The Quarterly
GKIT 2013 10-K

Greenkraft Inc (GKIT) SEC Annual Report (10-K) for 2014

GKIT Q3 2015 10-Q
GKIT 2013 10-K GKIT Q3 2015 10-Q


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☑ ANNUAL REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________.

Commission file number 000-30291

GREENKRAFT, INC.

(Exact name of registrant as specified in its charter)

Nevada

20-8767728

(State or Other Jurisdiction of Incorporation of Organization)

(I.R.S. Employer Identification No.)

2530 S. Birch Street

Santa Ana, California 92707

(Address of principal executive offices)

(714) 545-7777

(Registrant's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days  Yes    No o


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


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant ' s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of " large accelerated filer and " accelerated filer" and " smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):


Large accelerated filer o          Accelerated filer o          Non-accelerated filer o Smaller reporting company


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


As of June 30, 2014, which was the last business day of the registrant's most recent second fiscal quarter, the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was $9,573,436 based on our closing price of $2.00 per shares.  For the purposes of the foregoing calculation only, all directors, executive officers, related parties and holders of more than 10% of the issued and outstanding common stock of the registrant have been deemed affiliates.


As of April 23, 2015 the registrant's outstanding stock consisted of 88,882,718 common shares.


GREENKRAFT, INC.

TABLE OF CONTENTS


PART I


Item 1

Description of Business

Item 1A

Risk Factors

Item 1B

Unresolved Staff Comments

Item 2

Properties

Item 3

Legal Proceedings

Item 4

Mine Safety Disclosures

PART II


Item 5

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 7

Management's Discussion and Analysis of Financial Condition and Results of Operation

Item 8

Financial Statements and Supplementary Data

Item 9

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A

Controls and Procedures

Item 9B

Other Information

PART III


Item 10

Directors, Executive Officers and Corporate Governance

Item 11

Executive Compensation

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13

Certain Relationships and Related Transactions and Director Independence

Item 14

             Principal Accountant Fees and Services

PART I V


Item 15

Exhibits, Financial Statement Schedules



 2               


PART I


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 2013.  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.


3               

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, 2013 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, 2013 and made retroactive to January 1, 2012.  There were other incentives available for fueling infrastructure with different agencies as well during 2014 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 2013 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 2013 and 2014 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


We have sold its alternative fuel trucks to Ryder System, Fox Transportation, Otto Environmental Systems, and City of Santa Monica.


Ryder System, Inc.-submitted purchase orders for 20 CNG trucks from Greenkraft.  Greenkraft completed  delivery of these trucks in the fourth quarter of 2014.

Fox Transportation-submitted purchase orders for 30 CNG trucks and 40 propane trucks.  Greenkraft delivered the remaining 13 from the 30 trucks in first quarter of 2014.

Otto Environmental Systems – submitted a purchase order for 4 CNG trucks to be used in waste management industry.  Greenkraft delivered these trucks in third quarter 2014 upon receipt of payment from Otto.  

City of Santa Monica – submitted a purchase order for 3 CNG trucks to be used in their fleet.  Greenkraft delivered third quarter 2014.

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) Don Kahan Motor, Inc. for sales of CNG vehicles in Missouri and Kansas and parts of Illinois and (ii) A.R. Natural Gas Fueling Systems for sales of our CNG vehicles in Pennsylvania.  Each of these dealers has placed an order for 25 of our CNG trucks.  We expect to deliver trucks to these dealers in 2015.  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 converted 20 Isuzu trucks to CNG operation for Fox Transportation in 2013.  In addition, we have converted vehicles for other dealers including, without limitation, Tom's Truck Center, Borhner Trucks, Rush Trucks and Rentals, and Thorson Motors.  Prior to 2014, all vehicle conversions were completed with employees provided by CEE, LLC, an entity controlled by our president, George Gemayel.  In 2014, we hired our own employees for vehicle conversions. 

4             

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, 2014.  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) Don Kahan Motors, Inc. for sales of CNG vehicles in Missouri and Kansas parts of Illinois 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 in these geographic areas and believes it 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, 2014, we had 2 employees, including our executive officers George Gemayel and Sosi Bardakjian.  As of December 31, 2014, we have 18 employees, including our executive officers George Gemayel and Sosi Bardakjian.  Greenkraft has hired 16 employees in 2014.

5               

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 both 2012, 2013, and 2014.  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 2014 and 6.0 liter and 6.8 liter CNG engines in 2013 and 2014. In 2014, Greenkraft also applied for and obtained 6.0 liter and 6.8 liter GM and Ford Fuel delivery system certifications with EPA and CARB for 2015.

6               

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.  Risk Factors


Not required.


Item 1B.  Unresolved Staff Comments


None.


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 $17,500 per month with First Warner Properties, LLC, an entity controlled by our President George Gemayel.  Our lease ends on April 1, 2018.  We do not own any property.


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.