(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 September 30, 2012, a balance of $95,255 was outstanding. The loans are due on demand and bear interest at 4%.
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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 December 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 which has been extended to December 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 $232,181 was accreted to interest expense for the nine months ended September 30, 2012.
On February 13, 2012 the Company entered into an agreement with a Director to borrow $250,000. The loan accrues interest 12% per annum and is payable August 13, 2012, which has been extended to December 13, 2012. At the lender’s option, if payment is not made by the maturity date the loan may be converted into shares of common stock at a price of $0.20 per share.
On May 2, 2012 a family trust of which a shareholder is a trustee agreed to lend the Company $250,000 at an interest rate of 12% per annum, which loan is scheduled to be repaid on September 8, 2012, which has been extended to December 8, 2012 together with outstanding loans in the principal amount of $1,250,000 previously advanced by the trust. Interest over the entire amount is payable in $15,000 monthly increments. At any time, at the option of the lender, the entire loan is convertible into shares of common stock of the Company at $0.40 per share. In 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 $109,592 was accreted to interest expense for the nine months ended September 30, 2012.
During the three month period ended September 30, 2012 a family trust, of which a shareholder is a trustee agreed to loan the Company a total of $270,000. The proceeds were disbursed in six installments over the three month period. Interest accrues at a rate of 12% per annum. The loan and accrued interest are due upon demand. Accrued interest as of September 30, 2012 is $6,403.
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(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 September 30, 2012 was $136,069.
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. the maturity date has been extended to December 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 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. The Company recorded $100,000 representing the price of the stock as interest expense.
(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 the nine month period ended September 2012, 75,000 option shares were forfeited due to employee terminations.
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 $281,870 and the cost recognized for the three month period ended September 30, 2012 and 2011 was $12,877 and $12,878 respectively, which was recorded as general and administrative expenses. Total cost recognized for the nine month period ended September 30, 2012 and 2011 was $45,561and $36,442, respectively.
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In valuing the options issued, the following assumptions were used:
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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 | | - | - | - |
Forfeitures Expired | 75,000 | | - | - |
Outstanding at September 30, 2012 | 1,055,000 | $0.50 | 3.5 | $0.00 |
| | | | |
| | | | |
| | | | |
The following table summarizes information about fixed price stock options at September 30, 2012:
| | | | | | | | | | | | | | | | | | | | | | |
Exercise Price | | | Number Outstanding | | | Weighted Average Contractual Life | | | Weighted Average Exercise Price | | | Number Exercisable | | | Exercise Price | |
$ | 0.50 | | | | 1,130,000 | | | | 3.5 | | | $ | 0.50 | | | 0 | | | | $ | 0.50 | |
(11) Concentrations
During the nine month period ended September 30, 2012, the Company derived approximately 28% of its revenue from a single customer. All accounts receivable related to this customer were paid in full. For this same period, no single customer accounted for more than 10% of total accounts receivable.
(12) Subsequent Events
On October 2, 2012 the Company was sued by the Tennessee based dealer of its vehicles for breach of contract, misrepresentation and violation of the Tennessee Consumer Protection Act based on allegations that the Company’s vehicles showed certain defects. The action is pending in the Chancery Court for Williamson County, Tennessee (Alexander Xtreme Green Vehicles v. Xtreme Green Products, No. 41453). The Company intends to mount a vigorous defense.
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During the period October 5, 2012 through December 17, 2012 the Georgiou Family Trust agreed to loan the Company $59,000 at an interest rate of 12% per annum which loan is scheduled to be repaid on or before September 8, 2013.
On December 7, 2012 the Company agreed to reclass $150,000 of the $270,000 borrowed from the Georgiou Family Trust during the third quarter of 2012 to a convertible loan obligation with an exercise price of .25 per share in the event that, at the option of the lender, the lender chooses to convert to equity on or before the extended due date of September 8, 2013. In addition the Georgiou Family Trust agreed to extend the due date of $1,500,000 of convertible debt and $120,000 non-convertible debt owed by the Company for one year, from September 8, 2012 to September 8, 2013. In addition, the company agreed to reduce the exercise price from $.40 per share to $.25 per share, in the event that, at the option of the lender, the lender chooses to convert to equity the $1,500,000 convertible loan obligation on or before the extended due date of September 8, 2013.
On December 7, 2012 the Company agreed to extend the expiration dates of the warrants issued in March of 2010 for 30 months, from March 1, 2013 to September 1, 2015, from March 1, 2014 to September 1, 2016, and from March 1, 2015 to September 1, 2017, respectively. In addition, the Company agreed to issue 7,500,000 warrants, originally intended to be issued only upon conversion of the $1,000,000 loan provided on July 9, 2010, with an original due date of September 8, 2011, which loan has since been extended to September 8, 2013, including warrants to purchase 2,500,000 shares of common stock at $0.65 per share exercisable until November 2016, and warrants to purchase 2,500,000 shares of common stock exercisable at $0.75 until November 2017.
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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 2013, at which time we will commence developing the European market.
The company continues to grow and expand its export market. During the nine month period ended September 30, 2012, export revenue grew to 42% of total revenue with exports to Mexico, Puerto Rico, and Saudi Arabia, This compares to 7% for the same period ended in 2011.
Results of Operations
Comparison of three months ended September 30, 2012 to the three months ended September 30, 2011
Revenue – Sales for the three months ended September 30, 2012 were $135,749 compared to $239,023for the three months ended September 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 September 30, 2012 was $116,806 which resulted in a gross profit of $18,943 compared to cost of sales of $158,434 and a gross profit of $80,589 for the comparable prior year period. The decrease in the gross margin resulted from a reduction of revenue coupled with fixed manufacturing costs.
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Sales and Marketing Expense –Sales and marketing expenses include salaries, consultant fees, commissions, trade show costs, advertising, and travel. Sales and marketing expense was $135,084 for the three months ended September 30, 2012 compared to $71,879 for the comparable prior year period. The increase is primarily due to a $66,000 reclassification of commission advances to earned commissions.
Research & Development –Research and development costs consists of engineering consulting, salaries, supplies and materials, and developing new prototypes. Research and development expense was $42,593 for the three months ended September 30, 2012 compared to $55,676 for the comparable prior year period.
General and Administrative –General and administrative expenses were $373,387 for the three months ended September 30, 2012 compared to $559,145 for the three months ended September 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 overhead expenses such as rent and insurance. We had 17 full-time employees including three executive officers during the three months ended September 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 travel expenses.
Interest Expense – Interest expense for three months ended September 30, 2012 was $185,794 compared to interest of $29,794 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 $113,125 for the three month period ended September 30, 2012.
Net Loss – Net loss for the three months ended September 30, 2012 was $717,486 or $0.015 per share compared to a net loss of $635,905 or $0.01 per share for the comparable prior year period. The loss at September 30, 2012 includes a non-cash charge to interest expense of $113,125 for accretion of discounts in relation to convertible debt, and conversion of debt for common shares of stock.
Comparison of Six months ended September 30, 2012 to the six months ended September 30, 2011
Revenue - Sales for the nine months ended September 30, 2012 were $624,665 compared to $1,525,238 for the nine months ended September 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 nine months ended September 30, 2012 was $605,033 which resulted in a gross profit of $19,632 compared to cost of sales of $1,081,631and a gross profit of $443,607 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 $200,524 for the nine months ended September 30, 2012 compared to $127,177 for the comparable prior year period. The increase is primarily due to a $66,000 reclassification of commission advances to earned commissions.
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 $78,600 for the nine months ended September 30, 2012 compared to $113,063for the comparable prior year period. The reduction in cost is due to cost cutting measures taken during the past year.
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General and Administrative – General and Administrative expenses were $1,303,510 for the nine months ended September 30, 2012 compared to $1,525,020 for the nine months ended September 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, and travel expenses. We had 20 full time employees during the nine months ended September 30, 2012 compared to 24 for the comparable prior year period.
Interest Expense – Interest expense for nine months ended September30, 2012 was $653,469 compared to interest of $103,558 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 $350,091. Also, an additional $100,000 was charged to interest expense as a result of a loan extension were by 500,000 shares of common stock were issued to the lender at a price of $0.20 per share.
Net Loss – Net loss for the nine months ended September 30, 2012 was $2,216,471 or $0.05 per share compared to a net loss of $1,425,211or $0.03 per share for the comparable prior year period. The loss at September 30, 2012 includes non-cash charges to interest expense of $475,091 for accretion of discounts in relation to convertible debt and the value of stock issued for a loan extension.
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, 2012, we have incurred a cumulative net loss of $8,923,032. The notes to our financial statements include language that raises doubt about our ability to continue as a going concern. At September 30, 2012, we had cash of $1,208, net working capital deficit of
$3,140,404 and we owed our stockholders an aggregate of $2,151,658. Of the total due to stockholders, $1,500,000 is due December 8, 2012, bearing interest at 12% per annum with an option to convert into common stock at $0.40 per share, $250,000 is due December 13, 2012 bearing interest at 12% with an option to convert into common stock at $0.20 per share, and $270,000 is due upon demand bearing interest at 12% per annum. In addition $95,255 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 which has been extended to December 8, 2012. At any time prior to that date, at the option of the lender the loan is convertible into common stock at $0.40 per share. Upon conversion, the lender will also receive warrants to purchase 7,500,000 shares of common stock, as follows: a three year warrant to purchase 2,500,000 shares of common stock at $0.40 per share; a four year warrant to purchase 2,500,000 shares at $0.65 per share; and a five year warrant to purchase 2,500,000 shares of common stock at $0.75 per share.
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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 which has been extended to December 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 which has been extended to December 8, 2012, together with outstanding loans in the principal amount of $1,250,000 previously advanced by the trust. Interest over the entire amount is payable in $15,000 monthly increments, 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.
During the third quarter 2012 a family trust of which a shareholder is a trustee agreed to loan the Company a total of $270,000. The proceeds were disbursed in six withdraws over the three month period. Interest is payable at 12% per annum. The loan and accrued interest are due upon demand. Accrued interest as of September 30, 2012 is $6,403.
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.
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Secured Bridge Notes
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, which has been extended to December 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.
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.
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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.
The company offers a product warranty to its customers for defects in materials and workmanship for a period of one year and a pro-rated warranty on the life of the battery system.
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, 2012 we have incurred a cumulative net loss totaling $8,923,032 and have working capital and stockholder deficits of $3,140,404 and $3,123,667 at September 30, 2012 respectively. 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.
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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 3. 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.
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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 3. Other Information
None.
Item 4. Exhibits
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31 | Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) |
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32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Xtreme Green Products Inc. (Registrant) |
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Date: December 20, 2012 | | /s/ Sanford Leavitt |
| | Sanford Leavitt |
| | Chief Executive Officer (Principal Executive Officer) |
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Date: December 20, 2012 | | /s/ Ken Sprenkle |
| | Ken Sprenkle |
| | Chief Financial Officer (Principal Financial and Accounting Officer) |
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Exhibit 31
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Sanford Leavitt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Xtreme Green Products Inc.:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information: and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date December 20, 2012 | /s/ Sanford Leavitt |
| Sanford Leavitt |
| Chief Executive Officer |
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CHIEF FINANCIAL OFFICER CERTIFICATION
I, Ken Sprenkle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Xtreme Green Products Inc.:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information: and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: December 20, 2012 | /s/ Ken Sprenkle |
| Ken Sprenkle |
| Chief Financial Officer |
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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.
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/s/ Sanford Leavitt | |
Sanford Leavitt | |
Chief Executive Officer | |
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Date: December 20, 2012 | |
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/s/ Ken Sprenkle | |
Ken Sprenkle | |
Chief Financial Officer | |
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Date: December 20, 2012 | |
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