News Column

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

August 12, 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 "Petition Date"), the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Nevada (the "Chapter 11 Case"). The Chapter 11 Case was administered under Case No. BK-S-13-17266-MKN. 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 January 29, 2014 (the "Confirmation Date"), the Bankruptcy court entered an Order Confirming the company's First Amended Plan Of Reorganization under Chapter 11 of the Bankruptcy Code. The Bankruptcy court ordered the Chapter 11 case closed on February 28, 2014.

Results of Operations



As a result of the Chapter 11 Case and associated restructuring of operations, no meaningful comparison is possible between the results for prior periods and results for the quarter ended June 30, 2014 that occurred following confirmation of the Plan.

Comparison of three months ended June 30, 2014 to the three months ended June 30, 2013

Revenue - Sales for the three months ended June 30, 2014 were $204,945. There were no sales during the three months ended June 30, 2013. The increase in sales is a result of the Company's restructure of its financial condition and ability to secure additional equity funding.

Cost of Sales - Cost of sales for the three months ended June 30, 2014 was $295,397 which resulted in a negative operating gross margin of $90,452. There were no comparable cost of sales for the comparable prior year period. Due to insufficient inventory to meet sales demand, fixed operating costs, and $14,000 in warranty costs, the Company experienced significant losses for the three month period ended June 30, 2014.

General and administrative - General and administrative expenses were $371,832 for the three months ended June 30, 2014 compared to $37,680 for the three months ended June 30, 2013. The Company was not active during the prior three months period ended June 30, 2013. Our general and administrative expenses for the three months ended June 30, 2014 consist primarily of salaries, insurance expense, legal and professional fees, and general operating costs. We had 23 full-time employees during the three months ended June 30, 2014.

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Sales & marketing - The cost of sales and marketing for the three months ended June 30, 2014 was $88,839.

Sales and marketing costs for the same comparable period in 2013 was $1,500. The Company was not active during the prior six month period. The increase in sales and marketing is a result of our emergence from bankruptcy reorganization, and recommencing our marketing program.

Interest expense - Interest expense for the three months ended June 30, 2014 was $1,987 compared to interest of $80,579 for the comparable prior year period. Interest expense consists primarily of amounts due under various notes payable to shareholders and equipment financing. The reduction of interest expense is due to the extinguished notes payable as a result of the Chapter 11 Reorganization.

Loss from operations - We incurred a loss from operations of $553,110 for the three months ended June 30, 2014 compared to a loss of $110,380 for the comparable prior year period. The increase in the loss from operations is a result of the Company's emergence from Chapter 11 Reorganization, restructuring of production capabilities, and increases in sales and marketing efforts.

Comparison of six months ended June 30, 2014 to the six months ended June 30, 2013

Revenue - Sales for the six months ended June 30, 2014 were $547,676 compared to $31,709 for the comparable prior year period. A reasonable comparison of sales is not possible since the Company was not active during the majority of the prior six month period. The increase in sales is a result of the Company's ability to restructure its financial condition and secure additional equity funding.

Cost of Sales - Cost of sales for the six months ended June 30, 2014 was $650,809 which resulted in a negative operating margin of $103,133. Due to insufficient inventory to meet sales demand, fixed operating costs, warranty costs of $56,031 and a write off of scrapped inventory of $18,695, the Company experienced a significant loss for the six month period ended June 30, 2014. There were no comparable cost of sales figures for the comparable prior year period.

General and administrative - General and administrative expenses were $759,328 for the six months ended June 30, 2014 compared to $176,383 for the six months ended June 30, 2013. The Company was not active during the majority of the prior six month period ended June 30, 2013. Our general and administrative expenses for the six months ended June 30, 2014 consist primarily of salaries, insurance expense, legal and professional fees, and general operating costs. We had 23 full-time employees during the six months ended June 30, 2014.

Sales & marketing - The cost of sales and marketing for the six months ended June 30, 2014 was $162,023.

Sales and marketing cost for the comparable period in 2013 was $1,500. The Company was not active during the 2013 six month period. The increase in sales and marketing is a result of our emergence from chapter 11 bankruptcy reorganization, and recommencing our marketing program.

Interest expense - Interest expense for the six months ended June 30, 2014 was $15,385 compared to interest of $154,385 for the comparable prior year period. Interest expense consists primarily of amounts due under various notes payable to shareholders and equipment financing. The reduction of interest expense is due to the extinguished notes payable as a result of the Chapter 11 Case.

Loss from operations - We incurred a loss from operations of $1,039,869 for the six months ended June 30, 2014 compared to a loss of $296,224 for the comparable prior year period. The increase in the loss from operations is a result of the Company's emergence from Chapter 11 Reorganization, restructuring of production capabilities, and recommencement of sales and marketing efforts post plan confirmation.

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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 June 30, 2014, we have incurred a cumulative net loss of $11,833,155. 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, our controlling shareholder and affiliates provided the Company with $2,000,000 in post-petition court approved financing. The Debtor in Possession (DIP) loan was secured by all of the Company's assets and had priority over any and all administrative expenses of the kind specified in the Bankruptcy Code. The DIP Financing Creditor received 19,600,000 shares of "Non-Locked Up Stock".

Prior to January 29, 2014, the Confirmation date of the Company's Reorganization Plan under Chapter 11 of the Bankruptcy Code, the Company had issued and outstanding 48,463,370 shares of common stock. Immediately 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 the Company is authorized to issue remains unchanged.

On March 14, 2014 the Company agreed in a private offering to sell 500,000 shares of common stock, par value $.001 per share to a private investor at a purchase price of $1.00 per share. In addition the company issued three year warrants expiring March 31, 2017 to purchase an additional 750,000 shares of common stock at a purchase price of $1.00 per share. The aggregate investment was $500,000 for 500,000 shares of Common Stock and 750,000 Warrants. The Company received $250,000 in March 2014 and $250,000 in April 2014.

On March 14, 2014 the Company privately sold 250,000 shares of common stock, par value $.001 per share to a private investor at a purchase price of $1.00 per share. The total amount received as of March 31, 2014 was $250,000. An additional option was granted to invest $250,000 for 250,000 additional shares of common stock on or before December, 31, 2014. If exercised, on or before the expiration date, the investor shall be issued, in addition to the Option Shares, Warrants to purchase 750,000 shares of Common Stock at $1.00 per share, expiring March 31, 2017.

On April 14, 2014 the Company privately sold 10,000 shares of common stock to a Company Director at a purchase price of $1.00 per share. The total amount received as of April 14, 2014 was $10,000.00.

On April 24, 2014 the Company privately sold 100,000 shares of common stock to a private investor at a purchase price of $1.00 per share. The total amount received as of April 24, 2014 was $100,000.

On April 29, 2014 the Company privately sold 20,000 shares of common stock to a private investor at a purchase price of $1.00 per share. The total amount received as of April 29, 2014 was $20,000.

On June 20, 2014 the Company privately sold 15,000 shares of common stock to a private investor at a purchase price of $1.00 per share. The total received as of June 20, 2014 was $15,000.

On June 27, 2014 the Company privately sold 100,000 shares of common stock to a private investor at a purchase price of $1.00 per share. The total amount received as of June 27, 2014 was $100,000.

On July 25, 2014 the Company privately sold 75,000 shares of its Common Stock to a private investor at a purchase price of $1.00 per share. A total of $75,000 was received on that date.

We are currently investigating various opportunities to raise additional capital through the sale of equity securities and from debt financing. There can be no assurances that we will be able to continue to sell shares of our common stock or borrow 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.

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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.

There was no stock-based compensation during the six month period ended June 30, 2014.

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 operate profitably will depend on increasing our revenue, lowering our costs, reducing our liabilities and obtaining sufficient financing or other capital to operate successfully.

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 June 30, 2014 we have incurred a cumulative net loss totaling $11,833,155 and have working capital and stockholder equity of $658,766 and $925,267at June 30, 2014. 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.

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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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