Xtreme Green Electric Vehicles (XGEV) 10-Q 2013 Q3 Quarterly report

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, 2013

OR

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

For the transition period from ______________ to ______________

Commission File Number 000-52502

XTREME GREEN PRODUCTS INC.

(Exact name of registrant as specified in its charter)

Nevada	26-2373311
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification Number)
3010 East Alexander Rd, Las Vegas, NV	89030
(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 issuer’s common stock, $0.001 par value as of February 17, 2014:  40,000,000

1

INDEX

	Page
PART I - Financial Information	3
Item 1: Financial Statements	3
Condensed Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012	3
Condensed Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)	4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)	5
Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 4:   Controls and Procedures	14
PART II - Other Information	15
Item 1: Legal Proceedings	15
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 5: Other Information	15
Item 6: Exhibits	15
Signatures	16

2

PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

XTREME GREEN PRODUCTS INC.

Condensed Consolidated Balance Sheets

September 30, 2013 and December 31, 2012

(Unaudited)

	2013	2012
	(Unaudited)
ASSETS
Current assets:
Cash	$ 305,322	$ -
Related party receivable	13,500	13,500
Inventory	196,839	201,743
Other current assets	340,923	45,820
Total current assets	856,584	261,063
Property and equipment, net	66,925	169,261
Other assets	316,186	36,186
TOTAL ASSETS	$ 1,239,695	$ 466,510
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$ 997,813	$ 834,829
Accrued expenses - related parties	630,763	702,553
Accrued interest - related parties	298,404	177,655
Customer deposits	362,479	312,684
Convertible debt - related party, net of discounts	2,838,500	1,839,000
Convertible debt - other, net of discounts	71,303	65,757
Current portion of long-term debt	251,245	289,538
Stockholder loans	361,872	347,333
Total current liabilities	5,812,379	4,569,349
Extended warranty reserve	2,500	-
Long-term debt, net of current portion	-	38,545
Total Liabilities	5,814,879	4,607,894
Stockholders' deficit:
Common stock, $0.0001 par value, 100,000,000 shares
authorized; 48,463,370 and 48,463,370 shares
issued and outstanding	4,846	4,846
Additional paid-in capital	5,856,424	5,809,996
Accumulated deficit	(10,436,454)	(9,956,226)
Total stockholders' deficit	(4,575,184)	(4,141,384)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 1,239,695	$ 466,510

See the accompanying notes to the consolidated financial statements.

3

XTREME GREEN PRODUCTS INC.

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2013 and 2012

(Unaudited)

	Three Months		Nine Months
	2013	2012	2013	2012
Sales, net	$ -	$ 135,749	$ 31,709	$ 624,665
Cost of sales	(4,934)	116,806	233	605,033
Gross margin	4,934	18,943	31,476	19,632
Costs and expenses:
General and administrative	95,708	373,387	272,091	1,303,510
Research and development	-	42,593	-	78,600
Sales and Marketing	29,818	135,084	31,318	200,524
Gain from equipment sales	-	-	(9,379)	-
Interest expense	63,413	72,669	217,675	178,378
Non cash charges for accretion of debt discounts	-	113,125	-	475,091
Total costs and expenses	188,939	736,858	511,705	2,236,103
Net loss	$ (184,005)	$ (717,915)	$ (480,229)	$ (2,216,471)
Per share information - basic and diluted:
Loss per common share	$ (0.00)	$ (0.01)	$ (0.01)	$ (0.05)
Weighted average common shares outstanding	48,463,370	48,380,952	48,463,370	47,991,758

See the accompanying notes to the consolidated financial statements.

4

XTREME GREEN PRODUCTS INC.

Debtors and Debtors in Possession

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2013 and 2012

(Unaudited)

	2013	2012
Cash flows from operating activities:
Net loss	$ (480,229)	$ (2,216,471)
Adjustments to reconcile net loss to net cash used in operating activities
Share-based compensation	46,428	45,561
Depreciation	35,715	47,218
Accretion of discount on convertible debts	5,546	350,091
Stock payable for loan extension	-	100,000
Gain on sale of property and equipment	(9,379)	-
Changes in operating assets and liabilities:
Increase in accounts receivable	-	(76,944)
Decrease in Inventory	4,904	76,618
Decrease (increase) in other current assets	(295,103)	7,397
Increase in other assets	(280,000)	(7,000)
Increase in accounts payable and accrued expenses	162,985	434,622
Decrease (increase) in accrued expenses - related party	(71,790)	194,022
Increase in accrued interest	120,749	65,352
Decrease (increase) in customer deposits	49,795	153,860
Increase in extended warranty reserve	2,500	-
Net cash used in operating activities	(707,879)	(825,674)
Cash flows from investing activities:
Proceeds from sale of property and equipment	35,658	-
Net cash provided by investing activities	35,658	-
Cash flows from financing activities:
Net proceeds (repayment) credit line
Proceeds from convertible debt - related party	999,500	250,000
Proceeds from long-term debt	-	50,000
Repayment of long-term debt	(36,496)	(31,493)
Stockholders loans, net of discounts	14,539	511,987
Net cash provided by financing activities	977,543	780,494
Net increase in cash	305,322	(45,180)
Cash - beginning of period	-	46,390
Cash - end of period	$ 305,322	$ 1,210
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
Assumption of long-term debt obligation	$ 40,342	$ -

See the accompanying notes to the consolidated financial statements.

5

XTREME PRODUCTS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

(UNAUDITED)

(1)

Basis of Presentation

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

The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.  For further information, refer to the consolidated financial statements of the Company as of and for the year ended December 31, 2012, on Form 10-K, including notes thereto.

(2)

Chapter 11 Proceedings

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

Pending confirmation of the Company’s plan of reorganization, the Company operated as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and the applicable provisions of the Bankruptcy Code. In general, as debtor in possession under the Bankruptcy Code, we were authorized to continue to operate as an ongoing business, except for transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.  The Bankruptcy Code enabled the Company to continue to operate its business without interruption.

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

(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 are 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 September 30, 2013; aggregating $10,436,454 and has working capital and stockholder deficits of $4,955,795 and $4,575,184 at September 30, 2013.

6

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)

Inventory

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

(6)      Other Current Assets

	September 30, 2013	December 31, 2013
Deposits	$ 190,124	$ 32,072
Prepaid Insurance	68,477	13,748
Employee Advances	9672	0
Prepaid Expenses	72650	0
TOTAL	$ 340,923	$ 45,820

(7)

Stock Holder Loans

On June 22, 2010, a family trust of which one of our shareholders is a trustee (“the lender”) agreed to lend us an aggregate of $1,000,000 at an annual interest rate of 12% in three tranches.  The first tranche of $250,000 was advanced on July 9, 2010.  The second tranche in the amount of $500,000 was funded on August 9, 2010. The balance was funded on September 9, 2010.  The loan was initially scheduled to be repaid on September 8, 2011 but since has been extended to September 8, 2012.  At any time prior to that date, at the option of the lender the loan is convertible into common stock at $0.40 per share.  Upon conversion, the lender will also receive warrants to purchase 7,500,000 shares of common stock, as follows: a three year warrant to purchase 2,500,000 shares of common stock at $0.40 per share; a four year warrant to purchase 2,500,000 shares at $0.65 per share; and a five year warrant to purchase 2,500,000 shares of common stock at $0.75 per share.

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

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

7

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

During the nine month period ended March 31, 2013, a family trust, of which a shareholder is a trustee agreed to loan the Company a total of $363,500. The proceeds were disbursed in twelve installments over the nine month period. Interest accrues at a rate of 12% per annum. The loan and accrued interest are due upon demand. Accrued interest as of September 30, 2013 is $34,748.

On August 29, 2013 a family trust of which a shareholder is a trustee agreed to provide the Company with up to $2,000,000 in post-petition financing. The Debtor in Possession (DIP) loan is secured by all of the assets of the Debtor and has priority over any and all administrative expenses of the kind specified in section 503(b) and 507(b) of the Bankruptcy code.  The DIP loan and the provisions of the DIP loan agreement were approved by the Bankruptcy court.  The DIP loan is impaired under the plan. The DIP Financing Creditor will receive 19,600,000 shares of in “Non-Locked Up Stock”. This represents 49% of the outstanding shares of the reorganized Company.  The outstanding balance at September 30, 2013 is $825,000, and interest accrues at a rate of 12% per annum.

At September 30, 2013, a balance of $354,815 was outstanding from loans made from three shareholders for working capital purposes. The loans are due on demand and bear interest ranging from 4% and 12%.

The following table summarizes the components of liabilities subject to compromise included in the Balance Sheet as of September 30, 2013:

Accounts payable & accrued liabilities	$       870,367
Accrued expenses - related party	630,763
Accrued interest – related party	292,545
Customer deposits	294,685
Convertible debt	2,909,803
Stockholder loans	361,872
Long-term debt	251,245
Total liabilities subject to compromise	$    5,611,280

Liabilities subject to compromise refers to prepetition obligations which will be impacted by the Chapter 11 reorganization process. These amounts represent the debtors’ current estimated of known or potential prepetition obligations to be resolved in connection with the Chapter 11 Bankruptcy Case. Substantially all of the company’s debt has been classified as liabilities subject to compromise.

8

Convertible Debentures

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

Secured Bridge Note

On December 29^th, 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 29^th, 2012. In addition to the repayment of the principal amount and all accrued interest, the Company shall issue to the holder, a number of securities equal to the principal amount divided by the purchase price of the securities to be issued in financing obtained with the assistance of the holder. In the event no such financing is obtained, the Company is under no obligation to issue the securities. The obligations and covenants of this note are secured by a first priority lien and security interest in the Company’s assets with the Holder’s interest shared pro rata with the holders of a series of identical notes issued on or around the date hereof.

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

We are currently investigating various opportunities to raising additional capital through the sale of debt equity securities and from loans from our stockholders. There can be no assurances that we will be able to continue to sell shares of our common stock or borrow additional funds from any of our stockholders or third parties to finance the costs associated with our future operating and investing activities.

(8)

Line of Credit

 On April 21, 2012 the Company’s line of credit with a financial institution for $150,000 was converted to a term loan bearing interest at 6% per annum, maturing April 21, 2016. The line is secured by certain assets of a related party. The balance of the loan at September 30, 2013 was $101,245.

(9)       Stock Options

Prior to the Petition Date, the Company granted certain option plans to employees and consultants to purchase 1,055,000 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.   . No awards were made under these plans during the nine month period ended September 30, 2012, and it is expected that no future awards will be made under these existing plans.  Under the terms of our Chapter 11 Reorganization Plan all stock options will be cancelled.

The total fair value of the options is $292,262 and the cost recognized for the three month period ended September 30, 2013 and 2012 was $15,476 and $16,342, respectively, which was recorded as general and administrative expenses.

9

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, 2013 is presented below

Options	Shares	Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term	Intrinsic Value
Outstanding at December 31, 2012	1,055,000	$ 0.50	5.2	$ 0.00
Granted	-	-	-	-
Expired	-	-	-	-
Outstanding at September 30, 2013	1,055,000	$ 0.50	4.2	$ 0.00

The following table summarizes information about fixed price stock options at September 30, 2013:

Exercise Price		Number Outstanding		Weighted Average Contractual Life		Weighted Average Exercise Price		Number Exercisable		Exercise Price
	0.50		1,055,000		3.4		0.50		464,750		0.50

(10)       Subsequent Events

On January 29, 2014, the Bankruptcy Court entered an Order Confirming the Company’s First Amended Plan of Reorganization under Chapter 11 Bankruptcy Code.  As confirmed by the Bankruptcy court pursuant to the Confirmation Order, all claims of creditors and holders of equity interests (except administrative claims) are to be cancelled, annulled, and extinguished.

10

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

Forward-Looking Statements

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

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

Recent Developments

As previously discussed, on August 22, 2013, the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Company’s plan of reorganization was confirmed by the Bankruptcy Court on January 29, 2014.  The terms of the plan as confirmed were detailed in the Company’s Current Report on Form 8-K that was filed on February 4, 2014.

On September 25, 2013 the Company executed a new long term lease agreement for its office and manufacturing facility.  The Company now occupies 49,920 square feet located at 3010 East Alexander Road, Suites 1002 & 1003, North Las Vegas, NV 89030.

Results of Operations

Comparison of three months ended September 30, 2013 to the three months ended September 30, 2012

Revenue - There were no sales for the three months ended September 30, 2013 compared to $135,749 for the three months ended September 30, 2012. The reduction in sales results from our lack of cash and the ensuing inability to purchase manufacturing inventory to fill customer orders.

Cost of Sales - The Company incurred no cost on sales for the three months ended September 30, 2013 compared to cost of sales of $116,806 for the same three month period in 2012.

General and administrative –General and administrative expenses were $95,708 for the three months ended September 30, 2013 compared to $373,387 for the three months ended September 30, 2012.  Our general and administrative expenses for the three months ended September 30, 2013 consist primarily of (i) salaries, (ii) marketing and trade show expense (iii) legal and professional fees. We had -7- full-time employees during the three months ended September 30, 2013 compared to 20 full-time employees during the comparable period in 2012. 

Interest expense -Interest expense for three months ended September 30, 2013 was $63,413 compared to interest of $185,794 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 $-0- and $113,125 for the comparable prior year period.  

Net Loss - Our net loss for the three months ended September 30, 2013 was $184,005 or $0.00 per share compared to a net loss of $717,915 or $0.01 per share for the comparable prior year period. 

11

Comparison of nine months ended September 30, 2013 to the nine months ended September 30, 2012

Revenue - Sales for the nine months ended September 30, 2013 were $31,709 compared to $624,665 for the nine months ended September 30, 2012. The reduction in sales results from our inability to purchase manufacturing inventory to fill customer orders.

Cost of Sales – Cost of sales for the nine months ended September 30, 2013 was $233 which resulted in a gross profit of $31,476 compared to cost of sales of $605,033 and a gross profit of $19,632 for the comparable prior year period. The increase in the gross margin resulted from an inventory adjustment of $17,600.

Sales and Marketing Expense –Sales and marketing expenses include salaries, consultant fees, commissions, trade show costs, advertising, and travel. Sales and marketing expense was $31,318 for the nine months ended September 30, 2013 compared to $200,524 for the comparable prior year period. The decrease is a result of the company’s temporary suspension of its marketing program including trade show representation.

General and Administrative – General and Administrative expenses were $272,091 for the nine months ended September 30, 2013 compared to $1,303,510 for the nine months ended September 30, 2012.  Our general and administrative expenses consist primarily of (i) salaries and wages, (ii) depreciation, (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 temporary closure of our operations during July and August as preparations were made for filing chapter 11 Reorganization and for moving to a new facility..  We had 7 full time employees during the nine months ended September 30, 2013 compared to 20 for the comparable prior year period.

Interest Expense – Interest expense for nine months ended September 30, 2013 was $217,675 compared to interest of $653,469 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 $5,546 and $475,091 for the comparable prior year period.

Net Loss – Net loss for the nine months ended September 30, 2013 was $480,229 or $0.00 per share compared to a net loss of $2,216,471 or $0.05 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, 2013, we have incurred a cumulative net loss of $10,436,454.  The notes to our financial statements include language that raises doubt about our ability to continue as a going concern. 

On August 22, 2013, following the filing of our voluntary petition for relief under Chapter 11 of the Bankruptcy Code, a shareholder provided the Company with up to $2,000,000 in post-petition court approved financing. The Debtor in Possession (DIP) loan is (a) secured by all of the Company’s assets and (b) has priority over any and all administrative expenses of the kind specified in the Bankruptcy Code. The DIP Financing Creditor will receive 19,600,000 shares of in “Non-Locked Up Stock”. This represents 49% of the outstanding shares of the reorganized Company.  Interest accrues at a rate of 12% per annum.

Prior to January 29, 2014, the Confirmation date of the Company’s Reorganization Plan under Chapter 11 Bankruptcy Code, the Company had issued and outstanding 48,463,370 shares of common stock. Following the cancellations and issuances pursuant to the Plan, there will be issued and outstanding approximately 40,000,000 shares of common stock. The number of shares of the Company is authorized to issue remains unchanged.

12

We are currently investigating various opportunities to raising additional capital through the sale of debt, equity securities and from additional loans from our stockholders.  There can be no assurances that we will be able to continue to sell shares of our common stock or borrow additional funds from any of our stockholders or third parties to finance the costs associated with our future operating and investing activities.

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

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

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

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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, 2013 we have incurred a cumulative net loss totaling $10,436,454 and have working capital and stockholder deficits of $4,955,795and $4,575,184 at September 30, 2013.  Our ability to continue as a going concern is contingent upon our ability to attain profitable operations and secure financing.  In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which we operate.

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

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

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

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

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

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

The Company’s management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2013.  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 affect on our business, financial condition or operating results.

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

None

Item 5. Other Information

None.

Item 6. Exhibits

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

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

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SIGNATURES

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

	Xtreme Green Products Inc. (Registrant)
Date: February 19, 2014		/s/ Sanford Leavitt
		Sanford Leavitt
		Chief Executive Officer (Principal Executive Officer)
Date: February 19, 2014		/s/ Ken Sprenkle
		Ken Sprenkle
		Chief Financial Officer (Principal Financial and Accounting Officer)

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