UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K





x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended December 31, 2010





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


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

(I.R.S. Employerincorporation or organization)

Identification Number)


2191 Mendenhall Dr. Suite 101


North Las Vegas, NV 89081


(Address, Including Zip Code of Principal Executive Offices)





(702) 233-4804


(Issuer's telephone number)





Securities registered under Section 12(b) of the Exchange Act:


NONE


Securities registered under Section 12(g) of the Exchange Act:


COMMON STOCK, $0.001 PAR VALUE PER SHARE





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈ No x





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ̈  No x





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





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ̈





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company.





Large accelerated filer   ̈
Accelerated filer   ̈Non-accelerated filer   ̈
Smaller reporting company  x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes   ̈  No  x





State issuer's revenues for its most recent fiscal year. $476,671





State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2010, representing the last business day of the registrant’s most recently completed second fiscal quarter: N/A. For purposes of this computation, all directors and executive officers of the registrant are considered to be affiliates of the registrant. This assumption is not to be deemed an admission by the persons that they are affiliates of the registrant.





State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:45,176,370 as of March 16, 2011.









TABLE OF CONTENTS





PART IITEM 1.
BUSINESS
3ITEM 2.
PROPERTIES
8ITEM 3.
LEGAL PROCEEDINGS
9ITEM 4.
REMOVED AND RESERVED
9PART IIITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
10ITEM 6.
SELECTED FINANCIAL DATA
11ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
11ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
13ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
14ITEM 9A(T)
CONTROLS AND PROCEDURES
15PART IIIITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
17ITEM 11.
EXECUTIVE COMPENSATION
19ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
22ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
22ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
23ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
24SIGNATURES
25


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FORWARD-LOOKING STATEMENTS





This annual report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management's beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or contribute to these differences include those described under the headings "Risk Factors" and "Management Discussion and Analysis and Plan of Operation."





If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us, or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this annual report, which would cause actual results to differ before making an investment decision. We are under no duty to update any of the forward-looking statements after the date of this annual report or to conform these statements to actual results.





PART I





ITEM 1. BUSINESS





Organizational History





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.





Overview of Business





We are an eco-vehicle company developing revolutionary, green, 100% electric powered products such as Personal Mobility Vehicles (PMVs), Motorcycles & Scooters, (ATVs) All Terrain Vehicles, (UTVs) and Utility Terrain Vehicles.





Designed with proprietary energy management systems and electric propulsion systems, these products are expected to have the power and ability of gas powered engines, but without the particulate pollution or noise pollution. Xtreme aims for its Xtreme Green products to become the new wave and standard in environmentally conscious green 100% electric specialty vehicles.





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 8” 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 a charge at about one cent per mile cost. 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.





The Company has developed a commissioned sales force in over 40 states to sell to the police, universities, and security companies.


- 3 -


Electric Motorcycle – the X Rider





Xtreme also markets and sells a full-sized electric motorcycle that runs on Lithium cells This motorcycle is over 6 feet long, will drive at speeds of 60-65 MPH and will go up to 100 miles on a single charge, the perfect vehicle for going back and forth to work for pennies per day.





Electric Scooter





In addition to the products discussed above, Xtreme markets and sells a full-sized (2 meters long) electric scooter that runs on Lithium cells. This scooter is over 6 feet long, will drive at speeds of 55 MPH and will go up to 75 miles on a single charge.





ATV Pro (All Terrain Vehicle)





The XGP All Terrain Vehicles are the first of their kind in the marketplace. No competitor has yet 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:





·
7 feet long, wheelbase of 51.75 in. Ground clearance of 10.75 inches.


·
All ATVs have 2 wheel drive and 4 wheel drive (initiated through electronic switch)


·
Weight - 1048 lbs


·
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


·
Proprietary, computerized Battery Management System for safety and long life.


·
4 wheel disc brakes.


·
Regenerative Braking


·
Built-in battery charger – 110/220 volt


·
5 KW 72 Volt Electric Brushless Motor standard, also available in 6.5 KW 96 volt version.


·
Standard speeds of up to 45 MPH but can be adjusted higher or lower subject to requirement


·
Complete police lighting, PA system and siren package available


·
Range between charges of 50-80 miles dependent on speed and topography


·
Will climb a 30 degree plus grade


·
2000 lb electric winch plus a 2” heavy duty ball hitch receiver


- 4 -


Transport Pro (Utility Terrain Vehicle)





The Transport Pro UTV has the widest range of usage in all three segments (Police, Consumer and Commercial). With the 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 LSV 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:





·
9.5 feet long, wheelbase of 74.8 in. Ground clearance of 10.75 inches.


·
All UTVs have 2 wheel drive and 4 wheel drive (initiated through electronic switch)


·
Weight - 1348 lbs


·
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


·
Proprietary, computerized Battery Management System for safety and long life.


·
4 wheel disc brakes plus disc parking brake


·
Built-in battery charger – 110/220 volt


·
5 KW 72 Volt Electric Brushless Motor standard, also available in 5.5 KW 96 volts, 6.5 KW 96 volt versions and 10.5KW 144 volt versions


·
Standard speeds up to 25 MPH but can be adjusted higher or lower subject to requirement or as off road vehicle


·
Complete police lighting, PA system and siren package available


·
Range between charges of over 50 miles dependent on speed and topography


·
Will climb a 30 degree plus grade


·
2000 lb electric winch plus a 2” heavy duty ball hitch receiver


·
Dump truck bed capable of holding 800 pounds





Xtreme Green Products will implement the diffusion theory of innovation, which has been successful when introducing new and innovative products to the market. It will focus on the following five stages: knowledge, persuasion, decision, implementation, and confirmation. This strategy is designed to attract rental locations and distributors who will then advertise the product to the public and governmental agencies, informing them of the benefits and entertainment that the product will provide. This will aid the end user’s decision to purchase the Xtreme Green products and satisfaction will be confirmed upon initial use. Further, Xtreme Green Products has developed a comprehensive publicity Green campaign to reach prospective customers and maximize brand awareness, thereby solidifying positive brand recognition within the industry.





Associated Product Lines





Xtreme intends to produce a full complement of Xtreme Green branded apparel and accessories (to be sold online and through retail locations) including: sunglasses, golf shirts, backpacks, hats, jackets and helmets.


- 5 -


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 have an opportunity to capture a substantial portion of this market created by police department purchases of police cars, associated upgrades, bicycles and other security equipment purchased with funds from the U.S. Department of Homeland Security.





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 a zero-gas emissions electric vehicle, we believe that our vehicles 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. For the first two years, Xtreme intends to distribute within the United States. If there is interest overseas, Xtreme will expand its focus to cover those areas as well.





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.  The Company believes that PMVs will eventually be utilized in all of these areas.





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 expensive than Xtreme’s PMV but has many differences. Some of these differences are:





·
Lower speed (12-15 MPH)





·
Fatiguing when used for lengths of time





·
Little room for accessories and emergency equipment





·
No protection for rider





·
Does not include internal charger





·
History of breakdowns





The second competitor is T3 Motion. T3 has created and marketed a similar three wheel vehicle similar to what the Company will be producing. The costing 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:





·
PMV has a lower center of gravity for more stability than the T3





·
PMV includes suspension and anti-fatigue mats, not on the T3





·
PMV has a hub motor and will go 29 MPH, police version of the T3 has a chain drive and goes 25MPH





·
PMV includes an internal charger, T3 requires a second battery pack to get through the day





·
PMV has an auto braking system when the rider leaves





·
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.


- 6 -


Strategy and Implementation Summary





Xtreme will introduce its 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 Green Products has outlined a series of public relation and advertising marketing programs. Xtreme plans the development of a strong distributor network.





Marketing Strategy





Xtreme Green Products will follow a creative marketing plan that will allow 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:





o
Xtreme will attend trade 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.





Media:





o
Xtreme Green Products will advertise in trade publications and magazines that service the market segments for the products.These ads will include a picture of the Company’s product and all necessary contact information.





Representatives:





o
Xtreme intends to recruit a large base of U.S. rental representatives on a geographical basis board. This will establish a greater awareness of Xtreme and its products as well as increase its customer base. These representatives will have the rights to all the Xtreme Green products as they become available.





o
Xtreme Green Products will enable international representatives to purchase rights to a section of a country for a fee, based on the size of the country; this will allow them the ability to purchase a minimum amount of Xtreme Green products on an annual basis. Xtreme will set up websites that accessed on Xtreme’s main website. Both U.S. and International Representative Teams will also distribute Xtreme videos, brochures, DVDs, and CDs in order to successfully market to its customers.


Partnerships:





o
Xtreme will seek to form partnerships with producers and distributors to request placements of the Xtreme Green products in movies and television shows. This kind of product exposure will prove to be a significant selling point and will augment sales significantly.





As Xtreme expands, it will reevaluate its marketing strategy to accommodate regional consumer dynamics – the variants each region has in social, economic, and buying trends. At the corporate level, an internet-based and direct marketing strategy will continue to create awareness.


- 7 -


Internet Strategy





Xtreme intends to operate with an internet strategy to make its products known to a national audience. The site will be professionally designed, easily navigable, and will have a shopping cart feature allowing users to purchase Xtreme’s Company’s products from the convenience of their homes or offices. The site will be search engine optimized and Xtreme will additionally utilize Cost-Per-Click (CPC) marketing with Google AdWords and Yahoo!.





Regulations





General


Xtreme’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 Xtreme’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. Xtreme 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 the vehicles into Europe. The Company expects to obtain certification by the end June, 2011.




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 Xtreme’s products are manufactured and sold. Xtreme believes its products comply with all existing legislative and regulatory requirements in the jurisdictions where they are manufactured or sold. Moreover, Xtreme 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.





Manufacturing





Xtreme is having the components for its products assembled and manufactured in both China and the United States. While the motor scooter and motorcycle are completely manufactured and assembled in China, the PMV is manufactured and assembled at its headquarters in Las Vegas. Some other products, like the ATV and the UTv are expected to be manufactured in China but assembled in the US.





In China, Xtreme has hired three fulltime employees to set up and manage the coordination and purchasing of components, the assembly plant for the products and the quality control visits to suppliers.





Intellectual property





Xtreme does not currently have any patents or patent applications for any of its products or their components.





Employees





We have 24 employees, including two executive officers. None of our employees is represented by a labor union, and Xtreme considers its employee relations to be excellent.





ITEM 2. DESCRIPTION OF PROPERTY





The Company’s principal offices are located at 2191 Mendenhall Drive, Unit 101, North Las Vegas, Nevada and consist of a 35,000 square foot warehouse that is leased at $11,000 per month. The lease expires in September 2015.


- 8 -


ITEM 3. LEGAL PROCEEDINGS





From time to time, Xtreme may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims are pending against or involving Xtreme that could reasonably be expected to have a material adverse effect on its business and financial condition.





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None




- 9 -


PART II





ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Our common stock is not currently traded on any exchange. We intend to take the necessary steps to have our common stock included for quotation on the OTC Bulletin Board as soon as possible.





Recent Sales of Unregistered Securities





In January 2010, we issued to an investor 1,250,000 shares of common stock for a total cash consideration of $500,000





In March 2010, we issued to an investor 1,250,000 shares of common stock for a total cash consideration of $500,000





In March 2010, we issued to a director 500,000 shares of common stock in exchange for the conversion of a $250,000 of debt due the director.





In April 2010, we issued to an investor 100,000 shares of common stock for a total cash consideration of $50,000.





In June 2010, we issued to investors 102,995 shares of common stock for a total cash consideration of $51,498.





In June 2010, we issued to an investor 36,000 shares of common stock for at a value of $18,000 in exchange for services.





In July 2010, we issued to investors 159,750 shares of common stock for a total cash consideration of $79,875.





In July 2010, we issued to investors 40,000 shares of common stock for at a value of $20,000 in exchange for services.





In August 2010, we issued to an investor 19,900 shares of common stock for a total cash consideration of $9,950.





In August 2010, we issued to an investor 21,500 shares of common stock at a value of $10,750 in exchange for services.





In September 2010, we issued to an investor 36,000 shares of common stock at a value of $18,000 in exchange for services.





In October 2010, we issued to an investor 36,000 shares of common stock at a value of $18,000 in exchange for services.





In November 2010, we issued to an investor 10,000 shares of common stock for a total cash consideration of $5,000.





In December 2010, we issued to an investor 11,000 shares of common stock for a total cash consideration of $5,500.





In December 2010, we issued to an investor 1,250,000 shares of common stock for a total cash consideration of $500,000.





All securities were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) thereunder, as they were issued in reliance on the recipients’ representation that they were accredited (as such term is defined in Regulation D), without general solicitation and represented by certificates that were imprinted with a restrictive legend. In addition, all recipients were provided with sufficient access to Company information.




- 10 -


ITEM 6. SELECTED FINANCIAL DATA





Not applicable.





Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. [company to update in its entirety]





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. (“Xtreme”, “we”, “our”, “us”) was incorporated under the laws of the State of Nevada on May 21, 2007. We are a development stage company and as such, we have not generated any significant revenue since our inception. We have developed a line of electric powered products such as personal mobility vehicles, motor scooters, 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 Xtreme 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 Xtreme.





Recent Developments





On November 12, 2008, the shareholders of Xtreme entered into a Share Exchange Agreement (the “Exchange Agreement”) with Belarus pursuant to which Belarus purchased from the Xtreme shareholders 37,837,800 shares of Xtreme common stock which represented approximately 97.43% of the then issued and outstanding shares of Xtreme in exchange for the issuance of 37,837,800 shares of common stock of Belarus. In connection with the Exchange Agreement, Xtreme surrendered to Belarus for cancellation, all 5,000,000 shares of common stock of Belarus that it owned and as a result, Xtreme became a subsidiary of Belarus and Belarus succeeded to the business of Xtreme as its sole business. Subsequently, Belarus changed its name to Xtreme Green Products Inc.




Results of Operations





Comparison of the year ended December 31, 2010 to the year ended December 31, 2009





Sales for the past two fiscal years ended December 31, 2010 and December 31, 2009 were $476,671 and $248,235, respectively. The increase in 2010 as compared to 2009 resulted from a higher demand for our vehicles in the market place.





Cost of sales for the year ended December 31, 2010 and 2009 was $400,752 and $183,715. which resulted in gross profit of $75,919 or 16.0% in 2010 and $64,520 or 26% in 2009. A major reason for the decrease in gross profit percent was due to a one time investment to upgrade all vehicles with an improved vehicle computer system.


- 11 -


General and administrative expenses were $1,893,397 for the year ended December 31, 2010 compared to $1,115,945 for the year ended December 31, 2009. 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 attributable to the significant growth in the demand for our products leading to additional office and assembly space, marketing costs, and administrative staff.





Duringthe year ended December 31, 2010 we incurred stock based compensation expense of $127,061comparedto $29,315for the year ended December 31, 2009. Stock based compensation expense for the year ended December 31, 2010 was related to 169,500 shares of restricted common stock issued for services valued at $84,750 and $42,311 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. Stock based compensation expense of $29,315 for the year ended December 31, 2009 was related to (i) thefair valueof 805,000 stock options which were issued to various employees, consultants, and directors in September 2009 and (ii) the issuance of 30,425 shares of restricted common stock in exchange for services rendered.




Interest expense for the year ended December 31, 2010 and 2009 was $308,852 and $13,886 respectively. 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. In addition, during 2010 The value of warrants issued in conjunction with the conversion of debt into common shares of $245,384 was included in interest expense.





Our net loss for the year ended December 31, 2010 was $2,126,870 or $0.05 per share compared to a net loss of $1,065,311or $0.03 per share for the year ended December 31, 2009.





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, 2010, we have incurred a cumulative net loss of $4,543,049. The notes to our financial statements include language that raises doubt about our ability to continue as a going concern. At December 31, 2010 we had cash of $343,068, a net working capital deficit of $564,814 and we owed our stockholders an aggregate of $1,119,480. These stockholders are also officers and directors of our Company. Of the total due to stockholders, $119,480 is due upon demand with interest at 4% and $1,000,000 is due September 8, 2011bearing interest at 12% with an option to convert into common stock at $0.40 per share.





During the year ended December 31, 2010 we sold 3,750,000 shares of restricted common stock at a price per share of $0.40 per share and 403,646 shares of common stock at a price per share of $0.50 and received total proceeds of $1,701,823. These proceeds were used for general working capital purposes. Subsequent to December 31, 2010 and through March 16, 2011, we sold an additional 210,000 shares of common at a price of $0.50 per shares and received cash proceeds of $105,000.





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 loan is 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 curtail or cease operations.





To the extent that it becomes necessary to raise additional cash in the future, we may seek to raise it through 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 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





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 revenues 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 services are performed and included in revenue at the completion of the related services.





Going Concern




The Company’s 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.




The Company has 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 December 31, 2010, the Company incurred net losses of $4,543,049. 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 investments. In addition, the Company is seeking to establish its revenue base. Revenue as of March 16, 2011 has increased significantly and management foresees this trend continuing. Failure to secure financing or to raise additional equity capital and to establish 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.




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.


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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On August 24, 2009, the Company dismissed its auditors, Rotenberg & Co., LLP (“Rotenberg"). Effective August 24, 2009, the Company engaged Stark Winter Schenkein & Co., LLP (“Stark"), as its independent certified public accountant. The Company's decision to dismiss Rotenberg and retain Stark was approved by its Board of Directors on August 24, 2009.





The reports of Rotenberg on the financial statements of the Company for each of the two most recent fiscal years for which audits have been performed, did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles for the two most recent fiscal years, except that Rotenberg's opinion in its report on the Company's financial statements expressed substantial doubt with respect to the Company's ability to continue as a going concern for the last two fiscal years.





During the Company's two most recent fiscal years and the subsequent interim period through the date of dismissal, there were no reportable events as the term is described in Item 304(a)(1)(iv) of Regulation S-K.





During the Company's two most recent fiscal years and the subsequent interim period through the date of dismissal, there were no disagreements with Rotenberg on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of Rotenberg would have caused it to make reference to the subject matter of the disagreements in connection with its reports on these financial statements for those periods.





The Company did not consult with Stark regarding the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, and no written or oral advice was provided by Stark that was a factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issues.





On December 11, 2009, the Company dismissed its auditors, Stark. Effective December 11, 2009, the Company engaged Kingery and Crouse PA (“Kingery"), as its independent certified public accountant. The Company's decision to dismiss Stark and retain Kingery was approved by its Board of Directors on December 11, 2009.





Stark report on the financial statements for the period from May 21, 2007 (inception) to December 31, 2007, were not subject to an adverse or qualified opinion or a disclaimer of opinion and were not modified as to uncertainty, audit scope or accounting principles for the period from May 21, 2007 (inception) to December 31, 2007, except that Stark’s report on the financial statements as of December 31, 2007 and for the period from May 21, 2007 to December 31, 2007 contained explanatory language that substantial doubt existed about the Company’s ability to continue as a going concern due to the Company’s net loss and its working capital deficiency at December 31, 2007.





From the date the Company retained Stark on August 24, 2009 through the date of dismissal, there were no reportable events as the term is described in Item 304(a)(1)(iv) of Regulation S-K.





From the date the Company retained Stark on August 24, 2009 through the date of dismissal, there were no disagreements with Stark on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of Stark would have caused it to make reference to the subject matter of the disagreements in connection with its reports on these financial statements for those periods.





The Company did not consult with Kingery regarding the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, and no written or oral advice was provided by Kingery that was a factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issues.


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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, 2010. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were noteffective as of the end of the period covered by this report as discussed below.


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, 2010. In making this assessment, our management used the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).




During this evaluation, the Company identified a material weakness in its internal control over financial reporting as of the end of the period covered by this report related to the documentation of its accounting controls and procedures and limited number of personnel in the accounting department. Although historically, the Company was delinquent in filing its periodic reports required to be filed, by November 15, 2010, it had filed all reports required to be filed to that date. The Company attributes this to large investments in its inventory control and other accounting systems as well as the hiring of new financial and accounting personnel. This has resulted in significant improvements in the Company’s ability to analyze financial information in a timely manner and to allow on-going monitoring and enhancement of its controls. We continue to assess our accounting functions and will make improvements to these controls and procedures as necessary.





Based on our assessment and the criteria discussed above, the Company has concluded that, as of December 31, 2010, the Company’s internal control over financial reporting was not effective. Nevertheless, management believes that the financial statements included in this Annual Report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with the U. S. generally accepted accounting principles. The Company will continue to improve its internal financial and accounting reporting systems and anticipates that during the year ended December 31, 2011, its disclosure controls and procedures will be effective.




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.


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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, does 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




During the fourth quarter we continued the enhancement of our internal controls, started earlier in the year, by investing in additional accounting software. Otherwise, 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, 2010 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


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PART III





ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE





Directors and Executive Officers





The following persons are our executive officers and directors:





Name

Age

Position(s)Sandy Leavitt

64

Chairman, Chief Executive Officer and SecretaryNeil Roth

57

President, Chief Operating Officer, Chief Financial Officer and DirectorRik Deitsch

42

DirectorRussell E. Hagberg

59

DirectorGreg K. Hoggatt

51

DirectorByron Georgiou

62

DirectorFrank Rosenberg

70

Director




Sandy Leavitt has been our Chairman, Chief Executive Officer and Secretary since August 2007 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 and Chief Operating Officer and a director 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.





Rik Deitsch has been one of our directors since August 2009. He has been the Chief Executive Officer of Nutra Pharma Corp. (nutrapharma.com) since 2002, and from 1998 to 2002 served as the President of NDA Consulting Inc., a biotechnology research group that provided consulting services to the pharmaceutical industry. NDA Consulting specialized in the research of peptides derived from Cone Snail venom, Cobra venom and Gila Monster venom. Mr. Deitsch holds both a B.S. in Chemistry and an M.S. in Biochemistry from Florida Atlantic University and has conducted research for the Duke University Medical School Comprehensive Cancer Center. Mr. Deitsch is an adjunct professor and teaches several business courses for Florida Atlantic University's College of Business and Continuing Education Department.





Russ Hagberg has been one of our directors since August 2009. He has served in several executive positions during his management career with exposure to the transportation, banking, insurance, health care, and heavy manufacturing industries. He was a key member of the senior management team that successfully restructured Santa Fe Industries and the Santa Fe Railway, serving as Vice President-HR & Labor Relations, Vice President-Transportation Operations, and Senior Vice President and Chief of Staff. Russ was a member of the Santa Fe Railway Board of Directors and he also served on the Board of Directors of the DM&E Railroad from 2002 until its sale in late 2007 to the Canadian Pacific Railway for $2.5 Billion. Mr. Hagberg is founder and Principal of Hagberg & Associates, a management consulting firm. He currently teaches Strategic Management and Leadership courses at Northern Illinois University (NIU). Born and raised in Chicago, Illinois, Russ served as a Captain in the US Army, earned a B.S. Degree in Marketing from NIU and an MBA from the University of Chicago.




Greg K Hoggatt has been one of our directors since August 2009. He has been a Delta Airlines pilot and captain since 1985. He graduated from Indiana University in 1978 with a double major in chemistry and biology. Mr. Hoggatt earned his U.S. Navy wings in 1980 and became a flight instructor at Naval Air Station Pensacola. He taught air combat maneuvers, carrier landings, and formation flying to students as well as new instructors. He subsequently became an F-14 Tomcat fighter pilot. During that time, he was stationed at NAS Oceana, VA and flew off the USS America from 1981-1985, serving primarily in the Mediterranean and Indian Oceans. Honorably discharged from the US Navy in December 1985, he was hired by Delta Air Lines. His experience as a top instructor, earned him a check airman position before he completed his first year at Delta. Mr. Hoggatt became one of Delta’s youngest captains at the age of 40 when he moved to the left seat of a Boeing 727 in 1986.


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Byron Georgiou is one of the ten members of the Financial Crisis Inquiry Commission, a bi-partisan commission created under the Fraud Enforcement and Recovery Act of 2009 to examine the causes, domestic and global, of the current financial and economic crisis in the United States. Mr. Georgiou is President of Georgiou Enterprises, with wide ranging interests including partnerships in several private equity firms; a portfolio of carbon emission reduction projects in China that generate carbon credits under the Kyoto protocol; and environmental cleanup of deep coal mining sites. Since 2005, Mr. Georgiou has served on the advisory board of the Harvard Law School Program on Corporate Governance. In addition, since 2000, Mr. Georgiou has been affiliated of counsel to the national law firm of Coughlin Stoia Geller Rudman & Robbins, the world's largest plaintiffs' securities practice, and has had a leadership role in the historic litigations prosecuting financial fraud on behalf of defrauded investors at Enron, WorldCom, Dynegy, AOLTimeWarner, and UnitedHealth. In 1994, he co-founded and served as President of American Partners Capital Group, concentrating on serving the needs of institutional investors through capital formation programs in a variety of alternative asset categories. From 1983-1994, he was Managing Partner and co-founder of the San Diego law firm of Georgiou, Tosdal, Levine & Smith, a general civil practice, with emphasis on litigation and appearances before executive and legislative governmental bodies, and representation of labor organizations and their members, including contract negotiations and enforcement for many California public and private sector labor organizations. From 1980-1983, Mr. Georgiou served as Legal Affairs Secretary to California Governor Edmund G. Brown Jr., 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. Mr. Georgiou served from 1975-1980 in various capacities with the California Agricultural Labor Relations Board. Mr. Georgiou received his undergraduate degree with Great Distinction from Stanford University, attending on a full Alfred P. Sloan academic scholarship, and his Juris Doctor degreemagna cum laude from Harvard Law School.





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.


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ITEM 11. EXECUTIVE COMPENSATION




The following table sets forth salaries paid to the Company’s Chief Executive and Chief Financial Officer during the fiscal year ended December 31, 2010. In accordance with the rules and regulations promulgated by the Securities and Exchange Commission, the table omits columns that are not applicable.





Summary Compensation Table (1)





Name and

principal

position

(a)

Year

(b)

Salary

($)

(c)


Total ($)

(j)Sandy Leavitt

2010


130,769



130,769Chief Executive Officer

2009


125,000



125,000Neil Roth

2010


135,385



135,385President and Chief Financial Officer

2009


125,000



125,000











Compensation of Directors
 
 The following table sets forth compensation paid to each of the Company’s directors in each such person’s capacity as a director during the fiscal year ended December 31, 2010 and 2009.  In accordance with the rules and regulations promulgated by the Securities and Exchange Commission, the table omits columns that are not applicable
 
 
 Options Awards
All Other Compensation
TotalName
Year
($)
($)
($)(a)

(b)
( g )
(h)Rik Deitsch
2010


-0-2009
48,050

48,050Russell Hagberg
2010


-0-2009
48,050

48,050





2008 Incentive Stock Option Plans





The Company has approved the 2008 Incentive Stock Option Plan (the "2008 Incentive Plan") and authorized 10,000,000 shares of Common Stock for issuance thereunder. The following is a summary of principal features of the 2008 Incentive Plan. The summary, however, does not purport to be a complete description of all the provisions of the 2008 Incentive Plan. A copy of the 2008 Incentive Plan is attached hereto as Appendix A.





General




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. 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 thereunder. The then sole shareholder of the Company subsequently ratified the 2008 Incentive Stock Option Plan




The 2008 Incentive Plan and the right of participants to make purchases thereunder are intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The 2008 Incentive Plan is not a qualified deferred compensation plan under Section 401(a) of the Internal Revenue Code and is not subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").


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Purpose




The primary purpose of the 2008 Incentive Plan is to attract and retain the best available personnel for the Company in order to promote the success of the Company's business and to facilitate the ownership of the Company's stock by employees. In the event that the 2008 Incentive Plan is not adopted the Company may have considerable difficulty in attracting and retaining qualified personnel, officers, directors and consultants.




Administration




The 2008 Incentive Plan will be administered by the Company's Board of Directors, as the Board of Directors may be composed from time to time. All questions of interpretation of the 2008 Incentive Plan are determined by the Board, and its decisions are final and binding upon all participants. Any determination by a majority of the members of the Board of Directors at any meeting, or by written consent in lieu of a meeting, shall be deemed to have been made by the whole Board of Directors.




Notwithstanding the foregoing, the Board of Directors may at any time, or from time to time, appoint a committee (the "Committee") of at least two members of the Board of Directors, and delegate to the Committee the authority of the Board of Directors to administer the Plan. Upon such appointment and delegation, the Committee shall have all the powers, privileges and duties of the Board of Directors, and shall be substituted for the Board of Directors, in the administration of the Plan, subject to certain limitations.




Members of the Board of Directors who are eligible employees are permitted to participate in the 2008 Incentive Plan and may vote on any matter affecting the administration of the 2008 Incentive Plan or the grant of any option pursuant to it. In the event that any member of the Board of Directors is at any time not a "disinterested person" to the extent that such member is the recipient of a grant under the 2008 Incentive Plan, then such grant under the Plan shall not be administered by said member of the Board of Directors, and may only by administered by a Committee all the members of which are disinterested persons, as so defined or by the remaining members of the Board of Directors who are not recipients of the grant in question.





Eligibility




Under the 2008 Incentive Plan, options may be granted to key employees, officers, directors or consultants of the Company, as provided in the 2008 Incentive Plan.




Effective Date




The 2008 Incentive Plan will become effective immediately following the incorporation of the Company in the State of Nevada as discussed below.




Terms of Options




The term of each Option granted under the 2008 Incentive Plan shall be contained in a stock option agreement between the Optionee and the Company and such terms shall be determined by the Board of Directors consistent with the provisions of the 2008 Incentive Plan, including the following:




(a) Purchase Price. 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 that 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.




(b) Vesting. The dates on which each Option (or portion thereof) shall be exercisable and the conditions precedent to such exercise, if any, shall be fixed by the Board of Directors, in its discretion, at the time such Option is granted.




(c) Expiration. The expiration of each Option shall be fixed by the Board of Directors, in its discretion, at the time such Option is granted; however, unless otherwise determined by the Board of Directors at the time such Option is granted, an Option shall be exercisable for five (5) years after the date on which it was granted (the "Grant Date"). Each Option shall be subject to earlier termination as expressly provided in the 2008 Incentive Plan or as determined by the Board of Directors, in its discretion, at the time such Option is granted.




(d) Transferability. No Option shall be transferable, except by will or the laws of descent and distribution, and, during the lifetime of the Optionee, Options may be exercised by the Optionee only. No Option granted under the Plan shall be subject to execution, attachment or other process.


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(e) Option Adjustments. The aggregate number and class of shares as to which Options may be granted under the Plan, the number and class shares covered by each outstanding Option and the exercise price per share thereof (but not the total price), and all such Options, shall each be proportionately adjusted for any increase decrease in the number of issued Common Shares resulting from split-up spin-off or consolidation of shares or any like Capital adjustment or the payment of any stock dividend.




(f) Termination, Modification and Amendment. The 2008 Incentive Plan (but not Options previously granted under the Plan) shall terminate ten (10) years from the earlier of the date of its adoption by the Board of Directors or the date on which the Plan is approved by the affirmative vote of the holders of a majority of the outstanding shares of capital stock of the Company entitled to vote thereon, and no Option shall be granted after termination of the Plan. Subject to certain restrictions, the Plan may at any time be terminated and from time to time be modified or amended by the affirmative vote of the holders of a majority of the outstanding shares of the capital stock of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the State of Delaware.




During the year ended December 31, 2009, 805,000 options had been issued under the 2008 Incentive Plan.





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, 2010, a Form 3 for Byron Georgiou was filed late. In addition, Forms 4 for the following individuals were filed late: Rick Deitsch, Neil Roth and Sandy Leavitt.


- 21 -


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


The following table sets forth information as of March 16, 2011 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 45,176.370 shares issued and outstanding as of March 16, 2011. 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 StockSandy Leavitt


20,261,300



45.9
%Neil Roth


6,625,600



15.1
%Rik Deitsch (3)


2,670,000



5.8
%Russell Hagberg (4)


250,000



*Greg Hoggatt


4,569,400



10.4
%Byron Georgiou (5)


20,150,000



32
%Frank Rosenberg (6)


150,000



*All Directors and Executive Officers as a Group(six persons(3)(4)(5)(6):


54,676,300



86.3
%


* Less than 1%.


(1) The address of all individuals listed below is c/o Xtreme Green Products Inc., 2191 Mendenhall Drive, Unit 101, North Las Vegas, NV 89081.


(2) The number of shares indicated includes (i) shares issuable upon the exercise of outstanding stock options or warrants held by each individual or group to the extent such options and warrants are exercisable within sixty days of March 16, 2011.


(3) Includes 150,000 shares issuable upon exercise of options and 1,500,000 shares issuable upon the exercise of warrants.


(4) Includes 150,000 shares issuable upon exercise of options.


(5) Includes 7,500,000 shares issuable upon currently exercisable warrants and 150,000 shares issuable upon exercise of options. Also includes (i) 2,500,000 shares of common stock issuable upon conversion of a convertible loan held by a family trust (the “Trust”) of which Mr. Georgiou is a trustee and (ii) 7,500,000 shares issuable upon exercise of warrants to be issued to the Trust upon conversion of the afore-mentioned loan .


(6) Consists of shares issuable upon exercise of options.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





During January and March 2010, the Company issued to Byron Georgiou, one of the Company’s directors, an aggregate of 2,500,000 shares of common stock at $0.40 per 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. The purchase price for the securities was $1,000,000.





On June 22, 2010, a family trust of which Mr. Georgiou 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. In connection with this transaction, Mr. Georgiou was also granted the right to set up distributorships in the states of California, Washington and Oregon.





During April 2010, Rik Deitsch, one of the Company’s directors, converted a loan to the Company in the principal amount of $250,000 into 500,000 shares of common stock.


- 22 -


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-QSB during the last two fiscal years 2010 and 2009 were $25,500 and $20,000, respectively.




Audit-Related Fees. None.




Tax Fees. None.




All Other Fees. None.


- 23 -


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES





Exhibit

Number

Description2.1

Share Exchange Agreement dated November 12, 2008 (1)2.2

Articles of Merger(2)2.3

Articles of Merger (Name Change) (2)3.1

Articles of Incorporation (2)3.2

Bylaws (2)3.3

Form of common stock certificate (3)4.1

Form of Warrant (4)10.1

2008 Incentive Stock Option Plan (5)31.1

Chief Executive Officer Certification*31.2

Chief Financial Officer Certification*32

Certification Pursuant to 18 U.S.C. Section 1350 *





*     Included herewith.


(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 Registration Statement on Form 10-SB filed March 15, 2007





(4) Incorporated by reference to the Company’s Current Report on Form 8-K filed February 3, 2010





(5) Incorporated by reference to the Company’s Information Statement on Schedule 14C filed June 9, 2008


- 24 -


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 5, 2011
XTREME GREEN PRODUCTS INC./s/ Sandy LeavittSandy LeavittChief 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/
Sandy Leavitt

Chief Executive Officer and Director

April 5, 2011(Principal Executive Officer)/s/
Neil Roth

President, Chief Financial Officer and

Director

April 5, 2011(Principal Financial and Accounting

Officer)/s/
Rik Deitsch

Director

April 5, 2011/s/
Russell E. Hagberg

Director

April 5, 2011/s/
Greg K. Hoggatt

Director

April 5, 2011/s/
Byron Georgiou

Director

April 5, 2011/s/
Frank Rosenberg

Director

April 5, 2011




- 25 -


XTREME GREEN PRODUCTS INC.




INDEX TO FINANCIAL STATEMENTS




PAGEREPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

F-1CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2010 AND 2009

F-2CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

F-3CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

F-4CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

F-5NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-6 - F-14




- 26 -






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 Shareholders and Board of Directors
 Xtreme Green Products Inc.
 
 We have audited the accompanying consolidated balance sheets of Xtreme Green Products Inc. as of December 31, 2009 and 2010, and the related consolidated statements of operations, stockholders' (deficit), and cash flows for the years ended December 31, 2009 and 2010. These financial statements are the responsibility of the Company'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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 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, 2009 and 2010, and the results of its operations, and its cash flows for the years ended December 31, 2009 and 2010, in conformity with accounting principles generally accepted in the United States of America.
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred significant losses from operations and has working capital and stockholder deficiencies. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 Kingery & Crouse PA
 Certified Public Accountants
 Tampa, Florida
 March 30, 2011
  F-1
  XTREME GREEN PRODUCTS INC.


Consolidated Balance Sheets


December 31, 2009 and 2010





2009


2010ASSETSCurrent assets:Cash

$
73,700


$
343,068Accounts receivable


11,000



49,054Inventory


214,787



623,054Other current assets


-



64,407Total current assets


299,487



1,079,583Property and equipment


88,498



179,576Other assets


12,901



36,186TOTAL ASSETS

$
400,886


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

$
122,878


$
172,948Accrued expenses - related parties


240,000



190,769Line of credit


150,000



150,000Note payable - related party


252,935



-Convertible debt - related party


-



1,000,000Customer deposits


40,960



-Current portion of long-term debt


-



11,200Stockholder loans


157,830



119,480Total current liabilities


964,603



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


-



17,267Commitments and contingenciesStockholders' deficit:Common stock, $0.0001 par value, 100,000,000 sharesauthorized; 40,143,225 and 44,966,370 sharesissued and outstanding


4,014



4,496Additional paid-in capital


1,848,448



4,172,234Accumulated deficit


(2,416,179
)


(4,543,049
)Total stockholders' deficit


(563,717
)


(366,319
)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$
400,886


$
1,295,345





See the accompanying notes to the financial statements.


F-2


XTREME GREEN PRODUCTS INC.


Consolidated Statements of Operations


For the Years Ended December 31, 2009 and 2010





2009


2010Revenue:Sales

$
248,235


$
329,778Sales - affiliates


-



146,893Total revenue


248,235



476,671Cost of sales


183,715



400,752Gross margin


64,520



75,919Costs and expenses:General and administrative


1,115,945



1,893,937Interest expense


13,886



308,852Total costs and expenses


1,129,831



2,202,789Net loss

$
(1,065,311
)

$
(2,126,870
)Per share information - basic and diluted:Loss per common share

$
(0.03
)

$
(0.05
)Weighted average common shares outstanding


39,717,962



43,265,110





See the accompanying notes to the financial statements.


F-3


XTREME GREEN PRODUCTS INC.


Consolidated Statement of Changes in Stockholders' Deficit


For the Years Ended December 31, 2009 and 2010





AdditionalCommon Stock


Paid-in


AccumulatedShares


Par Value


Capital


Deficit


TotalBalance - December 31, 2008


38,943,800


$
3,894


$
1,234,753


$
(1,350,868
)

$
(112,221
)Issuance of common stock for cash


1,169,000



117



584,383



-



584,500Issuance of common stock for services


30,425



3



15,210



-



15,213Option and warrant expense


-



-



14,102



-



14,102Net loss


-



-



-



(1,065,311
)


(1,065,311
)Balance - December 31, 2009


40,143,225



4,014



1,848,448



(2,416,179
)


(563,717
)Issuance of common stock for cash


4,153,645



415



1,701,408



-



1,701,823Issuance of common stock for services


169,500



17



84,733



-



84,750Issuance of common stock for debt conversion


500,000



50



249,950



-



250,000Option and warrant expense


-



-



287,695



-



287,695Net loss


-



-



-



(2,126,870
)


(2,126,870
)Balance - December 31, 2010


44,966,370


$
4,496


$
4,172,234


$
(4,543,049
)

$
(366,319
)





See the accompanying notes to the financial statements.


F-4


XTREME GREEN PRODUCTS INC.


Consolidated Statements of Cash Flows


For the Years Ended December 31, 2009 and 2010





2009


2010Cash flows from operating activities:Net loss

$
(1,065,311
)

$
(2,126,870
)Adjustments to reconcile net loss to netcash used in operating activities:Stock-based compensation and interest


29,315



372,445Depreciation


4,409



26,006Interest added to note payable - related party


2,935



-(Gain) loss on the disposition of property and equipment


-



(6,668
)Changes in operating assets and liabilities:Increase in accounts receivable


(11,000
)


(38,054
)Increase in inventory


(206,021
)


(408,267
)Increase in other current assets


-



(64,407
)Increase in other assets


(12,901
)


(23,285
)Increase in accounts payable and accrued expenses


89,542



47,135Increase (decrease) in accrued expenses - related party


240,000



(49,231
)Increase (decrease) in customer deposits


40,960



(40,960
)Net cash used in operating activities


(888,072
)


(2,312,156
)Cash flows from investing activities:Purchase of property and equipment


(92,907
)


(75,284
)Cash flows from financing activities:Common stock issued for cash


584,500



1,701,823Proceeds from line of credit


150,000



-Proceeds from convertible debt


-



1,000,000Directors loan


250,000



-Repayment of long-term debt


-



(6,665
)Stockholders loans, net


49,838



(38,350
)Net cash provided by financing activities


1,034,338



2,656,808Net increase in cash


53,359



269,368Cash - beginning of period


20,341



73,700Cash - end of period

$
73,700


$
343,068Supplemental Cash Flow Information:Cash paid for interest

$
-


$
45,629Cash paid for income taxes

$
-


$
-Non Cash Investing and Financing Activities:Conversion of debt into common shares

$
-


$
250,000Acquisition of property and equipment with long-term

$
-


$
35,132





See the accompanying notes to the financial statements.




F-5





Xtreme Products Inc.
 Notes to Consolidated Financial Statements
 December 31, 2009 and 2010
 
 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 designs, manufactures and sells electric powered vehicles. The Company was in the development stage prior to December 31, 2009.
 
 The financial statements presented herein include the accounts of the Company and its wholly owned subsidiary Belarus Capital Corp. (Belarus) which the Company acquired on August 16, 2007. 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 revenues 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 services are performed and included in revenue at the completion of the related services or 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. Bad debts have not been significant. During 2009, two customers accounted for 66% and 11% of revenues and during 2010 three customers accounted for 31%, 16% and 10% of revenues. The customer accounting for the 31% of revenues in 2010 was a shareholder and affiliate of the $1,000,000 convertible debt holder (see Notes 4 and 5).
 
 Shipping costs
 
 Shipping and handling costs are included in cost of sales in the accompanying statements of operations.
 
 Inventory
 
 Inventory is valued at the lower of cost or market on a first-in first-out basis and consists primarily of finished goods and parts.
  F-6
  Intangible Assets and Long Lived Assets
 
 We annually review our 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, 2009 and 2010.
 
 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.
 
 Reclassifications
 
 Certain amounts presented in prior year’s financial statements have been reclassified to conform to current year presentation.
 
 Research and Development
 
 Research and development is charged to operations as incurred. Amounts charged to operations were $123,000 and $135,495 during 2009 and 2010.
 
 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.
Other than cash the company has no financial instruments valued at fair value.
 
 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.
  F-7
  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
 
 We compute 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.
 
 We follow 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
 
 We calculate 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.
  F-8
  During periods in which we incur losses, common stock equivalents, if any, are not considered, as their effect would be anti-dilutive or have no effect on earnings per share.
 
 At December 31, 2010, the 9,000,000 outstanding warrants and 805,000 outstanding options were not included in the calculation of diluted earnings per share as their effect would be anti-dilutive.
 
 Recent Pronouncements
 
 The Financial Accounting Standards Board (FASB) ratified Accounting Statement Update (ASU) 2009-13 (ASU 2009-13), Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, which eliminates the residual method of allocation, and instead requires companies to use the relative selling price method when allocating revenue in a multiple deliverable arrangement. When applying the relative selling price method, the selling price for each deliverable shall be determined using vendor specific objective evidence of selling price, if it exists and otherwise using third-party evidence of selling price. If neither vendor specific objective evidence nor third-party evidence of selling price exists for a deliverable, companies shall use their best estimate of the selling price for that deliverable when applying the relative selling price method. ASU 2009-13 shall be effective in fiscal years beginning on or after June 15, 2010, with earlier application permitted. Companies may elect to adopt this guidance prospectively for all revenue arrangements entered into or materially modified after the date of adoption, or retrospectively for all periods presented. The Company will adopt this standard effective January 1, 2011. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
 
 In April 2010, the FASB issued Accounting Standards Update 2010-17 (ASU 2010-17), "Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition." The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.
 
 Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a 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.
 
 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, 2010, aggregating $4,543,049 and has working capital and stockholder deficits of $564,814 and $366,319 at December 31, 2010.
  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.
  F-9
  The Company is pursuing financing for its operations and seeking additional private investments. In addition, the Company is seeking to expand its revenue base and product distribution. Failure to secure such financing or to raise additional equity capital and to expand its revenue base 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. Property and Equipment
 
 Property and equipment consists of the following at December 31, 2009 and 2010:
 2009


2010Manufacturing equipment

$
65,099


$
103,991Other equipment


-



10,705Leasehold improvements


-



8,767Automotive equipment


27,808



84,72892,907



208,191Accumulated depreciation


(4,409
)


(28,615
)$
88,498


$
179,576
 
 Depreciation charged to operations was $4,409 and $26,006 in 2009 and 2010.
 
 During 2010 the Company disposed of automotive equipment with a cost basis of $18,000. This disposition resulted in a loss of $6,668.
 
 Note 4. Stockholders’ (Deficit)
 
 Common Shares
 
 During the year ended December 31, 2009 the Company issued 1,169,000 shares of common stock pursuant to a private placement at a price of $0.50 per shares and received cash proceeds of $584,500.
 
 During the year ended December 31, 2009, the Company issued an aggregate of 30,425 shares of common stock for services rendered and recorded stock based compensation of $15,213. 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.
 
 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.
  F-10
  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 5.0Risk-free rate

2.33 to 3.38%
 
 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 that 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 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.
  F-11
  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 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 total fair value of the options is $211,567 and the cost recognized for the years ended December 31, 2009 and 2010 was $14,102 and $42,311, 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 to 10.0Risk-free rate

2.33 to 3.38%
 
 A summary of option activity under the Plan during the years ended December 31, 2009 and 2010 is presented below:
 
 Options

Shares


Weighted-

Average

Exercise

Price


Weighted-Average

Remaining

Contractual

Term


Intrinsic

ValueOutstanding at December 31, 2008


-



-



-



-Granted


805,000


$
0.50



5.9


$
0.00Outstanding at December 31, 2009 and 2010


805,000


$
0.50



5.9/4.9


$
0.00
 
 The following table summarizes information about fixed price stock options at December 31, 2010:
 
 Exercise

Price


Number

Outstanding


Weighted

Average

Contractual

Life


Weighted

Average

Exercise

Price


Number

Exercisable


Exercise

Price$
0.50



805,000



4.9


$
0.50



201,000


$
0.50
 
 The unvested options vest as follows:
 
 2011 - 201,000; 2012 - 201,000; 2013 - 101,000; 2014 - 101,000
 
 As of December 31, 2010, 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, 2010.
 
 The total intrinsic value of options exercised during the years ended December 31, 2009 and 2010, was approximately $0 and $0, respectively. 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. The total cash proceeds received from the exercise of stock options was approximately $0 and $0 for the years ended December 31, 2009 and 2010, respectively.
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  The total fair value of options granted during the years ended December 31, 2009 and 2010 was approximately $211,567 and $0, respectively.
 
 Note 5. Related Party Transactions
 
 Notes and Loans
 
 During 2007, the Company borrowed an aggregate of $115,394 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. During 2008 an aggregate of $7,401 was repaid leaving a balance of $107,993 at December 31, 2008. Through December an additional $49,838 was advanced bringing the balance to $157,830 at December 31, 2009. During the year ended December 31, 2010, $38,350 was repaid, leaving a balance of $119,480 at December 31, 2010. The loans are due on demand and bear interest at 4%.
 
 During September 2009, a director loaned the Company an aggregate of $250,000 with interest at 4.0% per annum. The note is due on demand. Through December 31, 2009, $2,935 of interest was added to the note balance.
 
 On March 25, 2010, the principal amount of the note ($250,000) was converted into 500,000 shares of the Company’s common stock (see Note 4).
 
 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 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 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. Interest charged to operations related to this loan aggregated $40,000 during 2010.
 
 Other
 
 During 2009 the Company purchased a vehicle from an officer for $18,000.
 
 Note 6. Line of Credit and Long-Term Debt
 
 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.
 
 During February 2010 the Company financed a vehicle. The original debt was $36,000 due in 36 monthly payments of $1,153 including interest at 9.5% per annum. The balance due at December 31, 2010, was $28,467 due as follows: 2011: $11,200 – 2012: $12,744 – 2013: $4,523.
  F-13
  Note 7. 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, 2009 and 2010. 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
%
 
 As of December 31, 2010, the Company has a net operating loss carry forwards of approximately $2.7 million. This loss will be available to offset future taxable income. If not used, these carry forwards will begin to expire in 2027 through 2030. The deferred tax asset of approximately $900,000 relating to the operating loss carry forward has been fully reserved at December 31, 2010. The increase in the valuation allowance related to the deferred tax asset was approximately $500,000 during 2010. 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, 2010. Our methods of accounting are based on established income tax principles in the Internal Revenue Code and are properly calculated and reflected within our income tax returns. Due to the carry forward of net operating losses, our federal and state income tax returns are subject to audit for periods beginning in 2007.
 
 Note 8. Commitments
 
 During March 2010, the Company entered into a lease for office and warehouse space for a five year period. The lease calls for rental payments as follows:
 
 2011

$
129,5672012

$
133,4522013

$
137,4602014

$
141,5762015

$
108,558
 
 Rent expense was $26,000 and $50,400 for the years ended December 31, 2009 and 2010.
 
 Note 9. Subsequent Events
 
 Subsequent to December 31, 2010, the Company issued 210,000 shares of common stock for cash of $105,000.
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