XOTC:XTRG Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012



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 June 30, 2012


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, $0.001 par value as of August 3, 2012:  48,463,370



1



INDEX


 

 

Page

PART I - Financial Information

 

3

 

 

 

Item 1: Financial Statements

 

3

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011

 

3

 

 

 

Condensed Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2012 and 2011 (Unaudited)

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2012 and 2011 (Unaudited)

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

 

 

 

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

 

10

 

 

 

Item 4T:   Controls and Procedures

 

14

 

 

 

PART II - Other Information

 

14

 

 

 

Item 1: Legal Proceedings

 

14

 

 

 

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

 

14

 

 

 

Item 5: Other Information

 

14

 

 

 

Item 6: Exhibits

 

14

 

 

 

Signatures

 

15

G




2




 

XTREME GREEN PRODUCTS INC.

 

Consolidated Condensed Balance Sheets

 

June 30, 2012 and December 31, 2011

 

2012

 

2011

 

 

(Unaudited)

Statement of Financial Position

 

 

 

  ASSETS

 

 

 

    Current Assets:

 

 

 

      Cash

$              15,371

 

$             46,390

      Accounts receivable

18,598

 

9,255

      Related party receivable

13,500

 

13,500

      Inventory

607,052

 

657,475

      Other current assets

352,282

 

256,264

      Total current assets

1,006,803

 

982,884

    Property and equipment, net

202,862

 

233,443

 

 

 

 

    Other assets

36,186

 

    36,186

    TOTAL ASSETS

 $        1,245,851

 

 $       1,252,513

 

 

 

 

  LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

    Current liabilities:

 

 

 

    Accounts payable and accrued expenses

$           697,821

 

 $          329,985

    Accrued expenses- related parties

406,105

 

334,247

    Accrued interest

50,473

 

10,774

    Line of credit

-

 

150,000

    Convertible debt- related party

1,389,649

 

1,017,821

    Convertible debt- other

60,212

 

54,666

    Customer deposits

352,335

 

250,000

    Current portion of long-term debt

184,132

 

130,000

    Stockholder loans

345,814

 

103,268

    Total current liabilities

3,486,541

 

2,369,987

  Long-term debt, net of current portion

177,939

 

44,875

  Total liabilities

3,664,480

 

2,414,862

  Stockholders' deficit:

 

 

 

    Common stock- $0.0001 par value, 100,000,000 shares authorized; 46,963,370 and 46,436,370 shares issued and outstanding

4,796

 

4,771

    Additional paid-in capital

5,681,692

 

5,539,441

    Common stock payable

100,000

 

-

    Accumulated deficit

(8,205,117)

 

(6,706,561)

 

 

 

 

    Total stockholders' deficit

(2,418,629)

 

(1,162,349)

 

 

 

 

  TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 $        1,245,851

 

$       1,252,513 

 

 

 

 

See the accompanying notes to the financial statements.



3





XTREME GREEN PRODUCTS INC.

Consolidated Condensed  Statements of Operations

For the Three and Six Months Ended June 30, 2012 and 2011

(Unaudited)





 

Three Months Ended

2012

 

Three Months Ended

2011

 

Six Months Ended

2012

 

Six Months Ended

2011

Income Statement

 

 

 

 

 

 

 

  Sales, net

$         223,381

 

$         805,298

 

$       488,916

 

$  1,286,215

  Cost of sales

246,374

 

549,844

 

488,227

 

923,147

  Gross margin

(22,993)

 

255,454

 

689

 

363,068

 

 

 

 

 

 

 

 

  Costs and expenses:

 

 

 

 

 

 

 

    General and administrative

426,778

 

522,697

 

930,123

 

965,875

    Research and development

33,007

 

19,842

 

36,007

 

57,387

    Sales and Marketing

52,924

 

45,974

 

65,440

 

55,297

    Interest expense

327,602

 

37,272

 

467,675

 

73,764

    Total costs and expenses

840,311

 

625,785

 

1,499,245

 

1,152,323

  Net loss

  $     (863,304)

 

$       (370,331)

 

$ (1,498,556)

 

$  (789,255)

 

 

 

 

 

 

 

 

  Per share information - basic and diluted:

 

 

 

 

 

 

 

    Loss per common share

    $         (0.02)

 

 $            (0.01)

 

$          (0.03)

 

$        (0.02)

  Weighted average common shares outstanding

47,880,037

 

46,466,370

 

47,796,243

 

45,386,870




See the accompanying notes to the financial statements.



4




XTREME GREEN PRODUCTS INC.

Consolidated Condensed  Cash Flows

For the Six Months Ended June 30, 2012 and 2011

(Unaudited)


 

Six Months Ended

2012

 

Six Months Ended

2011

Statement of Cash Flows

 

 

 

  Cash flows from operating activities:

 

 

 

    Net loss

$       (1,498,556)

 

$        (789,255)

  Adjustments to reconcile net loss to net cash used in operating activities:

 

 

    Stock-based compensation

32,684

 

21,578

    Depreciation

30,581

 

25,169

    Accretion of discount on convertible debts

236,966

 

-

    Stock payable for loan extension

100,000

 

-

  Changes in operating assets and liabilities:

 

 

 

    Increase in accounts receivable

(9,343)

 

(98,189)

    Increase in related party receivable

-

 

(13,500)

    (Increase) decrease in Inventory

50,423

 

(224,267)

    Increase in other current assets

96,018

 

(167,946)

    Decrease in other assets

-

 

23,586

    Increase in accounts payable and accrued expenses

367,836

 

60,688

    Increase in accrued expenses- related party

82,632

 

18,462

    Increase in accrued interest

39,699

 

-

    Increase in customer deposits

102,335

 

231,400

  Net cash used in operating activities

(560,761)

 

(912,274)

 

 

 

 

  Cash flows from investing activities:

 

 

 

    Purchase of property and equipment

-

 

(90,923)

  Net cash used in investing activities

-

 

(90,923)

  Cash flows from financing activities:

 

 

 

    Common stock issued for cash

-

 

625,000

    Proceeds from convertible debt- related party

250,000

 

-

    Proceeds from long-term debt

50,000

 

90,279

    Repayment of long-term debt

(12,804)

 

(28,467)

    Stockholders loans, net of discounts

242,546

 

(9,544)

  Net cash provided by financing activities

529,742

 

677,268

  Net increase in cash

(31,019)

 

(325,929)

  Cash, beginning of period

46,390

 

343,068

  Cash, end of period

15,371

 

17,139

  Supplemental Cash Flow Information:

 

 

 

    Cash paid for interest

$                         -

 

$                      -

    Cash paid for income taxes

$                         -

 

$                      -

   Non Cash Financing Activities:

 

 

 

    Discount on convertible debt- related party

$              109,592

 

$                      -

    Line of credit converted to term loan

$              150,000

 

$                      -


See the accompanying notes to the financial statements.



5




XTREME PRODUCTS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2012

(UNAUDITED)


(1)

Organization


Xtreme Green Products Inc. was incorporated under the laws of the State of Nevada on May 21, 2007. We have developed a line of electric powered products such as personal mobility vehicles, light trucks (UTVs) and (ATVs), motor cycles and scooters. Our product line is based on our proprietary “green” energy management system and electric propulsion system. These products have the power and ability of gas powered engines, but without the particulate pollution or noise pollution.


(2)

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, 2011, on Form 10-K, including notes thereto.


(3)

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.


(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 June 30, 2012, aggregating $8,205,117 and has working capital and stockholder deficits of $2,479,738 and $2,418,629 at June 30, 2012, respectively.

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.


(5)

Accounts Receivable


Accounts receivable are due primarily from municipalities and companies located throughout the United States. Credit is extended based on and evaluation of the customers” financial condition and, generally, collateral is not required. Account balances are evaluated for collectability based on the condition of the customers’ credit including repayment history and trends and relative economic and business conditions. Bad debts are not significant.



6




(6)

Inventory


 Inventory is stated at the lower of cost or market. Cost is principally determined by using the average cost method, which approximates the First-In, First-Out method.  Inventory consists primarily of parts as well as finished goods held for sale. The Company’s management monitors the inventory for excess and obsolete items and makes necessary valuation adjustments when required.


(7)      Other Current Assets (Note A)


 

June 30

December 31

 

2012

2011

 

 

 

Advance on Commissions

$191,176

$150,819

Prepaid Insurance

  63,740

   20,531

Prepaid Other

  82,755

   57,702

Prepaid Inventory

  14,611

   27,212

 

$352,282

$256,264

 

 

 

 

(8)        Stock Holder Loans


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 June 30, 2012, a balance of $95,814 was outstanding. The loans are due on demand and bear interest at 4%.


On February 13, 2012 the Company entered into an agreement with a Director to borrow $250,000. The loan was funded on February 13, 2012 and shall accrue interest at 12% per annum and is payable August 13, 2012. At the lenders request, 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 June 22, 2010, a family trust of which a shareholder is a trustee agreed to lend to the Company an aggregate of $1,000,000 at an annual interest rate of 12%, with interest payable monthly, and the principal and any unpaid accrued interest to be repaid on September 8, 2011 which has been extended to September 8, 2012. At any time prior to that date, at the option of the lender the loan amount is convertible into common stock at $0.40 per share.  Upon conversion, the lender also is entitled to 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. In connection with this transaction the lender was also granted the right to set up distributorships in the United Kingdom, Ireland, Greece, and Cyprus.  


On December 8, 2011 the same family trust 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. At any time prior to September 8, 2012, at the option of the lender, the additional $250,000 in loan principal is convertible into 625,00 shares of common stock at $0.40 per share. In connection with this transaction the Company issued 250,000 shares of common stock to lender, extended his Nevada distributorship rights to include the entire State of Nevada, and issued warrants to purchase 625,000 shares of common stock at $0.40 per share exercisable until December 2014, warrants to purchase 625,000 shares of common stock at $0.65 per share exercisable until December 2015, and warrants to purchase 625,000 shares of common stock at $0.75 per share exercisable until December 2016. 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 $250,000, of which $93,290 was accreted to interest expense for the six months ended June 30, 2012.


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, 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, except that the first payment in the amount of $12,500 is due on May 8, 2012.  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 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 $109,592, of which $54,796 was accreted to interest expense for the six months ended June 30, 2012.



7





(9)

Line of Credit and Other Notes Payable


On April 21, 2012 the Company’s secured 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 June 30, 2012 was $147,221.


On February 15, 2012 the Company borrowed $50,000 in exchange for a six month secured bridge note. The note bears interest at the rate of 12% per annum, payable on maturity date. The maturity date is the earlier of i) the date the Company completes a financing transaction for the offer a sale of shares of the Company’s common stock in the amount of no less than $2,500,000, or ii) August 15, 2012.


On June 13, 2012 the holder of a $100,000 six month note issued on December 29, 2011 agreed to extend the maturity date of the note to December 29, 2012. As an additional consideration for the extension the Company agreed to issue shares of common stock equal to 100% of the principal loan amount and in addition $25,000 in interest will be paid at the extended maturity date of December 29, 2012. As a result of the extension 500,000 shares of common stock are to be issued at a price of $0.20 per share. The Company recorded the unissued shares as a common stock payable totaling $100,000 as of June 30, 2012 and accrued an additional $25,000. The total amounts were expensed during the six months ended June 30, 2012.



(10)       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.


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 June 30, 2012 and 2011 was $16,342 and $12,932 respectively, which was recorded as general and administrative expenses. Total cost recognized for the six month period ended June 30, 2012 and 2011 was $32,684 and $23,510, respectively.



8




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 June 30, 2012, is presented below


Options




Shares

Weighted-Average

Exercise

Price

Weighted-Average

Remaining Contractual

Term

Intrinsic

Value

 

 

 

 

 

Outstanding at December 31, 2011

1,130,000

$0.50

4.5

$0.00

Granted

-

-

-

-

Expired

-

-

-

-

Outstanding at June 30, 2012

1,130,000

$0.50

4.0

$0.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

The following table summarizes information about fixed price stock options at June 30, 2012:

Exercise Price

 

 

Number

Outstanding

 

 

Weighted

Average

Contractual Life

 

 

Weighted

Average

Exercise Price

 

 

Number

Exercisable

 

 

Exercise

Price

 

$

0.50

 

 

 

1,130,000

 

 

 

4.0

 

 

$

0.50

 

 

 

365,750

 

 

$

0.50

 


(11)          Concentrations


During the period ended June 30, 2012, the Company derived approximately 33% of its revenue from a single customer and as of June 30, 2012, all orders with this customer have been paid in full.


(12)       Subsequent Events


On June 13, 2012 the holder of a $100,000 six month note issued on December 29, 2011 agreed to extend the maturity date of the note to December 29, 2012. As an additional consideration for the extension the Company agreed to issue shares of common stock equal to 100% of the principal loan amount and in addition $25,000 in interest will be paid at the extended maturity date of December 29, 2012. As a result of the extension 500,000 shares of common stock were issued on July 16, 2012 at a price of $0.20 per share.


On July 6, 2012, Xtreme Green secured the rights to a provisional patent for electric hybrid versions of its ATV, UTV and other types of specialty light on/off road vehicles. The technology covered by the provisional patent will allow for rapid electric charging in minutes, and the ability to continue riding the vehicle without stopping for four hours or more.  The vehicles will have the capability of using propane, gas or diesel fuel.


The Company believes that this technology addresses the concern that users of electric vehicles will run “out of energy”.  Xtreme Green expects to have these vehicles available for purchase by the first quarter of 2013.


This provisional patent relates to electric hybrid light vehicles, such as ATVs or UTVs that are configured to run solely using electric motors with the capability of rapid charging during use when the batteries get low.  This patent includes a “Vehicle Management System”. This system powers the vehicle on/off, protects the batteries, balances the charge, provides diagnostic information, and controls the drive system.  Additionally, it relates to a rapid charging system in the 44 -144V range for lithium battery systems and can be used to provide 110V AC current in the field.


During the month of July, 2012 Russ Hagberg, a Board member, resigned from the Board of Directors.



9




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


Over the past year we have increased the number of vehicle options to include a 7’ hydraulic dump all electric truck, and emergency medical services vehicle, and a right hand drive UTV for parking departments. Our distributor, Alexander Xtreme Green based in Tennessee, opened the first Xtreme Green store, and is presently looking for additional locations in four additional states. We have also added two new sales managers on the east coast, as well as new distributorships in the United States, Mexico, and Puerto Rico . Over 50 new municipal and university accounts have been added to our customer base during the past twelve months. We have also completed all testing and paperwork for the European Union certification and expect certification to be finalized during the second quarter of 2012, at which time we will commence developing the European market.


Results of Operations


Comparison of three months ended June 30, 2012 to the three months ended June 30, 2011


Revenue – Sales for the three months ended June 30, 2012 were $223,381compared to $805,298 for the three months ended June 30, 2011. The reduction in sales results from our inability to purchase manufacturing inventory to fill customer orders due to lack of funds.


Cost of Sales – Cost of sales for the three months ended June 30, 2012 was $246,374 which resulted in a loss of $22,993 compared to cost of sales of $549,844 and a gross profit of $255,454 for the comparable prior year period. The decrease in the gross margin resulted from a reduction of revenue coupled with fixed manufacturing costs, and a $54,440 write off of obsolete inventory parts.


Sales and Marketing Expense – Sales and marketing expenses include salaries, consultant fees, commissions, trade show costs, advertising, and travel. Sales and marketing expense was $52,924 for the three months ended June 30, 2012 compared to $45,974 for the comparable prior year period. The increase is primarily due to the higher cost of trade show participation.


Research & Development – Research and development costs consists of professional engineering, salaries, and materials to improve current products as well as develop new products. Research and development expense was $33,007 for the three months ended June 30, 2012 compared to $19,842 for the comparable prior year period. This increase is primarily due to the Company’s increased emphasis in quality improvement and expanding the utilization of our current fleet of vehicles to reach new markets.


General and Administrative – General and administrative expenses were $426,778 for the three months ended June 30, 2012 compared to $522,697 for the three months ended June 30, 2011.  Our general and administrative expenses consist primarily of (i) salaries and wages, (ii) professional fees such as legal and accounting fees, and (iii) general expenses such as rent and insurance. We had 19 full-time employees including three executive officers during the three months ended June 30, 2012 compared to 24 full-time employees including three executive officers during the comparable period in 2011. The decrease is primarily due to the reductions in salaried employees , warranty costs, and cut backs in office costs.



10




Interest Expense – Interest expense for three months ended June 30, 2012 was $327,602 compared to interest of $37,272 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 $265,902.


Net Loss – Net loss for the three months ended June 30, 2012 was $863,304 or $0.02 per share compared to a net loss of $370,331 or $0.01 per share for the comparable prior year period. The loss at June 30, 2012 includes a non-cash charge to interest expense of $265,903 for accretion of discounts in relation to convertible debt, and conversion of debt for common shares of stock.


Comparison of Six months ended June 30, 2012 to the six months ended June30, 2011


Revenue - Sales for the six months ended June 30, 2012 were $488,916 compared to $1,286,215 for the six months ended June 30, 2011. The reduction in sales results from our inability to purchase manufacturing parts inventory to fill customer orders.


Cost of Sales – Cost of sales for the six months ended June 30, 2012 was $488,227 which resulted in a gross profit of $689      compared to cost of sales of $923,147 and a gross profit of $363,068 for the comparable prior year period. The decrease in the gross margin resulted from a reduction of revenue coupled with fixed manufacturing costs, and a $54,440 write off of obsolete inventory parts.


Sales and Marketing Expense – Sales and marketing expenses include salaries, consultant fees, commissions, trade show costs, advertising, and travel. Sales and marketing expense was $65,440 for the six months ended June 30, 2012 compared to $55,297 for the comparable prior year period. The increase is primarily due to the higher cost of trade participation.


.Research & Development – Research and development costs consists on professional engineering, salaries, and materials to improve current products as well as develop new products. Research and development expense was $36,007 for the six months ended June 30, 2012 compared to $57,387 for the comparable prior year period. The reduction in cost is a result of reduced costs during the first quarter of the current year.


General and Administrative – General and Administrative expenses were $930,123 for the six months ended June 30, 2012 compared to $965,875 for the six months ended June 30, 2011.  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 decrease in general and administrative expenses is primarily attributable to a decrease in administrative staff.  We had 20 full time employees during the six months ended June 30, 2012 compared to 24 for the comparable prior year period.


Interest Expense – Interest expense for six months ended June 30, 2012 was $467,675 compared to interest of $73,764 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, accretion of discounts in relation to convertible debt totaling $361,966.


Net Loss – Net loss for the six months ended June 30, 2012 was $1,498,556 or $0.03 per share compared to a net loss of $789,255 or $0.02 per share for the comparable prior year period. The loss at June 30, 2012 includes a non-cash charge to interest expense of $361.965 for accretion of discounts in relation to convertible debt.


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 June 30, 2012, we have incurred a cumulative net loss of $8,205,117 The notes to our financial statements include language that raises doubt about our ability to continue as a going concern.  At June 30, 2012, we had cash of $15,371, net working capital deficit of $2,479,738 and we owed our stockholders an aggregate of $1,845,814.  All of these stockholders are officers and/or directors of our Company.  Of the total due to stockholders, $1,500,000 is due September 8, 2012, bearing interest at 12% per annum with an option to convert into common stock at $0.40 per share, and $250,000 is due August 13, 2012 bearing interest at 12% with an option to convert into common stock at $0.20 per share. In addition $95,814 is due on demand to stockholders who are also officers and/or directors of our Company and bear interest at 4.0%.

  

 On June 22, 2010, a family trust of which one of our stockholders is a trustee agreed to lend the Company an aggregate of $1,000,000 at an annual interest rate of 12% per annum interest payable monthly. The principal and any unpaid accrued interest 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.



11




On December 8, 2011 the trust agreed to lend the company an additional $250,000 at an interest rate of 12% per annum, which loan is scheduled to be repaid on September 8, 2012. At any time prior to the repayment date, at the option of the lender, the additional $250,000 in loan principal is convertible into 625,000 shares of common stock at $0.40 per share. In connection with this transaction the company issued 250,000 shares of common stock to the lender, extended his Nevada distributorship rights to include the entire State of Nevada, and issued warrants to purchase 625,000 shares of common stock at $0.40 per share, exercisable until December 2014, warrants to purchase 625,000 shares of common stock at $0.65 per share exercisable until December 2015, and warrants to purchase 625,000 shares of common stock at $0.75 per share exercisable until December 2016.


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, 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, except that the first payment in the amount of $12,500 is due on May 8, 2012.  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 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.


Factoring Agreement


In August 2011, the Company entered into an agreement with a factor enabling the Company to finance its receivables for up to $300,000. The agreement is in effect for a twelve month period and may be terminated at that time by either party by giving written notice between 60 and 90 days prior to the expiration of the agreement. Under the terms of the factoring agreement, the Company was required to grant a first and priority security interest in substantially all its assets. The agreement was subsequently amended to allow for the grant to third parties of a lien in the Company’s physical inventory to facilitate the issuance of the secured bridge notes discussed below. The company presented a notice of termination on June 8, 2012 effective August 15, 2012.


Convertible Debentures


During the fourth quarter 2011, the Company borrowed $75,000 in exchange for 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 June 13, 2012 the holder agreed to extend the maturity date of the note to December 29, 2012. As an additional consideration for the extension of the note the Company agreed to issue stock equal to 100% of the borrowed amount at a price of $0.20 cents per share and in addition the Company agreed to pay additional interest in the amount of $25,000 payable at the extended maturity date of December 29, 2012.


On February 15, 2012 the Company borrowed $50,000 in exchange for a six month secured bridge note. The note bears interest at the rate of 12% per annum, payable on the maturity date. The maturity date is the earlier of i) the date the Company completes a financing transaction for the offer a share of shares of the company’s common stock in the amount of no less than $2,500,000, or ii) August 15, 2012..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.



12




The Company currently is 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 at reasonable terms or at all.


If the Company is successful at raising additional equity capital, it may be on terms which would result in substantial dilution to existing shareholders. If costs and expenses prove to be greater than currently anticipate, or if Xtreme Green Products changes its current business plan in a manner that will increase our costs, they may be forced to curtail 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 June 30, 2012 we have incurred a cumulative net loss totaling $8,205,117 and have working capital and stockholder deficits of $2,479,738 and $2,418,629 at June 30, 2012.  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.



13




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, and 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 June 30, 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 effect 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




14



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: August 14, 2012

 

/s/ Sanford Leavitt

 

 

Sanford Leavitt

 

 

Chief Executive Officer

(Principal Executive Officer)

 

 

 

Date: August 14, 2012

 

/s/ Ken Sprenkle

 

 

Ken Sprenkle

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 



15





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 August 14,  2012

/s/ Sanford Leavitt

 

Sanford Leavitt

 

Chief Executive Officer

 

 

 



16



 

 

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: August  14  , 2012

/s/ Ken Sprenkle

 

Ken Sprenkle

 

Chief Financial Officer

 

 

 

 



17





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 June 30, 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: Date: August 14, 2012

 

 

/s/ Ken Sprenkle

 

Ken Sprenkle

 

Chief Financial Officer

 

 

 

Date: Date: August 14, 2012

 

 

 

 











18



XOTC:XTRG Quarterly Report 10-Q Filling

XOTC:XTRG Stock - Get Quarterly Report SEC Filing of XOTC:XTRG stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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XOTC:XTRG Quarterly Report 10-Q Filing - 6/30/2012
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