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XTREME GREEN PRODUCTS INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

February 19, 2014

Forward-Looking Statements

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

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

Recent Developments

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

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

Results of Operations



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

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

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

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

Interest expense - Interest expense for three months ended September 30, 2013 was $63,413 compared to interest of $185,794 for the comparable prior year period. Interest expense consists primarily of amounts due under various notes payable to shareholders, interest incurred under various bridge loans, and accretion of discounts in relation to convertible debt totaling $-0- and $113,125 for the comparable prior year period.

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

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

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

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

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

General and Administrative - General and Administrative expenses were $272,091 for the nine months ended September 30, 2013 compared to $1,303,510 for the nine months ended September 30, 2012. Our general and administrative expenses consist primarily of (i) salaries and wages, (ii) depreciation, (iii) professional fees such as legal and accounting fees, and (iv) general expenses such as rent and insurance. The overall decrease in general and administrative expenses is primarily attributable to a temporary closure of our operations during July and August as preparations were made for filing chapter 11 Reorganization and for moving to a new facility.. We had 7 full time employees during the nine months ended September 30, 2013 compared to 20 for the comparable prior year period.

Interest Expense - Interest expense for nine months ended September 30, 2013 was $217,675 compared to interest of $653,469 for the comparable prior year period. Interest expense consists primarily of amounts due under various notes payable to shareholders, interest incurred under various bridge loans, and accretion of discounts in relation to convertible debt totaling $5,546 and $475,091 for the comparable prior year period.

Net Loss - Net loss for the nine months ended September 30, 2013 was $480,229 or $0.00 per share compared to a net loss of $2,216,471 or $0.05 per share for the comparable prior year period.

Liquidity and Capital Resources

Since our inception on May 21, 2007, we have financed the costs associated with our operational and investing activities through (i) the sale of shares of our common stock pursuant to private placements, and (ii) loans from certain of our stockholders. From inception through September 30, 2013, we have incurred a cumulative net loss of $10,436,454. The notes to our financial statements include language that raises doubt about our ability to continue as a going concern.

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

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

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

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

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. Actual results may differ from these estimates.

We have identified the following critical accounting policies, described below, that are the most important to the portrayal of our current financial condition and results of operations.

Stock-Based Compensation



We account for stock based compensation in accordance with ASC 718 Stock Compensation. This Statement requires that the cost resulting from all share-based transactions be recorded in the financial statements. The Statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. The Statement also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment transactions.

Revenue Recognition

In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for our various revenues streams:

Revenue is recognized at the time the product is delivered or the service is performed. Provision for sales returns is estimated based on our historical return experience.

Deferred revenue is recorded for amounts received in advance of the time at which services are performed and included in revenue at the completion of the related services.

Going Concern



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

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

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Our condensed consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

We have experienced a significant loss from operations as a result of its investment necessary to achieve its operating plan, which is long-term in nature. From inception to September 30, 2013 we have incurred a cumulative net loss totaling $10,436,454 and have working capital and stockholder deficits of $4,955,795and $4,575,184 at September 30, 2013. Our ability to continue as a going concern is contingent upon our ability to attain profitable operations and secure financing. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which we operate.

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

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

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

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


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Source: Edgar Glimpses


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