UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q


(Mark One)





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





For the quarterly period ended March 31, 2011





OR





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





For the transition period from ______________ to ______________





Commission File Number 000-52502





XTREME GREEN PRODUCTS INC.


(Exact name of registrant as specified in its charter)





Nevada

26-2373311(State or other jurisdiction of Incorporation or organization)

(I.R.S. Employer Identification Number)2191 Mendenhall Dr. Suite 101, North Las Vegas, NV

89081(Address of principal executive offices)

(Zip Code)Registrant's telephone number, including area code:

(702) 233-4804





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yesx No  ̈





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ̈  No  ̈





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer", “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):





Large accelerated filer ̈
Accelerated filer ̈Non-accelerated filer ̈
Smaller reporting companyx





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes  ̈ Nox





The number of shares outstanding of issuer's common stock, $0.001 par value as of May 6, 2011:  46,466,370





INDEX





PagePART I - Financial Information

3Item 1: Financial Statements

3Condensed Consolidated Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010

3Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2011 and 2010 (Unaudited)

4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (Unaudited)

5Notes to Condensed Consolidated Financial Statements (Unaudited)

6Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

9Item 4T:Controls and Procedures

12PART II - Other Information

13Item 1: Legal Proceedings

13Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

13Item 5: Other Information

13Item 6: Exhibits

13Signatures

14


2


XTREME GREEN PRODUCTS INC.


Consolidated Condensed Balance Sheets


March 31, 2011 and December 31, 2010





2011


2010(Unaudited)ASSETSCurrent assets:Cash

$
42,868


$
343,068Accounts receivable


213,653



49,054Inventory


989,945



623,054Other current assets


276,161



64,407Total current assets


1,522,627



1,079,583Property and equipment


180,033



179,576Other assets


68,738



36,186TOTAL ASSETS

$
1,771,398


$
1,295,345LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities:Accounts payable and accrued expenses

$
319,087


$
172,948Accrued expenses - related parties


200,001



190,769Line of credit


50,000



150,000Convertible debt - related party


1,000,000



1,000,000Customer deposits


231,400



-Current portion of long-term debt


11,871



11,200Stockholder loans


109,935



119,480Total current liabilities


1,922,294



1,644,397Long-term debt, net of current portion


13,769



17,267Commitments and contingenciesStockholders' deficit:Common stock, $0.0001 par value, 100,000,000 shares authorized; 46,436,370 and 44,966,370 shares issued and outstanding


4,644



4,496Additional paid-in capital


4,792,665



4,172,234Accumulated deficit


(4,961,974
)


(4,543,049
)Total stockholders' deficit


(164,665
)


(366,319
)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$
1,771,398


$
1,295,345





See the accompanying notes to the financial statements.


3


XTREME GREEN PRODUCTS INC.


Consolidated Condensed Statements of Operations


For the Three Months Ended March 31, 2011 and 2010


(Unaudited)





2011


2010Sales

$
506,342


$
33,600Cost of sales


373,303



51,013Gross margin


133,039



(17,413
)Costs and expenses:General and administrative


477,926



385,036Research and development


37,545



-Interest expense


36,492



7,411Total costs and expenses


551,963



392,447Net loss

$
(418,924
)

$
(409,860
)Per share information - basic and diluted:Loss per common share

$
(0.01
)

$
(0.01
)Weighted average common shares outstanding


45,610,370



41,996,003





See the accompanying notes to the financial statements.


4




XTREME GREEN PRODUCTS INC.


Consolidated Condensed Statements of Cash Flows


For the Three Months Ended March 31, 2011 and 2010


(Unaudited)





2011


2010Cash flows from operating activities:Net cash used in operating activities

$
(774,013
)

$
(737,737
)Cash flows from investing activities:Purchase of property and equipment


(10,468
)


(56,145
)Net cash used in investing activities


(10,468
)


(56,145
)Cash flows from financing activities:Common stock issued for cash


610,000



1,000,000Repayment of long term debt


(2,827
)


-Proceeds from (repayment of) line of credit


(100,000
)


(150,000
)Stockholders loans, net


(9,544
)


(14,430
)Net cash provided by financing activities


497,629



835,570Net increase in cash


(286,852
)


41,688Cash - beginning of period


329,720



73,700Cash - end of period

$
42,868


$
115,388Supplemental Cash Flow Information:Cash paid for interest

$
-


$
-Cash paid for income taxes

$
-


$
-Non Cash Investing and Financing Activities:Conversion of related party note to common stock

$
-


$
250,000See the accompanying notes to the financial statements.


5




XTREME PRODUCTS, INC.


NOTES TO CONDENSED FINANCIAL STATEMENTS


MARCH 31, 2011


(UNAUDITED)





((1)           Basis of Presentation





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





The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.  For further information, refer to the consolidated financial statements of the Company as of and for the year ended December 31, 2010, on Form 10-K, including notes thereto.





(2)           Earnings Per Share





The Company calculates net income (loss) per share as required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 260, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods when anti-dilutive common stock equivalents are not considered in the computation.





(3)           Inventory





Inventory consisted of finished goods and parts.





(4)           Basis of Reporting





The Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.




The Company has experienced a loss from operations as a result of its investment necessary to achieve its operating plan, which is long-range in nature. The Company incurred net losses through March 31, 2011, aggregating $4,961,974 and has working capital and stockholder deficits of $399,667and $164,655 at March 31, 2011.




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 investments. In addition, the Company is seeking to expand its revenue base. Failure to secure such financing or to raise additional equity capital and to expand its revenue base may result in the Company depleting its available funds and not being able pay its obligations.




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





5)       Notes payable – Related Parties





During prior years the Company borrowed funds from three of its founding stockholders. These loans were utilized for general working capital purposes and to fund in part, the cash portion of the purchase of Belarus. At December 31, 2010. A balance of $119,480 was outstanding. During the period ended March 31, 2011, $9,544 was repaid leaving a balance of $109,935 at March 31, 2011. The loans are due on demand and bear interest at 4%.


6


On June 22, 2010, a family 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 advanced on July 9, 2010.  The second tranche in the amount of $500,000 was funded on August 9, 2010. The balance was funded on September 9, 2010.  The loans are scheduled to be repaid on September 8, 2011.  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.





(6)       Line of Credit





During December 2009 the Company secured a line of credit with a financial institution for $150,000 bearing interest at 6% per annum maturing during December 2011. The line is secured by certain assets of a related party. The balance of the line at March 31, 2011 was $50,000 and the unused portion of the line at March 31, 2011, was $100,000.





(7)       Stockholders’ (Deficit)





During the period ended March 31, 2011, the Company issued 1,470,000 shares of common stock for cash aggregating $610,000.





(8)       Stock Options





During September 2009, the Company granted options to employees and consultants to purchase 505,000 shares of common stock, at a price of $0.50 per share, which was the fair value of the underlying common shares at the grant date based on sales of common shares for cash.  The options expire in September 2014 and vest over the stated term.





During 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.





The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model, using the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s stock, and other factors. Because the shares of the Company are not traded, volatility was estimated at 40 - 60%. The risk-free rates used to value the options are based on the U.S. Treasury yield curve in effect at the time of grant.





The cost recognized for the period ended March 31, 2011, was $10,578, which was recorded as general and administrative expenses.





In valuing the options issued, the following assumptions were used:




Expected volatility
40 - 60%Expected dividends
0%Expected term (in years)
5.0 – 10.0Risk-free rate
2.33 – 3.38%





During the period ended March 31, 2011, the Company granted options to employees to purchase 175,000 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 2015 and vest over the stated term.





The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model, using the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s stock, and other factors. Because the shares of the Company are not traded, volatility was estimated at 40 - 60%. The risk-free rates used to value the options are based on the U.S. Treasury yield curve in effect at the time of grant.





The fair value of the options was $40,013 and will be amortized over the term of the options starting on April 1, 2011.





In valuing the options issued, the following assumptions were used:




Expected volatility
40 - 60%Expected dividends
0%Expected term (in years)
4.0Risk-free rate
2.33%


7




A summary of option activity under the Plan during the period ended March 31, 2011, is presented below





Options

Shares


Weighted-Average

Exercise

Price


Weighted-Average

Remaining Contractual

Term


Intrinsic

ValueOutstanding at December 31, 2010


805,000


$
0.50



4.6


$
0.00Granted


175,000


$
0.50



4.0


$
0.00Outstanding at March 31,  2010


980,000


$
0.50



4.5


$
0.00





The following table summarizes information about fixed price stock options at March 31, 2011:


Exercise Price


Number

Outstanding


Weighted

Average

Contractual Life


Weighted

Average

Exercise Price


Number

Exercisable


Exercise

Price$
0.50



980,000



4.5


$
0.50



251,250


$
0.50





(9)          Concentrations





During the period ended March 31, 2011, the Company derived approximately 67% of its revenue from a single customer and as of March 31, 2011, 63% of accounts receivable were due from this customer.




(10)       Recent Accounting Pronouncements
    (11)       Subsequent Events





Subsequent to March 31, 2011 and through May 8, 2011, we sold an additional 30,000 shares of common stock pursuant to private placements at a price of $0.50 per share and received cash proceeds of $15,000.





Subsequent to March 31, 2011, the Company organized a new subsidiary to act as contract carrier for the purpose of transporting the Company’s units to customers throughout the US.


8


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





Forward-Looking Statements





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





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





Results of Operations





Comparison of three months ended March 31, 2011 to the three months ended March 31, 2010





Sales for the three months ended March 31, 2011 were $506,342 compared to $33,600 for the three months ended March 31, 2010. The increase in sales results from our increased marketing efforts and a stronger demand for our vehicles in the market place.





Cost of sales for the three months ended March 31, 2011 was $373,303 which resulted in a gross profit of $133,039 compared to cost of sales of $51,013 and a gross loss of $17,413 for the comparable prior year period. The increase in the gross margin results from our higher sales volume coupled with improved productivity.





General and administrative expenses were $477,926 for the three months ended March 31, 2011 compared to $385,036 for the three months ended March 31, 2010.  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 increase in general and administrative expenses is primarily attributable to an increase in the number of full-time employees. We had 25 full-time employees during the three months ended March 31, 2011 compared to12 full-time employees during the comparable period in 2010.





Interest expense for three months ended March 31, 2011 was $36,492 compared to interest of $7,411 for the comparable prior year period.  Interest expense consists primarily of amounts due under a note payable to one of our directors and interest incurred under various short term lines of credit.





Our net loss for the three months ended March 31, 2011 was $418,924 or $0.01 per share compared to a net loss of $409,860 or $0.01 per share for the comparable prior year period.


9


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 March 31, 2011, we have incurred a cumulative net loss of $4,961,974.  The notes to our financial statements include language that raises doubt about our ability to continue as a going concern.  At March 31, 2011, we had cash of $42,868, net working capital deficit of $399,667 and we owed our stockholders an aggregate of $1,309,936.  All of these stockholders are officers and/or directors of our Company.   Of the total due to stockholders, $109,935 was due in full on December 31, 2009 and has not been paid.  A $1,000,000 convertible loan is due September 8, 2011, or can be converted into common stock at any time prior to the due date.





During the three months ended March 31, 2011, we sold 220,000 shares of restricted common stock at a price of $0.50 per share and 1,250,000 shares of restricted common stock at a price of $0.40 per share and received cash proceeds of $610,000.





On June 22, 2010, a family trust of which one of our directors is a trustee (“the lender”) agreed to lend us an aggregate of $1,000,000 at an annual interest rate of 12% in three tranches.  The first tranche of $250,000 was advanced on July 9, 2010.  The second tranche in the amount of $500,000 was funded on August 9, 2010. The balance was funded on September 9, 2010.  The loans are scheduled to be repaid on September 8, 2011.  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.





We commenced selling our products during the quarter ended September 30, 2009, however, we are not profitable.  The resulting lack of available cash from our operations may have an adverse impact on our liquidity, activities and operations. Until we successfully develop, manufacture, market and sell our products, we will not generate significant revenues and we may not be successful. There can be no assurances that we will achieve sufficient revenues during the next twelve months or at all. If we cannot generate sufficient revenues to continue operations, we may be forced to suspend or cease operations.





To the extent that it becomes necessary to raise additional cash in the future, we may seek to raise it though the sale of debt or equity securities or 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 in order to fund 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 suspend or cease operations.


10


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 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 March 31, 2011, we have incurred a cumulative net loss totaling $4,961,974 and has working capital and stockholder deficits of $399,667and $164,655 at March 31, 2011.  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 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 affect 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.




11





Item 4T. Controls and Procedures





(a) Evaluation of Disclosure Controls and Procedures




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





The Company’s management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2011.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.





The Company continues to improve procedures with regard to its disclosure controls and procedures.





(b) Changes in Internal Controls.





There was no change in our internal controls over financial reporting that has materially affected, or is reasonable likely to materially affect, our internal control  over financial reporting during the quarter covered by this Report.


12


PART II - OTHER INFORMATION





Item 1. Legal Proceedings





From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as described below, we are currently not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.





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





During the three months ended March 31, 2011, we sold 220,000 shares of restricted common stock at a price per share of $0.50 per share and 1,250,000 shares of restricted common stock at a price of $0.40 per share receiving total proceeds $610,000. These proceeds were used for general working capital purposes.





Item 5. Other Information





None.





Item 6. Exhibits





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





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


13


SIGNATURES





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





Xtreme Green Products Inc.

(Registrant)Date: May 12 , 2011

/s/ Sanford LeavittSanford LeavittChief Executive Officer

(Principal Executive Officer)Date: May 12 2011

/s/ Neil RothNeil RothChief Financial Officer

(Principal Financial and Accounting Officer)


14