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EX-32 - EXHIBIT 32 - XTREME GREEN PRODUCTS INC.exhibit32.htm
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EX-31 - EXHIBIT 31 - XTREME GREEN PRODUCTS INC.exhibit31.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, 2013


OR


¨

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


For the transition period from ______________ to ______________


Commission File Number 000-52502


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) 870-0700


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 issuers common stock, $0.0001 par value as of January 23, 2014:  48,463,370



1




INDEX


 

 

Page

PART I - Financial Information

 

3

 

 

 

Item 1: Financial Statements

 

3

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012

 

3

 

 

 

Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2013 and 2012 (Unaudited)

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012 (Unaudited)

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

 

 

 

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

 

11

 

 

 

Item 4:   Controls and Procedures

 

15

 

 

 

PART II - Other Information

 

15

 

 

 

Item 1: Legal Proceedings

 

15

 

 

 

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

 

15

 

 

 

Item 5: Other Information

 

15

 

 

 

Item 6: Exhibits

 

15

 

 

 

Signatures

 

16

 
















2



PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

XTREME GREEN PRODUCTS INC.

Condensed Consolidated Balance Sheets

March 31, 2013 and December 31, 2012

(Unaudited)

 

2013

 

2012

ASSETS

 

 

 

 Current assets:

 

 

 

  Cash

$

 

$

  Related party receivable

13,500 

 

13,500 

  Inventory

196,838 

 

201,743 

  Other current assets

37,072 

 

45,820 

Total current assets

247,410 

 

261,063 

 

 

 

 

Property and equipment, net

154,279 

 

169,261 

 

 

 

 

Other assets

36,186 

 

36,186 

TOTAL ASSETS

$

437,875 

 

$

466,510 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 Current liabilities:

 

 

 

  Accounts payable and accrued expenses

967,651 

 

834,829 

  Accrued expenses - related parties

630,764 

 

702,553 

  Accrued interest - related parties

247,217 

 

177,655 

  Customer deposits

294,685 

 

312,684 

  Convertible debt - related party, net of discount

1,863,500 

 

1,839,000 

  Convertible debt - other, net of discount

68,530 

 

65,757 

  Current portion of long-term debt

311,225 

 

289,538 

  Stockholder loans

357,330 

 

347,333 

Total current liabilities

4,740,902 

 

4,569,349 

 

 

 

 

Extended warranty reserve

2,500 

 

Long-term debt, net of current portion

6,225 

 

38,545 

Total liabilities

4,749,627 

 

4,607,894 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 Common stock, $0.0001 par value, 100,000,000 shares authorized; 48,463,370 and 48,463,370 shares issued and outstanding

4,846 

 

4,846 

 Additional paid-in capital

5,825,472 

 

5,809,996 

 Accumulated deficit

(10,142,070)

 

(9,956,226)

 

 

 

 

Total stockholders' deficit

(4,311,752)

 

(4,141,384)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$

437,875 

 

$

466,510 


See the accompanying notes to the consolidated financial statements.



3



XTREME GREEN PRODUCTS INC.

Condensed Consolidated Statements of Operations

For the Three Months Ended March 31, 2013 and 2012

(Unaudited)

 

2013

 

2012

Sales, net

$

31,709 

 

$

224,185 

Sale- affiliate, net

 

41,350 

Total revenue

31,709 

 

265,535 

 

 

 

 

Cost of sales (exclusive of depreciation expense)

5,167 

 

241,853 

Gross margin

26,542 

 

23,682 

 

 

 

 

Costs and expenses:

 

 

 

    General and administrative

138,703 

 

515,861 

    Research and development

 

3,000 

    Interest expense

73,683 

 

140,074 

 

 

 

 

Total costs and expenses

212,386 

 

658,935 

Net loss before provision for income taxes

(185,844)

 

(635,253)

 

 

 

 

Provision for income taxes

 

Net loss

$

(185,844)

 

$

(635,253)

 

 

 

 

Per share information- basic and diluted:

 

 

 

    Loss per common share

$

(0.00)

 

$

(0.01)

Weighted average common shares outstanding

48,463,370 

 

47,330,053 


See the accompanying notes to the consolidated financial statements.




4



XTREME GREEN PRODUCTS INC.

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2013 and 2012

(Unaudited)


 

2013

 

2012

Cash flows from operating activities:

 

 

 

 Net loss

$

(185,844)

 

$

(635,253)

  Adjustments to reconcile net loss to net

 

 

 

  cash used in operating activities:

 

 

 

    Stock-based compensation

15,476 

 

16,342 

    Depreciation

14,982 

 

15,790 

    Accretion of discount on convertible debts

2,773 

 

96,064 

Changes in operating assets and liabilities:

 

 

 

  (Increase) decrease in accounts receivable

 

(7,723)

  (Increase) decrease in inventory

4,905 

 

(1,445)

  (Increase) decrease in other current assets

8,748 

 

(169,332)

   Increase in accounts payable and accrued expenses

131,489 

 

249,681 

   Increase (decrease) in accrued expenses - related party

(894)

 

73,959 

   Increase (decrease) in customer deposits

(17,999)

 

30,619 

Increase in extended warranty reserve

2,500 

 

 

 

 

 

Net cash used in operating activities

(23,864)

 

(331,298)

 

 

 

 

Cash flows from financing activities:

 

 

 

  Proceeds from long-term debt

24,500 

 

50,000 

  Repayment of long-term debt

(10,633)

 

(5,018)

  Stockholders loans, net

9,997 

 

240,129 

 

 

 

 

Net cash provided by financing activities

23,864 

 

285,111 

 

 

 

 

Net decrease in cash

 

(46,187) 

Cash - beginning of period

 

46,390 

Cash - end of period

$

 

$

203 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

Cash paid for interest

$

 

$

40,499 

Cash paid for income taxes

$

 

$

 

 

 

 

See the accompanying notes to the consolidated financial statements.




5




XTREME GREEN PRODUCTS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2013

(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, 2012, 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 are calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding.


(3)

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, 2013, aggregating $10,142,070 and has working capital and stockholder deficits of $4,493,492 and $4,311,752 at March 31, 2013.


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 actively pursuing financing for its operations and seeking additional private investments. In addition, the Company is seeking to expand its revenue base and product distribution. 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.


(4)

Inventory


Inventory consisted of finished units used as marketing demos and  parts.



6




(5)      Other Current Assets


Other current assets consisted of $35,000 in prepaid expenses and $2,072 for deposits on purchases.


(6)        Stock Holder Loans


At March 31, 2013, a balance of $357,330 was outstanding from loans made from three shareholders for working capital purposes. The loans are due on demand and bear interest ranging from 4% and 12%.


On June 22, 2010, a family trust of which one of our shareholders 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 loan was initially scheduled to be repaid on September 8, 2011 but since has been extended to September 8, 2012.  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.


On December 8, 2011, a family trust of which one of our shareholders is a trustee (“the lender”) agreed to lend us $250,000 at an annual interest rate of 12%. The loan is scheduled to be repaid on September 8, 2012. The Company also issued 250,000 shares of common stock to the Lender. At any time prior to that date September 8, 2012 at the option of the lender the loan is convertible into common stock at $0.40 per share. Additionally, the lender has received warrants to purchase 625,000 shares, exercisable until December 31, 2014, warrants to purchase 625,000 shares at $0.65 per share exercisable until December 31, 2015, and warrants for 625,000 shares at $0.75 per share exercisable until December 31, 2016.


On February 13, 2012 the Company entered into an agreement with a Director to borrow $250,000. The loan accrues interest 12% per annum and is payable August 13, 2012, which has been extended to December 13, 2012. At the lender’s option, if payment is not made by the maturity date the loan may be converted into shares of common stock at a price of $0.20 per share.


On May 2, 2012 a family trust of which a shareholder is a trustee agreed to lend the Company $250,000 at an interest rate of 12% per annum, which loan is scheduled to be repaid on September 8, 2012, which has been extended to December 8, 2012 together with outstanding loans in the principal amount of $1,250,000 previously advanced by the trust. Interest over the entire amount is payable in $15,000 monthly increments. At any time, at the option of the lender, the entire loan is convertible into shares of common stock of the Company at $0.40 per share. In the connection with the loan, the company has agreed to issue to the trust (i) 250,000 shares of common stock, and (ii) warrants to purchase 625,000 shares of common stock at $0.40 per share, exercisable until May 31, 2015, warrants to purchase 625,000 shares of common stock at $0.65 per share exercisable until May 31, 2016, and warrants to purchase 625,000 shares of common stock at $0.75 per share exercisable until May 31, 2017. In connection with this transaction the lender was also granted the right to set up distributorships in the state of Arizona. As a result of the issuance of 250,000 shares and warrants, the Company allocated the fair market value (“FMV”) to the shares, and warrants, and the debt. In addition, the Company determined that the note included a beneficial conversion feature. Accordingly, the Company recorded a discount of $341,772 which was accreted to interest expense for the 12 months ended December 31, 2012.


During the nine month period ended March 31, 2013, a family trust, of which a shareholder is a trustee agreed to loan the Company a total of $363,500. The proceeds were disbursed in twelve installments over the nine month period. Interest accrues at a rate of 12% per annum. The loan and accrued interest are due upon demand. Accrued interest as of March 31, 2013 is $23,873.



7




Convertible Debentures


During the fourth quarter 2011, the Company borrowed $75,000 through the issuance of  24 month convertible debentures. The Debentures bear interest at 12% per annum which is payable in arrears on the first anniversary of the issuance of the Notes and on the Maturity Date.  On the maturity date, unless an event of default shall have occurred, the Company shall pay to Holder the entire principal amount plus accrued and unpaid interest in cash or at the option of the Holder, in whole or in part, in shares of common stock of the Company at $0.70 per share. The Holder, at any time after the date of issuance, may convert all or any part of all amounts due into shares of Company’s Common Stock at the conversion price of $0.70 per share. The Company may prepay the debenture plus accrued interest at any time before maturity.


Secured Bridge Note


On December 29th, 2011 the Company borrowed $100,000 in exchange for a six month secured bridge note, due June 29, 2012. The note bears interest at the rate of 12% per annum, payable on the maturity date. The maturity date shall be (A) the date the Company completes a financing transaction for the offer and sale of shares of Company’s common stock, including securities convertible into or exercisable for common stock, in the aggregate amount of no less than $2.5 million, or (B) June 29th, 2012. In addition to the repayment of the principal amount and all accrued interest, the Company shall issue to the holder, a number of securities equal to the principal amount divided by the purchase price of the securities to be issued in financing obtained with the assistance of the holder. In the event no such financing is obtained, the Company is under no obligation to issue the securities. The obligations and covenants of this note are secured by a first priority lien and security interest in the Company’s assets with the Holder’s interest shared pro rata with the holders of a series of identical notes issued on or around the date hereof.


On February 15, 2012 the Company borrowed $50,000 in exchange for a six month secured bridge note due August 15, 2012. The note bears interest at the rate of 12% per annum, payable on the maturity date. In addition to the repayment of the principal amount and all accrued interest, the borrower shall issue to the borrower two vehicles: one transport pro two-seat with enclosed cab, and one transport pro four-seat. The obligations and covenants of this note are secured by a first priority lien and security interest in the Company’s assets with the Holder’s interest shared pro rata with the holders of a series of identical notes issued on or around the date hereof.


We are currently investigating various opportunities to raising additional capital through the sale of debt equity securities and from 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 to finance the costs associated with our future operating and investing activities.


(7)

Line of Credit


On April 21, 2012 the Company’s line of credit with a financial institution for $150,000 was converted to a term loan bearing interest at 6% per annum, maturing April 21, 2016. The line is secured by certain assets of a related party. The balance of the loan at March 31, 2013 was $124,703.


(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.



8




During the year 2011, the Company granted options to an employee to purchase 25,000 shares of common stock and options to purchase 300,000 shares were granted to the Company’s Chief Financial Officer at an exercise price of $0.50 per share. These options vest 25% after the first 6 months and then 25% per year beginning 18 months from the grant date and expire 5 years from the grant date.


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 total fair value of the options is $292,262 and the cost recognized for the three month period ended March 31, 2013 and 2012 was $16,342 and $10,578, respectively, 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%


A summary of option activity under the Plan during the period ended March 31, 2013, is presented below


 

 

 

 

 

Options




Shares

Weighted-Average

Exercise

Price

Weighted-Average

Remaining Contractual

Term

Intrinsic

Value

 

 

 

 

 

Outstanding at December 31, 2012

1,055,000

$

0.50

5.2

$

0.00

Granted

-

-

-

-

Expired

-

-

-

-

Outstanding at March 31, 2013

1,055,000

$

0.50

4.2

$

0.00

 

 

 

 

 


The following table summarizes information about fixed price stock options at March 31, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise Price

 

 

Number

Outstanding

 

 

Weighted

Average

Contractual Life

 

 

Weighted

Average

Exercise Price

 

 

Number

Exercisable

 

 

Exercise

Price

 

 

0.50

 

 

 

1,055,000

 

 

 

3.4

 

 

 

0.50

 

 

 

 

 

 

 

0.50

 


(9)          Concentrations


During the period ended March 31, 2013 the Company derived 100% of its revenue from two customers.



9




(10)       Subsequent Events


Chapter 11 Proceedings


On August 22, 2013 (the Petition Date), Xtreme Green Products Inc. (the “Company”) filed a voluntary petition (the “Chapter 11 Case”) for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”). The Chapter 11 Case is being administered under Case No. BK-S-13-17266-MKN.


No assurance can be given as to the value, if any that may be ascribed to the Company’s various prepetition liabilities and other securities. The Company cannot predict what the ultimate value of any of its securities may be.


The Company is currently operating as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and the applicable provisions of the Bankruptcy Code. In general, as debtor in possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.  The Bankruptcy Code enables the Company to continue to operate its business without interruption and the Bankruptcy Court has granted additional relief covering, among other things obligations to (i) employees, (ii) insurance providers, (iv) independent contractors, (v) foreign vendors, and (vi) certain vendors deemed critical to our operations.


The Chapter 11 petition triggered defaults on substantially all our debt obligations, however, under section 362 of the Bankruptcy Code, the commencement of a Chapter 11 case automatically stays most creditor actions against our property.




10



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.


Recent Developments


On August 22, 2013 (the Petition Date), we filed a voluntary petition (the “Chapter 11 Case”) for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”). The Chapter 11 Case is being administered under Case No. BK-S-13-17266-MKN.


No assurance can be given as to the value, if any that may be ascribed to the Company’s various prepetition liabilities and other securities. The Company cannot predict what the ultimate value of any of its securities may be.


The Company is currently operating as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and the applicable provisions of the Bankruptcy Code. In general, as debtor in possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.  The Bankruptcy Code enables the Company to continue to operate its business without interruption and the Bankruptcy Court has granted additional relief covering, among other things obligations to (i) employees, (ii) insurance providers, (iv) independent contractors, (v) foreign vendors, and (vi) certain vendors deemed critical to our operations.


The Chapter 11 petition triggered defaults on substantially all our debt obligations, however, under section 362 of the Bankruptcy Code, the commencement of a Chapter 11 case automatically stays most creditor actions against our property.


Results of Operations


Comparison of three months ended March 31, 2013 to the three months ended March 31, 2012


Sales for the three months ended March 31, 2013 were $31,709 compared to $265,535 for the three months ended March 31, 2012. The reduction in sales results from our lack of cash and the ensuing inability to purchase manufacturing inventory to fill customer orders.


Cost of sales for the three months ended March 31, 2013 was $5,167 which resulted in a gross profit of $26,542 compared to cost of sales of $241,853 and a gross profit of $23,682 for the comparable prior year period. The increase in the gross margin resulted from an inventory adjustment of $11,600.



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General and administrative expenses were $138,703 for the three months ended March 31, 2013 compared to $515,861 for the three months ended March 31, 2012.  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. We had 2 full-time employees who were both executive officers during the three months ended March 31, 2013, compared to 25full-time employees during the comparable period in 2012. 


Interest expense for three months ended March 31, 2013 was $73,683 compared to interest of $140,074 for the comparable prior year period.  Interest expense consists primarily of amounts due under various notes payable to shareholders, interest incurred under various bridge loans, and accretion of discounts in relation to convertible debt totaling $2,773 and $96,064.for the comparable prior year period.  


Our net loss for the three months ended March 31, 2013 was $185,844 or $0.004 per share compared to a net loss of $635,253 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, 2013, we have incurred a cumulative net loss of $10,142,070.  The notes to our financial statements include language that raises doubt about our ability to continue as a going concern.  At March 31, 2013, we had cash of $0, net working capital deficit of $4,493,492 and we owed our stockholders an aggregate of $2,220,830.  All of these stockholders are officers and/or directors of our Company.   Of the total due to stockholders, $1,863,500 was due September 8, 2012, bearing interest at 12% per annum with an option to convert into common stock at $0.40 per share. In addition $357,330 is due on demand to stockholders of our Company and bear interest ranging from 4.0% & 12%.


On June 22, 2010, a family trust of which one of our shareholders 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 loan was initially scheduled to be repaid on September 8, 2011 but since has been extended to September 8, 2012.  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.


On December 8, 2011, a family trust of which one of our shareholders is a trustee (“the lender”) agreed to lend us $250,000 at an annual interest rate of 12%. The loan is scheduled to be repaid on September 8, 2012. The Company also issued 250,000 shares of common stock to the Lender. At any time prior to that date September 8, 2012 at the option of the lender the loan is convertible into common stock at $0.40 per share. Additionally, the lender has received warrants to purchase 625,000 shares, exercisable until December 31, 2014, warrants to purchase 625,000 shares at $0.65 per share exercisable until December 31, 2015, and warrants for 625,000 shares at $0.75 per share exercisable until December 31, 2016.


On February 13, 2012 the Company entered into an agreement with a Director to borrow $250,000. The loan accrues interest 12% per annum and is payable August 13, 2012, which has been extended to December 13, 2012. At the lender’s option, if payment is not made by the maturity date the loan may be converted into shares of common stock at a price of $0.20 per share.



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On May 2, 2012 a family trust of which a shareholder is a trustee agreed to lend the Company $250,000 at an interest rate of 12% per annum, which loan is scheduled to be repaid on September 8, 2012, which has been extended to December 8, 2012 together with outstanding loans in the principal amount of $1,250,000 previously advanced by the trust. Interest over the entire amount is payable in $15,000 monthly increments. At any time, at the option of the lender, the entire loan is convertible into shares of common stock of the Company at $0.40 per share. In the connection with the loan, the company has agreed to issue to the trust (i) 250,000 shares of common stock, and (ii) warrants to purchase 625,000 shares of common stock at $0.40 per share, exercisable until May 31, 2015, warrants to purchase 625,000 shares of common stock at $0.65 per share exercisable until May 31, 2016, and warrants to purchase 625,000 shares of common stock at $0.75 per share exercisable until May 31, 2017. In connection with this transaction the lender was also granted the right to set up distributorships in the state of Arizona. As a result of the issuance of 250,000 shares and warrants, the Company allocated the fair market value (“FMV”) to the shares, and warrants, and the debt. In addition, the Company determined that the note included a beneficial conversion feature. Accordingly, the Company recorded a discount of $341,772 which was accreted to interest expense for the 12 months ended December 31, 2012.


During the six month period ended December 31, 2012, a family trust, of which a shareholder is a trustee agreed to loan the Company a total of $339,000. The proceeds were disbursed in eleven installments over the six month period. Interest accrues at a rate of 12% per annum. The loan and accrued interest are due upon demand. Accrued interest as of March 31, 2013 is $23,873.


We are currently investigating various opportunities to raising additional capital through the sale of debt, equity securities and 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 to finance 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 curtail or cease operations. 


The matters described herein, to the extent that they relate to future events or expectations, may be significantly affected by the Chapter 11 Case. Those proceedings will involve, or may result in, various restrictions on our activities, limitations on financing, and to obtain Bankruptcy Court approval for various matters and uncertainty as to relationships with vendors, suppliers, customers, labor and others with whom we may conduct or seek to conduct business. We cannot predict the impact, if any, that the Chapter 11 Case might have on these obligations.


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.



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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 ability to emerge from our Chapter 11 Case and thereafter operate profitably will depend on increasing our revenue, lowering our costs, reducing our liabilities and obtaining sufficient financing or other capital to operate successfully.


During the course of our Chapter 11 Case, our financial results may be volatile as a result of asset impairments, asset dispositions, and bankruptcy professional fees. Upon emergence from our Chapter 11 Case, the amounts reported in our subsequent financial statements are likely to materially change relative to historical financial statements. For example, upon our emergence from our Chapter 11 Case, we expect to apply fresh start accounting. As a result, the book values of our long-lived assets and the related depreciation and amortization schedules, among other things, are expected to change.

 

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, 2013 we have incurred a cumulative net loss totaling $10,142,070 and have working capital and stockholder deficits of $4,493,492 and $4,311,752 at March 31, 2013.  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 actively 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 effect 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.



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Item 4. 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, 2012.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.


(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


None


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




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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: January 27, 2014

 

/s/ Sanford Leavitt

 

 

Sanford Leavitt

 

 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

Date: January 27, 2014

 

/s/ Ken Sprenkle

 

 

Ken Sprenkle

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 



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Exhibit 31


CHIEF EXECUTIVE OFFICER CERTIFICATION


I, Sanford Leavitt, certify that:


1. I have reviewed this quarterly report on Form 10-Q of Xtreme Green Products Inc.:


2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report.


3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report.


4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:


a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d) Disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):


a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information: and


b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

Date: January 27, 2014

/s/ Sanford Leavitt

 

Sanford Leavitt

 

Chief Executive Officer


 



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CHIEF FINANCIAL OFFICER CERTIFICATION


I, Ken Sprenkle, certify that:


1. I have reviewed this quarterly report on Form 10-Q of Xtreme Green Products Inc.:


2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report.


3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report.


4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:


a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d) Disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):


a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information: and


b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

 

Date: January 27, 2014

/s/ Ken Sprenkle

 

Ken Sprenkle

 

Chief Financial Officer

 



18



 

Exhibit 32


CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002


In connection with the quarterly report of Xtreme Green Products Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sanford Leavitt, Chief Executive Officer, and Neil Roth, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:


(1) This report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and


(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Sanford Leavitt

 

Sanford Leavitt

 

Chief Executive Officer

 

 

 

Date: January 27, 2014

 

 

 

 

/s/ Ken Sprenkle

 

Ken Sprenkle

 

Chief Financial Officer

 

 

 

Date: Date: January 27, 2014

 




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