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, 2009





o
            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. YesoNox





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yeso  Nox





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.
Yeso
  Nox





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.o





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 filero
            Accelerated
      fileroNon-accelerated
      filero
            Smaller
      reporting companyx





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





State
issuer's revenues for its most recent fiscal year. $248,235





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, 2009, 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: 43,541,970 as of July 30,
2010.








TABLE OF
CONTENTS





PART
      IITEM
      1.
                                                    BUSINESS
                                                    3ITEM
      2.
                                                    PROPERTIES
                                                    8ITEM
      3.
                                                    LEGAL
      PROCEEDINGS
                                                    9ITEM
      4.
                                                    SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                                    9PART
      IIITEM
      5.
                                                    MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                                                    10ITEM
      6.
                                                    SELECTED
      FINANCIAL DATA
                                                    10ITEM
      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


- 2 -





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, UTVs, people movers, and golf “cars”.





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.


- 3 -





The main
features of the PMV are:





·
            One
      person electric vehicle with unique three wheel
  design


·
            Compact
      design allows rider to easily enter buildings and clear interior
      doorways


·
            Direct
      drive – no chains or sprockets


·
            Low
      center of gravity gives level and secure
ride


·
            Shock
      absorbers and anti-fatigue pads for smooth safe, fatigue free
      ride


·
            Turns
      within its own radius for easy
maneuverability


·
            Speeds
      of up to 29 miles per hour


·
            Hub
      wheel motor allows for quick pickup


·
            Easily
      clears standard sidewalk curbs of up to 8”
  height


·
            Lithium
      Ion Battery System with proprietary Energy Management System (EMS). Long
      life batteries can be charged 3000 times with no discernable deterioration
      in performance


·
            Travel
      over 80 miles on one charge


·
            Internal
      charger allows for charging using any 110/220 volt
  outlet


·
            Complete
      police lighting and siren package


·
            Ample
      storage compartments


·
            Hydraulic
      disc brakes


·
            Automatic
      parking brake engagement when rider dismounts
  vehicle





The
police/security PMV is the first three-wheeler that Xtreme will produce. Xtreme
Green Products is working on a consumer version that will be less expensive and
will ride at lower speeds.  The Company has developed a commissioned sales
force in over 40 states to sell to the police, universities and security
companies.





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 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.





The main
features of the Electric Motorcycle are:





·
            4500
      watt 72 volt hub motor


·
            6.5
      feet long, wheelbase of 4.8 feet


·
            Net
      weight of 266 pounds


·
            Load
      capacity of 330 pounds


·
            State
      of the art Lithium Ion Battery
System


·
            Lithium
      Ion Battery System will last for over 2000 charges – almost 7
      years


·
            Proprietary
      computerized Battery Management System for safety and long
      life


·
            Speeds
      approaching 65 MPH


·
            Maximum
      range of up to 100 miles depending on the battery system
      purchased


·
            Climbing
      capacity of over 20 degree grade


·
            Front
      disk brakes and rear drum brakes


·
            Includes
      a built in charger – 110/220
volts





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.


- 4 -





The main
features of the Electric Motorcycle are:





·
            3000
      watt 60 volt hub motor


·
            6.5
      feet long, wheelbase of 4.8 feet


·
            Net
      weight of 266 pounds


·
            Load
      capacity of 330 pounds


·
            State
      of the art Lithium Ion Battery
System


·
            Lithium
      Ion Battery System will last for over 2000 charges – almost 7
      years


·
            Proprietary
      computerized Battery Management System for safety and long
      life


·
            Speeds
      approaching 50 MPH


·
            Maximum
      range of up to 75 miles depending on the battery system
      purchased


·
            Climbing
      capacity of over 20 degree grade


·
            Front
      disk brakes and rear drum brakes


·
            Includes
      a built in charger – 110/220
volts





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.





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.  We expect that stimulus funds for local companies made
available in the wake of the financial crisis of 2008 will help us grow our
business further.





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. All of these locations as well as the armed services,
the ATF and large state and federal buildings consist of the market segment that
the PMV will enter into.


- 5 -


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





Presently,
there are approximately 450 police departments using Segway PTs. In speaking to
these users, the major complaints include stomach discomfort and high breakdown
rates.





The
second competitor is T3 Motion. T3 has created and marketed a similar three
wheel vehicle 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.





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. Initially, Xtreme plans the development of a strong distributor
network.


- 6 -





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 of 2010.




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
nine employees, including two executive officers.  None of our employees is
represented by a labor union, and Xtreme considers its employee relations to be
excellent.  Xtreme seeks to use contract workers and anticipates
maintaining a small full-time employee base.





ITEM
2.  DESCRIPTION OF PROPERTY UPDATE





The
Company’s principal offices are located at 2191 Mendenhall Drive, Unit
101, North Las Vegas, Nevada and consist of a 33,750 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
November 2009, we issued to an investor 15,000 shares of common stock for a
total cash consideration of $7,500.





In
December 2009, we issued to an investor 20,000 shares of common stock for a
total cash consideration of $10,000.





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.




ITEM
6.  SELECTED FINANCIAL DATA





Not
applicable.


- 10 -





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





Forward-Looking
Statements





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





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





Overview





Xtreme
Green Products Inc. (“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, 2009 to the year ended December 31,
2008





Sales for
the year ended December 31, 2009 were $248,235.  We did not generate any
sales in the year ended December 31, 2008.





Cost of
sales for the year ended December 31, 2009 was $183,715 which resulted in a
gross profit of $64,520 or 26.0%.





General
and administrative expenses were $1,086,630 for the year ended December 31, 2009
compared to $271,635 for the year ended December 31, 2008.  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, (iv) general expenses such as rent and
insurance and (v) stock based compensation.  The overall increase in
general and administrative expenses is attributable to the fact that we
commenced manufacturing operations during the first half of
2009.


- 11 -


During
the year ended December 31, 2009, we incurred stock based compensation expense
of $29,315 compared to $53,000 for the year ended December 31, 2008.  Stock
based compensation expense for the year ended December 31, 2009 was related to
(i) the fair value of 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.





Stock
based compensation expense of $53,000 for the year ended December 31, 2008 was
related to the issuance of an aggregate of 106,000 shares of our restricted
common stock to three consultants in exchange for services rendered.  These
shares were valued at $0.50 per share which was the price at we which we sold
shares for cash during the same period.





Interest
expense for the year ended December 31, 2009 was $13,886.  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.   We
did not incur any interest expense during year ended December 31,
2008.





Our net
loss for the year ended December 31, 2009 was $1,065,311 or $0.03 per share
compared to a net loss of $324,635 or $0.01 per share for the year ended
December 31, 2008.





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, 2009, we have incurred a
cumulative net loss of $2,416,179. The notes to our financial statements include
language that raises doubt about our ability to continue as a going
concern.  At December 31, 2009, we had cash of $73,700, a net working
capital deficit of $665,116 and we owed our stockholders an aggregate of
$410,765.  These stockholders are also officers and directors of our
Company.   Of the total due to stockholders, $83,265 was due in full
on December 31, 2009 and has not be paid, and $250,000 was converted into
500,000 shares of common stock on March 25, 2010.  The remaining
stockholder loans are due on demand.





During
the year ended December 31, 2009, we sold 1,169,000 shares of restricted common
stock at a price per share of $0.50 per share and received proceeds
$584,500.  These proceeds were used for general working capital purposes.
Subsequent to December 31, 2009 and through July 22, 2010, we sold an additional
2,862,745 shares of common stock pursuant to private placements at a prices
ranging from $0.40 to $0.50 per shares and received cash proceeds of
$1,181,373.





During
our fiscal quarter ended March 31, 2010, one of our directors purchased
2,500,000 shares of our common stock for total cash consideration of
$1,000,000.  We also issued warrants to this director as follows: (i) a
three year warrant to purchase 2,500,000 shares at $0.40 per share; (ii) a four
year warrant to purchase 2,500,000 shares at $0.65 per share and; (iii) a five
year warrant to purchase 2,500,000 shares at $0.75 per share.





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 is to be funded
on August 9, 2010. The balance is scheduled to be released on September 9,
2010.  The loans are scheduled to be repaid on September 8, 2011.  At
any time prior to that date, at the option of the lender the loan is convertible
into common stock at $0.40 per share.  Upon conversion, the lender will
also receive warrants to purchase 7,500,000 shares of common stock, as follows:
a three year warrant to purchase 2,500,000 shares of common stock at $0.40 per
share; a four year warrant to purchase 2,500,000 shares at $0.65 per share; and
a five year warrant to purchase 2,500,000 shares of common stock at $0.75 per
share.





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





To the
extent that it becomes necessary to raise additional cash in the future, we may
seek to raise it though the sale of debt or equity securities or from additional
loans from our stockholders.  There can be no assurances that we will be
able to continue to sell shares of our common stock or borrow additional funds
from any of our stockholders or third parties in order to fund the costs
associated with our future operating and investing activities.





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


- 12 -


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, 2009, the Company incurred net losses of
$2,416,179.  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.
Failure to secure such 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.


- 13 -


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.


- 14 -





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, 2009. 
Based upon that evaluation and the identification of the material weakness in
the Company’s internal control over financial reporting as described below under
“Management’s Report on Internal Control over Financial Reporting,” the Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were not effective as of the end of the
period covered by this report.




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, 2009.  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.  A material weakness is a deficiency, or
combination of deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected on
a timely basis.  The identified material weakness consists of, as of the
end of the period covered by this report, severely limited financial and other
resources and limited number of employees, namely an understaffed financial and
accounting function, and the need for additional personnel to prepare and
analyze financial information in a timely manner and to allow review and
on-going monitoring and enhancement of our controls.




Based on
our assessment and the criteria discussed above, the Company has concluded that,
as of December 31, 2009, the Company’s internal control over financial reporting
was not effective as a result of the aforementioned material
weakness.




Notwithstanding
the material weakness in the Company’s internal control over financial reporting
and the Company’s consequently ineffective disclosure controls and procedures
discussed above, management believes that the financial statements included in
this Annual Report on Form 10-K 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.




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.


- 15 -




Plan
for Remediation of Material Weaknesses




As our
financial position improves, we plan to enhance our control environment and to
remedy the identified material weakness by expanding the resources available to
the financial reporting process.  These ongoing efforts are to 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; (iii) and reviewing our control procedures and assist us in
developing on-going test plans to assure compliance and enhancement as needed to
existing controls; and (iv) adding financial and accounting personnel as
required.




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




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,
2009 that have materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.


- 16 -





PART
III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE





Directors
and Executive Officers





The
following persons are our executive officers and directors as of June 22, 2010:





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
                
                41
                
                DirectorRussell
      E. Hagberg
                
                59
                
                DirectorGreg
      K. Hoggatt
                
                51
                
                DirectorByron
      Georgiou
                
                61
                
                Director




Sandy
Leavitt 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 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.


- 17 -





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.





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.


- 18 -


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, 2009.  In
accordance with the rules and regulations promulgated by the Securities and
Exchange Commission, the table omits columns that are not
applicable.





Name and
                            principal
                            position
                            (a)
                          
                          Year
                            (b)
                          
                          Salary
                            ($)
                            (c)
                          
                          
                          Total ($)
                            (j)Sandy
      Leavitt
                          
                          2009
                          
                          
                          125,000
                          
                          
                          
                          125,000Chief
      Executive Officer
                          
                          2008
                          
                          
                          -0-
                          
                          
                          
                          -0-Neil
      Roth
                          
                          2009
                          
                          
                          125,000
                          
                          
                          
                          125,000President
      and Chief Financial Officer
                          
                          2008
                          
                          
                          -0-
                          
                          
                          
                          -0-





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, 2009.  In accordance with the rules and regulations
promulgated by the Securities and Exchange Commission, the table omits columns
that are not applicable.





Name
                      (a)
                    
                    Option
                      Awards
                      ($)
                      (d)
                    
                    
                    Total
                      ($)
                      (h)Rik
      Deitsch
                    
                    
                    48,050
                    
                    
                    
                    48,050Russell
      Hagberg
                    
                    
                    48,050
                    
                    
                    
                    48,050





2008
Incentive Stock Option Plans





The sole
shareholder of 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").


- 19 -




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.


- 20 -


(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.




As of
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 the
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, 2009, Forms 3 for the following reporting persons were filed late:
Rik Deitsch, Greg Hoggatt and Russell Hagberg.


- 21 -





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





The
following table sets forth information as of July 30, 2010 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 43,541,970 shares issued and outstanding as
of July 30, 2010.  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
                  
                  
                  
                  46.5
                  %Neil
      Roth
                  
                  
                  6,625,600
                  
                  
                  
                  15.2
                  %Rik
      Deitsch (3)
                  
                  
                  2,670,000
                  
                  
                  
                  5.9
                  %Russell
      Hagberg (4)
                  
                  
                  250,000
                  
                  
                  
                  *Greg
      Hoggatt
                  
                  
                  4,569,400
                  
                  
                  
                  10.5
                  %Byron
      Georgiou (5)
                  
                  
                  10,625,000
                  
                  
                  
                  20.6
                  %All Directors and Executive
      Officers as a Group(six persons(3)(4)(5)):
                  
                  
                  45,001,300
                  
                  
                  
                  84.2
                  %








*  
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 July 30,
2010.


(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 (i) 7,500,000 shares issuable upon currently exercisable warrants, and
(ii) 625,000 shares of common stock issuable upon conversion of a convertible
loan held by a family trust of which Mr. Georgiou is a trustee.




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 will be funded on
August 9, 2010. The balance is scheduled to be released 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 2009 and 2008 were $20,000 and $12,000, 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:       
      August 2, 2010
            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
              
              August
      2, 2010(Principal
      Executive Officer)/s/
              Neil
      Roth
              
              President,
      Chief Financial Officer and Director
              
              August
      2, 2010(Principal
      Financial and Accounting Officer)/s/
              Rik
      Deitsch
              
              Director
              
              August
      5, 2010/s/
              Russell
      E. Hagberg
              
              Director
              
              August
      5, 2010/s/
              Greg
      K. Hoggatt
              
              Director
              
              August
      5, 2010/s/
              Byron
      Georgiou
              
              Director
              
              August
      5, 2010


- 25 -





XTREME
GREEN PRODUCTS INC.




INDEX
TO FINANCIAL STATEMENTS




PAGEREPORT
      OF INDEPENDENT REGISTERED CERTIFIEDPUBLIC
      ACCOUNTING FIRM
                    
                    F-1CONSOLIDATED
      BALANCE SHEETSDECEMBER
      31, 2009 AND 2008
                    
                    F-2CONSOLIDATED
      STATEMENTS OF OPERATIONSFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 2008
                    
                    F-3CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 2008
                    
                    F-4CONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 2008
                    
                    F-5NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                    
                    F-6 - F-15







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 2008, and the related consolidated statements
of operations, stockholders' (deficit), and cash flows for the years ended
December 31, 2009 and 2008. 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 Products Inc. as of December
31, 2009 and 2008, and the results of its operations, and its cash flows for the
years ended December 31, 2009 and 2008, 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
 Tampa,
Florida
 July 22,
2010


F-1


XTREME
GREEN PRODUCTS INC.
 Consolidated
Balance Sheets
 December
31, 2009 and 2008
 
 2009
                                                                              
                                                                              
                                                                              2008ASSETSCurrent
      assets:Cash
                                                                              
                                                                              $
                                                                              73,700
                                                                              
                                                                              
                                                                              $
                                                                              20,341Accounts
      receivable
                                                                              
                                                                              
                                                                              11,000
                                                                              
                                                                              
                                                                              
                                                                              -Inventory
                                                                              
                                                                              
                                                                              214,787
                                                                              
                                                                              
                                                                              
                                                                              8,766Total
      current assets
                                                                              
                                                                              
                                                                              299,487
                                                                              
                                                                              
                                                                              
                                                                              29,107Property
      and equipment
                                                                              
                                                                              
                                                                              88,498
                                                                              
                                                                              
                                                                              
                                                                              -Other
      assets
                                                                              
                                                                              
                                                                              12,901
                                                                              
                                                                              
                                                                              
                                                                              -TOTAL
      ASSETS
                                                                              
                                                                              $
                                                                              400,886
                                                                              
                                                                              
                                                                              $
                                                                              29,107LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable
                                                                              
                                                                              $
                                                                              119,483
                                                                              
                                                                              
                                                                              $
                                                                              13,335Accrued
      expenses - related parties
                                                                              
                                                                              
                                                                              240,000
                                                                              
                                                                              
                                                                              
                                                                              20,000Accrued
      expenses
                                                                              
                                                                              
                                                                              3,395
                                                                              
                                                                              
                                                                              
                                                                              -Line
      of credit
                                                                              
                                                                              
                                                                              150,000
                                                                              
                                                                              
                                                                              
                                                                              -Note
      payable - related party
                                                                              
                                                                              
                                                                              252,935
                                                                              
                                                                              
                                                                              
                                                                              -Customer
      deposits
                                                                              
                                                                              
                                                                              40,960
                                                                              
                                                                              
                                                                              
                                                                              -Stockholder
      loans
                                                                              
                                                                              
                                                                              157,830
                                                                              
                                                                              
                                                                              
                                                                              107,993Total
      current liabilities
                                                                              
                                                                              
                                                                              964,603
                                                                              
                                                                              
                                                                              
                                                                              141,328Commitments
      and contingenciesStockholders'
      deficit:Common
      stock, $0.0001 par value, 100,000,000 sharesauthorized;
      40,143,225 and 38,943,800 sharesissued
      and outstanding
                                                                              
                                                                              
                                                                              4,014
                                                                              
                                                                              
                                                                              
                                                                              3,894Additional
      paid-in capital
                                                                              
                                                                              
                                                                              1,848,448
                                                                              
                                                                              
                                                                              
                                                                              1,234,753Accumulated
      deficit
                                                                              
                                                                              
                                                                              (2,416,179
                                                                              )
                                                                              
                                                                              
                                                                              (1,350,868
                                                                              )Total
      stockholders' deficit
                                                                              
                                                                              
                                                                              (563,717
                                                                              )
                                                                              
                                                                              
                                                                              (112,221
                                                                              )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                                                                              
                                                                              $
                                                                              400,886
                                                                              
                                                                              
                                                                              $
                                                                              29,107
  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 2008
  2009
                                                            
                                                            
                                                            2008Sales
                                                            
                                                            $
                                                            248,235
                                                            
                                                            
                                                            $
                                                            -Cost
      of sales
                                                            
                                                            
                                                            183,715
                                                            
                                                            
                                                            
                                                            -Gross
      margin
                                                            
                                                            
                                                            64,520
                                                            
                                                            
                                                            
                                                            -Costs
      and expenses:General
      and administrative
                                                            
                                                            
                                                            1,086,630
                                                            
                                                            
                                                            
                                                            271,635General
      and administrative - stock based compensation
                                                            
                                                            
                                                            29,315
                                                            
                                                            
                                                            
                                                            53,000Interest
      expense
                                                            
                                                            
                                                            13,886
                                                            
                                                            
                                                            
                                                            -Total
      costs and expenses
                                                            
                                                            
                                                            1,129,831
                                                            
                                                            
                                                            
                                                            324,635Net
      loss
                                                            
                                                            $
                                                            (1,065,311
                                                            )
                                                            
                                                            $
                                                            (324,635
                                                            )Per
      share information - basic and diluted:Loss
      per common share
                                                            
                                                            $
                                                            (0.03
                                                            )
                                                            
                                                            $
                                                            (0.01
                                                            )Weighted
      average common shares outstanding
                                                            
                                                            
                                                            39,717,962
                                                            
                                                            
                                                            
                                                            38,577,077
  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 2008
 
 AdditionalCommon Stock
                                
                                
                                Paid-in
                                
                                
                                AccumulatedShares
                                
                                
                                ParValue
                                
                                
                                Capital
                                
                                
                                Deficit
                                
                                
                                TotalBalance
      - December 31, 2007
                                
                                
                                38,257,800
                                
                                
                                $
                                3,825
                                
                                
                                $
                                891,822
                                
                                
                                $
                                (1,026,233
                                )
                                
                                $
                                (130,586
                                )Issuance
      of common stock for cash
                                
                                
                                580,000
                                
                                
                                
                                58
                                
                                
                                
                                289,942
                                
                                
                                
                                -
                                
                                
                                
                                290,000Issuance
      of common stock for services
                                
                                
                                106,000
                                
                                
                                
                                11
                                
                                
                                
                                52,989
                                
                                
                                
                                -
                                
                                
                                
                                53,000Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (324,635
                                )
                                
                                
                                (324,635
                                )Balance
      - 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
                                
                                
                                
                                -
                                
                                
                                
                                15,213Fair
      value of options issued
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                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
                                )
  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 2008
 
 2009
                                                            
                                                            
                                                            2008Cash
      flows from operating activities:Net
      loss
                                                            
                                                            $
                                                            (1,065,311
                                                            )
                                                            
                                                            $
                                                            (324,635
                                                            )Adjustments
      to reconcile net loss to netcash
      used in operating activities:Stock-based
      compensation
                                                            
                                                            
                                                            29,315
                                                            
                                                            
                                                            
                                                            53,000Depreciation
                                                            
                                                            
                                                            4,409
                                                            
                                                            
                                                            
                                                            -Interest
      added to note payable - related party
                                                            
                                                            
                                                            2,935
                                                            
                                                            
                                                            
                                                            -Changes
      in operating assets and liabilities:Increase
      in accounts receivable
                                                            
                                                            
                                                            (11,000
                                                            )
                                                            
                                                            
                                                            -Increase
      in inventory
                                                            
                                                            
                                                            (206,021
                                                            )
                                                            
                                                            
                                                            (8,766
                                                            )Increase
      in other assets
                                                            
                                                            
                                                            (12,901
                                                            )
                                                            
                                                            
                                                            -Increase
      in accounts payable
                                                            
                                                            
                                                            106,149
                                                            
                                                            
                                                            
                                                            12,234(Decrease)
      in accrued expenses
                                                            
                                                            
                                                            (16,607
                                                            )
                                                            
                                                            
                                                            -Increase
      in accrued expenses - related party
                                                            
                                                            
                                                            240,000
                                                            
                                                            
                                                            
                                                            -Increase
      in customer deposits
                                                            
                                                            
                                                            40,960
                                                            
                                                            
                                                            
                                                            -Net
      cash used in operating activities
                                                            
                                                            
                                                            (888,072
                                                            )
                                                            
                                                            
                                                            (268,167
                                                            )Cash
      flows from investing activities:Purchase
      of property and equipment
                                                            
                                                            
                                                            (92,907
                                                            )
                                                            
                                                            
                                                            -Cash
      flows from financing activities:Common
      stock issued for cash
                                                            
                                                            
                                                            584,500
                                                            
                                                            
                                                            
                                                            290,000Proceeds
      from line of credit
                                                            
                                                            
                                                            150,000
                                                            
                                                            
                                                            
                                                            -Directors
      loan
                                                            
                                                            
                                                            250,000
                                                            
                                                            
                                                            
                                                            -Stockholders
      loans, net
                                                            
                                                            
                                                            49,838
                                                            
                                                            
                                                            
                                                            (7,401
                                                            )Net
      cash provided by financing activities
                                                            
                                                            
                                                            1,034,338
                                                            
                                                            
                                                            
                                                            282,599Net
      increase in cash
                                                            
                                                            
                                                            53,359
                                                            
                                                            
                                                            
                                                            14,432Cash
      - beginning of period
                                                            
                                                            
                                                            20,341
                                                            
                                                            
                                                            
                                                            5,909Cash
      - end of period
                                                            
                                                            $
                                                            73,700
                                                            
                                                            
                                                            $
                                                            20,341Supplemental Cash Flow
      Information:Cash
      paid for interest
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -Cash
      paid for income taxes
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
 
 See the
accompanying notes to the financial statements.
  F-5




Xtreme
Products Inc.


Notes to
Consolidated Financial Statements


December
31, 2007 and 2008




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 recreational watercraft and land based vehicles. The Company
was in the development stage prior to the current fiscal year.





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.





Cash





For
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments 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 our revenues.




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.





Intangible
Assets and Long Lived Assets





The
Company makes reviews for the impairment of long-lived assets and certain
identifiable intangibles 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.





F-6


Estimates





The
preparation of the Company’s financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.  Actual results could differ from these
estimates.





Reclassifications





Certain
amounts presented in prior periods’ financial statements have been reclassified
to conform to current year presentation.





Research
and Development





Research
and development is charged to operations as incurred.





Fair
value of financial instruments





The
Company’s short-term financial instruments consist of cash, accounts payable and
accrued expenses and notes payable. The carrying amounts of these financial
instruments approximate fair value because of their short-term maturities. 
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.





Property
and Equipment





Property
and equipment is recorded at cost. Expenditures for major improvements and
additions are added to property and equipment, while replacements, maintenance
and repairs which do not extend the useful lives are expensed. Depreciation is
computed using the straight line method over the estimated useful lives of the
assets of 5 years.





Income
Taxes





The
Company follows ASC 740 Income Taxes for recording the provision for income
taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability each
period. 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.





All tax
periods from inception remain open to examination by taxing
authorities.





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.





F-7


Net
Income (Loss) Per Common 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 is calculated by dividing net income (loss) by the
weighted average number of common shares and dilutive common stock equivalents
outstanding. During periods in which the Company incurs losses common stock
equivalents, if any, are not considered, as their effect would be anti
dilutive.





Recent
Pronouncements




Adoption
of New Accounting Standards




Accounting
Standards Codification




In
June 2009, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles  (the
“Codification”). This standard replaces SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles, and establishes only two levels of
U.S. generally accepted accounting principles (“GAAP”), authoritative and
nonauthoritative. The FASB ASC has become the source of authoritative,
nongovernmental GAAP, except for rules and interpretive releases of the SEC,
which are sources of authoritative GAAP for SEC registrants. All other
nongrandfathered, non-SEC accounting literature not included in the Codification
will become nonauthoritative. This standard is effective for financial
statements for interim or annual reporting periods ending after
September 15, 2009. The adoption of the Codification changed the Company’s
references to GAAP accounting standards but did not impact the Company’s results
of operations, financial position or liquidity.




Participating
Securities Granted in Share-Based Transactions




Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 260, Earnings Per Share (formerly FASB Staff Position (“FSP”) Emerging
Issues Task Force (“EITF”) 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities).  The new
guidance clarifies that non-vested share-based payment awards that entitle their
holders to receive nonforfeitable dividends or dividend equivalents before
vesting should be considered participating securities and included in basic
earnings per share. The Company’s adoption of the new accounting standard did
not have a material effect on previously issued or current earnings per
share.




Business
Combinations and Noncontrolling Interests




Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 805, Business Combinations (formerly SFAS No. 141(R), Business
Combinations).  The new standard applies to all transactions or other
events in which an entity obtains control of one or more businesses.
Additionally, the new standard requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement date for all assets acquired and liabilities assumed; and requires
the acquirer to disclose additional information needed to evaluate and
understand the nature and financial effect of the business combination. The
Company’s adoption of the new accounting standard did not have a material effect
on the Company’s consolidated financial statements.




F-8


Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 810, Consolidations (formerly SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements).  The new accounting standard
establishes accounting and reporting standards for the noncontrolling interest
(or minority interests) in a subsidiary and for the deconsolidation of a
subsidiary by requiring all noncontrolling interests in subsidiaries be reported
in the same way, as equity in the consolidated financial statements. As such,
this guidance has eliminated the diversity in accounting for transactions
between an entity and noncontrolling interests by requiring they be treated as
equity transactions. The Company’s adoption of this new accounting standard did
not have a material effect on the Company’s consolidated financial
statements.




Fair
Value Measurement and Disclosure




Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 820, Fair Value Measurements and Disclosures (ASC 820) (formerly FASB FSP No
157-2, Effective Date of FASB Statement No. 157), which delayed the
effective date for disclosing all non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed at fair value on
a recurring basis (at least annually). This standard did not have a material
impact on the Company’s consolidated financial statements.




In
April 2009, the FASB issued new guidance for determining when a transaction
is not orderly and for estimating fair value when there has been a significant
decrease in the volume and level of activity for an asset or liability. The new
guidance, which is now part of ASC 820 (formerly FSP 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly),
requires disclosure of the inputs and valuation techniques used, as well as any
changes in valuation techniques and inputs used during the period, to measure
fair value in interim and annual periods. In addition, the presentation of the
fair value hierarchy is required to be presented by major security type as
described in ASC 320, Investments — Debt and Equity Securities . The provisions
of the new standard were effective for interim periods ending after
June 15, 2009. The adoption of the new standard on April 1, 2009 did
not have a material on the Company’s consolidated financial
statements.




In
April 2009, the Company adopted a new accounting standard included in ASC
820, (formerly FSP 107-1 and Accounting Principles Board (APB) 28-1, Interim
Disclosures about Fair Value of Financial Instruments).  The new standard
requires disclosures of the fair value of financial instruments for interim
reporting periods of publicly traded companies in addition to the annual
disclosure required at year-end. The provisions of the new standard were
effective for the interim periods ending after June 15, 2009. The Company’s
adoption of this new accounting standard did not have a material effect on the
Company’s consolidated financial statements.




In
August 2009, the FASB issued new guidance relating to the accounting for
the fair value measurement of liabilities. The new guidance, which is now part
of ASC 820, provides clarification that in certain circumstances in which a
quoted price in an active market for the identical liability is not available, a
company is required to measure fair value using one or more of the following
valuation techniques: the quoted price of the identical liability when traded as
an asset, the quoted prices for similar liabilities or similar liabilities when
traded as assets, or another valuation technique that is consistent with the
principles of fair value measurements. The new guidance clarifies that a company
is not required to include an adjustment for restrictions that prevent the
transfer of the liability and if an adjustment is applied to the quoted price
used in a valuation technique, the result is a Level 2 or 3 fair value
measurement. The new guidance is effective for interim and annual periods
beginning after August 27, 2009. The Company’s adoption of the new guidance
did not have a material effect on the Company’s consolidated financial
statements.




F-9


Derivative
Instruments and Hedging Activities




Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 815, Derivatives and Hedging (SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities, an amendment of SFAS No.133). The
new accounting standard requires enhanced disclosures about an entity’s
derivative and hedging activities and is effective for fiscal years and interim
periods beginning after November 15, 2008. Since the new accounting
standard only required additional disclosure, the adoption did not impact the
Company’s consolidated financial statements.




Other-Than-Temporary
Impairments




In
April 2009, the FASB issued new guidance for the accounting for
other-than-temporary impairments. Under the new guidance, which is part of ASC
320, Investments — Debt and Equity Securities (formerly FSP 115-2 and 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments), and
other-than-temporary impairment is recognized when an entity has the intent to
sell a debt security or when it is more likely than not that an entity will be
required to sell the debt security before its anticipated recovery in
value.  The new guidance does not amend existing recognition and
measurement guidance related to other-than-temporary impairments of equity
securities and is effective for interim and annual reporting periods ending
after June 15, 2009. The Company’s adoption of the new guidance did not
have a material effect on the Company’s consolidated financial
statements.




Subsequent
Events




In
May 2009, the FASB issued new guidance for subsequent events. The new
guidance, which is part of ASC 855, Subsequent Events  (formerly SFAS
No. 165,  Subsequent Events)  is intended to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. Specifically, this guidance sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. The new
guidance is effective for fiscal years and interim periods ended after
June 15, 2009 and will be applied prospectively. The Company’s adoption of
the new guidance did not have a material effect on the Company’s consolidated
financial statements.




Accounting
Standards Not Yet Effective




Accounting
for the Transfers of Financial Assets




In
June 2009, the FASB issued new guidance relating to the accounting for
transfers of financial assets. The new guidance, which was issued as SFAS
No. 166, Accounting for Transfers of Financial Assets,  an amendment
to SFAS No.  140, was adopted into Codification in December 2009
through the issuance of Accounting Standards Updated (ASU) 2009-16. The new
standard eliminates the concept of a qualifying special-purpose entity, changes
the requirements for derecognizing financial assets, and requires additional
disclosures in order to enhance information reported to users of financial
statements by providing greater transparency about transfers of financial
assets, including securitization transactions, and an entity’s continuing
involvement in and exposure to the risks related to transferred financial
assets. The new guidance is effective for fiscal years beginning after
November 15, 2009. The Company will adopt the new guidance in 2010 and is
evaluating the impact it will have to the Company’s consolidated financial
statements.




F-10


Accounting
for Variable Interest Entities




In
June 2009, the FASB issued revised guidance on the accounting for variable
interest entities. The revised guidance, which was issued as SFAS No. 167,
Amending FASB Interpretation No. 46(R), was adopted into Codification in
December 2009 through the issuance of ASU 2009-17. The revised guidance
amends FASB Interpretation No. 46(R), Consolidation of Variable Interest
Entities, in determining whether an enterprise has a controlling financial
interest in a variable interest entity. This determination identifies the
primary beneficiary of a variable interest entity as the enterprise that has
both the power to direct the activities of a variable interest entity that most
significantly impacts the entity’s economic performance, and the obligation to
absorb losses or the right to receive benefits of the entity that could
potentially be significant to the variable interest entity. The revised guidance
requires ongoing reassessments of whether an enterprise is the primary
beneficiary and eliminates the quantitative approach previously required for
determining the primary beneficiary. The Company does not expect that the
provisions of the new guidance will have a material effect on its consolidated
financial statements.




Revenue
Recognition




In
October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements. The new standard changes the requirements for establishing
separate units of accounting in a multiple element arrangement and requires the
allocation of arrangement consideration to each deliverable based on the
relative selling price. The selling price for each deliverable is based on
vendor-specific objective evidence (VSOE) if available, third-party evidence if
VSOE is not available, or estimated selling price if neither VSOE or third-party
evidence is available. ASU 2009-13 is effective for revenue arrangements entered
into in fiscal years beginning on or after June 15, 2010. The Company does
not expect that the provisions of the new guidance will have a material effect
on its 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, 2009, aggregating
$2,416,179 and has working capital and stockholder deficits of $665,116 and
$563,717 at December 31, 2009.


The
Company’s ability to continue as a going concern is contingent upon its ability
to secure additional financing, increase ownership equity and develop profitable
operations. In addition, the Company’s ability to continue as a going concern
must be considered in light of the problems, expenses and complications
frequently encountered by entrance into established markets and the competitive
environment in which the Company operates.





The
Company is pursuing financing for its operations and seeking additional private
investments. In addition, the Company is seeking to establish its revenue base.
Failure to secure such 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.





F-11


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:




Manufacturing
      equipment
                  
                  $
                  65,099Automotive
      equipment
                  
                  
                  27,80892,907Accumulated
      depreciation
                  
                  
                  (4,409
                  )$
                  88,498





Depreciation
charged to operations was $4,409 in 2009.





Note 4.
Stockholders’ (Deficit)





During
the period covered by these financial statements the Company issued shares of
common stock without registration under the Securities Act of 1933. Although the
Company believes that the sales did not involve a public offering of its
securities and that the Company did comply with the safe harbor exemptions from
registration, if such exemptions were found not to apply, this could have a
material impact on the Company’s financial position and results of
operations.





During
the year ended December 31, 2008 the Company issued 580,000 shares of common
stock pursuant to a private placement at a price of $0.50 per shares and
received cash proceeds of $290,000.





During
the year ended December 31, 2008, the Company issued an aggregate of 106,000
shares of common stock for services rendered and recorded stock based
compensation of $53,000. 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
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.





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.





F-12


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.





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





The total
fair value of the options is $211,567 and the cost recognized for the year ended
December 31, 2009 was $14,102, which was recorded as general and administrative
expenses.





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




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





A summary
of option activity under the Plan during the period ended December 31, 2009 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
                
                
                
                6.9
                
                
                $
                0.00Outstanding
      at December 31, 2009
                
                
                805,000
                
                
                $
                0.50
                
                
                
                6.9
                
                
                $
                0.00





The
following table summarizes information about fixed price stock options at
December 31, 2009:





Exercise
                        Price
                      
                      Number
                        Outstanding
                      
                      
                      Weighted
                        Average
                        Contractual
                        Life
                      
                      
                      Weighted
                        Average
                        Exercise
                        Price
                      
                      
                      Number
                        Exercisable
                      
                      
                      Exercise
                        Price$
                      0.50
                      
                      
                      805,000
                      
                      
                      
                      6.9
                      
                      
                      $
                      0.50
                      
                      
                      
                      —
                      
                      
                      $
                      —





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. The loans are due on demand and bear interest
at 4%.





F-13




During
the 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. From inception through
September 30, 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 6). In addition, the Company
granted the director warrants to purchase additional shares as
follows:





· 
       Three year warrant to purchase 500,000
shares of common stock at $0.50 per share.




·         Four
year warrant to purchase 500,000 shares of common stock at $0.75 per
share.




·         Five
year warrant to purchase 500,000 shares of common stock at $0.85 per
share.




Other





During
2009 the Company purchased a vehicle from an officer for $18,000.





Note 6.
Line of Credit





During
December 2009 the Company secured a line of credit with a financial institution
for $150,000 bearing interest at 6% per annum maturing during December 2010. The
line is secured by certain assets of a related party.





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 2008. 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, 2009, the Company has a net operating loss carry forward of
approximately $1.1 million. This loss will be available to offset future taxable
income. If not used, this carry forward will expire through 2029. The deferred
tax asset of approximately $375,000 relating to the operating loss carry forward
has been fully reserved at December 31, 2009. The increase in the valuation
allowance related to the deferred tax asset was approximately $270,000 during
2009. 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.





F-14


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:





2010
                  
                  $
                  32,1512011
                  
                  $
                  129,5672012
                  
                  $
                  133,4522013
                  
                  $
                  137,4602014
                  
                  $
                  141,5762015
                  
                  $
                  108,558





Rent
expense was $26,000 and $0 for the years ended December 31, 2009 and
2008.





Note 9.
Subsequent Events





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.





During
April 2010 the Company sold 100,000 shares of common stock at $0.50 per share
and received proceeds of $50,000.





During
June 2010 the Company sold 102,995 shares of common stock at $0.50 per share and
received proceeds of $51,498. In addition, 36,000 shares to a consultant for
services rendered. The shares were valued at $0.50 per share.





During
July 2010 the Company sold 159,750 shares of common stock at $0.50 per share and
received proceeds of $79,875.





On June
22, 2010, a family trust of which a director is a trustee agreed to lend to the
Company an aggregate of $1,000,000 at an annual interest rate of 12% in three
tranches.  The first tranche of $250,000 was advanced on July 9,
2010.  The second tranche in the amount of $500,000 is to be funded on
August 9, 2010. The balance is scheduled to be released 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.




F-15