ITEM 1. BUSINESS
Emergence from Voluntary Reorganization under 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 the Chapter 11 Case, The Company operated as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and the applicable provisions of the Bankruptcy Code.
On January 29, 2014 (the “Confirmation Date”), the Bankruptcy Court entered an Order Confirming the Company’s First Amended Plan Of Reorganization (the “Plan”) under Chapter 11 of the Bankruptcy Code. The Bankruptcy Court ordered the Chapter 11 closed as of February 28, 2014.
Overview of Business
We are an eco-vehicle company that has developed one of the largest lines of revolutionary, green, 100% electric powered specialty vehicles such as Personal Mobility Vehicles (PMVs), All Terrain Vehicles (ATVs), and Utility Terrain Vehicles (UTVs).
Designed with proprietary energy management systems and electric propulsion systems, these products have the power and ability of gas powered engines, but without the particulate pollution or noise pollution. We intend to become the new wave and standard in environmentally conscious green 100% electric specialty vehicles.
Our factory occupies a 50,000 sq. ft. facility in North Las Vegas. At this facility, we manufacture and assemble all products so they will be “Made in the USA” items. Additionally, to date, the Company has hired 13+ new employees at this location to accomplish its manufacturing goals.
Organizational History
Xtreme Green Products Inc. (“XGP”, “Xtreme”, “we” or the “Company”) was originally incorporated in the State of Colorado on December 29, 2005, under the name Belarus Capital Corp. The Company completed a migratory merger on August 18, 2008 and is currently incorporated in the state of Nevada.
On November 12, 2008, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with the shareholders (the “Shareholders”) of Xtreme Green Products Inc., a Nevada corporation (”Xtreme”), pursuant to which the Company purchased from the Shareholders approximately 97.43% of the then issued and outstanding shares of Xtreme’s common stock in consideration for the issuance of 37,837,800 shares of common stock of the Company (the "Share Exchange"). As a result of the Exchange Agreement, (i) Xtreme became a subsidiary of the Company and (ii) the Company succeeded to the business of Xtreme as its sole business. The Company subsequently changed its name to Xtreme Green Products Inc.
Products
Police Mobility Vehicle (PMV-A09) - The Sentinel
The Xtreme Green Police Mobility Vehicle (PMV) is designed to replace the bicycle and foot patrol with state of the art, efficient urban neighborhood and downtown patrol. The three wheel design and the size of the vehicle (approximately 58” long and 32” wide) will allow officers to patrol on sidewalks safely as well as go through open doorways and up 6” curbs when in pursuit or rushing to a crime scene. The electric propulsion system and energy management will allow an officer to patrol as much as 80 miles without an electric charge at a cost of approximately one half cent per mile. With the internal charger, the PMV can be recharged with any 110 volt outlet. The PMV is designed with sufficient storage units to allow an officer to carry the emergency supplies hard to carry on a bicycle or on foot. Our target market for this vehicle, named the Sentinel, includes police departments, colleges and universities, the federal and state governments and private security companies. The Company has already shipped Sentinels throughout the United States including but not limited to Denver, Dallas, Georgia, California as well as Mexico, El Salvador and Puerto Rico.
ATV Pro (All TerrainVehicle)
The XGP All Terrain Vehicles are the first of their kind in the marketplace. We are not aware of any competitor that has designed a four wheel drive ATV with lithium ion batteries and the performance that our proprietary propulsion system gives the user. The ATV can be used for military applications, police and security, border patrol as well as off-roading and hunting for consumers.
The main features of the ATV are:
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7 feet long, wheelbase of 51.75 in. Ground clearance of 10.75 inches.
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All ATVs have 2 wheel drive and 4 wheel drive (initiated through electronic switch)
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Weight - 1048 lbs
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State of the Art 100 AH Lithium Ion (LFP) Battery System standard that will last up to 2000 charges - about 7 years based on one charge per day. Also available in 130 AH and 180 AH
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Proprietary, computerized Battery Management System for safety and long life.
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4 wheel disc brakes.
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Regenerative Braking
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Built-in battery charger - 110/220 volt
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5 KW 72 Volt Electric Brushless Motor standard, also available in 6.5 KW 96 volt version.
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Standard speeds of up to 45 MPH but can be adjusted higher or lower subject to requirement
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Complete police lighting, PA system and siren package available
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Range between charges of 50-80 miles dependent on speed and topography
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Will climb a 30 degree plus grade
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2000 lb electric winch plus a 2” heavy duty ball hitch receiver
Transport Pro (Utility Terrain Vehicle)
The Transport Pro UTV has the widest range of usage in all three segments (Police, Consumer and Commercial). With numerous options, including size of vehicle, enclosures, motors and battery sizes, the UTV can be adapted to almost any situation for police, can be used by consumers as a registered low speed electric vehicle or off road vehicle for hunting and camping and by commercial users such as wineries and agriculture, horse farms, janitorial and maintenance uses in buildings and warehouses and for horticultural service vehicles.
The main features of the Transport Pro are:
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11 feet long, wheelbase of 74.8 in. Ground clearance of 10.75 inches. It is also available in long bed utility truck and 5 seat versions that are 13.5 feet long.
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All UTVs have 2 wheel drive and 4 wheel drive (initiated through electronic switch)
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Weight - 1348 lbs
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State of the Art 100 AH Lithium Ion (LFP) Battery System standard that will last up to 2000 charges - about 7 years based on one charge per day. Also available in 130 AH and 180 AH
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Proprietary, computerized Battery Management System for safety and long life.
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4 wheel disc brakes plus disc parking brake
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Built-in battery charger - 110/220 volt
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5 KW 72 Volt Electric Brushless Motor standard, also available in 5.5 KW 96 volt, 6.5 KW 96 volt versions Standard speeds up to 25 MPH but can be adjusted higher or lower subject to requirements or as off road vehicle. It may be registered as a Low Speed Electric Vehicle (LSEV)
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Complete police lighting, PA system and siren package available
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Range between charges of over 50 miles dependent on speed and topography
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Will climb a 30 degree plus grade
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2000 lb electric winch plus a 2” heavy duty ball hitch receiver
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Dump truck bed capable of holding 800 pounds
Markets and Customers
Market Analysis Summary.
The professional personal mobility market has experienced growth in the past several years. Personal transportation in the United States has become a necessity with law enforcement and government agencies, university campuses, airports, shopping malls, office complexes, events/promotions, military/government, and industrial areas. Similar needs exist in other parts of the world.
The increase in homeland security spending since 9/11 has been substantial. We intend to capture a substantial portion of three wheel Police Mobility Vehicle market including police departments, universities and most major security companies.
Adding to the substantial market for security in the post-9/11 world, increasing awareness of global warming is creating a rapidly growing market for clean technologies. As zero-gas emissions electric vehicles, we believe that we are positioned to take advantage of this trend.
The market for the Police Mobility Vehicle consists of police departments, federal agencies, security firms, school districts and large manufacturing and warehousing facilities. All of these categories are international in nature and the Company has shipped to a number of overseas locations.
In the United States alone, there are over 18,769 police departments, with over 663,000 police officers. There are over 97,000 elementary and secondary schools. There are over 2000 security companies and untold number of large warehouse and manufacturing facilities. All of these locations as well as the armed services, and large state and federal buildings consist of the market segment for the PMV.
Competition
With respect to our PMV, we compete primarily with two major manufacturers. The first is the Segway Personal Transporter. This product is two wheeled and works off of a gyroscope system. The price for this unit is less than Xtreme’s PMV but it lacks some of the features of our PMV, including:
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Lower speed (12-15 MPH)
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Fatiguing when used for lengths of time
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Little room for accessories and emergency equipment
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No protection for rider
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Does not include internal charger
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History of breakdowns
The second competitor is T3 Motion. T3 has created and marketed a similar three wheel vehicle to what the Company is now producing. The pricing on T3 is about the same as the PMV. When looking at both vehicles, at first there are some similarities, but the PMV actually is much different and addresses a number of design features missing in the T3. They include:
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PMV has a lower center of gravity for more stability than the T3
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PMV includes suspension and anti-fatigue mats, not on the T3
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PMV has a hub motor and will go 29 MPH; police version of the T3 has a chain drive and goes 25MPH
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PMV includes an internal charger; T3 requires a second battery pack to get through the day
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PMV has an auto braking system when the rider leaves
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PMV easily clears 8” curb, T3 not built to go over curbs
Xtreme believes that its PMV is the most state-of-the-art and cost effective vehicle that has been offered for use in the police and security field to date.
Strategy and Implementation Summary
We intend to introduce our innovative and unique product to the marketplace through the implementation of a strong and inclusive marketing plan that utilizes both direct and indirect methods of advertising. To increase awareness, Xtreme has outlined a series of public relations, advertising and marketing programs. Xtreme plans the development of a strong distributor network.
Marketing Strategy
We believe that we have a major competitive advantage over most players in the electric vehicle market due to the comprehensive Energy Management System XGP spent over three years perfecting. This system not only has the ability to handle large current loads but manages the Lithium battery cells, including shutting off the vehicle when the cells become damaged or if they overheat. This allows the vehicles to be safely charged and discharged for 2-3 thousand charges. The System is run by a Master Battery Management Unit that coordinates all information specific to an individual electric motor, motor controller, battery cells and charger, programmed for each type of vehicle and use.
In addition, we believe that we have the largest and most complete line of small electric vehicles in the industry. We do not believe that there is a competitor that markets more than one version of one of XGP’s electric vehicles. This “one stop shop” ability for a police department, consumer or commercial user dramatically improves the company’s ability to close sales.
Xtreme follows a creative marketing plan that allows it to focus directly on its target market while using its advertising dollars conservatively. The primary focus of the marketing strategy is to grow the Company’s client base. The Company will engage in the following marketing tactics:
Tradeshows:
XGP attends police and security meetings and tradeshows throughout the United States to increase awareness of its product to prospective customers and to simultaneously establish industry connections and contacts.
Representatives:
XGP has recruited a large base of U.S. and international distributors and representatives on an exclusive geographical basis. These representatives will have the rights to all the Xtreme Green products as they become available. In some specific markets, XGP has developed distributors who purchase and inventory products for sale at wholesale pricing. Overall, the company has 11 sets of vehicles set in strategic locations for onsite demos.
Website:
The Company presently has a website www.xgpinc.com. XGP also has an active blog, and Twitter and Facebook accounts. Part of the public relations plan is to make full use of the internet communication and advertising opportunities.
Regulations
General
XGP’s operations are subject to extensive federal, state, provincial, territorial, local and international environmental and safety laws and regulations relating to, among other things, the generation, storage, handling, emission, transportation, disposal and discharge of hazardous and non hazardous substances and materials into the environment and employee health and safety. Permits are required for certain of XGP’s operations, which are subject to revocation, modification and renewal by issuing authorities. Governmental authorities have the power to enforce compliance with their laws and regulations, and violations may result in enforcement actions such as convictions, the payment of fines or the issuing of injunctions, or some combination of the foregoing. XGP has obtained compliance certificates issued by the Department of Transportation, National Highway Transportation Safety Administration and believes that it is the first company to receive an EPA certification for an electric vehicle. Additionally, Xtreme is applying for its EU certification that is required to ship vehicles into Europe.
Laws and regulations relating mostly to engine gaseous emissions, sound levels, safety and manufacturing standards are in place or will gradually be implemented in jurisdictions where XGP’s products are manufactured and sold. XGP believes its products comply with all existing legislative and regulatory requirements in jurisdictions where they are manufactured or sold. Moreover, XGP is taking appropriate measures to ensure that its products will be compliant with anticipated more stringent regulations as they become effective from time to time. While these efforts require substantial expenditures, it is impractical at this time to isolate these specific costs from total project costs.
Intellectual property
XGP does not currently have any patents or patent applications for any of its products or their components.
Employees
We have 20 employees, including three executive officers. None of our employees are represented by a labor union; and XGP considers its employee relations to be excellent.
ITEM 1A.
ITEM 1A. RISK FACTORS
Not applicable for smaller reporting companies
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
The Company’s principal offices are located at 3010 East Alexander Road, Unit 1002, North Las Vegas, Nevada and consist of a 49,920 square foot warehouse that is leased at $13,478per month. The lease expires on
January 31, 2018.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
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 Chapter Case was administered under Case No. BK-S-13-17266-MKN.
The Company’s reorganization plan was confirmed by the Bankruptcy court on January 29, 2014 and closed on February 28, 2014. The terms of the plan as confirmed were detailed in the Company’s current report on Form 8-K, filed on February 4, 2014.
On or about October 2, 2012, Barry Alexander Automotive,, LLC. (“BAA”) commenced litigation against the Company in the Chancery Court for Williamson County, Tennessee, 21st Judicial District, Case No. 41453 (the “Tennessee Litigation”). BAA asserted claims against the Company for breach of contract, breach of express and implied warranties, misrepresentation, and violation of the Tennessee Consumer Protection Act. The action was brought in connection with a distribution agreement between the Company and BAA entered into in February 2011.
The case was stayed by the Bankruptcy Court before its conclusion in Tennessee and was approved as an unsecured claim.
From time to time, the Company may be named in claims arising in the ordinary course of business. Currently, all legal proceedings or claims are stayed by the bankruptcy and are expected to be resolved prior to emerging from bankruptcy.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock was included for quotation on the OTC Bulletin Board under the symbol XTRG since May 11, 2011 through the Confirmation Date. As a result of the Chapter 11 Case, the Company will need to apply for a new trading symbol.
The following table shows the reported high and low closing bid quotations per share for our common stock based on information provided by the OTC Bulletin Board for the periods indicated. No quotes were available for prior periods. Over-the-counter market quotations reflect inter-dealer prices, without markup, markdown or commissions. Particularly since our common stock is traded infrequently they may not necessarily represent actual transactions or a liquid trading market.
On March 31, 2014, the closing price for our common stock on the OTC Bulletin Board was $0.02 per share.
Number of Stockholders
As of March 31, 2014 there were approximately 177 holders of record of our common stock.
Dividends
We have never declared any dividends.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. 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.
Overview
Xtreme Green Products Inc. (“XGP”, “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, light trucks (UTV) and ATVs. We also intend to develop additional products such as people movers and golf cars. 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 XGP 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 XGP.
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.
On January 29, 2014, the Bankruptcy Court entered an Order Confirming the Company’s First Amended Plan Of Reorganization (the “Plan”) under Chapter 11 of the Bankruptcy Code. The Bankruptcy Court ordered the Chapter 11 closed as of February 28, 2014.
For future financial reporting purposes, the Company, will not apply the provisions of fresh start accounting to its financial statements as of February 1, 2014 as holders of the voting shares immediately before the confirmation control over 50% of the working shares after the confirmation.
We have completed all testing and paperwork for the European Union certification and expect certification to be finalized in the near future at which time we will commence developing the European market.
Results of Operations
Comparison of the year ended December 31, 2013 to the year ended December 31, 2012
Sales for the past two fiscal years ended December 31, 2013and December 31, 2012 were $138,420 and $661,315 respectively. The decrease in 2013 as compared to 2012 is due to the financial inability of the company to purchase parts needed to fulfill orders on file.
Cost of sales for the year ended December 31, 2013 and 2012was $124,849 and $991,660 which resulted in a gross profit margin of$13,571 in 2013 compared to a loss of$330,345 in 2012. Cost of sales does not include depreciation expense which was $46,118 and $61,036 respectively.
General and administrative expenses were $1,126,641for the year ended December 31, 2013 compared to $2,061,844 for the year ended December 31, 2012. Our general and administrative expenses consist primarily of (i) salaries and wages, (ii) product design and other related product development costs, (iii) professional fees such as legal and accounting fees, and (iv) general expenses such as rent and insurance. The overall decrease in general and administrative expenses is attributable to a reduction in administrative labor, marketing costs, and general overhead expenses.
During the year ended December 31, 2013we incurred stock based compensation expense of $61,904compared to $61,038for the year ended December 31,2012. Stock based compensation expense, was charged to operations for the amortization of options issued. The value ascribed to all shares issued as stock based compensation is $0.50 per share.
Interest expense for the year ended December 31, 2013and 2012 was $253,248 and $732,071 respectively. Interest expense consists primarily of amounts due under notes payable to one of our directors, and interest incurred under various short term lines of credit and bridge loans. In addition accretion of discounts in relation to convertible debt totaled $3,697 and $352,863 respectively and was included in interest expense.
Research and development costs were charged to operations as incurred. The company did not incur any Research and Development cost for the year ended December 31, 2013 compared to $125,405 for the year ended December 31, 2012. The overall decrease in research and development is attributable to our Company’s cost cutting measures taken during the past twelve months and our inability to obtain additional capital.
Net Loss for the year ended December 31, 2013 was $1,366,318or $0.02per share compared to a net loss of $3,249,665 or $0.07 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 December 31, 2013 we have incurred a cumulative net loss of
$11,322,544. The notes to our financial statements include language that raises doubt about our ability to continue as a going concern. At December 31, 2013we had cash of $261,436, a net working capital deficit of $5,678,997and we owed our stockholders an aggregate of $4,038,087. These stockholders are also officers and directors of our Company. Of the total due to stockholders, $2,538,087 plus accrued interest is due upon demand and $1,500,000 is due December 29, 2013 bearing interest at 12% with an option to convert into common stock at $0.40 per share.
There were no sales of restricted common stock during the year ended December 31, 2013.
All outstanding loans disclosed in previous reports (including loans advanced by affiliates) were impaired in the Chapter 11 Case. All were converted into shares of Common Stock in accordance with the formula set forth in the Plan.
On August 29, 2013a family trust of which a shareholder is a trustee and its affiliates agreed to provide the company with up to $2,000,000 in post-petition financing. The Debtor in Possession (DIP) loan was secured by all the assets of the Debtor and had priority over any and all administrative expenses of the kind specified in section 503(b) and 507 (b) of the Bankruptcy court. The DIP loan and the provisions of the DIP loan were approved by the Bankruptcy court. The DIP loan is impaired under the plan. The DIP Financing Creditor received 19,600,000 shares of in “Non-Locked Up Stock”. This represented 49% of the outstanding shares of the reorganized Company at the time of confirmation of the Plan. The outstanding balance at December 31 was $1,500,000, and interest accrued at a rate of 12% annum. Accrued interest as of December 31, 2013 was $22,869.
During March and April 2014, we completed a private placement of 750,000 shares of common stock and three year warrants to purchase 750,000 shares of common stock at $1.00 per share. Net proceeds from the offering were $750,000.
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
The Company accounts 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, the Company records 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 the various revenue streams of the Company:
Revenue is recognized at the time the product is delivered or the service is performed. Provision for sales returns will be estimated based on the Company’s historical return experience.
Deferred revenue is recorded for amounts received in advance of the time at which delivery occurs or services are performed and included in revenue at the completion of the related services or when product delivery occurs.
Going Concern
The Company’s 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.
The Company has experienced a significant loss from operations as a result of its inability to secure financing necessary to build its inventory and meet demand for its products. From inception to December 31, 2013, the Company incurred net losses of $11,322,544. The Company’s ability to continue as a going concern is contingent upon its ability to attain profitable operations and secure financing. 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 and public investments. The Company has also significantly increased its revenue base and management foresees this trend continuing. The inability to obtain additional capital may reduce our ability to continue to conduct business operations as currently contemplated. Any additional equity financing may involve substantial dilution to our then existing stockholders.
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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index of Financial statements following Part III of this Report for a listing of the Company’s financial statements and notes thereto.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES
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 December 31, 2013 Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective.
Management's Report on Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed by, or under the supervision of, a public company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the board of directors, management and other personnel, 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 (“GAAP”) including those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors of the company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management, with the participation of the Chief Executive and Chief Financial Officers, believes that, as of December 31, 2013, we did not maintain effective internal control over financial reporting due to the material weakness described below.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We identified the following material weakness in our assessment of the effectiveness of internal control over financial reporting:
We did not design and implement adequate controls related to the accounting of convertible debt transactions, specifically in this instance, applying guidance to allocate proceeds to detachable securities and also to assess for and record the beneficial conversion feature related to the convertible debt transactions.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
Plan for Improving Controls and Procedures
As noted above, we believe that significant improvements have been made in our ability to analyze financial information in a timely manner and to allow on-going monitoring and enhancement of our internal controls. As our financial position improves, we plan to continue to enhance our control environment by expanding the resources available to the financial reporting process. These ongoing efforts will include: (i) evaluating and improving our existing internal control documentation to develop clear identification of key financial and reporting controls; (ii) reviewing our accounting process; and (iii) reviewing our control procedures.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the year ended December 31, 2013 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following persons are our executive officers and directors as of December 31, 2013:
Name
Age
Position(s)
Byron Georgiou
Chair of the Board
Sandy Leavitt
Chief Executive Officer and Director
Neil Roth
President and Secretary
Ken Sprenkle
Chief Financial Officer & Treasurer
Frank Rosenberg
Director
Byron Georgiou has been Chairman of the Company since January 2014. He previously served as a director of the Company from February 2010 to July 2011. Mr. Georgiou has had a long career in the private and public sectors in business, law and government service. From 2009 to 2011 he served as one of ten bipartisan nationwide members on the Financial Crisis Inquiry Commission, which conducted America’s official inquiry into the causes of the continuing financial, economic and housing crises, and reported its results to the President and Congress. (http://fcic.law.stanford.edu). Mr. Georgiou is the Chairman of Georgiou Enterprises (www.georgiouenterprises.com), which has wide-ranging interests. He has served since 2005 on the advisory board of the Harvard Law School Program on Corporate Governance (www.law.harvard.edu/programs/corp_gov), which hosts the world’s leading blog on corporate governance and financial regulation. From 2000 to 2011, he was Of Counsel to Robbins, Geller, Rudman & Dowd (www.rgrdlaw.com), and its predecessor law firms, the world’s largest plaintiffs’ securities practice, investigating and civilly prosecuting financial fraud, with leadership roles on behalf of victimized institutional investors at Enron, WorldCom, Dynegy, AOL/Time Warner and United Health. During Jerry Brown’s second term as California Governor, Mr. Georgiou served as Legal Affairs Secretary, responsible for litigation by and against the Governor, judicial appointments, liaison with the Attorney General, Judiciary and State Bar, legal advice to the Governor and members of his Cabinet, and exercise of the Governor’s powers of extradition and clemency. He attended Stanford University on a full Alfred P. Sloan academic scholarship, graduating in 1970 with Great Distinction with an A.B. in Political Science, as a participant in the Honors Program in Social Thought and Institutions, and in 1974 received his J.D. Magna Cum Laude from Harvard Law School.
Sandy Leavitt has been our Chief Executive Officer since August 2007. He has over 30 years experience in manufacturing and marketing of automotive related parts. He has held the position of president for a number of corporations in this field, and has developed strong and enduring relationships with Associate companies in the Far East. Mr. Leavitt has been Vice President of Sumeeko USA, a manufacturer and wholesaler of industrial fasteners and fastening equipment since 2003 and has pioneered joint ventures and established global distribution channels which have enabled worldwide sales to the automotive groups from the low cost producing nations. Mr. Leavitt’s extensive experience in sales, manufacturing, and distribution has enabled the Company to develop a comprehensive plan and control of these processes.
Neil Roth has been our President since August 2007. He has also been President of Roth Enterprises since 2003. In addition, he has been President of Designed Diagnostics, Inc. since February 2006. He has over 35 years of experience in the consumer products industry and corporate management of large corporations. His experience includes top executive positions at Eckerd Drugs, Revco, Thrifty Drugs, Caldor’s, and Lionel Kiddie City among others. For the past ten years, Mr. Roth has been a highly sought after marketing consultant as well as president of a medical diagnostics company. His top level administrative experience in these multi-billion dollar companies gives him the background to set up and run the Company’s administrative needs. The marketing and sales experience will allow him to create and manage, along with Mr. Leavitt, the marketing plan of the Company.
Ken Sprenkle has served as the Company’s Vice President of Finance since April 2010. He has over 35 years experience in financial management. From May 2008 until April, 2010 he was Vice President of Finance at Quinn Concrete Pumping, Inc. From February, 2006 until May, 2008 he was Executive Director at the Las Vegas Rescue Mission. During the period from 1998 through 2005 Mr. Sprenkle was Vice President of Finance for Wells Cargo Construction. Mr. Sprenkle holds a BS in Accounting from Robert Morris College, Pittsburgh, Pennsylvania, and an MBA from Baldwin Wallace University, Berea, Ohio.
Frank Rosenberg has been a director since November 2010. Since 1991, Mr. Rosenberg has been Managing Director with Airline Capital Associates, Inc., an aviation business consulting firm. He has developed a practice providing marketing strategies and business development to the airline and airport markets, and is active in the Emerging Markets practice, advising on aviation infrastructure developments. While at ACA, he has also provided advice to clients on diverse issues, including: homeland security (airport security training and passenger and cargo screening); airport privatization; the capacity of a hub at Malpensa airport in Italy; ground handling service standards and equipment needs; new airport fuel operations business plan; and public policy issues involved in the privatization of a flag carrier. From 1967 until 1993, Mr. Rosenberg was Financial Officer for North America at British Airways. From 1983 until 1991 he was Chief Operating Officer and Executive Vice President of Ogden Allied Services Corporation, a major aviation service company whose 10,000 employees provided ground, cargo, fueling, and catering services to airlines in over seventy airports around the world. Mr. Rosenberg is an active member of Airports Council International - North America, serving on the Air Cargo and Public Safety and Security Committees. He is a Trustee of Vaughn College (formerly, the College of Aeronautics) where he is Chairman of the Executive Committee, and a member of the American Institute of Certified Public Accountants. He is a graduate of the City College of New York.
Election of Directors
All directors of the Company are elected at its annual meeting of stockholders to hold office until the next annual meeting of stockholders and until their successor is elected and qualified, or until such director’s earlier death, resignation or removal. All officers of the Company serve at the pleasure of the Board, subject to their contractual rights, if any.
Committees of the Board
We do not have currently any committees of the Board. All functions typically performed by committees are performed by the Board as a whole.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth salaries earned by the Company’s Officers during the fiscal year ended December 31, 2013. In accordance with the rules and regulations promulgated by the Securities and Exchange Commission, the table omits columns that are not applicable.
(1)
In accordance with the rules and regulations of the Securities and Exchange Commission, the table omits columns that are not applicable.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (1)
Name
(a)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Options(#)
(c)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
(d)
Option Exercise Price($)
(e)
Option Expiration Date($)
(f)
Ken Sprenkle
Chief Financial Officer
37,500
112,250
$
0.50
January 1, 2016
150,000
$
0.50
November 1, 2016
(1)
In accordance with the rules and regulations of the Securities and Exchange Commission, the table omits columns that are not applicable .All options were terminated on February 28, 2014 under the terms of the Chapter 11 Plan.
Compensation of Directors
No compensation was paid to Directors during the fiscal year ended December 31, 2013
2008 Incentive Stock Option Plan
The Company’s 2008 Incentive Stock Option Plan, though still in effect at December 31, 2013, was terminated on February 28, 2014 under the terms of the Chapter 11 Plan. All options outstanding there under were terminated as of that date.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the Exchange Act, our directors, our executive officers, and any persons holding more than 10% of our common stock are required to report their ownership of our common stock and any changes in that ownership to the Securities and Exchange Commission. To our knowledge, based solely on our review of the copies of such reports received or written representations from certain reporting persons that no other reports were required, we believe that during our fiscal year ended December 31, 2013, all forms required to be filed under Section 16 were filed in a timely manner.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information as of April 15, 2014 regarding the beneficial ownership of our Common Stock, based on information provided by (i) each of our executive officers and directors; (ii) all executive officers and directors as a group; and (iii) each person who is known by us to beneficially own more than 5% of the outstanding shares of our Common Stock. The percentage ownership in this table is based on 40,750,000 shares issued and outstanding as of April 15, 2014. Unless otherwise indicated, we believe that all persons named in the following table have sole voting and investment power with respect to all shares of Common Stock that they beneficially own.
Name and Address of Beneficial Owner (1)
Amount and Nature of Beneficial Ownership of Common Stock (2)
Percent of Common Stock
Byron Georgiou (2)
25,617,826
62.9
Sanford Leavitt
3,316,055
8.1
Arthur Robins
3,316,055
8.1
Neil Roth
2,331,683
5.7
Ken Sprenkle
66,175
*
Frank Rosenberg
10,000
-*
All Directors and Executive Officers as a Group (five persons)
31,341,739
76.9
* Less than 1%
(1)
The address of all individuals listed below is c/o Xtreme Green Products Inc., 3010 E. Alexander Rd. Suite 1002, North Las Vegas, NV 89030.
(2)
Consists of 8,404,000 shares held by the Georgiou Consulting Inc. Money Purchase Plan, of which Mr. Georgiou is the administrator. Also includes 11,213,826 shares held by the Georgiou Family Trust dated 6/22/09 and 6,000,000 shares held by the Georgiou Children Gift Trust. Mr. Georgiou is trustee of both trusts.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
During the nine month period ended December 31, 2013, a family trust, of which a shareholder is a trustee agreed to loan the Company a total of $333,500. The proceeds were disbursed over a nine month period. The loan and accrued interest are due upon demand. Interest accrued at a rate of 12% per annum. Accrued interest as of December 31, 2013 was $41,082. This loan was impaired in the Chapter 11 Case. The loan was converted into shares of Common Stock in accordance with the formula set forth in the Plan.
On August 29, 2013 a family trust of which a shareholder is a trustee and its affiliates agreed to provide the company with up to $2,000,000 in post-petition financing. The Debtor in Possession (DIP) loan was secured by all the assets of the Debtor and had priority over any and all administrative expenses of the kind specified in section 503(b) and 507 (b) of the Bankruptcy court. The DIP loan and the provisions of the DIP loan were approved by the Bankruptcy court. The DIP loan is impaired under the plan. The DIP Financing Creditor received 19,600,000 shares of in “Non-Locked Up Stock”. This represented 49% of the outstanding shares of the reorganized Company at the time of confirmation of the Plan. The outstanding balance at December 31, was $1,500,000, and interest accrued at a rate of 12% annum. Accrued interest as of December 31, 2013 was $22,869. The DIP loan was converted into shares of common stock in accordance with the Chapter 11 Plan.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees. The aggregate fees billed by our principal accountants, for professional services rendered for the audit of the Company's annual financial statements for the last two fiscal years and for the reviews of the financial statements included in the Company's Quarterly reports on Form 10-Q during the last two fiscal years 2013and 2012 were $24,750 and $29,250, respectively.
Audit-Related Fees. None.
Tax Fees. None.
All Other Fees. None.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit
Number
Description
2.1
Share Exchange Agreement dated November 12, 2008 (1)
2.2
Articles of Merger(2)
2.3
Articles of Merger (Name Change) (2)
2.4
Order Confirming First Amended Plan of Reorganization dated January 29, 2014 (3)
2.5
First Amended Plan of Reorganization dated December 11, 2013 (3)
3.1
Articles of Incorporation (2)
3.2
Bylaws (2)
3.3
Form of common stock certificate (4)
31.1
Chief Executive Officer Certification
31.2
Chief Financial Officer Certification
Certification Pursuant to 18 U.S.C. Section 1350
(1) Incorporated by reference to the Company’s Current Report on Form 8-K filed November 12, 2008
(2) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008
(3) Incorporated by reference to the Company’s Current Report on form 8-K filed February 4, 2014
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: April 15, 2014
XTREME GREEN PRODUCTS INC.
/s/ Sandy Leavitt
Sandy Leavitt
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sandy Leavitt, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments in this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connections therewith, with the Securities and Exchange Commission, hereby ratifying and conforming all that each of said attorneys-in-fact, or his or her substitutes, may do or cause to be done by virtue of hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Byron Georgiou
Chair of The Board
April 15, 2014
/s/ Sandy Leavitt
Chief Executive Officer and Director
April 15, 2014
(Principal Executive Officer)
/s/ Neil Roth
President, and Secretary
April 15, 2014
/s/ Ken Sprenkle
Chief Financial Officer, Treasurer
April 15, 2014
/s/ Frank Rosenberg
Director
April 15, 2014
XTREME GREEN PRODUCTS INC.
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Xtreme Green Products Inc.
We have audited the accompanying consolidated balance sheets of Xtreme Green Products Inc. as of December 31, 2013 and2012, and the related consolidated statements of operations, stockholders’ (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xtreme Green Products Inc. as of December 31, 2013and2012, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 2 to the financial statements, the entity has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ L.L. Bradford & Company, LLC
Las Vegas, Nevada
April 15, 2014
XTREME GREEN PRODUCTS INC.
Consolidated Balance Sheets
December 31, 2013and December 31, 2012
ASSETS
Current Assets:
Cash
$
261,436
$
-
Accounts receivable, net of allowance of $9,700
87,316
-
Related party receivable
-
13,500
Inventory
408,287
201,743
Other current assets
122,423
45,820
Total current assets
879,462
261,063
Property and equipment, net
162,953
169,261
Other assets
100,000
36,186
TOTAL ASSETS
$
1,142,415
$
466,510
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses
$
883,985
$
843,829
Accrued expenses- related parties
704,580
702,553
Accrued interest
115,520
-
Accrued interest- related parties
284,894
177,655
Convertible debt- related party, net of discount
3,513,500
1,839,000
Convertible debt- other, net of discount
71,303
65,757
Customer deposits
367,900
312,684
Current portion of long-term debt
242,190
289,538
Stockholder loans
374,587
347,333
Total current liabilities
6,558,459
4,569,349
Deferred rent
25,778
-
Extended warranty reserve
3,976
-
Long-term debt, net of current portion
-
38,545
Total liabilities
6,588,213
4,607,894
Stockholders' deficit:
Common stock, $0.001 par value, 100,000,000 shares authorized; 48,463,370 and 48,463,370 shares issued and outstanding, as of December 31, 2013 and December 31, 2012
4,846
4,846
Additional paid-in capital
5,871,900
5,809,996
Accumulated deficit
(11,322,544)
(9,956,226)
Total stockholders' deficit
(5,445,798)
(4,141,384)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
$
1,142,415
$
466,510
See the accompanying notes to the consolidated financial statements.
XTREME GREEN PRODUCTS INC.
Consolidated Condensed Statements of Operations
For the Years Ended December 31,
EXPENSES:
Sales, net
$
138,420
$
528,265
Sales- affiliates, net
-
133,050
Total revenue
138,420
661,315
Cost of sales (exclusive of depreciation expense)
124,849
991,660
Gross margin
13,571
(330,345)
Costs and expenses:
General and administrative
1,126,641
2,061,844
Research and development
-
125,405
Interest expense
253,248
732,071
Total costs and expenses
1,379,889
2,919,320
Net loss before provision for income taxes
$
(1,366,318)
$
(3,249,665)
Provision for income taxes
-
-
Net loss
$
(1,366,318)
$
(3,249,665)
Per share information - basic and diluted:
Loss per common share
$
(0.02)
$
(0.07)
Weighted average common shares outstanding
48,463,370
47,880,493
See the accompanying notes to the consolidated financial statements.
XTREME GREEN PRODUCTS INC.
Consolidated Statement of Changes in Stockholders’ Deficit
For the Years Ended December 31, 2013and 2012
See the accompany notes to the consolidated financial statements.
XTREME GREEN PRODUCTS INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2013 and 2012
Cash flows from operating activities
Net loss
$
(1,366,318)
$
(3,249,665)
Adjustment to reconcile net loss to net cash used in operating activities:
Stock-based compensation
61,904
61,038
Depreciation
46,118
61,036
Accretion of discount on convertible debts
5,546
352,863
Stock issued for note extension
-
100,000
(Gain) loss on the disposition of property and equipment
(9,379)
3,146
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable
(87,316)
9,255
Decrease in related party receivable
13,500
-
(Increase) decrease in inventory
(298,797)
455,732
(Increase) decrease in other current assets
(76,603)
(210,444)
(Increase) decrease in other assets long term
(63,814)
-
(Increase in accts payable and accrued expenses
49,156
504,844
(Decrease) increase in accrued expenses- related party
2,027
379,080
Increase (decrease) in accrued Interest
115,520
(10,774)
Increase in accrued interest- related party
107,239
177,655
Increase in customer deposits
55,216
62,684
Deferred rent
25,778
-
Increase in extended warranty
3,976
-
Net cash used in operating activities
(1,416,247)
(882,662)
Cash flows from investing activities
Purchase of fixed assets
(14,178)
-
Disposal of equipment
35,658
-
Net cash provided by investing activities
21,480
-
Cash flows from financing activities:
Proceeds from convertible debt- related party
1,164,500
589,000
Proceeds from long-term debt
50,000
Repayment of long-term debt
(45,551)
(46,793)
Stockholders loans, net
27,254
244,065
Net cash provided by financing activities
1,656,203
836,272
Net increase in cash
261,436
(46,390)
Cash- Beginning of Period
46,390
Cash- End of Period
$
261,436
$
Supplemental Cash Flow Information:
Cash paid for interest
$
-
$
112,777
Cash paid for income taxes
-
-
Non Cash Investing and Financing Activities:
Discount on convertible debt-related party
$
-
$
109,952
Assumption of long-term debt obligation
$
40,342
$
-
Transfer of finished goods inventory to fixed assets
$
92,252
See the accompanying notes to the consolidated financial statements.
Xtreme Green Products Inc.
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
Note 1. Organization and Significant Accounting Policies.
Xtreme Products Inc. (the Company) was incorporated under the laws of the State of Nevada on May 21, 2007. The Company is an eco-vehicle company that has developed the largest line of revolutionary, green, 100% electric powered specialty vehicles.
The financial statements presented herein include the accounts of the Company and its wholly owned subsidiary Xtreme Products, Inc. All intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition
In general, the Company records 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 the various revenue streams of the Company:
Revenue is recognized at the time the product is delivered or the service is performed. Provision for sales returns will be estimated based on the Company’s historical return experience.
Deferred revenue is recorded for amounts received in advance of the time at which delivery occurs or services are performed and included in revenue at the completion of the related services or when product delivery has occurred.
Cash
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
Accounts Receivable and Major Customers
Accounts receivable are due primarily from companies located throughout the United States. Credit is extended based on an evaluation of the customers’ financial condition and, generally, collateral is not required. Account balances are evaluated for collectability based on the condition of the customers’ credit including repayment history and trends and relative economic and business conditions. There was $9,700 allowance for doubtful accounts at December 31, 2013.
Shipping costs
Shipping and handling costs are included in cost of sales in the accompanying statements of operations.
Inventory
Inventory is stated at the lower of cost or market. Cost is principally determined by using the average cost method that approximates the First-In, First-Out (FIFO) method of accounting for inventory. Inventory consists of raw materials work in process, as well as finished goods held for sale. The Company’s management monitors the inventory for excess and obsolete items and makes necessary valuation adjustments when required. Inventory consists primarily of finished goods and parts. As a result of increased sales orders and projections, the Company increased the value of inventory by $206,544 during the year ended December 31, 2013. The Company also transferred $92,252 of its finished goods inventory (demo units) from inventory to fixed assets during the year ended December 31, 2013.
Inventory at December 31, 2013 is composed of the following:
Vehicles in Process
$ 76,610
Parts
$331,677
Intangible Assets and Long Lived Assets
The Company annually reviews long-lived assets and certain identifiable intangibles for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. No such impairment losses have been identified for the years ended December 31, 2013and 2012.
Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make certain 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Research and Development
Research and development is charged to operations as incurred.
Fair value of financial instruments
On January 1, 2008, the Company adopted FASB ASC 820-10-50, Fair Value Measurements. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
·
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
·
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
·
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, notes payable, convertible debt, and due to stockholders. The carrying amounts of these financial instruments approximate their fair value, due to the short-term nature of these items and the use of market rates of interest. The carrying value of the Company’s long-term debt approximates fair value based on the terms and conditions of similar debt instruments.
The Company does not hold or issue financial instruments for trading purposes nor does it hold or issue interest rate or leveraged derivative financial instruments.
Segment Information
The Company follows Financial Accounting Standards Board (FASB) ASC 280-10, Segment Reporting. Under ASC 280-10, certain information is disclosed based on the way management organizes financial information for making operating decisions and assessing performance. We currently operate in a single segment and will evaluate additional segment disclosure requirements in the event we expand our operations.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major improvements and additions are added to property and equipment, while replacements, maintenance and repairs which do not extend the useful lives are expensed. Depreciation is computed using the straight line method over the estimated useful lives of the assets of 5 years.
Income Taxes
The Company computes income taxes in accordance with FASB ASC Topic 740, Income Taxes. Under ASC 740, provisions for income taxes are based on taxes payable or refundable during each reporting period and changes in deferred taxes. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. Also, the effect on deferred taxes of a change in tax rates is recognized in income in the period that included the enactment date. Deferred taxes are classified as current or non-current depending on the classifications of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
The Company follows the guidance in FASB ASC Topic 740-10, Accounting for Uncertainty in Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Stock-Based Compensation
The Company accounts 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.
Net Income (Loss) Per Common Share
The Company calculates net income (loss) per share in accordance with ASC Topic 260, Earnings per Share. Basic earnings (loss) per share are 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.
During periods in which the Company incurs losses, common stock equivalents, if any, are not considered, as their effect would be anti-dilutive or have no effect on earnings per share.
For the years ended December 31, 2013 and 2012, the 12,750,000 outstanding warrants and 1,055,000 outstanding options were not included in the calculation of diluted earnings per share as their effect would be anti-dilutive.
Recent Pronouncements
There were ho recently issued FASB pronouncements that would have material effect on the accompanying consolidated financial statements.
Note 2. 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.
We filed for reorganization under Chapter 11 of the Bankruptcy Code on August 22, 2013 and are subject to the risks and uncertainties associated with our Chapter 11 Case. Risks and uncertainties associated with our Chapter 11 Case include the following:
·
Our creditors or other third parties may take actions or make decisions that are inconsistent with and detrimental to the plans we believe to be in the best interests of the Company;
·
The Bankruptcy Court may not agree with our objections to positions taken by other parities;
·
We may not be able to successfully develop, prosecute, confirm and consummate a Chapter 11 plan of reorganization or may be delayed in doing so;
·
We may not be able to obtain and maintain normal credit terms with vendors, strategic partners and service providers.
·
We may not be able to continue to invest in our products and services, which could hurt our competitiveness;
·
Our access to capital to fund ongoing business operations or emergence costs may be limited;
These risks and uncertainties could affect our business and operations in various ways. For example, negative events, the positions we take in court, or publicity associated with our Chapter 11 Case could adversely affect our sales of vehicles and our relationship with our customers, as well as with vendors, which in turn could adversely affect our business, financial condition and results of operations, particularly if our Chapter 11 Case is protracted. Because of the risks and uncertainties associated with our Chapter 11 Case, the ultimate impact on our business, financial condition and results of operations of events that occur during these proceedings cannot be accurately predicted or quantified. If any one or more of these risks materializes particularly if our Chapter 11 Case is protracted, it could affect our ability to continue as a 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 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.
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 from inception to December 31, 2013, aggregating $11,322,544and has working capital and stockholder deficits of $5,678,997and $5,445,798 at December 31, 2013. The Company’s ability to continue as a going concern is contingent upon its ability to secure additional financing, increase ownership equity and develop profitable operations. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which the Company operates.
The Company is pursuing financing for its operations and seeking additional private and public 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 and product distribution 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.
Note 3. Other Current Assets
Other current assets consist of the following as of December 31, 2013 and 2012:
Prepaid inventory
41,461
2,072
Prepaid insurance
49,802
13,748
Other deposits
31,160
30,000
$
122,423
$
45,820
Note 4. Property and Equipment
Property and equipment consists of the following as of December 31, 2013and 2012:
Manufacturing equipment
$
113,090
$
113,090
Finished goods equipment
92,252
Other equipment
21,995
19,867
Leasehold improvements
10,317
8,767
Automotive equipment
63,154
157,909
300,809
299,633
Accumulated depreciation
(137,855)
(130,372)
$
162,954
$
169,261
Depreciation charged to operations was $46,118 and $61,038for the years ended December 31, 2013and 2012, respectively.
Note 5. Liabilities Subject to Compromise
Liabilities subject to compromise refers to prepetition obligations which will be impacted by Chapter 11 reorganization. The following amounts included in the Balance Sheet at December 31, 2013 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.
Accounts Payable & accrued liabilities
$
870,367
Accrued expenses - related party
630,763
Accrued interest - related party
291,212
Customer deposits
292,545
Convertible debt
2,909,803
Stockholder loans
361,872
Long-term debt
251,245
Total liabilities subject to compromise
$
4,755,658
Note 6. Customer Deposits
As of December 31, 2013, customer deposits totaling $367,900 represented a $250,000 advance from a major third party distributor for the purchase of inventory and $117,900 representing customer deposits on sales orders.
Note 7. Line of Credit, Convertible Debt, and Long-Term Debt
Line of Credit
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 December 31, 2013 was $92,190
Convertible Debt - Related Party
On June 22, 2010, a family trust (the “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 funded 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 were scheduled to be repaid on September 8, 2011, which was extended through September 8, 2012 in conjunction with a new loan noted below. 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. Interest charged to operations related to this loan aggregated $120,000 and $40,000 during the years ended December 31, 2011 and 2010, respectively.
On December 8, 2011, the same Trust agreed to lend the Company an additional $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 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 of common stock, 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. 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 $17,821 was accreted to interest expense for the year ended December 31, 2011.
On February 13, 2012 the Company entered into an agreement with a Director to borrow $250,000. The loan accrues interest 12% per annum and is payable August 13, 2012, which has been extended to December 13,2012. At the lender’s option, if payment is not made by the maturity date the loan may be converted into shares of common stock at a price of $0.20 per share.
On May 2, 2012 a family trust of which a shareholder is a trustee agreed to lend the Company $250,000 at an interest rate of 12% per annum, which loan is scheduled to be repaid on September 8, 2012, which has been extended to December 8, 2012 together with outstanding loans in the principal amount of $1,250,000 previously advanced by the trust. Interest over the entire amount is payable in $15,000 monthly increments. At any time, at the option of the lender, the entire loan is convertible into shares of common stock of the Company at $0.40 per share. In the connection with the loan, the company has agreed to issue to the trust (i) 250,000 shares of common stock, and (ii) warrants to purchase 625,000 shares of common stock at $0.40 per share, exercisable until May 31, 2015, warrants to purchase 625,000 shares of common stock at $0.65 per share exercisable until May 31, 2016, and warrants to purchase 625,000 shares of common stock at $0.75 per share exercisable until May 31, 2017. In connection with this transaction the lender was also granted the right to set up distributorships in the state of Arizona. As a result of the issuance of 250,000 shares and warrants, the Company allocated the fair market value (“FMV”) to the shares, and warrants, and the debt. In addition, the Company determined that the note included a beneficial conversion feature. Accordingly, the Company recorded a discount of $341,772 which was accreted to interest expense for the 12 months ended December 31, 2012.
Convertible Debt - Other
During the fourth quarter 2011, the Company borrowed $75,000 in exchange for 24 month convertible debentures which mature in October and November 2013. 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. The entire principal amount plus accrued and unpaid interest is due at maturity or at the option of the holder, in whole or in part, in shares of Company’s common stock at a price of $0.70 per share. The Holder at any time after the date of issuance, may convert all or any part of the amounts due into shares of the Company’s common stock. In addition, the Company issued 75,000 shares of common stock to the lenders. As a result of the issuances, the Company allocated the FMV to both the shares and the debt. Accordingly, the Company recorded a discount of $22,182, of which $1,848 was accreted to interest expense for the year ended December 31, 2011. The Company determined there was not a beneficial conversion feature on the effective conversion rates of the loans.
Other long-term debt
During 2011 the Company financed two vehicles. The original debt was $90,321, interest a zero percent, and due in 36 monthly payments of $2,509. The balance due at December 31, 2012, was $47,669 due as follows: 2013: $30,108- 2014: $17,561.
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 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.
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.
Note 8. Stockholders’ (Deficit)
Common Shares
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.
In addition, during the year ended December 31, 2010 the Company issued 1,653,645 shares of common stock pursuant to a private placement at prices of $0.40 and $0.50 per shares and received cash proceeds of $701,823.
During the year ended December 31, 2010, the Company issued an aggregate of 169,500 shares of common stock for services rendered and recorded stock based compensation of $84,750. The value ascribed to these shares of $0.50 per share was based on the price at which the Company had sold shares pursuant to a private placement.
During March 2010 the Company issued 500,000 shares of common stock in exchange for the conversion of $250,000 of debt due to a director. The value ascribed to these shares of $0.50 per share was based on the price at which the Company had sold shares pursuant to a private placement. In addition, this director received warrants to purchase common stock as follows:
A three year warrant to purchase 500,000 shares of common stock at $0.50 per share
A four year warrant to purchase 500,000 shares of common stock at $0.75 per share
A five year warrant to purchase 500,000 shares of common stock at $0.85 per share
The warrants were valued at $245,384 which was charged to operations using the Black-Scholes option pricing model with the following assumptions.
Expected volatility
40-60%
Expected dividends
0%
Expected term (in years)
3.0 to 5.0
Risk-free rate
2.33 to 3.38%
During the year ended December 31, 2011 the Company issued 2,438,000 shares of common stock pursuant to a private placement at prices of $0.40 and $0.50 per shares and received cash proceeds of $1,031,500.
During the year ended December 31, 2011, the Company cancelled 36,000 shares of common stock issued in prior years.
During the year ended December 31, 2011 the Company issued 20,000 shares of common stock for inventory valued at $10,000.
Stock options
The 2008 Incentive Stock Option Plan (the "2008 Incentive Plan") was adopted by the Board of Directors on May 22, 2008. The Board of Directors has initially reserved 10,000,000 shares of Common Stock for issuance under the 2008 Incentive Plan and shall administer the Plan. Under the Plan, options may be granted which are intended to qualify as Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs") intended to qualify as Incentive Stock Options there under.
The purchase price of the Common Shares subject to each ISO shall not be less than the fair market value (as set forth in the 2008 Incentive Plan), or in the case of the grant of an ISO to a Principal Stockholder, not less than 110% of fair market value of such Common Shares at the time such Option is granted. The purchase price of the Common Shares subject to each Non-ISO shall be determined at the time such Option is granted, but in no case less than 85% of the fair market value of such Common Shares at the time such Option is granted.
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 the 12 month period ended December 31, 2012, 75,000 option shares were forfeited due to employee terminations. There were no granted options or forfeitures during the 12 month period ended December 31, 2013.
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 typically based on the historical volatility of the Company’s stock, and other factors. Because the shares of the Company were not traded until late 2011, volatility was estimated at 40 - 60% through early 2011, and 100% later in 2011 as trading began. The risk-free rates used to value the options are based on the U.S. Treasury yield curve in effect at the time of grant.
The total fair value of the options is $292,262 and the cost recognized for the years ended December 31, 2013was $61,904, which was recorded as general and administrative expenses.
In valuing the options issued, the following assumptions were used;
Expected volatility
40-100%
Expected dividends
0%
Expected term (in years)
3.4 to 10.0
Risk-free rate
0.38% to 2.33
A summary of option activity under the Plan during the years ended December 31, 2013and 2012is presented below:
Shares
Weighted- Average Exercise Price
Weighted- Average Remaining Contractual Term
Intrinsic Value
Outstanding at December 31, 2009
805,000
$
0.50
5.9
$
0.00
Granted
-
-
-
-
Expired
-
-
-
-
Outstanding at December 31, 2010
805,000
$
0.50
4.9
$
0.00
Granted
325,000
$
0.50
4.4
$
0.00
Expired
-
-
-
-
Outstanding at December 31, 2011
1,130,000
$
0.50
5.2
$
0.00
Granted
-
-
-
-
Forfeited
75,000
-
-
-
Expired
-
-
-
-
Outstanding at December 31, 2012
1,055,000
$
0.50
4.5
$
0.00
Outstanding at December 31, 2013
1,055,000
$
0.50
2.6
$
0.00
The following table summarizes information about fixed price stock options at December 31, 2013:
The unvested options vest as follows:
2013- 242,250; 2014- 242,250; 2015- 37,500
As of December 31, 2013 the aggregate intrinsic value of all stock options outstanding and expected to vest was $0.00 and the aggregate intrinsic value of currently exercisable stock options was $0.00. The intrinsic value of each option share is the difference between the fair market value of the common stock and the exercise price of such option share to the extent it is in-the-money. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the selling price of common shares during the periods covered by these financial statements. There were no in-the-money options outstanding and exercisable as of December 31, 2013
There have been no cash proceeds or exercised options to date. . Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option holder to exercise the options.
Note 9. Related Party Transactions
Stockholder Loans
Stockholder loans outstanding at December 31, 2012 were $347,333. During the year December 31, 2013 an additional $35,071 and $7,817 was repaid leaving a balance of $374,587.Of the loans 250,000 bears interest at 12% per annum and $124,587 bears interest at 4% per annum. The loans are due on demand.
During the nine month period ended December 31, 2013, a family trust, of which a shareholder is a trustee agreed to loan the Company a total of $333,500. The proceeds were disbursed over a nine month period. The loan and accrued interest are due upon demand. In addition, $180,000 was advanced and paid to a Capital Funding Group as a loan retainer fee to be placed in escrow. The loan, advance, and accrued interest are due upon demand. Interest accrues at a rate of 12% per annum. Accrued interest as of December 31, 2013 is $41,082.
On August 29, 2013 a family trust of which a shareholder is a trustee and its affiliates 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 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 court. The DIP loan and the provisions of the DIP loan 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 December 31, 2013 is $1,500,000, and interest accrued at a rate of 12% annum. Accrued interest as of December 31, 2013 is $22,869.
Note 10. Income Taxes
Deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes for the years ended December 31, 2012 and 2011. The sources and tax effects of the differences are as follows:
Income tax provision at the federal statutory rate
34%
Effect of operating losses
(34)%
0.00%
As of December 31, 2013, the Company has a net operating loss carry forward of approximately $7.6 million. This loss will be available to offset future taxable income. If not used, this carry forward will expire through 2030. The deferred tax asset of approximately $1.6 million relating to the operating loss carry forward has been fully reserved at December 31, 2013. The increase in the valuation allowance related to the deferred tax asset was approximately$1,300,000 during 2013. The principal difference between the accumulated deficit for income tax purposes and the accumulated deficit for financial reporting purposes results from stock compensation, the impairment of the costs related to the acquisition of Belarus and the accrual of unpaid officer salaries.
The Company has not taken any uncertain tax positions on any of our open income tax returns filed through the period ended December 31, 2013. The Company’s methods of accounting are based on established income tax principles in the Internal Revenue Code and are properly calculated and reflected within its income tax returns. Due to the carry forward of net operating losses, the federal and state income tax returns are subject to audit for periods beginning in 2007.
Note 11. Commitments
During September 2013, the Company entered into a lease for office and warehouse space for a 52 month period. The lease calls for rental payments as follows:
$
16,174
149,071
153,543
172,878
Thereafter
191,467
$
683,133
Rent expense was $103,829 and $202,997 for the years ended December 31, 2013and 2012, respectively, and includes other related charges such as common area maintenance fees. In addition, it includes rental charges in China for space used on an as-needed basis.
Note 12. Subsequent Events
Chapter 11 Proceedings
On August 22, 2013 (the Petition Date), Xtreme Green Products Inc. (the “Company”) filed a voluntary petition (the “Chapter 11 Case”) for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”). The Chapter 11 Case is being administered under Case No. BK-S-13-17266-MKN.
Pending the Chapter 11 Case, The Company operated as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and the applicable provisions of the Bankruptcy Code.
On January 29, 2014, the Bankruptcy Court entered an Order Confirming the Company’s First Amended Plan Of Reorganization under Chapter 11 of the Bankruptcy Code.
During March and April 2014 the Company completed a private placement of 750,000 shares of common stock and three year warrants to purchase 750,000 shares of common stock at $1.00 per share. Net proceeds from the offering were $750,000.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibit
Number
Description
2.1
Share Exchange Agreement dated November 12, 2008 (1)
2.2
Articles of Merger(2)
2.3
Articles of Merger (Name Change) (2)
2.4
Order Confirming First Amended Plan of Reorganization dated January 29, 2014 (3)
2.5
First Amended Plan of Reorganization dated December 11, 2013 (3)
3.1
Articles of Incorporation (2)
3.2
Bylaws (2)
3.3
Form of common stock certificate (4)
31.1
Chief Executive Officer Certification
31.2
Chief Financial Officer Certification
Certification Pursuant to 18 U.S.C. Section 1350
(1) Incorporated by reference to the Company’s Current Report on Form 8-K filed November 12, 2008
(2) Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008
(3) Incorporated by reference to the Company’s Current Report on form 8-K filed February 4, 2014
(4) Incorporated by reference to the Company’s Registration Statement on Form 10-SB filed March 15, 2007