XTREME GREEN ELECTRIC VEHICLES INC. - FORM 10-Q

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EX-31 - XTREME GREEN ELECTRIC VEHICLES INC.	v222261_ex31.htm
EX-32 - XTREME GREEN ELECTRIC VEHICLES INC.	v222261_ex32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011

¨	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 000-52502

XTREME GREEN PRODUCTS INC.

(Exact name of registrant as specified in its charter)

Nevada		26-2373311
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification Number)

2191 Mendenhall Dr. Suite 101, North Las Vegas, NV		89081
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code:		(702) 233-4804

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 x No ¨

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

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of shares outstanding of issuer's common stock, $0.001 par value as of May 6, 2011: 46,466,370

INDEX

		Page
PART I - Financial Information		3

Item 1: Financial Statements		3

Condensed Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010		3

Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2011 and 2010 (Unaudited)		4

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (Unaudited)		5

Notes to Condensed Consolidated Financial Statements (Unaudited)		6

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations		9

Item 4T: Controls and Procedures		12

PART II - Other Information		13

Item 1: Legal Proceedings		13

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds		13

Item 5: Other Information		13

Item 6: Exhibits		13

Signatures		14

XTREME GREEN PRODUCTS INC.

Consolidated Condensed Balance Sheets

March 31, 2011 and December 31, 2010

	2011			2010
	(Unaudited)
ASSETS
Current assets:
Cash	$	42,868		$	343,068
Accounts receivable		213,653			49,054
Inventory		989,945			623,054
Other current assets		276,161			64,407
Total current assets		1,522,627			1,079,583
Property and equipment		180,033			179,576

Other assets		68,738			36,186
TOTAL ASSETS	$	1,771,398		$	1,295,345

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	319,087		$	172,948
Accrued expenses - related parties		200,001			190,769
Line of credit		50,000			150,000
Convertible debt - related party		1,000,000			1,000,000
Customer deposits		231,400			-
Current portion of long-term debt		11,871			11,200
Stockholder loans		109,935			119,480
Total current liabilities		1,922,294			1,644,397

Long-term debt, net of current portion		13,769			17,267
Commitments and contingencies

Stockholders' deficit:
Common stock, $0.0001 par value, 100,000,000 shares authorized; 46,436,370 and 44,966,370 shares issued and outstanding		4,644			4,496
Additional paid-in capital		4,792,665			4,172,234
Accumulated deficit		(4,961,974	)		(4,543,049	)
Total stockholders' deficit		(164,665	)		(366,319	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	1,771,398		$	1,295,345

See the accompanying notes to the financial statements.

XTREME GREEN PRODUCTS INC.

Consolidated Condensed Statements of Operations

For the Three Months Ended March 31, 2011 and 2010

(Unaudited)

	2011			2010
Sales	$	506,342		$	33,600

Cost of sales		373,303			51,013
Gross margin		133,039			(17,413	)
Costs and expenses:
General and administrative		477,926			385,036
Research and development		37,545			-
Interest expense		36,492			7,411
Total costs and expenses		551,963			392,447
Net loss	$	(418,924	)	$	(409,860	)
Per share information - basic and diluted:
Loss per common share	$	(0.01	)	$	(0.01	)

Weighted average common shares outstanding		45,610,370			41,996,003

See the accompanying notes to the financial statements.

XTREME GREEN PRODUCTS INC.

Consolidated Condensed Statements of Cash Flows

For the Three Months Ended March 31, 2011 and 2010

(Unaudited)

	2011			2010
Cash flows from operating activities:
Net cash used in operating activities	$	(774,013	)	$	(737,737	)
Cash flows from investing activities:
Purchase of property and equipment		(10,468	)		(56,145	)
Net cash used in investing activities		(10,468	)		(56,145	)
Cash flows from financing activities:
Common stock issued for cash		610,000			1,000,000
Repayment of long term debt		(2,827	)		-
Proceeds from (repayment of) line of credit		(100,000	)		(150,000	)
Stockholders loans, net		(9,544	)		(14,430	)
Net cash provided by financing activities		497,629			835,570
Net increase in cash		(286,852	)		41,688
Cash - beginning of period		329,720			73,700
Cash - end of period	$	42,868		$	115,388

Supplemental Cash Flow Information:
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

Non Cash Investing and Financing Activities:
Conversion of related party note to common stock	$	-		$	250,000

See the accompanying notes to the financial statements.

XTREME PRODUCTS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2011

(UNAUDITED)

((1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and Rule 8.03 of Regulation SX. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.

The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements of the Company as of and for the year ended December 31, 2010, on Form 10-K, including notes thereto.

(2) Earnings Per Share

The Company calculates net income (loss) per share as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods when anti-dilutive common stock equivalents are not considered in the computation.

(3) Inventory

Inventory consisted of finished goods and parts.

(4) Basis of Reporting

The Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company has experienced a loss from operations as a result of its investment necessary to achieve its operating plan, which is long-range in nature. The Company incurred net losses through March 31, 2011, aggregating $4,961,974 and has working capital and stockholder deficits of $399,667and $164,655 at March 31, 2011.

The Company’s ability to continue as a going concern is contingent upon its ability to secure additional financing, increase ownership equity and develop profitable operations. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which the Company operates.

The Company is pursuing financing for its operations and seeking additional private investments. In addition, the Company is seeking to expand its revenue base. Failure to secure such financing or to raise additional equity capital and to expand its revenue base may result in the Company depleting its available funds and not being able pay its obligations.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

5) Notes payable – Related Parties

During prior years the Company borrowed funds from three of its founding stockholders. These loans were utilized for general working capital purposes and to fund in part, the cash portion of the purchase of Belarus. At December 31, 2010. A balance of $119,480 was outstanding. During the period ended March 31, 2011, $9,544 was repaid leaving a balance of $109,935 at March 31, 2011. The loans are due on demand and bear interest at 4%.

On June 22, 2010, a family trust of which a director is a trustee agreed to lend to the Company an aggregate of $1,000,000 at an annual interest rate of 12% in three tranches. The first tranche of $250,000 was advanced on July 9, 2010. The second tranche in the amount of $500,000 was funded on August 9, 2010. The balance was funded on September 9, 2010. The loans are scheduled to be repaid on September 8, 2011. At any time prior to that date, at the option of the lender the loan is convertible into common stock at $0.40 per share. Upon conversion, the lender will also receive warrants to purchase 7,500,000 shares of common stock, as follows: a three year warrant to purchase 2,500,000 shares of common stock at $0.40 per share; a four year warrant to purchase 2,500,000 shares at $0.65 per share; and a five year warrant to purchase 2,500,000 shares of common stock at $0.75 per share.

(6) Line of Credit

During December 2009 the Company secured a line of credit with a financial institution for $150,000 bearing interest at 6% per annum maturing during December 2011. The line is secured by certain assets of a related party. The balance of the line at March 31, 2011 was $50,000 and the unused portion of the line at March 31, 2011, was $100,000.

(7) Stockholders’ (Deficit)

During the period ended March 31, 2011, the Company issued 1,470,000 shares of common stock for cash aggregating $610,000.

(8) Stock Options

During September 2009, the Company granted options to employees and consultants to purchase 505,000 shares of common stock, at a price of $0.50 per share, which was the fair value of the underlying common shares at the grant date based on sales of common shares for cash. The options expire in September 2014 and vest over the stated term.

During September 2009, the company granted options to Directors to purchase 300,000 shares of common stock, at a price of $0.50 per share, which was the fair value of the underlying common shares at the grant date based on sales of common shares for cash. The options expire in September 2019. These options vest in equal annual amounts on the first three anniversary dates of the grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model, using the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s stock, and other factors. Because the shares of the Company are not traded, volatility was estimated at 40 - 60%. The risk-free rates used to value the options are based on the U.S. Treasury yield curve in effect at the time of grant.

The cost recognized for the period ended March 31, 2011, was $10,578, which was recorded as general and administrative expenses.

In valuing the options issued, the following assumptions were used:

Expected volatility	40 - 60%
Expected dividends	0%
Expected term (in years)	5.0 – 10.0
Risk-free rate	2.33 – 3.38%

During the period ended March 31, 2011, the Company granted options to employees to purchase 175,000 shares of common stock, at a price of $0.50 per share, which was the fair value of the underlying common shares at the grant date based on sales of common shares for cash. The options expire in 2015 and vest over the stated term.

The fair value of the options was $40,013 and will be amortized over the term of the options starting on April 1, 2011.

In valuing the options issued, the following assumptions were used:

Expected volatility	40 - 60%
Expected dividends	0%
Expected term (in years)	4.0
Risk-free rate	2.33%

A summary of option activity under the Plan during the period ended March 31, 2011, is presented below

Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Intrinsic Value
Outstanding at December 31, 2010		805,000	$	0.50		4.6	$	0.00
Granted		175,000	$	0.50		4.0	$	0.00
Outstanding at March 31, 2010		980,000	$	0.50		4.5	$	0.00

The following table summarizes information about fixed price stock options at March 31, 2011:

Exercise Price				Number Outstanding				Weighted Average Contractual Life				Weighted Average Exercise Price				Number Exercisable				Exercise Price
$	0.50				980,000				4.5			$	0.50				251,250			$	0.50

(9) Concentrations

During the period ended March 31, 2011, the Company derived approximately 67% of its revenue from a single customer and as of March 31, 2011, 63% of accounts receivable were due from this customer.

(10) Recent Accounting Pronouncements

The Company does not believe that any recently issued accounting pronouncements will have a material affect on the financial statements.

(11) Subsequent Events

Subsequent to March 31, 2011 and through May 8, 2011, we sold an additional 30,000 shares of common stock pursuant to private placements at a price of $0.50 per share and received cash proceeds of $15,000.

Subsequent to March 31, 2011, the Company organized a new subsidiary to act as contract carrier for the purpose of transporting the Company’s units to customers throughout the US.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The information herein contains forward-looking statements. All statements other than statements of historical fact made herein are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Results of Operations

Comparison of three months ended March 31, 2011 to the three months ended March 31, 2010

Sales for the three months ended March 31, 2011 were $506,342 compared to $33,600 for the three months ended March 31, 2010. The increase in sales results from our increased marketing efforts and a stronger demand for our vehicles in the market place.

Cost of sales for the three months ended March 31, 2011 was $373,303 which resulted in a gross profit of $133,039 compared to cost of sales of $51,013 and a gross loss of $17,413 for the comparable prior year period. The increase in the gross margin results from our higher sales volume coupled with improved productivity.

General and administrative expenses were $477,926 for the three months ended March 31, 2011 compared to $385,036 for the three months ended March 31, 2010. Our general and administrative expenses consist primarily of (i) salaries and wages, (ii) product design and other related product development costs, (iii) professional fees such as legal and accounting fees, and (iv) general expenses such as rent and insurance. The overall increase in general and administrative expenses is primarily attributable to an increase in the number of full-time employees. We had 25 full-time employees during the three months ended March 31, 2011 compared to12 full-time employees during the comparable period in 2010.

Interest expense for three months ended March 31, 2011 was $36,492 compared to interest of $7,411 for the comparable prior year period. Interest expense consists primarily of amounts due under a note payable to one of our directors and interest incurred under various short term lines of credit.

Our net loss for the three months ended March 31, 2011 was $418,924 or $0.01 per share compared to a net loss of $409,860 or $0.01 per share for the comparable prior year period.

Liquidity and Capital Resources

Since our inception on May 21, 2007, we have financed the costs associated with our operational and investing activities through (i) the sale of shares of our common stock pursuant to private placements, and (ii) loans from certain of our stockholders. From inception through March 31, 2011, we have incurred a cumulative net loss of $4,961,974. The notes to our financial statements include language that raises doubt about our ability to continue as a going concern. At March 31, 2011, we had cash of $42,868, net working capital deficit of $399,667 and we owed our stockholders an aggregate of $1,309,936. All of these stockholders are officers and/or directors of our Company. Of the total due to stockholders, $109,935 was due in full on December 31, 2009 and has not been paid. A $1,000,000 convertible loan is due September 8, 2011, or can be converted into common stock at any time prior to the due date.

During the three months ended March 31, 2011, we sold 220,000 shares of restricted common stock at a price of $0.50 per share and 1,250,000 shares of restricted common stock at a price of $0.40 per share and received cash proceeds of $610,000.

On June 22, 2010, a family trust of which one of our directors is a trustee (“the lender”) agreed to lend us an aggregate of $1,000,000 at an annual interest rate of 12% in three tranches. The first tranche of $250,000 was advanced on July 9, 2010. The second tranche in the amount of $500,000 was funded on August 9, 2010. The balance was funded on September 9, 2010. The loans are scheduled to be repaid on September 8, 2011. At any time prior to that date, at the option of the lender the loan is convertible into common stock at $0.40 per share. Upon conversion, the lender will also receive warrants to purchase 7,500,000 shares of common stock, as follows: a three year warrant to purchase 2,500,000 shares of common stock at $0.40 per share; a four year warrant to purchase 2,500,000 shares at $0.65 per share; and a five year warrant to purchase 2,500,000 shares of common stock at $0.75 per share.

We commenced selling our products during the quarter ended September 30, 2009, however, we are not profitable. The resulting lack of available cash from our operations may have an adverse impact on our liquidity, activities and operations. Until we successfully develop, manufacture, market and sell our products, we will not generate significant revenues and we may not be successful. There can be no assurances that we will achieve sufficient revenues during the next twelve months or at all. If we cannot generate sufficient revenues to continue operations, we may be forced to suspend or cease operations.

To the extent that it becomes necessary to raise additional cash in the future, we may seek to raise it though the sale of debt or equity securities or from additional loans from our stockholders. There can be no assurances that we will be able to continue to sell shares of our common stock or borrow additional funds from any of our stockholders or third parties in order to fund the costs associated with our future operating and investing activities.

If we are successful at raising additional equity capital, it may be on terms which would result in substantial dilution to existing shareholders. If our costs and expenses prove to be greater than we currently anticipate, or if we change our current business plan in a manner that will increase our costs, we may be forced to suspend or cease operations.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. Actual results may differ from these estimates.

We have identified the following critical accounting policies, described below, that are the most important to the portrayal of our current financial condition and results of operations.

Stock-Based Compensation

We account for stock based compensation in accordance with ASC 718 Stock Compensation. This Statement requires that the cost resulting from all share-based transactions be recorded in the financial statements. The Statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. The Statement also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment transactions.

Revenue Recognition

In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for our various revenues streams:

Revenue is recognized at the time the product is delivered or the service is performed. Provision for sales returns is estimated based on our historical return experience.

Deferred revenue is recorded for amounts received in advance of the time at which services are performed and included in revenue at the completion of the related services.

Going Concern

Our condensed consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

We have experienced a significant loss from operations as a result of its investment necessary to achieve its operating plan, which is long-term in nature. From inception to March 31, 2011, we have incurred a cumulative net loss totaling $4,961,974 and has working capital and stockholder deficits of $399,667and $164,655 at March 31, 2011. Our ability to continue as a going concern is contingent upon our ability to attain profitable operations and secure financing. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which we operate.

We are pursuing financing for our operations and we are seeking additional private investments. In addition, we are seeking to grow our revenue base. Failure to secure such financing, raise additional equity capital and establish our revenue base may result in the depletion of available funds and as a result, we may not be able pay our obligations.

Our financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the inability to continue as a going concern.

Recent Accounting Pronouncements

The Company does not believe that any recent accounting pronouncements will have a material affect on its financial statements.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Item 4T. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2011. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.

The Company continues to improve procedures with regard to its disclosure controls and procedures.

(b) Changes in Internal Controls.

There was no change in our internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting during the quarter covered by this Report.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as described below, we are currently not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2011, we sold 220,000 shares of restricted common stock at a price per share of $0.50 per share and 1,250,000 shares of restricted common stock at a price of $0.40 per share receiving total proceeds $610,000. These proceeds were used for general working capital purposes.

Item 5. Other Information

None.

Item 6. Exhibits

31	Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a)

32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Xtreme Green Products Inc. (Registrant)

Date: May 12 , 2011		/s/ Sanford Leavitt
		Sanford Leavitt
		Chief Executive Officer (Principal Executive Officer)

Date: May 12 2011		/s/ Neil Roth
		Neil Roth
		Chief Financial Officer (Principal Financial and Accounting Officer)

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