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EX-31 - XTREME GREEN ELECTRIC VEHICLES INC. | v201776_ex31.htm |
EX-32 - XTREME GREEN ELECTRIC VEHICLES INC. | v201776_ex32.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30, 2010
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)
233-4804
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer",
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act (Check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No x
The
number of shares outstanding of issuer's common stock, $0.001 par value as of
November 4, 2010: 43,669,370.
Page
|
||
PART
I - Financial Information
|
3
|
|
Item
1: Financial Statements
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3
|
|
Condensed
Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and
December 31, 2009
|
3
|
|
Condensed
Consolidated Statements of Operations For the Three and Nine Months
Ended September 30, 2010 and 2009 (Unaudited)
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4
|
|
Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2010 and 2009 (Unaudited)
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5
|
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
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6
|
|
Item
2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
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10
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Item 4T: Controls and
Procedures
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13
|
|
PART
II - Other Information
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14
|
|
Item
1: Legal Proceedings
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14
|
|
Item
2: Unregistered Sales of Equity Securities and Use of
Proceeds
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14
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Item
5: Other Information
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14
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Item
6: Exhibits
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14
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Signatures
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15
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2
PART
I. FINANCIAL INFORMATION
XTREME
GREEN PRODUCTS INC.
Consolidated
Balance Sheets
September
30, 2010 and December 31, 2009
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 264,222 | $ | 73,700 | ||||
Accounts
receivable
|
23,515 | 11,000 | ||||||
Inventory
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587,959 | 214,787 | ||||||
Prepaid
expenses
|
119,654 | - | ||||||
Total
current assets
|
995,350 | 299,487 | ||||||
Property
and equipment
|
170,627 | 88,498 | ||||||
Other
assets
|
46,493 | 12,901 | ||||||
TOTAL
ASSETS
|
$ | 1,212,470 | $ | 400,886 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 23,864 | $ | 119,483 | ||||
Accrued
expenses - related parties
|
175,536 | 240,000 | ||||||
Accrued
expenses
|
6,487 | 3,395 | ||||||
Line
of credit
|
150,000 | 150,000 | ||||||
Convertible
debt
|
1,000,000 | - | ||||||
Note
payable - related party
|
5,442 | 252,935 | ||||||
Customer
deposits
|
3,545 | 40,960 | ||||||
Current
portion of long term debt
|
11,144 | - | ||||||
Stockholder
loans
|
119,480 | 157,830 | ||||||
Total
current liabilities
|
1,495,498 | 964,603 | ||||||
Long
term debt
|
19,182 | - | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity (deficit):
|
||||||||
Common
stock, $0.0001 par value, 100,000,000 shares authorized; 43,659,370 and
40,143,225 shares issued and outstanding
|
4,366 | 4,014 | ||||||
Additional
paid-in capital
|
3,388,172 | 1,848,448 | ||||||
Accumulated
deficit
|
(3,694,748 | ) | (2,416,179 | ) | ||||
Total
stockholders' equity (deficit)
|
(302,210 | ) | (563,717 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 1,212,470 | $ | 400,886 |
See the
accompanying notes to the financial statements.
3
XTREME
GREEN PRODUCTS INC.
Consolidated
Statements of Operations
For the
Three and Nine Months Ended September 30, 2010 and 2009
(Unaudited)
Three Months
|
Nine Months
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
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|||||||||||||
Sales
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$ | 226,801 | $ | 76,650 | $ | 351,731 | $ | 76,650 | ||||||||
Cost
of sales
|
124,000 | 42,298 | 230,570 | 42,298 | ||||||||||||
Gross
margin
|
102,801 | 34,352 | 121,161 | 34,352 | ||||||||||||
Costs
and expenses:
|
||||||||||||||||
General
and administrative
|
572,254 | 547,909 | 1,371,342 | 783,810 | ||||||||||||
Interest
expense
|
17,259 | - | 28,388 | - | ||||||||||||
Total
costs and expenses
|
589,513 | 547,909 | 1,399,730 | 783,810 | ||||||||||||
Net
loss
|
$ | (486,712 | ) | $ | (513,557 | ) | $ | (1,278,569 | ) | $ | (749,458 | ) | ||||
Per
share information - basic and diluted:
|
||||||||||||||||
Loss
per common share
|
$ | (0.01 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) | ||||
Weighted
average common shares outstanding
|
43,621,159 | 38,653,017 | 42,974,689 | 39,580,821 |
See the
accompanying notes to the financial statements.
4
XTREME
GREEN PRODUCTS INC.
Consolidated
Statements of Cash Flows
For the
Nine Months Ended September 30, 2010 and 2009
(Unaudited)
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
cash used in operating activities
|
$ | (1,861,584 | ) | $ | (743,594 | ) | ||
Cash
flows from investing activities:
|
||||||||
Purchase
of property and equipment
|
(100,867 | ) | (90,370 | ) | ||||
Net
cash used in investing activities
|
(100,867 | ) | (90,370 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Common
stock issued for cash
|
1,191,323 | 567,000 | ||||||
Proceeds
from notes payable - related party
|
1,000,000 | 250,000 | ||||||
Proceeds
from loans payable
|
- | 30,000 | ||||||
Stockholders
loans, net
|
(38,350 | ) | (1,922 | ) | ||||
Net
cash provided by financing activities
|
2,152,973 | 845,078 | ||||||
Net
increase (decrease) in cash
|
190,522 | 11,114 | ||||||
Cash
- beginning of period
|
73,700 | 20,341 | ||||||
Cash
- end of period
|
$ | 264,222 | $ | 31,455 | ||||
Supplemental Cash Flow
Information:
|
||||||||
Cash
paid for interest
|
$ | 14,427 | $ | - | ||||
Cash
paid for income taxes
|
$ | - | $ | - | ||||
Non
Cash Investing and Financing Activities:
|
||||||||
Conversion
of related party note to common stock
|
$ | 250,000 | $ | - |
See the
accompanying notes to the financial statements.
5
XTREME
PRODUCTS, INC.
NOTES TO
CONDENSED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010
(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, 2009, on Form 10-K, including notes
thereto.
(2) Earnings
Per Share
The
Company calculates net income (loss) per share as required by Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
260, "Earnings per Share." Basic earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares and
dilutive common stock equivalents outstanding. During periods when anti-dilutive
common stock equivalents are not considered in the computation.
(3) Inventory
Inventory
consisted of finished goods and parts.
(4) Basis
of Reporting
The
Company’s financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.
The
Company has experienced a loss from operations as a result of its investment
necessary to achieve its operating plan, which is long-range in nature. The
Company incurred net losses through September 30, 2010, aggregating
$3,694,748.
The
Company’s ability to continue as a going concern is contingent upon its ability
to secure additional financing, increase ownership equity and develop profitable
operations. In addition, the Company’s ability to continue as a going concern
must be considered in light of the problems, expenses and complications
frequently encountered by entrance into established markets and the competitive
environment in which the Company operates.
The
Company is pursuing financing for its operations and seeking additional private
investments. In addition, the Company is seeking to expand its revenue base.
Failure to secure such financing or to raise additional equity capital and to
expand its revenue base may result in the Company depleting its available funds
and not being able pay its obligations.
The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
6
(5) Notes
payable – Related Parties
At
December 31, 2009 an aggregate of $157,830 was due to three. During the six
months ended June 30, 2010, $38,350 was repaid leaving a balance of $119,480 at
September 30, 2010. The loans are due on demand and bear interest at
4%.
During
the three months ended September 30, 2009, a director loaned the Company an
aggregate of $250,000 with interest at 4.0% per annum. The note was
due on demand.
On March
25, 2010, the principal amount of the note ($250,000) was converted into 500,000
shares of the Company’s common stock (see Note 7). In addition, the
Company granted the director warrants to purchase additional shares as
follows:
· Three
year warrant to purchase 500,000 shares of common stock at $0.50 per
share.
· Four
year warrant to purchase 500,000 shares of common stock at $0.75 per
share.
· Five
year warrant to purchase 500,000 shares of common stock at $0.85 per
share.
The
balance of the note including the unpaid interest accrual at September 30, 2010,
was $5,442.
On June
22, 2010, a family trust of which a director is a trustee agreed to lend to the
Company an aggregate of $1,000,000 at an annual interest rate of 12% in three
tranches. The first tranche of $250,000 was advanced on July 9,
2010. The second tranche in the amount of $500,000 was funded on
August 9, 2010. The balance was funded on September 9, 2010. The
loans are scheduled to be repaid on September 8, 2011. At any time
prior to that date, at the option of the lender the loan is convertible into
common stock at $0.40 per share. Upon conversion, the lender will
also receive warrants to purchase 7,500,000 shares of common stock, as follows:
a three year warrant to purchase 2,500,000 shares of common stock at $0.40 per
share; a four year warrant to purchase 2,500,000 shares at $0.65 per share; and
a five year warrant to purchase 2,500,000 shares of common stock at $0.75 per
share.
(6) Line
of Credit
During
December 2009 the Company secured a line of credit with a financial institution
for $150,000 bearing interest at 6% per annum maturing during December 2010. The
line is secured by certain assets of a related party. The balance of the line at
December 31, 2009, of $150,000 was repaid and re borrowed during the period
ended September 30, 2010. The unused portion of the line at September 30, 2010,
was $0.
(7) Stockholders’
(Deficit)
On
January 28, 2010, the Company entered into and consummated the transaction
contemplated under a Subscription Agreement with one investor. Under the terms
of the Agreement, the Company agreed to issue 2,500,000 shares of its common
stock at $0.40 per share and warrants to purchase an additional 7,500,000 shares
in three tranches, 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.
One half
of the securities were issued in January 2010 for a purchase price of $500,000.
The remainder was issued on March 2010 for a purchase price of
$500,000.
During
April 2010 the Company sold 100,000 shares of common stock at $0.50 per share
and received proceeds of $50,000.
During
June 2010 the Company sold 102,995 shares of common stock at $0.50 per share and
received proceeds of $51,498. In addition, 36,000 shares to a consultant for
services rendered. The shares were valued at $0.50 per share.
During
July through September 2010 the Company sold 179,650 shares of common stock at
$0.50 per share and received proceeds of $89,825. In addition, . In addition,
97,500 shares to a consultant for services rendered. The shares were valued at
$0.50 per share.
7
(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. These options vest over the stated term.
During
September 2009, the company granted options to Directors to purchase 300,000
shares of common stock, at a price of $0.50 per share, which was the fair value
of the underlying common shares at the grant date based on sales of common
shares for cash. The options expire in September 2019. These options
vest in equal annual amounts on the first three anniversary dates of the
grant.
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model, using the assumptions noted in the
following table. Expected volatility is based on the historical volatility of
the Company’s stock, and other factors. Because the shares of the Company are
not traded, volitality was estimated as 40 - 60%. The risk-free rates used to
value the options are based on the U.S. Treasury yield curve in effect at the
time of grant.
The cost
recognized for the period ended September 30, 2010, was $31,734, 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 September 30, 2010, is
presented below:
Options
|
Shares
|
Weighted-Average
Exercise
Price
|
Weighted-Average
Remaining Contractual
Term
|
Intrinsic
Value
|
||||||||||||
Outstanding
at December 31, 2009
|
805,000 | $ | 0.50 | 4.75 | $ | 0.00 | ||||||||||
Granted
|
- | - | - | - | ||||||||||||
Outstanding
at September 30, 2010
|
805,000 | $ | 0.50 | 4.00 | $ | 0.00 |
The
following table summarizes information about fixed price stock options at June
30, 2010:
Exercise
Price
|
Number
Outstanding
|
Weighted
Average
Contractual Life
|
Weighted
Average
Exercise Price
|
Number
Exercisable
|
Exercise
Price
|
||||||||||||||||
$
|
0.50
|
805,000
|
4.00
|
$
|
0.50
|
—
|
$
|
—
|
(9) Recent
Pronouncements
In
January 2010, the FASB issued authoritative guidance that requires new
disclosures and clarifies certain existing disclosure requirements about fair
value measurements. The new guidance requires a reporting entity to disclose
significant transfers in and out of Level 1 and Level 2 fair value measurements,
to describe the reasons for the transfers and to present separately information
about purchases, sales, issuances and settlements for fair value measurements
using significant unobservable inputs. We adopted the guidance in the
three month period ended March 31, 2010, except for disclosures about purchases,
sales, issuances and settlements in the roll forward of activity in Level 3 fair
value measurements, which is effective for interim and annual reporting periods
beginning after December 15, 2010. The adoption of the guidance did not
have a material impact on our consolidated financial statements, and we do not
currently expect the adoption of this guidance to have a material impact on our
consolidated financial statements for future periods.
8
In
February 2010, the FASB issued updated authoritative guidance regarding the
reporting of subsequent events, removing the requirement for an issuer to
disclose a date through which subsequent events have been
evaluated. The guidance was effective upon issuance in February
2010, and was adopted as of our Quarterly Report on Form 10-Q for the three
months ended March 31, 2010. The adoption of this guidance did not
have a material impact on our consolidated financial statements.
In April
2010, the FASB issued guidance on defining a milestone and determining when it
may be appropriate to apply the milestone method of revenue recognition for
research or development transactions. The guidance is effective on a prospective
basis for milestones achieved in fiscal years, and interim periods within those
years, beginning on or after June 15, 2010. We will assess the
impact, if any, of the adoption of the guidance on our consolidated financial
statements when this guidance becomes effective for us; however we do not
currently believe that the adoption of this guidance will have a material impact
on our consolidated financial statements.
(10) Subsequent
Events
During
November 2010 the Company issued 10,000 shares of common stock at $.50 per share
for proceeds of $5,000.
9
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.
Overview
Xtreme
Green Products Inc. (“Xtreme”, “we”, “our”, “us”) 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, motor scooters,
light trucks (UTV) and ATVs. Our product line will be based on our
proprietary “green” energy management system and electric propulsion system.
These products will have the power and ability of gas powered engines, but
without the particulate pollution or noise pollution.
Pursuant
to the terms of a Share Purchase Agreement dated August 16, 2007, we purchased
5,000,000 shares of common stock of Belarus Capital Corp. (“Belarus” or the
“Company”) in a private purchase transaction in exchange for $125,000 in cash
and 1,000,000 shares of our common stock. At the time of the closing of this
transaction, the 5,000,000 shares represented 100% of the issued and outstanding
shares of common stock of Belarus. We funded the cash portion of the purchase
cost through a combination of a $40,000 loan from one of our founding
stockholders and from the proceeds of a private placement of 184,000 shares of
our common stock at $0.50 per share. The value ascribed to the 1,000,000 shares
of Xtreme stock issued in this transaction was $500,000 ($0.50 per share) which
resulted in a total purchase cost of $625,000 related to the purchase of the
Belarus shares. As a result of this transaction, Belarus became a wholly-owned
subsidiary of Xtreme.
On
November 12, 2008, the shareholders of Xtreme entered into a Share Exchange
Agreement (the “Exchange Agreement”) with Belarus pursuant to which Belarus
purchased from the Xtreme shareholders 37,837,800 shares of Xtreme common stock
which represented approximately 97.43% of the then issued and outstanding shares
of Xtreme in exchange for the issuance of 37,837,800 shares of common stock of
Belarus. In connection with the Exchange Agreement, Xtreme surrendered to
Belarus for cancellation, all 5,000,000 shares of common stock of Belarus that
it owned and as a result, Xtreme became a subsidiary of Belarus and Belarus
succeeded to the business of Xtreme as its sole business. Subsequently, Belarus
changed its name to Xtreme Green Products Inc.
Results
of Operations
Comparison
of three months ended September 30, 2010 to the three months ended September 30,
2009
Sales for
the three months ended September 30, 2010 were $226,801 compared to $76,650 for
the three months ended September 30, 2009.
Cost of
sales for the three months ended September 30, 2010 was $124,000 which resulted
in a gross profit of $102,801 compared to cost of sales of $42,298 and gross
profit of $34,352 for the comparable prior year period.
General
and administrative expenses were $572,254 for the three months ended September
30, 2010 compared to $547,909 for the three months ended September 30,
2009. 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, (iv) general
expenses such as rent and insurance. The overall increase in general and
administrative expenses is primarily attributable to an increase in the number
of full-time employees. We had 15 full-time employees during the three months
ended September 30, 2010 compared to 6 full-time employees during the comparable
period in 2009.
Interest
expense for three months ended September 30, 2010 was $17,259. Interest
expense consists primarily of amounts due under a note payable to one of our
directors and interest incurred under various short term lines of credit.
We did not incur any interest expense during the nine months ended
September 30, 2009.
Our net
loss for the three months ended September 30, 2010 was $486,712 or $0.01 per
share compared to a net loss of $513,557 or $0.01 per share for the comparable
prior year period.
10
Comparison
of nine months ended September 30, 2010 to the nine months ended September 30,
2009
Sales for
the nine months ended September 30, 2010 were $351,731 compared to $76,650 for
the nine months ended September 30, 2009.
Cost of
sales for the nine months ended September 30, 2010 was $230,570 which resulted
in a gross profit of $121,161 compared to cost of sales of $42,298 and gross
profit of $34,352 for the comparable prior year period.
General
and administrative expenses were $1,371,342 for the nine months ended September
30, 2010 compared to $783,810 for the nine months ended September 30,
2009. 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, (iv) general
expenses such as rent and insurance. The overall increase in general and
administrative expenses is primarily attributable to an increase in the number
of full-time employees. We had 15 full-time employees during the nine months
ended September 30, 2010 compared to 6 full-time employees during the comparable
period in 2009.
Interest
expense for nine months ended September 30, 2010 was $28,388. Interest
expense consists primarily of amounts due under a note payable to one of our
directors and interest incurred under various short term lines of credit.
We did not incur any interest expense during the nine months ended
September 30, 2009.
Our net
loss for the nine months ended September 30, 2010 was $1,278,569 or $0.03 per
share compared to a net loss of $749,458 or $0.02 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 September 30, 2010, we have incurred
a cumulative net loss of $3,719,212. The notes to our financial statements
include language that raises doubt about our ability to continue as a going
concern. At September 30, 2010, we had cash of $264,222, net working
capital deficit of $500,148 and we owed our stockholders an aggregate of
$1,295,016. All of these stockholders are officers and/or directors
of our Company. Of the total due to stockholders, $50,453 was due in
full on December 31, 2009 and has not been paid. A $1,000,000
convertible loan is due September 8, 2011, or can be converted into common stock
at any time prior to the due date. The remaining stockholder loans
are due on demand.
During
the year ended December 31, 2009, we sold 1,169,000 shares of restricted common
stock at a price per share of $0.50 per share and received proceeds
$584,500. These proceeds were used for general working capital
purposes.
During
the nine months ended September 30, 2010, we sold 382,645 shares of restricted
common stock at a price of $0.50 per share and received cash proceeds of
$191,323. Also during the nine months ended September 30, 2010, one
of our directors purchased 2,500,000 shares of our common stock for total cash
consideration of $1,000,000. In addition, we issued warrants to this
director as follows: (i) a three year warrant to purchase 2,500,000 shares at
$0.40 per share; (ii) a four year warrant to purchase 2,500,000 shares at $0.65
per share and; (iii) a five year warrant to purchase 2,500,000 shares at $0.75
per share. All of the proceeds described above were used for general
working capital purposes.
On June
22, 2010, a family trust of which one of our directors is a trustee (“the
lender”) agreed to lend us an aggregate of $1,000,000 at an annual interest rate
of 12% in three tranches. The first tranche of $250,000 was advanced on
July 9, 2010. The second tranche in the amount of $500,000 was funded on
August 9, 2010. The balance was funded on September 9, 2010. The loans are
scheduled to be repaid on September 8, 2011. At any time prior to that
date, at the option of the lender the loan is convertible into common stock at
$0.40 per share. Upon conversion, the lender will also receive warrants to
purchase 7,500,000 shares of common stock, as follows: a three year warrant to
purchase 2,500,000 shares of common stock at $0.40 per share; a four year
warrant to purchase 2,500,000 shares at $0.65 per share; and a five year warrant
to purchase 2,500,000 shares of common stock at $0.75 per share.
Subsequent
to September 30, 2010 and through November 4, 2010, we sold an additional 10,000
shares of common stock pursuant to private placements at a price of $0.50 per
share and received cash proceeds of $5,000.
We
commenced selling our products during the quarter ended September 30, 2009,
however, we are not profitable. The resulting lack of available cash from
our operations may have an adverse impact on our liquidity, activities and
operations. Until we successfully develop, manufacture, market and sell our
products, we will not generate significant revenues and we may not be
successful. There can be no assurances that we will achieve sufficient revenues
during the next twelve months or at all. If we cannot generate sufficient
revenues to continue operations, we may be forced to suspend or cease
operations.
To the
extent that it becomes necessary to raise additional cash in the future, we may
seek to raise it though the sale of debt or equity securities or from additional
loans from our stockholders. There can be no assurances that we will be
able to continue to sell shares of our common stock or borrow additional funds
from any of our stockholders or third parties in order to fund the costs
associated with our future operating and investing activities.
11
If we are
successful at raising additional equity capital, it may be on terms which would
result in substantial dilution to existing shareholders. If our costs and
expenses prove to be greater than we currently anticipate, or if we change our
current business plan in a manner that will increase our costs, we may be forced
to suspend or cease operations.
Critical
Accounting Policies and Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. As the number of variables and assumptions affecting the
probable future resolution of the uncertainties increase, these judgments become
even more subjective and complex. Actual results may differ from these
estimates.
We have
identified the following critical accounting policies, described below, that are
the most important to the portrayal of our current financial condition and
results of operations.
Stock-Based
Compensation
We
account for stock based compensation in accordance with ASC 718 Stock
Compensation. This Statement requires that the cost resulting from all
share-based transactions be recorded in the financial statements. The Statement
establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a
fair-value-based measurement in accounting for share-based payment transactions
with employees. The Statement also establishes fair value as the measurement
objective for transactions in which an entity acquires goods or services from
non-employees in share-based payment transactions.
Revenue
Recognition
In
general, we record revenue when persuasive evidence of an arrangement exists,
services have been rendered or product delivery has occurred, the sales price to
the customer is fixed or determinable, and collectability is reasonably assured.
The following policies reflect specific criteria for our various revenues
streams:
Revenue
is recognized at the time the product is delivered or the service is performed.
Provision for sales returns is estimated based on our historical return
experience.
Deferred
revenue is recorded for amounts received in advance of the time at which
services are performed and included in revenue at the completion of the related
services.
Going
Concern
Our
condensed consolidated financial statements are presented on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.
We have
experienced a significant loss from operations as a result of its investment
necessary to achieve its operating plan, which is long-term in nature. From
inception to September 30, 2010, we have incurred a cumulative net loss totaling
$3,694,748. Our ability to continue as a going concern is contingent upon our
ability to attain profitable operations and secure financing. In
addition, our ability to continue as a going concern must be considered in light
of the problems, expenses and complications frequently encountered by entrance
into established markets and the competitive environment in which we
operate.
We are
pursuing financing for our operations and we are seeking additional private
investments. In addition, we are seeking to grow our revenue
base. Failure to secure such financing, raise additional equity
capital and establish our revenue base may result in the depletion of available
funds and as a result, we may not be able pay our obligations.
Our
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the inability to continue
as a going concern.
Recent Accounting
Pronouncements
In
January 2010, the FASB issued authoritative guidance that requires new
disclosures and clarifies certain existing disclosure requirements about fair
value measurements. The new guidance requires a reporting entity to disclose
significant transfers in and out of Level 1 and Level 2 fair value measurements,
to describe the reasons for the transfers and to present separately information
about purchases, sales, issuances and settlements for fair value measurements
using significant unobservable inputs. We adopted the guidance in the
three month period ended March 31, 2010, except for disclosures about purchases,
sales, issuances and settlements in the roll forward of activity in Level 3 fair
value measurements, which is effective for interim and annual reporting periods
beginning after December 15, 2010. The adoption of the guidance did not
have a material impact on our consolidated financial statements, and we do not
currently expect the adoption of this guidance to have a material impact on our
consolidated financial statements for future periods.
12
In
February 2010, the FASB issued updated authoritative guidance regarding the
reporting of subsequent events, removing the requirement for an issuer to
disclose a date through which subsequent events have been
evaluated. The guidance was effective upon issuance in February
2010, and was adopted as of our Quarterly Report on Form 10-Q for the three
months ended March 31, 2010. The adoption of this guidance did not
have a material impact on our consolidated financial statements.
In April
2010, the FASB issued guidance on defining a milestone and determining when it
may be appropriate to apply the milestone method of revenue recognition for
research or development transactions. The guidance is effective on a prospective
basis for milestones achieved in fiscal years, and interim periods within those
years, beginning on or after June 15, 2010. We will assess the
impact, if any, of the adoption of the guidance on our consolidated financial
statements when this guidance becomes effective for us; however we do not
currently believe that the adoption of this guidance will have a material impact
on our consolidated financial statements.
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Item
4T. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is accumulated and communicated
to our management, including our principal executive and financial officers, as
appropriate to allow timely decisions regarding required
disclosure.
The
Company’s management, under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial (and principal accounting)
Officer, carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30,
2010. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were ineffective as of the end of the period covered by this
report.
The
Company continues to improve procedures with regard to its disclosure controls
and procedures.
(b)
Changes in Internal Controls.
There was
no change in our internal controls over financial reporting that has materially
affected, or is reasonable likely to materially affect, our internal
control over financial reporting during the quarter covered by this
Report.
13
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. Except as described below,
we are currently not aware of any such legal proceedings that we believe will
have, individually or in the aggregate, a material adverse affect on our
business, financial condition or operating results.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
During
the three months ended September 30, 2010, we sold 179,650 shares of restricted
common stock at a price per share of $0.50 per share and received proceeds
$89,825. These proceeds were used for general working capital
purposes.
Item
5. Other Information
None.
Item
6. Exhibits
31
|
Certifications
of the Chief Executive Officer and Chief Financial Officer pursuant to
Rule 13a-14(a)
|
32
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
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:
November 15, 2010
|
/s/ Sanford Leavitt
|
|
Sanford
Leavitt
|
||
Chief
Executive Officer
(Principal
Executive Officer)
|
||
Date:
November 15, 2010
|
/s/ Neil Roth
|
|
Neil
Roth
|
||
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
15