido