Xtreme Green Electric Vehicles 10K 2012 Annual report

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, 2012


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. Employer
incorporation or organization)		Identification Number)

3010 East Alexander Road, #1002

North Las Vegas, NV 89030

(Address, Including Zip Code of Principal Executive Offices)

(702) 870-0700

(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, $0.0001 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. Yeso No x

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Noo

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. Yes x Noo

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


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

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

State issuer's revenues for its most recent fiscal year: $661,315

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 December 31, 2012 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: 48,463,370 as of January 13, 2014.

TABLE OF CONTENTS


PART I

ITEM 1.	BUSINESS	4

Item 1A.	RISK FACTORS	11

Item 1B.	UNRESOLVED STAFF COMMENTS	11

ITEM 2.	PROPERTIES	11

ITEM 3.	LEGAL PROCEEDINGS	11

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	11

PART II

ITEM 5.	MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	12

ITEM 6.	SELECTED FINANCIAL DATA	12

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13

Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	17

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	17

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	18

ITEM 9A(T)	CONTROLS AND PROCEDURES	18

PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	21

ITEM 11.	EXECUTIVE COMPENSATION	23

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	26

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	26

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	28

SIGNATURES		29

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

Chapter 11 Proceedings

On August 22, 2013 (the Petition Date), Xtreme Green Products Inc. (the “Company”) filed a voluntary petition (the “Chapter 11 Case”) for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”). The Chapter 11 Case is being administered under Case No. BK-S-13-17266-MKN.

No assurance can be given as to the value, if any that may be ascribed to the Company’s various prepetition liabilities and other securities. The Company cannot predict what the ultimate value of any of its securities may be.

The Company is currently operating as a “debtor in possession” under the jurisdiction of the Bankruptcy Court and the applicable provisions of the Bankruptcy Code. In general, as debtor in possession under the Bankruptcy Code, we are authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. The Bankruptcy Code enables the Company to continue to operate its business without interruption and the Bankruptcy Court has granted additional relief covering, among other things obligations to (i) employees, (ii) insurance providers, (iv) independent contractors, (v) foreign vendors, and (vi) certain vendors deemed critical to our operations.

The Chapter 11 petition triggered defaults on substantially all our debt obligations, however, under section 362 of the Bankruptcy Code, the commencement of a Chapter 11 case automatically stays most creditor actions against our property.

Overview of Business

We are an eco-vehicle company that has developed one of the largest line of revolutionary, green, 100% electric powered specialty vehicles such as Personal Mobility Vehicles (PMVs), All Terrain Vehicles (ATVs), and Utility Terrain Vehicles (UTVs).

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

Our factory occupies a 50,000 sq. ft. facility in North Las Vegas. At this facility, we have begun manufacturing and assembling all the products so they will be “Made in the USA” items. Additionally, to date, the Company has hired 13+ new employees at this location to accomplish its manufacturing goals.

Organizational History

Xtreme Green Products Inc. (“XGP”, “Xtreme”, “we” or 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.

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 6” 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 an electric charge at a cost of approximately one half cent per mile. 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. Our target market for this vehicle, named the Sentinel, includes police departments, colleges and universities, the federal and state governments and private security companies. The Company has already shipped Sentinels throughout the United States including but not limited to Denver, Dallas, Georgia, California as well as Mexico, El Salvador and Puerto Rico.

ATV Pro (All TerrainVehicle)

The XGP All Terrain Vehicles are the first of their kind in the marketplace. We are not aware of any competitor that has designed a four wheel drive ATV with lithium ion batteries and the performance that our proprietary propulsion system gives the user. The ATV can be used for military applications, police and security, border patrol as well as off-roading and hunting for consumers.

The main features of the ATV are:

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

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

Weight - 1048 lbs

State of the Art 100 AH Lithium Ion (LFP) Battery System standard that will last up to 2000 charges – about 7 years based on one charge per day. Also available in 130 AH and 180 AH

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

4 wheel disc brakes.

Regenerative Braking

Built-in battery charger – 110/220 volt

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

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

Complete police lighting, PA system and siren package available

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

Will climb a 30 degree plus grade

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

Transport Pro (Utility Terrain Vehicle)

The Transport Pro UTV has the widest range of usage in all three segments (Police, Consumer and Commercial). With the numerous options, including size of vehicle, enclosures, motors and battery sizes, the UTV can be adapted to almost any situation for police, can be used by consumers as a registered LSV or off road vehicle for hunting and camping and by commercial users such as wineries and agriculture, horse farms, janitorial and maintenance uses in buildings and warehouses and for horticultural service vehicles.

The main features of the Transport Pro are:

11 feet long, wheelbase of 74.8 in. Ground clearance of 10.75 inches. It is also available in long bed utility truck and 5 seat versions that are 13.5 feet long.

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

Weight - 1348 lbs

State of the Art 100 AH Lithium Ion (LFP) Battery System standard that will last up to 2000 charges – about 7 years based on one charge per day. Also available in 130 AH and 180 AH

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

4 wheel disc brakes plus disc parking brake

Built-in battery charger – 110/220 volt

5 KW 72 Volt Electric Brushless Motor standard, also available in 5.5 KW 96 volts, 6.5 KW 96 volt versions Standard speeds up to 25 MPH but can be adjusted higher or lower subject to requirement or as off road vehicle. It may be registered as a Low Speed Electric Vehicle (LSEV)

Complete police lighting, PA system and siren package available

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

Will climb a 30 degree plus grade

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

Dump truck bed capable of holding 800 pounds

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 intend to capture a substantial portion of three wheel Police Mobility Vehicle market including police departments, universities and most major security companies.

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 and the Company has shipped to a number of overseas nations.

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.

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 than Xtreme’s PMV but it lacks some of the features of our PMV, including:


	·	Lower speed (12-15 MPH)


	·	Fatiguing when used for lengths of time


	·	Little room for accessories and emergency equipment


	·	No protection for rider


	·	Does not include internal charger


	·	History of breakdowns

The second competitor is T3 Motion. T3 has created and marketed a similar three wheel vehicle to what the Company is now producing. The pricing 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 25 MPH


	·	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

We intend to introduce our 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 has outlined a series of public relation and advertising marketing programs. Xtreme plans the development of a strong distributor network.

Marketing Strategy

We believe that we have a major competitive advantage over most players in the electric vehicle market due to the comprehensive Energy Management System XGP spent over three years perfecting. This system not only has the ability to handle large current loads but manages the Lithium battery cells, including shutting off the vehicle when the cells become damaged or if they overheat. This allows the vehicles to be safely charged and discharged for 2-3 thousand charges. The System is run by a Master Battery Management Unit that coordinates all information specific to an individual electric motor, motor controller, battery cells and charger, programmed for each type of vehicle and use.

In addition, we believe that we have the largest and most complete line of small electric vehicles in the industry. We do not believe that there is a competitor that markets more than one version of one of XGP’s electric vehicles. This “one stop shop” ability for a police department, consumer or commercial user dramatically improves the company’s ability to close sales.

Xtreme follows a creative marketing plan that allows 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:

XGP attends 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.

Representatives:

XGP has recruited a large base of U.S. and international distributors and representatives on an exclusive geographical basis. These representatives will have the rights to all the Xtreme Green products as they become available. In some specific markets, XGP has developed distributors who purchase and inventory products for sale at wholesale pricing. Overall, the company has 11 sets of vehicles set in strategic locations for onsite demos.

Website:

The Company presently has a websitewww.xgpinc.com. XGP also has an active blog, and Twitter and Facebook accounts. Part of the public relations plan is to make full use of the internet communication and advertising opportunities.

Chapter 11 Reorganization Risks

We filed for reorganization under Chapter 11 of the Bankruptcy Code on August 22, 2013 and are subject to the risks and uncertainties associated with our Chapter 11 Case. Risks and uncertainties associated with our Chapter 11 Case include the following:

Our creditors or other third parties may take actions or make decisions that are inconsistent with and detrimental to the plans we believe to be in the best interests of the Company;

The Bankruptcy Court may not agree with our objections to positions taken by other parities;

We may not be able to successfully develop, prosecute, confirm and consummate a Chapter 11 plan of reorganization or may be delayed in doing so;

We may not be able to obtain and maintain normal credit terms with vendors, strategic partners and service providers.

We may not be able to continue to invest in our products and services, which could hurt our competitiveness;

Our access to capital to fund ongoing business operations or emergence costs may be limited;

These risks and uncertainties could affect our business and operations in various ways. For example, negative events, the positions we take in court, or publicity associated with our Chapter 11 Case could adversely affect our sales of vehicles and our relationship with our customers, as well as with vendors, which in turn could adversely affect our business, financial condition and results of operations, particularly if our Chapter 11 Case is protracted. Because of the risks and uncertainties associated with our Chapter 11 Case, the ultimate impact on our business, financial condition and results of operations of events that occur during these proceedings cannot be accurately predicted or quantified. If any one or more of these risks materializes, particularly if our Chapter 11 Case is protracted, it could affect our ability to continue as a going concern.

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

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

Regulations

General

XGP’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 XGP’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. XGP 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 first quarter of 2014.

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

Intellectual property

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

Employees

We have 13 employees, including three executive officers. None of our employees is represented by a labor union, and XGP considers its employee relations to be excellent.

ITEM 1A. RISK FACTORS

Not applicable for smaller reporting companies

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. DESCRIPTION OF PROPERTY

The Company’s principal offices are located at 3010 East Alexander Road, Unit 1002, North Las Vegas, Nevada and consist of a 49,920 square foot warehouse that is leased at $13,478 per month. The lease expires in

January 31, 2018.

ITEM 3. LEGAL PROCEEDINGS

As previously discussed, on August 22, 2013, the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Chapter Case is being administered under Case No. BK-S-13-17266-MKN.

From time to time, the Company may be named in claims arising in the ordinary course of business. Currently, all legal proceedings or claims are stayed by the bankruptcy and are expected to be resolved prior to emerging from bankruptcy.

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

None

PART II

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

Our common stock has been included for quotation on the OTC Bulletin Board under the symbol XTRG since May 11, 2011.

The following table shows the reported high and low closing bid quotations per share for our common stock based on information provided by the OTC Bulletin Board for the periods indicated. No quotes were available for prior periods. Over-the-counter market quotations reflect inter-dealer prices, without markup, markdown or commissions. Particularly since our common stock is traded infrequently they may not necessarily represent actual transactions or a liquid trading market.


Year Ended December 31, 2011	HIGH		LOW
Third Quarter	$	0.55	$	0.55
Fourth Quarter	$	1.00	$	0.40


Year Ended December 31, 2012	HIGH		LOW
First Quarter	$	0.45	$	0.185
Second Quarter	$	0.75	$	0.14
Third Quarter	$	0.20	$	0.20
Fourth Quarter	$	0.20	$	0.04

On November 15, 2013, the closing price for our common stock on the OTC Bulletin Board was $0.02 per share.

Number of Stockholders

As of January 8, 2014, there were approximately 177 holders of record of our common stock.

Dividends

We have never declared any dividends.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

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. (“XGP”, “we”, “our”, “us”) was incorporated under the laws of the State of Nevada on May 21, 2007. We have developed a line of electric powered products such as personal mobility vehicles, 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 XGP 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 XGP.

Recent Developments

As previously discussed, on August 22, 2013, the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.

We have completed all testing and paperwork for the European Union certification and expect certification to be finalized during the first quarter of 2014 at which time we will commence developing the European market.

Results of Operations

Comparison of the year ended December 31, 2012 to the year ended December 31, 2011

Sales for the past two fiscal years ended December 31, 2012 and December 31, 2011 were $661,315 and $1,735,131 respectively. The decrease in 2012 as compared to 2011 is due to the financial inability of the company to purchase the parts needed to fulfill the orders they had on file.

Cost of sales for the year ended December 31, 2012 and 2011 was $991,660 and $1,243,915 which resulted in a loss of $330,345 in 2012 and a gross profit of $491,549 or 28.3%. in 2011. The company’s decrease in gross profit is a result of the diminished sales volume not adequate to absorb fixed manufacturing costs coupled, with increased warranty costs and a onetime write of scrapped inventory of $359,983.

General and administrative expenses were $2,061,844 for the year ended December 31, 2012 compared to $2,271,368 for the year ended December 31, 2011. Our general and administrative expenses consist primarily of (i) salaries and wages, (ii) product design and other related product development costs, (iii) professional fees such as legal and accounting fees, and (iv) general expenses such as rent and insurance. The overall decrease in general and administrative expenses is attributable to a reduction in administrative labor, marketing costs, and general overhead expenses.

During the year ended December 31, 2012 we incurred stock based compensation expense of $61,038 comparedto $53,800for the year ended December 31, 2011. Stock based compensation expense for the year ended December 31, 2012 was charged to operations for the amortization of options issued. The value ascribed to all shares issued as stock based compensation is $0.50 per share.

Interest expense for the year ended December 31, 2012 and 2011 was $732,071 and $158,693 respectively. Interest expense consists primarily of amounts due under notes payable to one of our directors, and interest incurred under various short term lines of credit and bridge loans. In addition during 2012 accretion of discounts in relation to convertible debt totaling $352,863 was included in interest expense as well as an additional $100,000 as a result of a loan extension were by 500,000 shares of common stock were issued to the lender at a price of $0.20 per share.

Research and development costs were charged to operations as incurred. The expenses for research & development were $125,405 for the year ended December 31, 2012 compared to $224,667 for the year ended December 31, 2011. The overall decrease in research and development is attributable to our Company’s cost cutting measures taken during the past twelve months and our inability to obtain additional capital.

Net Loss for the year ended December 31, 2012 was $3,249,665 or $0.07 per share compared to a net loss of $2,163,512 or $0.05 per share for the comparable period prior year period.

Liquidity and Capital Resources

Since our inception on May 21, 2007, we have financed the costs associated with our operational and investing activities through (i) the sale of shares of our common stock pursuant to private placements, and (ii) loans from

certain of our stockholders. From inception through December 31, 2012, we have incurred a cumulative net loss of

$9,956,226. The notes to our financial statements include language that raises doubt about our ability to continue as a going concern. At December 31, 2012 we had cash of $0, a net working capital deficit of $4,308,286 and we owed our stockholders an aggregate of $2,186,333. These stockholders are also officers and directors of our Company. Of the total due to stockholders, $686,333 plus accrued interest is due upon demand and $1,500,000 is due December 29, 2012 bearing interest at 12% with an option to convert into common stock at $0.40 per share.

There were no sales of restricted common stock during the year ended December 31, 2012.

On June 22, 2010, a family trust of which one of our shareholders is a trustee (“the lender”) agreed to lend us an aggregate of $1,000,000 at an annual interest rate of 12% in three tranches. The first tranche of $250,000 was advanced on July 9, 2010. The second tranche in the amount of $500,000 was funded on August 9, 2010. The balance was funded on September 9, 2010. The loan was initially scheduled to be repaid on September 8, 2011 but since has been extended to September 8, 2012. 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.

On December 8, 2011, a family trust of which one of our shareholders is a trustee (“the lender”) agreed to lend us $250,000 at an annual interest rate of 12%. The loan is scheduled to be repaid on September 8, 2012. The Company also issued 250,000 shares of common stock to the Lender. At any time prior to that date September 8, 2012 at the option of the lender the loan is convertible into common stock at $0.40 per share. Additionally, the lender has received warrants to purchase 625,000 shares, exercisable until December 31, 2014, warrants to purchase 625,000 shares at $0.65 per share exercisable until December 31, 2015, and warrants for 625,000 shares at $0.75 per share exercisable until December 31, 2016.

On February 13, 2012 the Company entered into an agreement with a Director to borrow $250,000. The loan accrues interest 12% per annum and is payable August 13, 2012, which has been extended to December 13, 2012. At the lender’s option, if payment is not made by the maturity date the loan may be converted into shares of common stock at a price of $0.20 per share.

On May 2, 2012 a family trust of which a shareholder is a trustee agreed to lend the Company $250,000 at an interest rate of 12% per annum, which loan is scheduled to be repaid on September 8, 2012, which has been extended to December 8, 2012 together with outstanding loans in the principal amount of $1,250,000 previously advanced by the trust. Interest over the entire amount is payable in $15,000 monthly increments. At any time, at the option of the lender, the entire loan is convertible into shares of common stock of the Company at $0.40 per share. In the connection with the loan, the company has agreed to issue to the trust (i) 250,000 shares of common stock, and (ii) warrants to purchase 625,000 shares of common stock at $0.40 per share, exercisable until May 31, 2015, warrants to purchase 625,000 shares of common stock at $0.65 per share exercisable until May 31, 2016, and warrants to purchase 625,000 shares of common stock at $0.75 per share exercisable until May 31, 2017. In connection with this transaction the lender was also granted the right to set up distributorships in the state of Arizona. As a result of the issuance of 250,000 shares and warrants, the Company allocated the fair market value (“FMV”) to the shares, and warrants, and the debt. In addition, the Company determined that the note included a beneficial conversion feature. Accordingly, the Company recorded a discount of $341,772 which was accreted to interest expense for the 12 months ended December 31, 2012.

During the six month period ended December 31, 2012, a family trust, of which a shareholder is a trustee agreed to loan the Company a total of $339,000. The proceeds were disbursed in eleven installments over the six month period. Interest accrues at a rate of 12% per annum. The loan and accrued interest are due upon demand. Accrued

interest as of December 31, 2012 is $13,366.

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

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

The matters described herein, to the extent that they relate to future events or expectations, may be significantly affected by the Chapter 11 Case. Those proceedings will involve, or may result in, various restrictions on our activities, limitations on financing, and to obtain Bankruptcy Court approval for various matters and uncertainty as to relationships with vendors, suppliers, customers, labor and others with whom we may conduct or seek to conduct business. We cannot predict the impact, if any, that the Chapter 11 Cases might have on these obligations.

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 revenue 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 delivery occurs or services are performed and included in revenue at the completion of the related services or when product delivery occurs.

Going Concern

The Company’s 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 inability to secure financing necessary to build its inventory and meet demand for its products. From inception to December 31, 2012, the Company incurred net losses of $9,956,226. 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 and public investments. The Company has also significantly increased its revenue base and management foresees this trend continuing. The inability to obtain additional capital may reduce our ability to continue to conduct business operations as currently contemplated. Any additional equity financing may involve substantial dilution to our then existing stockholders.

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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

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.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On July 13, 2011 the company dismissed its auditors, Kingerey & Crouse PA . Effective July 14, 2011 the Company engaged L.L. Bradford & Company, LLC as its independent certified public account. The company’s decision to dismiss Kingerey & Crouse and retain L.L. Bradford was approved unanimously by the Board of Directors on July 12, 2011.

Kingerey & Crouse’s report on the financial statements for the fiscal years ended December 31, 2010 and December 31, 2009 was 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 fiscal years then ended, except that Kingerey & Crouse’s report on the financial statements as of December 31, 2010 and December 31, 2009 contained explanatory language that substantial doubt existed about the Company’s ability to continue as a going concern due to significant losses from the Company’s operations and working capital and stockholder deficiencies.

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 Kingerey & Crouse on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of Kingerey & Crouse 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 L. L. Bradford 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.

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, 2012 Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

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, 2012. In making this assessment, our management used the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management, with the participation of the Chief Executive and Chief Financial Officers, believes that, as of December 31, 2012, we did not maintain effective internal control over financial reporting due to the material weakness described below.

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 the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We identified the following material weakness in our assessment of the effectiveness of internal control over financial reporting:

We did not design and implement adequate controls related to the accounting of convertible debt transactions, specifically in this instance, applying guidance to allocate proceeds to detachable securities and also to assess for and record the beneficial conversion feature related to the convertible debt transactions.

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.

Plan for Improving Controls and Procedures

As noted above, we believe that significant improvements have been made in our ability to analyze financial information in a timely manner and to allow on-going monitoring and enhancement of our internal controls. As our financial position improves, we plan to continue to enhance our control environment by expanding the resources available to the financial reporting process. These ongoing efforts will include: (i) evaluating and improving our existing internal control documentation to develop clear identification of key financial and reporting controls; (ii) reviewing our accounting process; and (iii) reviewing our control procedures.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

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, 2012 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 January 9, 2014:


Name	Age	Position(s)
Sandy Leavitt	67	Chairman, Chief Executive Officer and Secretary
Neil Roth	61	President, Chief Operating Officer, and Director
Ken Sprenkle	67	Chief Financial Officer
Rik Deitsch	44	Director
Greg K. Hoggatt	53	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.

Ken Sprenklehas served as the Company’s Vice President of Finance since April 2010. He has over 35 years experience in financial management. From May 2008 until April, 2010 he was Vice President of Finance at Quinn Concrete Pumping, Inc. From February, 2006 until May, 2008 he was Executive Director at the Las Vegas Rescue Mission. During the period from 1998 through 2005 Mr. Sprenkle was Vice President of Finance for Wells Cargo Construction. Mr. Sprenkle holds a BS in Accounting from Robert Morris College, Pittsburgh, Pennsylvania, and an MBA from Baldwin Wallace University,Berea, Ohio.

Rik Deitsch has been one of our Directors since August 2009. He has been the Chief Executive Officer and Director 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.

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.

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.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth salaries earned by the Company’s Officers during the fiscal year ended December 31, 2012. In accordance with the rules and regulations promulgated by the Securities and Exchange Commission, the table omits columns that are not applicable.


Summary Compensation Table (1)
Name and principal position	Year (b)	Salary ($)	Total ($)
(a)	(b)	(c)	(j)
Sandy Leavitt, Chief Executive Officer	2012	120,000	120,000
	2011	120,000	120,000

Neil Roth, President	2012	120,000	120,000
	2011	135,385	135,385

Ken Sprenkle, Chief Financial Officer	2012	83,500	83,500
	2011	83,500	83,500

(1)

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

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (1)


Name (a)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Options (#) (c)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)	Option Exercise Price ($) (e)	Option Expiration Date ($) (f)
Ken Sprenkle Chief Financial Officer	37,500	112,250	$0.50	January 1, 2016
		150,000	$0.50	November 1, 2016

(1)

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

Compensation of Directors

No compensation was paid to Directors during the fiscal year ended December 31, 2012.

2008 Incentive Stock Option Plans

Under the Company’s 2008 Incentive Stock Option Plan (the "2008 Incentive Plan"), it is authorized to issue 10,000,000 shares of common stock. 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.

General

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 there under. 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 there under 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").

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.

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.

(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, 2012 1,055,000 options had been issued under the 2008 Incentive Plan.

Section 16(a) Beneficial Ownership Reporting Compliance

Under the Exchange Act, our directors, our executive officers, and any persons holding more than 10% of our common stock are required to report their ownership of our common stock and any changes in that ownership to the Securities and Exchange Commission. To our knowledge, based solely on our review of the copies of such reports received or written representations from certain reporting persons that no other reports were required, we believe that during our fiscal year ended December 31, 2012, all forms required to be filed under Section 16 were filed in a timely manner.

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

The following table sets forth information as of January 8, 2014 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 48,463,370 shares issued and outstanding as of January 13, 2014. 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. Upon completion of the Chapter 11 Case, it is expected that all figures set forth in the table below will change significantly.


Name and Address of Beneficial Owner (1)	Amount and Nature of Beneficial Ownership of Common Stock (2)	Percent of Common Stock
Sandy Leavitt	20,261,300	41.8
Neil Roth	6,625,600	13.7
Rik Deitsch (3)	2,670,000	5.4
Greg Hoggatt	4,569,400	9.3
Byron Georgiou (4)	28,500,000	38.8
Ken Sprenkle (5)	311,000	*
Richard Plaster	3,125,000	6.5

*All Directors and Executive Officers as a Group (five persons (3)(5)):*	34,437,300	68.3

_________________________

* Less than 1%

(1) The address of all individuals listed below is c/o Xtreme Green Products Inc., 3010 E. Alexander Rd. Suite 1002, North Las Vegas, NV 89030.

(2) The number of shares indicated includes (i) shares issuable upon the exercise of outstanding stock options or warrants held by each individual or group to the extent such options and warrants are exercisable within sixty days of March 19, 2012.

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

(4) Consists of (i) 3,000,000 shares, (ii) 18,750,000 shares issuable upon exercise of warrants, (iii) 6,600,000 shares issuable upon conversion of convertible debt held by a family trust (the “Trust”) of which Mr. Georgiou is a trustee, and (iv) 150,000 shares issuable upon exercise of options.

(5) Includes 300,000 shares issuable upon exercise of options.

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

During January and March 2010, the Company issued to Byron Georgiou, one of the Company’s directors, an aggregate of 2,500,000 shares of common stock at $0.40 per and warrants to purchase an additional 7,500,000 shares in three tranches, as follows: a three year warrant to purchase 2,500,000 shares of common stock at $0.40 per share; a four year warrant to purchase 2,500,000 shares at $0.65 per share; and a five year warrant to purchase 2,500,000 shares of common stock at $0.75 per share. The purchase price for the securities was $1,000,000.

On June 22, 2010, a family trust of which Mr. Georgiou is a trustee agreed to lend to the Company an aggregate of $1,000,000 at an annual interest rate of 12% in three tranches. The first tranche of $250,000 was advanced on July 9, 2010. The second tranche in the amount of $500,000 was funded on August 9, 2010. The balance was funded on September 9, 2010. The loans were scheduled to be repaid on September 8, 2011, which was extended through September 8, 2012 in conjunction with a new loan noted below. 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.

On December 8, 2011, a family trust of which one of our shareholders is a trustee (“the lender”) agreed to lend us $250,000 at an annual interest rate of 12%. The loan is scheduled to be repaid on September 8, 2012. The Company also issued 250,000 shares of common stock to the Lender. At any time prior to that date September 8, 2012 at the option of the lender the loan is convertible into common stock at $0.40 per share. Additionally, the lender has received warrants to purchase 625,000 shares at $0.40, exercisable until December 31, 2014, warrants to purchase 625,000 shares at $0.65 per share exercisable until December 31, 2015, and warrants for 625,000 shares at $0.75 per share exercisable until December 31, 2016.

During the six month period ended December 31, 2012 a family trust, of which a shareholder is a trustee agreed to loan the Company a total of $339,000. The proceeds were disbursed in eleven installments over the six month period. Interest accrues at a rate of 12% per annum. The loan and accrued interest are due upon demand. Accrued interest as of December 31, 2012 is $13,366.

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 2012 and 2011 were $32,750 and $29,250, respectively.

Audit-Related Fees. None.

Tax Fees. None.

All Other Fees. None.

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: January 17, 2014	XTREME GREEN PRODUCTS INC.

	/s/ Sandy Leavitt
	Sandy Leavitt
	Chief 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	January 17, 2014
		(Principal Executive Officer)

/s/	Neil Roth	President, and Director	January 17, 2014
/s/	Ken Sprenkle	Chief Financial Officer	January 17, 2014

/s/	Rik Deitsch	Director	January 17, 2014

/s/	Greg K. Hoggatt	Director	January 17, 2014

XTREME GREEN PRODUCTS INC.

INDEX TO FINANCIAL STATEMENTS


		PAGE

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM		F-1

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2012 AND 2011		F-2

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011		F-3

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011		F-4

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011		F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-6 - F-20

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Xtreme Green Products Inc.

We have audited the accompanying consolidated balance sheets of Xtreme Green Products Inc. as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the entity’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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xtreme Green Products Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then end, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 2 to the financial statements, the entity has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ L.L. Bradford & Company, LLC

Las Vegas, Nevada

January 17, 2014

F-1

XTREME GREEN PRODUCTS INC.

Consolidated Balance Sheets

December 31, 2012 and December 31, 2011


	2012	2011
ASSETS
Current Assets:
Cash	$ -	$ 46,390
Accounts receivable	-	9,255
Related party receivable	13,500	13,500
Inventory	201,743	657,475
Other current assets	45,820	256,264
Total current assets	261,063	982,884
Property and equipment, net	169,261	233,443
Other assets	36,186	36,186
TOTAL ASSETS	$ 466,510	$ 1,252,513

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$ 834,829	$ 329,985
Accrued expenses- related parties	702,553	323,473
Accrued interest	-	10,774
Accrued interest- related parties	177,655	-
Line of credit	-	150,000
Convertible debt- related party, net of discount	1,839,000	1,017,821
Convertible debt- other, net of discount	65,757	54,666
Customer deposits	312,684	250,000
Current portion of long-term debt	289,538	130,000
Stockholder loans	347,333	103,268
Total current liabilities	4,569,349	2,369,987
Long-term debt, net of current portion	38,545	44,875
Total liabilities	4,607,894	2,414,862

Stockholders' deficit:
Common stock, $0.0001 par value, 100,000,000 shares authorized; 48,463,370 and 47,713,370 shares issued and outstanding	4,846	4,771
Additional paid-in capital	5,809,996	5,539,441
Accumulated deficit	(9,956,226)	(6,706,561)

Total stockholders' deficit	(4,141,384)	(1,162,349)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 466,510	$ 1,252,513

See the accompanying notes to the consolidated financial statements.

F-2

XTREME GREEN PRODUCTS INC.

Consolidated Condensed Statements of Operations

For the Years Ended December 31,



	2012	2011
EXPENSES:

Sales, net	$ 528,265	$ 1,674,205
Sales- affiliates, net	133,050	60,926
Total revenue	661,315	1,735,131

Cost of sales (exclusive of depreciation expense)	991,660	1,243,915

Gross margin	(330,345)	491,216

Costs and expenses:
General and administrative	2,061,844	2,271,368
Research and development	125,405	224,667
Interest expense	732,071	158,693

Total costs and expenses	2,919,320	2,654,728

Net loss before provision for income taxes	$ (3,249,665)	$ (2,163,512)
Provision for income taxes	-	-
Net loss	$ (3,249,665)	$ (2,163,512)

Per share information - basic and diluted:

Loss per common share	$ (0.07)	$ (0.05)


Weighted average common shares outstanding	47,880,493	46,621,995

See the accompanying notes to the consolidated financial statements.

F-3

XTREME GREEN PRODUCTS INC.

Consolidated Statement of Changes in Stockholders’ Deficit

For the Years Ended December 31, 2010 and 2011


	Common Stock
	Shares	Par Value	Additional Paid-in Capital	Accumulated Deficit	Total
Balance- December 31, 2010	44,966,370	$ 4,496	$ 4,172,234	$ (4,543,049)	$ (366.319)
Issuance of common stock for cash	2,438,000	244	1,031,256	-	1,031,500
Issuance of common stock for inventory	20,000	2	9,998	-	84,750
Cancellation of common stock previously issued	(36,000)	(4)	4	-	250,000
Fair value of options issued	-	-	53,800	-	287,695
Discount on convertible debt- related party	250,000	25	249,975
Discount on convertible debt- other	75,000	8	22,174
Net Loss	-	-	-	(2,163,512)	(2,163,512)

Balance- December 31, 2011	47,713,370	4,771	5,539,441	(46,706,561)	(1,162,349)
Discount on convertible debt- related party	250,000	25	109,567	-	109,592
Issuance of stock for note extension	500,000	50	99,950	-	100,000
Fair value of options issued	-	-	61,038	-	61,038
Net Loss	-	-	-	(3,249,665)	(3,249,665)

Balance- December 31, 2012	48,463,370	$ 4,846	$ 5,809,996	$ (9,956,226)	$ (4,141,384)

See the accompany notes to the financial statements

F-4

XTREME GREEN PRODUCTS INC.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2012 and 2011


	2012	2011
Cash flows from operating activities
Net loss	$ (3,249,665)	$ (2,163,512)
Adjustment to reconcile net loss to net cash used in operating activities:
Stock-based compensation	61,038	53,800
Depreciation	61,036	49,743
Accretion of discount on convertible debts	352,863	-
Stock issued for note extension	100,000	19,669
(Gain) loss on the disposition of property and equipment	3,146	-
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable	9,255	39,799
Increase in related party receivable	-	13,500
Increase in inventory	455,732	(24,421)
(Increase) decrease in other current assets	210,444	(191,857)
Increase in accounts payable and accrued expenses	504,844	157,037
Increase (decrease) in accrued expenses- related party	379,080	143,478
Decreases in accrued Interest	(10,774)	-
Increase in accrued interest- related party	177,655	-
Increase (decrease) in customer deposits	62,684	250,000
Net cash used in operating activities	(882,662)	(1,169,764)
Cash flows from investing activities
Disposal of equipment	-	(25,338)

Cash flows from financing activities:
Common stock issued for cash	-	1,031,500
Proceeds from convertible debt- related party	589,000	250,000
Proceeds from convertible debt-other	-	75,000
Proceeds from long-term debt	50,000	100,000
Repayment of long-term debt	(46,793)	(31,864)
Stockholders loans, net	244,065	(16,212)
Net cash provided by financing activities	836,272	1,408,424
Net increase in cash	(46,390)	(296,678)
Cash- Beginning of Period	46,390	343,068
Cash- End of Period	$ 0	$ 46,390
Supplemental Cash Flow Information:
Cash paid for interest	$ 112,777	$ 130,249
Cash paid for income taxes	-	-

Non Cash Investing and Financing Activities:
Stock issued for inventory	$ -	$ 10,000
Discount on convertible debt-related party	$ 109,952	$ 250,000
Discount on convertible debt-other	$ -	$ 22,182
Acquisition of property and equipment with long term	$ -	$ 88,543

See the accompanying notes to the consolidated financial statements.

F-5

Xtreme Green Products Inc.

Notes to Consolidated Financial Statements

December 31, 2012 and 2011

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 is an eco-vehicle company that has developed the largest line of revolutionary, green, 100% electric powered specialty vehicles.

The financial statements presented herein include the accounts of the Company and its wholly owned subsidiary Xtreme Products, Inc. All intercompany transactions and balances have been eliminated in consolidation.

Revenue Recognition

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.

Cash

For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Accounts Receivable and Major Customers

Accounts receivable are due primarily from companies located throughout the United States. Credit is extended based on an evaluation of the customers’ financial condition and, generally, collateral is not required. Account balances are evaluated for collectability based on the condition of the customers’ credit including repayment history and trends and relative economic and business conditions. Bad debts are not significant. During 2012, two customers accounted for 47% of revenues. During 2011, one customer accounted for 55% of revenue. Also during 2012 and 2011, a customer accounting for 21% and 3.5% of revenue, respectively is a shareholder and affiliate and the holder of the $1,839,000 convertible debt (see notes 6 and 8).

In August 2011, the Company entered into an agreement with a factor enabling the Company to finance its receivables for up to $300,000. The agreement was in effect for a twelve month period and was terminated in August 2012.

As of December 31, 2012, there were no advances against the receivables.

Shipping costs

Shipping and handling costs are included in cost of sales in the accompanying statements of operations.

F-6

Inventory

Inventory is stated at the lower of cost or market. Cost is principally determined by using the average cost method that approximates the First-In, First-Out (FIFO) method of accounting for inventory. Inventory consists of raw materials as well as finished goods held for sale. The Company’s management monitors the inventory for excess and obsolete items and makes necessary valuation adjustments when required. Inventory consists primarily of finished goods and parts. During the twelve months ended December 31, 2012 the Company reduced the value of inventory as follows:

Discontinuance of Xrider and Scooter Product Line

$ 85,145

Scrap defective batteries

$ 92,501

Scrap electrical old parts in place of newly engineered parts

$182,337

$359,983

The $359,983 write-off of inventory was recorded against Cost of Goods Sold.

Intangible Assets and Long Lived Assets

The Company annually reviews long-lived assets and certain identifiable intangibles for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. No such impairment losses have been identified for the years ended December 31, 2012 and 2011.

Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Research and Development

Research and development is charged to operations as incurred.

Fair value of financial instruments

On January 1, 2008, the Company adopted FASB ASC 820-10-50, Fair Value Measurements. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:


	·	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	·	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	·	Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

F-7

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, notes payable, convertible debt, and due to stockholders. The carrying amounts of these financial instruments approximate their fair value, due to the short-term nature of these items and the use of market rates of interest. The carrying value of the Company’s long-term debt approximates fair value based on the terms and conditions of similar debt instruments.

The Company does not hold or issue financial instruments for trading purposes nor does it hold or issue interest rate or leveraged derivative financial instruments.

Segment Information

The Company follows Financial Accounting Standards Board (FASB) ASC 280-10, Segment Reporting. Under ASC 280-10, certain information is disclosed based on the way management organizes financial information for making operating decisions and assessing performance. We currently operate in a single segment and will evaluate additional segment disclosure requirements in the event we expand our operations.

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 computes income taxes in accordance with FASB ASC Topic 740, Income Taxes. Under ASC 740, provisions for income taxes are based on taxes payable or refundable during each reporting period and changes in deferred taxes. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. Also, the effect on deferred taxes of a change in tax rates is recognized in income in the period that included the enactment date. Deferred taxes are classified as current or non-current depending on the classifications of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

The Company follows the guidance in FASB ASC Topic 740-10, Accounting for Uncertainty in Income Taxes, which prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

F-8

Stock-Based Compensation

Net Income (Loss) Per Common Share

The Company calculates net income (loss) per share in accordance with ASC Topic 260, Earnings per Share. Basic earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding.

During periods in which the Company incurs losses, common stock equivalents, if any, are not considered, as their effect would be anti-dilutive or have no effect on earnings per share.

For the year ended December 31, 2012, the 12,750,000 outstanding warrants and 1,055,000 outstanding options were not included in the calculation of diluted earnings per share as their effect would be anti-dilutive. For the year ended December 31, 2011, the 10,875,000 outstanding warrants and 1,130,000 outstanding options were not included in the calculation of diluted earnings per share as their effect would be anti-dilutive.

Recent Pronouncements

There were ho recently issued FASB pronouncements that would have material effect on the accompanying consolidated financial statements.

F-9

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.

Our creditors or other third parties may take actions or make decisions that are inconsistent with and detrimental to the plans we believe to be in the best interests of the Company;

The Bankruptcy Court may not agree with our objections to positions taken by other parities;

We may not be able to successfully develop, prosecute, confirm and consummate a Chapter 11 plan of reorganization or may be delayed in doing so;

We may not be able to obtain and maintain normal credit terms with vendors, strategic partners and service providers.

We may not be able to continue to invest in our products and services, which could hurt our competitiveness;

Our access to capital to fund ongoing business operations or emergence costs may be limited;

These risks and uncertainties could affect our business and operations in various ways. For example, negative events, the positions we take in court, or publicity associated with our Chapter 11 Case could adversely affect our sales of vehicles and our relationship with our customers, as well as with vendors, which in turn could adversely affect our business, financial condition and results of operations, particularly if our Chapter 11 Case is protracted. Because of the risks and uncertainties associated with our Chapter 11 Case, the ultimate impact on our business, financial condition and results of operations of events that occur during these proceedings cannot be accurately predicted or quantified. If any one or more of these risks materializes particularly if our Chapter 11 Case is protracted, it could affect our ability to continue as a going concern.

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

F-10

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, 2012, aggregating $9,956,226 and has working capital and stockholder deficits of $4,308,286and $4,141,384at December 31, 2012. 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 and public investments. In addition, the Company is seeking to expand its revenue base and product distribution. Failure to secure such financing or to raise additional equity capital and to expand its revenue base and product distribution may result in the Company depleting its available funds and not being able pay its obligations.

Note 3. Other Current Assets

Other current assets consist of the following as of December 31, 2012 and 2011:


	2012	2011
Advanced commissions	$ 0	$ 150,820
Prepaid inventory	2,072	27,212
Prepaid insurance	13,748	20,530
Vendor credit	0	31,426
Other deposits	30,000	26,276
	$ 45,820	$ 256,264

Advanced commissions – The Company advances commissions to certain salesmen as they begin to open new areas. The commissions will offset future sales and accordingly, be expensed as the sales are incurred.

F-11

Note 4. Property and Equipment

Property and equipment consists of the following as of December 31, 2012 and 2011:


	2012	2011
Manufacturing equipment	$ 113,090	$ 113,090
Other equipment	19,867	19,867
Leasehold improvements	8,767	8,767
Automotive equipment	157,909	164,078
	299,633	305,802
Accumulated depreciation	(130,372)	(72,359)
	$ 169,261	$ 233,443

Depreciation charged to operations was $61,036 and $49,743 for the years ended December 31, 2012 and 2011, respectively.

Note 5. Customer Deposits

As of December 31, 2012, customer deposits totaling $312,684 represented a $250,000 advance from a major third party distributor for the purchase of inventory and $62,684 representing customer deposits on sales orders.

Note 6. Line of Credit, Convertible Debt, and Long-Term Debt

Line of Credit

On April 21, 2012 the Company’s secured line of credit with a financial institution for $150,000 was converted to a term loan bearing interest at 6% per annum maturing April 21, 2016. The line is secured by certain assets of a related party. The balance of the loan at December 31, 2012 was $130,413

Convertible Debt – Related Party

On June 22, 2010, a family trust (the “Trust”) of which a director is a trustee agreed to lend to the Company an aggregate of $1,000,000 at an annual interest rate of 12% in three tranches. The first tranche of $250,000 was funded on July 9, 2010. The second tranche in the amount of $500,000 was funded on August 9, 2010. The balance was funded on September 9, 2010. The loans were scheduled to be repaid on September 8, 2011, which was extended through September 8, 2012 in conjunction with a new loan noted below. At any time prior to that date, at the option of the lender the loan is convertible into common stock at $0.40 per share. Upon conversion, the lender will also receive warrants to purchase 7,500,000 shares of common stock, as follows: a three year warrant to purchase 2,500,000 shares of common stock at $0.40 per share; a four year warrant to purchase 2,500,000 shares at $0.65 per share; and a five year warrant to purchase 2,500,000 shares of common stock at $0.75 per share. Interest charged to operations related to this loan aggregated $120,000 and $40,000 during the years ended December 31, 2011 and 2010, respectively.

F-12

On December 8, 2011, the same Trust agreed to lend the Company an additional $250,000 at an annual interest rate of 12%. The loan is scheduled to be repaid on September 8, 2012. The Company also issued 250,000 shares of common stock to the lender. At any time prior to September 8, 2012, at the option of the lender, the loan is convertible into common stock at $0.40 per share. Additionally, the lender has received warrants to purchase 625,000 shares of common stock, exercisable until December 31, 2014, warrants to purchase 625,000 shares at $0.65 per share exercisable until December 31, 2015, and warrants for 625,000 shares at $0.75 per share exercisable until December 31, 2016. As a result of the issuance of 250,000 shares and warrants, the Company allocated the fair market value (“FMV”) to the shares, and warrants, and the debt. In addition, the company determined that the note included a beneficial conversion feature. Accordingly, the Company recorded a discount of $250,000, of which $17,821 was accreted to interest expense for the year ended December 31, 2011.

Convertible Debt – Other

During the fourth quarter 2011, the Company borrowed $75,000 in exchange for 24 month convertible debentures which mature in October and November 2013. The debentures bear interest at 12% per annum which is payable in arrears on the first anniversary of the issuance of the notes and on the maturity date. The entire principal amount plus accrued and unpaid interest is due at maturity or at the option of the holder, in whole or in part, in shares of Company’s common stock at a price of $0.70 per share. The Holder at any time after the date of issuance, may convert all or any part of the amounts due into shares of the Company’s common stock. In addition, the Company issued 75,000 shares of common stock to the lenders. As a result of the issuances, the Company allocated the FMV to both the shares and the debt. Accordingly, the Company recorded a discount of $22,182, of which $1,848 was accreted to interest expense for the year ended December 31, 2011. The Company determined there was not a beneficial conversion feature on the effective conversion rates of the loans.

F-13

Other long-term debt

During 2011 the Company financed two vehicles. The original debt was $90,321, interest a zero percent, and due in 36 monthly payments of $2,509. The balance due at December 31, 2012, was $47,669 due as follows: 2013: $30,108– 2014: $17,561.

On December 29^th, 2011 the Company borrowed $100,000 in exchange for a six month secured bridge note, due June 29, 2012. The note bears interest at the rate of 12% per annum, payable on the maturity date. The maturity date shall be (A) the date the Company completes a financing transaction for the offer and sale of shares of Company’s common stock, including securities convertible into or exercisable for common stock, in the aggregate amount of no less than $2.5 million, or (B) June 29^th, 2012. In addition to the repayment of the principal amount and all accrued interest, the Company shall issue to the holder, a number of securities equal to the principal amount divided by the purchase price of the securities to be issued in financing obtained with the assistance of the holder. In the event no such financing is obtained, the Company is under no obligation to issue the securities. The obligations and covenants of this note are secured by a first priority lien and security interest in the Company’s assets with the Holder’s interest shared pro rata with the holders of a series of identical notes issued on or around the date hereof. On June 13, 2012 the holder agreed to extend the maturity date of the note to December 29, 2012. As additional consideration for the extension the company agreed to issue shares of common stock equal to 100% of the principal loan amount and in addition $25,000 in interest will be paid at the extended maturity date of December 29, 2012. As a result of the extension 500,000 shares of common stock were issued on July 16, 2012 at a price of $0.20 per share. The Company recorded $100,000 representing the price of the stock as interest expense.

On February 15, 2012 the Company borrowed $50,000 in exchange for a six month secured bridge note. The note bears interest at the rate of 12% per annum, payable on maturity date. The maturity date is the earlier of (i) the date the Company completes a financing transaction for the offer a sale of shares of the Company’s common stock in the amount of no less than $2,500,000, or (ii) August 15, 2012. The maturity date has been extended to December 15, 2012.

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Note 7. Stockholders’ (Deficit)

Common Shares

On January 28, 2010, the Company entered into and consummated the transaction contemplated under a Subscription Agreement with one investor. Under the terms of the Agreement, the Company agreed to issue 2,500,000 shares of its common stock at $0.40 per share and warrants to purchase an additional 7,500,000 shares in three tranches, as follows: a three year warrant to purchase 2,500,000 shares of common stock at $0.40 per share; a four year warrant to purchase 2,500,000 shares at $0.65 per share; and a five year warrant to purchase 2,500,000 shares of common stock at $0.75 per share.

One half of the securities were issued in January 2010 for a purchase price of $500,000. The remainder was issued on March 2010 for a purchase price of $500,000.

In addition, during the year ended December 31, 2010 the Company issued 1,653,645 shares of common stock pursuant to a private placement at prices of $0.40 and $0.50 per shares and received cash proceeds of $701,823.

During the year ended December 31, 2010, the Company issued an aggregate of 169,500 shares of common stock for services rendered and recorded stock based compensation of $84,750. The value ascribed to these shares of $0.50 per share was based on the price at which the Company had sold shares pursuant to a private placement.

During March 2010 the Company issued 500,000 shares of common stock in exchange for the conversion of $250,000 of debt due to a director. The value ascribed to these shares of $0.50 per share was based on the price at which the Company had sold shares pursuant to a private placement. In addition, this director received warrants to purchase common stock as follows:

A three year warrant to purchase 500,000 shares of common stock at $0.50 per share

A four year warrant to purchase 500,000 shares of common stock at $0.75 per share

A five year warrant to purchase 500,000 shares of common stock at $0.85 per share

The warrants were valued at $245,384 which was charged to operations using the Black-Scholes option pricing model with the following assumptions.


Expected volatility	40 - 60%
Expected dividends	0%
Expected term (in years)	3.0 to 5.0
Risk-free rate	2.33 to 3.38%

During the year ended December 31, 2011 the Company issued 2,438,000 shares of common stock pursuant to a private placement at prices of $0.40 and $0.50 per shares and received cash proceeds of $1,031,500.

During the year ended December 31, 2011, the Company cancelled 36,000 shares of common stock issued in prior years.

During the year ended December 31, 2011 the Company issued 20,000 shares of common stock for inventory valued at $10,000.

F-15

Stock options

The 2008 Incentive Stock Option Plan (the "2008 Incentive Plan") was adopted by the Board of Directors on May 22, 2008. The Board of Directors has initially reserved 10,000,000 shares of Common Stock for issuance under the 2008 Incentive Plan and shall administer the Plan. Under the Plan, options may be granted whichare 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 than 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.

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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 the 12 month period ended December 31, 2012, 75,000 option shares were forfeited due to employee terminations.

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.

During the year 2011, the Company granted options to an employee to purchase 25,000 shares of common stock and options to purchase 300,000 shares were granted to the Company’s Chief Financial Officer at an exercise price of $0.50 per share. These options vest 25% after the first 6 months and then 25% per year beginning 18 months from the grant date and expire 5 years from the grant date.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model, using the assumptions noted in the following table. Expected volatility is typically based on the historical volatility of the Company’s stock, and other factors. Because the shares of the Company were not traded until late 2011, volatility was estimated at 40 - 60% through early 2011, and 100% later in 2011 as trading began. 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 $292,262 and the cost recognized for the years ended December 31, 2012 and 2011 was $61,038 and $53,800, respectively, which was recorded as general and administrative expenses.

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



Expected volatility	40 - 100%
Expected dividends	0%
Expected term (in years)	3.4 to 10.0
Risk-free rate	0.38% to 2.33

A summary of option activity under the Plan during the years ended December 31, 2012 and 2011 is presented below:


	Shares	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term	Intrinsic Value
Outstanding at December 31, 2009	805,000	$ 0.50	5.9	$ 0.00
Granted	-	-	-	-
Expired	-	-	-	-
Outstanding at December 31, 2010	805,000	$ 0.50	4.9	$ 0.00
Granted	325,000	$ 0.50	4.4	$ 0.00
Expired	-	-	-	-
Outstanding at December 31, 2011	1,130,000	$ 0.50	5.2	$ 0.00
Granted	-	-	-	-
Forfeited	75,000	-	-	-
Expired	-	-	-	-
Outstanding at December 31, 2012	1,055,000	$ 0.50	4.5	$ 0.00

F-17

The following table summarizes information about fixed price stock options at December 31, 2012:

Exercise Price

Number

Outstanding

Weighted

Average

Contractual Life

Weighted

Average

Exercise Price

Number

Exercisable

Exercise

Price

0.50

1,055,000

5.2

0.50

365,750

0.50

The unvested options vest as follows:

2012 – 242,250; 2013 - 242,250; 2014 - 242,250; 2015 - 37,500

As of December 31, 2010, the aggregate intrinsic value of all stock options outstanding and expected to vest was $0.00 and the aggregate intrinsic value of currently exercisable stock options was $0.00. The intrinsic value of each option share is the difference between the fair market value of the common stock and the exercise price of such option share to the extent it is in-the-money. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the selling price of common shares during the periods covered by these financial statements. There were no in-the-money options outstanding and exercisable as of December 31, 2011.

The total intrinsic value of options exercised during the years ended December 31, 2012 and 2011, was approximately $0 and $0, respectively. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option holder to exercise the options. The total cash proceeds received from the exercise of stock options was approximately $0 and $0 for the years ended December 31, 2012 and 2011, respectively.

Note 8. Related Party Transactions

Stockholder Loans

Stockholder loans outstanding at December 31, 2011 were $103,268. During the year December 31, 2012 an additional $250,000 was borrowed bearing interest at 12% and $5,935 was repaid leaving a balance of $347,333. The loans are due on demand and bear interest at 12% and 4%.

Revenue

During the years ended December 31, 2012 and 2011, the company made sales to a distributor owned by a shareholder of the Company totaling $133,050 and $60,926, respectively.

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Note 9. 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, 2012 and 2011. 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)%

0.00%

As of December 31, 2012, the Company has a net operating loss carry forward of approximately $6.3 million. This loss will be available to offset future taxable income. If not used, this carry forward will expire through 2030. The deferred tax asset of approximately $1.6 million relating to the operating loss carry forward has been fully reserved at December 31, 2011. The increase in the valuation allowance related to the deferred tax asset was approximately $700,000 during 2011. The principal difference between the accumulated deficit for income tax purposes and the accumulated deficit for financial reporting purposes results from stock compensation, the impairment of the costs related to the acquisition of Belarus and the accrual of unpaid officer salaries.

The Company has not taken any uncertain tax positions on any of our open income tax returns filed through the period ended December 31, 2011. The Company’s methods of accounting are based on established income tax principles in the Internal Revenue Code and are properly calculated and reflected within its income tax returns. Due to the carry forward of net operating losses, the federal and state income tax returns are subject to audit for periods beginning in 2007.

Note 10. 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:


2013	$ 137,460
2014	141,576
2014	108,558
	$ 387,594

Rent expense was $202,997 and $183,117 for the years ended December 31, 2012 and 2011, respectively, and includes other related charges such as common area maintenance fees. In addition, it includes rental charges in China for space used on an as-needed basis.

Note 11. Subsequent Events

Chapter 11 Proceedings

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The Chapter 11 petition triggered defaults on substantially all our debt obligations. However, under section 362 of the Bankruptcy Code, the commencement of a Chapter 11 case automatically stays most creditor actions against our property.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES


Exhibit Number		Description
2.1		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)

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

(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

Positive
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Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

Xtreme Green Electric Vehicles (XGEV) Inactive 10-K2012 FY Annual report

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