UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| FORM 10-Q |
|
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017 |
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from______________ to ________________
Commission file number 000-53525
Leo Motors, Inc. |
(Exact name of registrant as specified in its charter) |
Nevada |
| 814108026 |
(State or other jurisdiction of incorporation or organization) |
| (I. R. S. Employer Identification No.) |
ES Tower 7F, Teheranro 52 Gil 17, Gangnamgu, Seoul, Republic of Korea |
| 06212 |
(Address of principal executive offices) |
| (Zip Code) |
+ 82-70-4699-3585 |
(Registrant’s telephone number, including area code) |
|
Not applicable |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller Reporting Company x | |
Emerging growth company o | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. o
|
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes o No x
|
The number of shares of the registrant’s common stock outstanding as of November 14, 2017 was 174,801,408 shares.
Item 1.Financial Statements.
LEO MOTORS, INC. | ||||||
CONSOLIDATED BALANCE SHEETS | ||||||
(AMOUNTS EXPRESSED IN US DOLLAR) | ||||||
|
| Balance at | ||||
|
|
| Sept 30, 2017 |
|
| Dec 31, 2016 |
|
|
| (Unaudited) |
|
| (Audited) |
Assets | ||||||
Current Assets |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 434,070 |
| $ | 460,671 |
Accounts receivable |
|
| 495,438 |
|
| 433,205 |
Inventories |
|
| 996,565 |
|
| 1,088,298 |
Prepayment to suppliers |
|
| 602,402 |
|
| 457,643 |
Other current assets |
|
| 186,387 |
|
| 91,973 |
Total Current Assets |
|
| 2,714,862 |
|
| 2,531,790 |
Fixed assets, net |
|
| 371,432 |
|
| 129,157 |
Deposits and Other Assets |
|
| 727,946 |
|
| 346,255 |
Available for Sale Securities |
|
| 417,873 |
|
| - |
Intangible assets |
|
| 26,718 |
|
| 88,503 |
Goodwill |
|
| - |
|
| 2,613,486 |
Total Assets |
| $ | 4,258,831 |
| $ | 5,709,191 |
|
|
|
|
|
|
|
Liabilities and Equity (Deficit) | ||||||
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
Accounts payable |
| $ | 1,883,248 |
| $ | 1,411,130 |
Accrued expenses |
|
| 5,943,985 |
|
| 4,345,772 |
Advance from customers |
|
| 300,287 |
|
| 386,624 |
Due to related parties |
|
| 519,951 |
|
| 358,680 |
Taxes payable |
|
| 273,992 |
|
| 29,635 |
Notes Payable current portion |
|
| 271,082 |
|
| 268,824 |
Total Current Liabilities |
|
| 9,192,545 |
|
| 6,800,665 |
Accrued retirement benefits |
|
| 462,582 |
|
| 216,195 |
Other long term liabilities |
|
| 261,180 |
|
| 72,851 |
Total Liabilities |
|
| 9,916,307 |
|
| 7,089,711 |
Leo Motors, Inc. ("LEOM") Equity (Deficit): |
|
|
|
|
|
|
Common stock ($0.001 par value; 300,000,000 shares authorized); 174,801,408 and 172,528,016 shares issued and outstanding at September 30, 2017 and December 31, 2016 |
|
| 174,801 |
|
| 172,528 |
Additional paid-in capital |
|
| 22,813,204 |
|
| 21,411,832 |
Accumulated other comprehensive income |
|
| 1,358,816 |
|
| 1,184,443 |
Accumulated loss |
|
| (34,853,295) |
|
| (29,776,217) |
Total Equity (Deficit) Leo Motors, Inc. |
|
| (10,506,474) |
|
| (7,007,414) |
Non-controlling interest |
|
| 4,848,998 |
|
| 5,626,894 |
Total Equity (Deficit) |
|
| (5,657,476) |
|
| (1,380,520) |
Total Liabilities and Equity(Deficit) |
| $ | 4,258,831 |
| $ | 5,709,191 |
See accompanying notes to consolidated financial statements
LEO MOTORS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS EXPRESSED IN US DOLLAR) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended Sept 30, |
| Nine Months Ended Sept 30, | ||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
Revenues |
| $ | 988,582 |
| $ | 792,037 |
| $ | 1,821,525 |
| $ | 2,344,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues |
|
| 783,136 |
|
| 503,484 |
|
| 1,574,605 |
|
| 1,484,572 |
Gross Profit |
|
| 205,446 |
|
| 288,553 |
|
| 246,920 |
|
| 859,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
| 1,076,492 |
|
| 1,759,520 |
|
| 4,160,535 |
|
| 3,676,871 |
Income(loss) from Continuing Operations |
|
| (871,046) |
|
| (1,470,967) |
|
| (3,913,615) |
|
| (2,817,244) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
| (7,006) |
|
| (7,817) |
|
| (21,684) |
|
| (25,581) |
Interest Income |
|
| 316 |
|
| - |
|
| 316 |
|
| - |
Goodwill Impairment |
|
| (2,613,486) |
|
| - |
|
| (2,613,486) |
|
| - |
Currency Gains (Losses) |
|
| 265,664 |
|
| (205,495) |
|
| 274,972 |
|
| (29,865) |
Non-Operating (expense) income |
|
| 340,515 |
|
| 60,100 |
|
| 452,712 |
|
| 96,597 |
Total Other Income (Expenses) |
| $ | (2,013,997) |
| $ | (153,212) |
| $ | (1,907,170) |
| $ | 41,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) from Continuing Operations Before Income Taxes |
|
| (2,885,043) |
|
| (1,624,179) |
|
| (5,820,785) |
|
| (2,776,093) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense |
|
| 4 |
|
| 459 |
|
| 1,253 |
|
| 459 |
Net Income(Loss) |
| $ | (2,885,047) |
| $ | (1,624,638) |
| $ | (5,822,038) |
| $ | (2,776,552) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income(loss) attributable to non-controlling interest |
| $ | (157,454) |
| $ | (126,853) |
| $ | (744,960) |
| $ | (86,890) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income(Loss) Attributable To Leo Motors, Inc. |
|
| (2,727,593) |
|
| (1,497,785) |
|
| (5,077,078) |
|
| (2,689,662) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income(Loss) |
| $ | (2,885,047) |
| $ | (1,624,638) |
| $ | (5,822,038) |
| $ | (2,776,552) |
Unrealized foreign currency translation gain (loss) |
|
| 35,069 |
|
| (205,495) |
|
| 101,736 |
|
| (29,865) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (loss) Attributable to Leo Motors, Inc. |
| $ | (2,849,978) |
| $ | (1,830,133) |
| $ | (5,720,302) |
| $ | (2,806,417) |
Net Loss per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.02) |
| $ | (0.01) |
| $ | (0.03) |
| $ | (0.02) |
Diluted |
| $ | (0.02) |
| $ | (0.01) |
| $ | (0.03) |
| $ | (0.02) |
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 174,606,521 |
|
| 162,919,011 |
|
| 174,203,742 |
|
| 162,853,533 |
Diluted |
|
| 174,606,521 |
|
| 162,919,011 |
|
| 174,203,742 |
|
| 162,853,533 |
See accompanying notes to consolidated financial statements
LEO MOTORS, INC. | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
(AMOUNTS EXPRESSED IN US DOLLAR) | |||||
|
|
|
|
|
|
| For the Nine Months Ended September 30, | ||||
|
| 2017 |
|
| 2016 |
|
| (Unaudited) |
|
| (Unaudited) |
Cash flows from Operating Activities: |
|
|
|
|
|
Net loss | $ | (5,077,078) |
| $ | (2,689,662) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
Depreciation and amortization |
| 123,969 |
|
| 66,286 |
Write off intangibles |
| 2,675,271 |
|
| - |
Foreign currency translation |
| - |
|
| 29,865 |
Stock-based compensation |
| 66,103 |
|
| 206,112 |
Non-Controlling Interest |
| 777,896 |
|
| - |
Changes in assets and liabilities: |
|
|
|
|
|
Prepaid Expenses |
| (6,477) |
|
| - |
Accounts Receivable |
| (62,233) |
|
| 587,045 |
Inventories |
| (91,733) |
|
| (372,242) |
Prepayment to suppliers |
| 144,759 |
|
| (346,141) |
Non Trade Receivables |
| 142,739 |
|
| - |
Other current assets |
| (87,937) |
|
| (57,025) |
Other assets |
| (381,691) |
|
| 10,301 |
Accounts payable, other payables and accrued expenses |
| 2,070,332 |
|
| 797,071 |
Accrued retirement benefits |
| 246,387 |
|
| 67,930 |
Advances from customers |
| (86,337) |
|
| (37,814) |
Taxes payable |
| 244,357 |
|
| (40,126) |
Net cash used in operating activities: |
| 698,327 |
|
| (1,778,400) |
Cash flows from investing activities: |
|
|
|
|
|
Purchase of property and equipment |
| (371,998) |
|
| (61,608) |
Purchase of Available for Sale Securities |
| (417,873) |
|
| - |
Purchase of Additional Equity in Subsidiaries |
| (531,080) |
|
| - |
Net cash provided(used) in investing activities: |
| (1,320,951) |
|
| (61,608) |
Cash flows from financing activities: |
|
|
|
|
|
Proceeds (payments) on notes payable / long term payables |
| 188,329 |
|
| 423,448 |
Payments on notes payable |
| (9,923) |
|
| (235,175) |
Proceeds on notes payable - related party |
| 171,194 |
|
| 32,396 |
Sale of Equity in Subsidiary |
| 1,137,542 |
|
|
|
Other Comprehensive Income |
| 174,373 |
|
| - |
Proceeds from issuance of stock & warrants |
| 200,000 |
|
| 2,873,301 |
Net cash provided(used) by financing activities: |
| 1,861,515 |
|
| 3,093,970 |
|
|
|
|
|
|
Effect of Foreign Exchange Rate on Cash |
| (1,265,492) |
|
| - |
Net Increase in cash and cash equivalents: |
| (26,601) |
|
| 1,253,962 |
Cash and cash equivalents - beginning of year |
| 460,671 |
|
| 243,809 |
|
|
|
|
|
|
Cash and cash equivalents - end of period | $ | 434,070 |
| $ | 1,497,771 |
Supplemental disclosure of cash flow activities: |
|
|
|
|
|
Interest | $ | 21,684 |
| $ | 25,581 |
Income taxes | $ | - |
| $ | - |
Supplemental disclosures of non-cash activities: |
|
|
|
|
|
Goodwill on Acquisition | $ | - |
| $ | 660,928 |
Common stock issued for services | $ | 66,103 |
| $ | 206,112 |
See accompanying notes to consolidated financial statements
LEO MOTORS, INC.
NOTES TO CONSOLIDATED FIANCIAL STATEMENTS
September 30, 2017
NOTE 1 - COMPANY BACKGROUND
Leo Motors, Inc. (the “Company” or “we”) is currently in development, assembly and sales of energy storage devices and electric vehicle components.
The Company was originally incorporated in California as N. Org., Inc. on December 12, 1983. The Company then underwent several name changes from Natural Organics Corporation to Classic Auto Accessories of North America and then to FCR Automotive Group, Inc. On September 20, 2004, the Company reincorporated in Delaware by merging into FCR Group, Inc., a Delaware Automotive corporation, which was organized on September 8, 2004. On July 26, 2005, the Company acquired Shinil Precision Co., Ltd., a Korean Company, as its operating business and on July 18, 2005, changed its name to Shinil Precision Machinery, Inc. to reflect its anticipated new business. Upon failure of certain terms and conditions of the acquisition agreement, the Company returned the shares of Shinil and recovered and cancelled the Company's shares issued in the acquisition. In 2012, the Company changed its domicile to Nevada.
The Company had been dormant since 1989, and consummated a reverse merger on November 12, 2007 with Leozone Inc., a South Korean company (“Leozone”), which is the maker of electrical transportation devices. The merger was an exchange of shares in Leo Motors, Inc. for shares in Leozone. As this was a reverse merger the accounting treatment of such is that of a combination of the two entities with the activity of Leozone, the surviving entity, going forward. The financial statements reflect the activity for all periods presented as if the merger had occurred January 1, 2007. Leozone has continued to operate as a separate subsidiary, Leo Motors Co. Ltd. of Korea (“Leo Korea”), since that time.
On February 11, 2010, the Company acquired 50% of Leo B&T Corp., a corporation incorporated in the Republic of Korea (“B&T”), from two shareholders of B&T in exchange for 7,000,000 shares of the Company’s common stock. Our ownership in B&T was reduced to 30% in 2011. Additionally, this investment was written down as impairment expense during 2011 and the remaining investment was exchanged in 2012 for a return of Leo Motors stock.
On November 10, 2012, the Company signed an agreement with PDI C&D/RDC SPRL Inc. ("PDI"), an affiliate of PDI Global LLC, a major architectural design company in the U.S., to supply an independent solar power system grafted with the Company’s E-Box power storage device for a housing project in the Democratic Republic of the Congo ("DRC"). The Company will have a 10% interest in the overall project. This project has incurred an impairment charge as details in these footnotes.
On July 1, 2014, the Company acquired all of the outstanding common stock of LGM Co. Ltd., a corporation incorporated in the Republic of Korea (“LGM”), from LGM’s shareholders, which represents 813,747 shares of LGM common stock, in exchange for 47,352,450 shares of the Company's common stock pursuant to a share exchange agreement entered into by and between LGM and the Company. Upon closing of the exchange agreement, LGM became a wholly-owned subsidiary of the Company.
On March 31, 2015, the Company acquired 50% interest in each of Leo Motors Factory, Inc. (“Leo Factory 1”) and Leo Motors Factory 2, Inc. (“Leo Factory 2”) which are auto repair shops that specialize in repairing hand-made luxury cars such as Ferrari, Lamborghini, Bentley, Porsche, and Rolls Royce. The Company also acquired 50% interest in Leo Trading Inc. (formerly Erum Motors, Inc.) (“Leo Trading”) specializing in the trading of luxury cars. These acquired entities will be presented on a consolidated basis as the parent company has significant control of the business through the Board of Directors which can decide decisions split on strictly on common share ownership percentages.
The Company acquired Leo AIC Co., Ltd. (“Leo AIC”)(formerly known as Lelcon) on June 3, 2016, which became a subsidiary of the Company. With the acquisition, the Company was engaged in connected car and artificial intelligence (AI) related businesses for a smart city. On March 8, 2017, the Company acquired 100% of a startup corporation owned by its director called Leo Members, Inc. (“Leo Members”). This new wholly owned subsidiary
then exchanged with the Company, shares in Leo Factory 1, Leo Factory 2, and Leo Trading in a common control transaction.
Certain information and disclosures normally included in the notes to financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission, although the Company believes the disclosure is adequate to make the information presented not misleading. The accompanying unaudited financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2016.
NOTE 2 - POLICIES
This summary of significant account policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and the notes are the representation of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to U.S. generally accepted accounting principles (“USGAAP”) and have been consistently applied in the preparation of the financial statements.
Basis of Presentation and Consolidation
These financial statements and related notes are expressed in US dollars. The Company’s fiscal year-end is December 31. The consolidated financial statements include the financial statements of Leo Korea, LGM, Leo Factory 1, Leo Factory 2, Leo Trading, Leo Members, and Leo AIC. The Company has significant control of all subsidiaries through direct as well as indirect stock ownership and voting board control from parent board members at the subsidiary level. All inter-company transactions and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable inventory and prepaid expenses, accounts payable and deferred revenues, the carrying amounts approximate fair value due to their short maturities.
Revenue Recognition
The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company.
The Company generates revenue from the delivery of goods and records revenues when the sales are completed, already collected or collectability is reasonably assured, there is no future obligation and there is remote chance of future claim or refund to the customers.
Revenue is recognized when risk of ownership and title pass to the buyer, generally upon the delivery of professional services. Pricing is fixed and determinable according to the Company’s published brochures and price lists.
Accounts Receivables
Accounts receivables of the Company are reviewed to determine if their carrying value has become impaired. The Company considers the assets to be impaired if the balances are greater than one-year old. Management regularly reviews accounts receivable and will establish an allowance for potentially uncollectible amounts when appropriate. When accounts are written off, they will be charged against the allowance.
Receivables are not collateralized and do not bear interest.
Cash Equivalents
For purposes of reporting cash flows, the Company considers all short-term investments with an original maturity of three months or less to be cash equivalent.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which is generally 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).
The Company will periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. We use an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.
Intangible and Long Lived Assets
The Company follows ASC 360-10, “Property, Plant, and Equipment,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Through September 30, 2017, the Company has impaired goodwill on three of its acquisitions reflected by their recurring losses for those entities.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, “Accounting for Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year; and, (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected to be taken may be recognized only if it is “more likely than not” that the position is sustainable upon examination, based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a current benefit has been recognized on a tax return for matters
that are considered contingent upon the outcome of an uncertain tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.
Loss per Share
Basic earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of both common and preferred stock outstanding for the period.
Inventory
Inventory consist mostly of items purchased as finished goods and used in the repair of automobiles and boats and are recorded at cost and is valued using the first in, first out method.
Stock-Based Compensation
SFAS No. 123, “Accounting for Stock-Based Compensation,” establishes and encourages the use of the fair value based method of accounting for stock-based compensation arrangements under which compensation cost is determined using the fair value of stock-based compensation determined as of the date of grant and is recognized over the periods in which the related services are rendered. For stock based compensation the Company recognizes an expense in accordance with SFAS No. 123 and values the equity securities based on the fair value of the security on the date of grant. Stock option awards are valued using the Black-Scholes option-pricing model.
Reclassifications
Certain reclassifications have been made to prior year balances to conform to the current year presentation.
Foreign Currency Translation And Comprehensive Income
The reporting currency of the Company is the US Dollar (US$). The functional currency of the parent company is the US$ and the functional currency of the Company’s operating subsidiaries is the Korean Won (“KRW”). The subsidiaries results of operations and cash flows are translated at average exchange rates during the year, assets and liabilities are translated at the unified exchange rate at the end of the year, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the functional currency financial statements into US$ are included in determining comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
Recent Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. The Company currently does not have any recent accounting pronouncements that they are studying and feel may be applicable.
NOTE 3 - DUE TO RELATED PARTY
The company is indebted to its officer for advances. There are various advances and repayments throughout the periods in small amounts. They are all short term in nature and provide working capital to the various subsidiaries. Repayment is on demand without interest. The balance was $519,951 at September 30, 2017 and $358,680 at December 31, 2016. There are no other related party transactions.
NOTE 4 - PAYMENTS RECEIVED IN ADVANCE
The Company during the periods received payments from potential customers, or deposits, on future orders. The Company’s policy is to record these payments as a liability until the product is completed and shipped to the customer at which the Company recognizes revenue. As of September 30, 2017 and December 31, 2016, the balance of payments received in advance was $300,287 and $386,624, respectively.
NOTE 5 - GOING CONCERN
As reported in the consolidated financial statements, the Company has accumulated deficits of $34,853,295 as of September 30, 2017 and its current liabilities exceeded its current assets. These negative trends have been consistent over the last few years except for asset sales.
These factors create uncertainty about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable and to create operations that contribute capital from normal operations. If the Company cannot obtain adequate capital it could be forced to cease operations.
In order to continue as a going concern, develop and generate revenues and achieve a profitable level of operations, the Company will need, among other things, additional capital resources. Management's plans to obtain such resources for the Company include (1) raising additional capital through sales of common stock, (2) converting promissory notes into common stock and (3) entering into acquisition agreements with profitable entities with significant operations. In addition, management is continually seeking to streamline its operations and expand the business through a variety of industries, including real estate and financial management.
However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company leases its office space in Ha-Nam City in Korea which expires on December 31, 2017. The minimum obligations under such commitments for the years ending December 31, 2017 through December 31, 2019 are listed on the table below.
For the Year Ending |
|
| Amount |
|
|
|
|
2017 |
| $ | 37,500 |
2018 |
|
| 0 |
2019 and beyond |
|
| 0 |
Total Commitment |
| $ | 37,500 |
(b) Loss Contingencies
The company currently has no loss contingencies.
NOTE 7 - INVENTORIES
Inventories consist of the following:
|
|
| Sept 30, 2017 |
|
| Dec 31, 2016 |
|
|
| US$ |
|
| US$ |
Raw material |
| $ | 62,934 |
| $ | 420,768 |
Work in process |
|
| 672,098 |
|
| 155,778 |
Finished goods |
|
| 261,533 |
|
| 511,752 |
|
| $ | 996,565 |
| $ | 1,088,298 |
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
| September 30, 2017 |
|
| Dec 31, 2016 |
|
|
|
|
|
|
|
Vehicles |
| $ | 159,835 |
| $ | 87,218 |
Tools |
|
| 231,266 |
|
| 71,818 |
Machinery |
|
| 51,643 |
|
| 71,818 |
Office |
|
| 217,805 |
|
| 179,791 |
Facility equipment |
|
| 252,444 |
|
| 202,168 |
Total property and equipment |
|
| 912,993 |
|
| 540,995 |
Accumulated depreciation |
|
| (541,561) |
|
| (411,838) |
Property and equipment, net |
| $ | 371,432 |
| $ | 129,157 |
Depreciation expense for the Nine months ended September 30, 2017 and 2016 amounted to $123,969 and $66,286, respectively.
NOTE 9 - SHORT TERM BORROWINGS AND NOTES PAYABLE
The Company continues to fund itself through borrowing and equity sales until sales return to historical levels.
At September 30, 2017 and December 31, 2016, the Company had short term borrowings of $271,082 and $268,824. The notes are short term working capital advances that have been advanced to their Korean subsidiary from various local parties. These advances are due on demand, interest free and unsecured.
As of September 30, 2017 and December 31, 2016, the major components of our notes and borrowings consisted of the following:
|
| Sept 30, 2017 |
|
| Dec 31, 2016 |
Bank loan six month note extended with 12 month term |
|
|
|
|
|
renewable periods with a variable interest rate currently at 3.77% |
|
|
|
|
|
interest only payable monthly and secured by the Company. | $ | 47,632 |
| $ | 47,258 |
|
|
|
|
|
|
Bank loan six month note extended with 12 month term |
|
|
|
|
|
renewable periods with a variable interest rate currently at 3.28% |
|
|
|
|
|
interest only payable monthly. |
| 87,333 |
|
| 69,319 |
|
|
|
|
|
|
Bank loan six month note extended with 12 month term |
|
|
|
|
|
renewable periods with a variable interest rate currently at 13.00% |
|
|
|
|
|
interest only payable monthly and secured by the Company. |
| 61,133 |
|
| 86,648 |
|
|
|
|
|
|
Bank loan six month note extended with 12 month term |
|
|
|
|
|
renewable periods with a variable interest rate currently at 3.77 |
|
|
|
|
|
interest only payable monthly. |
| 46,688 |
|
| 34,406 |
|
|
|
|
|
|
Bank loan six month note extended with 12 month term |
|
|
|
|
|
renewable periods with a variable interest rate currently at 10.34 |
|
|
|
|
|
interest only payable monthly. |
| 28,296 |
|
| 31,193 |
|
|
|
|
|
|
Total Liabilities |
| 271,082 |
|
| 268,824 |
|
|
|
|
|
|
Less current portion |
| 271,082 |
|
| 268,824 |
|
|
|
|
|
|
Long term debt | $ | 0 |
| $ | 0 |
NOTE 10 - INTANGIBLE ASSETS
The Company accounts for its long-lived assets in accordance with Accounting Standards Codification (“ASC”) Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. The Company increased goodwill as a result of its 2016 first quarter acquisition by $612,445 but also impaired the goodwill on its 2015 acquisitions. The company has impaired the remainder of its goodwill in the quarter ended September 30, 2017.
|
|
| September 30, 2017 |
|
| Dec 31, 2016 |
Patents |
| $ | 40,306 |
| $ | 88,226 |
Trademarks |
|
| 277 |
|
| 277 |
Goodwill |
|
| 3,717,931 |
|
| 3,717,931 |
Intangible assets |
|
| 3,758,514 |
|
| 3,806,434 |
Less impairments |
|
| (3,731,796) |
|
| (1,104,445) |
Intangible assets, net |
| $ | 26,718 |
| $ | 2,701,989 |
NOTE 11 - EQUITY
In the nine months ended September 30, 2017, the Company sold 2,000,000 shares of common stock for $200,000.
The Company issued 434,934 shares of common stock, with a fair market value of $66,103, for compensation.
The Company sold equity in one of its subsidiaries for approximately $1.1 million US dollars.
NOTE 12 – SUBSEQUENT EVENTS
On August 1, 2017, the Company acquired 15.66% of Leo Kartrena, Inc. (“Leo Kartrena”). The Company invested an aggregate of Two Hundred Sixty Million (260,000,000 KRW) South Korean Won (approximately $226,000 USD), or Seven Hundred (700 KRW) South Korean Won (approximately $0.61 USD per share), to Leo Kartrena in consideration for the issuance of Three Hundred Seventy One Thousand Four Hundred Twenty Eight (371,428) shares of Leo Kartrena’s common stock. Leo Kartrena is an electric Go Kart development company which will use the battery swappable electric Go Kart developed by LGM. As its Go Kart venues develop, Leo Kartrena will be a significant client of LGM and the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements in this Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "would," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. Readers should carefully review the risk factors and related notes included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on April 17, 2017, as amended on June 14, 2017.
The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Growth and percentage comparisons made herein generally refer to the three months ended September 30, 2017 compared with the three months ended September 30, 2016 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to "we, "us, "our," the "Company," and similar expressions refer to Leo Motors, Inc., and depending on the context, its subsidiaries.
SPECIAL NOTICE ABOUT GOING CONCERN AUDIT OPINION
OUR AUDITOR HAS ISSUED AN OPINION EXPRESSING DOUBT AS TO OUR ABILITY TO CONTINUE IN BUSINESS AS A GOING CONCERN. YOU SHOULD READ THIS QUARTERLY REPORT ON FORM 10-Q WITH THE “GOING CONCERN” ISSUES IN MIND.
This Management’s Discussion and Analysis should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q (the “Financial Statements”). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States (“GAAP”). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.
Overview COMPANY PLEASE UPDATE AS NECESSARY
Leo Motors, Inc. (the "Company") is a Nevada Corporation incorporated on September 8, 2004. The Company established a wholly-owned operating subsidiary in Korea named Leo Motors Co. Ltd. ("Leo Korea") on July 1, 2006. Through Leo Korea, the Company is engaged in the research and development ("R&D") of multiple products, prototypes, and conceptualizations based on proprietary, patented and patent pending electric power generation, drive train and storage technologies. Leo Korea operates through four unincorporated divisions: new product R&D, post R&D development such as product testing, production, and sales.
The Company's products include (i) E-Box electric energy storage system for solar and wind power generation devices; and (ii) Electric Vehicle ("EV") components that integrate electric batteries with electric motors such as EV Controllers that use a mini-computer to control torque drive.
The Company was previously actively engaged in the process of development and production of Electric Power Train Systems ("EPTS") encompassing electric scooters, electric sedans/SUVs/sports cars, and electric buses/trucks as well as several models of EV. Our EPTS can replace internal combustion engines ("ICEs"). Company began sales of EPTS to auto makers and agricultural machinery manufacturers.
The Company has developed eight EPTS of increasing power rating: 3kW, 5kW, 7.5kW, 15kW, 30kW, 60kW, 120kW, and 240kW systems. Each EPTS consists of a motor, a controller, and a battery power pack with a battery management system ("BMS").
The Company has successfully converted existing models of small cars (ICEs under 2,000cc), and also a 24 seat bus. The Company has begun marketing its 60kW power train kits (for compact passenger cars and small trucks) and its 120kW kits (for ICE passenger cars, buses, and trucks under 5,000cc). The Company has developed a 240kW kit (for up to 10,000cc buses and trucks) as well, and is attempting to locate a strategic partner to fund the testing and production.
The specific goals of the Company over the next twelve months include:
· focus on the capitalization of the Company; |
· focus on the sale of the E-Boats, connected EV’s, intelligent poles, and smart parking tower system and E-Box; |
· business development in China and in America by establishing a joint venture companies; and |
· continue with R&D of our EV's, E-Boats, connected car, products for smart cities and related products as capital permits. |
The E-Box can be used as an energy supplying device in an emergency situations or as an energy storage device for use by the military; municipal and industry; corporate; solar/wind power storage; electric coolers and heaters; yachts or small ships. The E-Box is offered in three power classes: 1kw, 3kw and 5kw. E-Boxes for 10kw and 550kw will be developed in the future. The E-Box is environmentally friendly with high energy density due to the use of lithium-polymer battery. The E-Box uses a multiple cell voltage balancing system via a BMS.
The Company is developing new battery exchange system using its patented cartridge battery exchange system which will solve the cost barriers of the electric vehicle to make them less expensive than their ICE counterparts and to help solve battery charging problems. With evolutionary batter exchange system, the Company's EV's can exchange battery within one minute using simple and low cost equipment. This technology can be best used in fleet managed vehicles such as city buses, taxis, and garbage trucks because it can be used any road sides. The Company is developing EV Ecosystem using connected car solution to provide the battery swap services for fleet operators such as rental cars, public companies, delivery companies, and post offices.
The Company acquired Leo AIC Co., Ltd. (“Leo AIC”) (formerly known as Lelcon) on June 3, 2016 and it became a subsidiary of the Company. With the acquisition, the Company was engaged in connected car and artificial intelligence (AI) related businesses for smart city. Leo AIC has developed tele-diagnosing and tele-operation system for cars and things such as smart street lights and intelligent parking tower system. Leo AIC has been selling these systems and products to several cities in China and in Korea. Solutions from Leo AIC will be provided to EV’s and E-Boats provided by the Company, thus, all vehicles are connected to the cloud server and AI, thus they provide organized battery swap services as well as better riding experiences.
The Company acquired Leo Members, Inc. (“Leo Members”) which integrates Leo Motors Factory, Inc. (“Leo Factory 1”) and Leo Motors Factory 2, Inc. (“Leo Factory 2”), and Leo Trading. Leo Members will start used luxury car trading business through affiliation with car repairing garages (car centers) in Korea. Leo Members is developing used car recommendation solution including car history tracking using AIC’s vehicle diagnosing manager, financing through fintech financing services provided by its affiliated financial company, and connected repairing services.
The Company acquired 15.66% of the total outstanding shares of Leo Kartrena, Inc. (“Leo Kartrena”) by investing 260 million Korea Won (approx. US& 226,000). Leo Kartrena is an electric Go Kart development company which will use the battery swappable electric Go Kart developed by LGM Co., Ltd. (“LGM”), a subsidiary of the Company,. As its Go Kart venues develop, Leo Kartrena will be a significant client of LGM and the Company.
LGM developed its proprietary Plug-in Hybrid Boat (PHEB) propulsion system. LGM's new 90 horsepower PHEB propulsion system consists of an electric propulsion system powered by a 67kW electric motor, controller, 24 kWh Lithium Ion battery power pack, and a diesel engine generator that charges between 3kWh >
the battery. It also developed an electric outboard regeneration system for sail boats. LGM's new regeneration system is powered by hydraulic power, generating electricity while the boat sails in the wind. LGM applied their regeneration system on a 33-foot sailing yacht, charging 3kW>
Our principal executive offices are located at ES Tower 7F, Teheranro 52 Gil 17, Gangnamgu, Seoul 06212 Republic of Korea and our telephone number is +82 70-4699-3585. Our web site address is www.leomotors.com. Information contained in or accessible through our website does not constitute part of this Quarterly Report on Form 10-Q.
Recent Business Developments
On April 19, 2017, LGM entered a contract with SOH, Inc. ("SOH") for sales of electric passenger boats. The total contract amount is approximately $6.3 million for nine public boats for tourists, including four 12 seaters, three 20 seaters, and two 50 seaters to SOH. The details of the order from SOH are subject to change when the manufacturing process begins.
On May 8, 2017, Leo AIC entered into a joint venture company agreement with Lan Zhou Xinqu Zhonghan Chanye Jingji Fazhan Gongsi Co., Ltd., a company established and existing under the laws of the People’s Republic of China (“LZC”), to establish a joint venture, or JV, in China, to develop, manufacture and sell street lamps and products for a “smart” city. Pursuant to the JV agreement, the JV will have a registered capital of RMB 100,000,000 (approximately $14.5 million), with LZC owning 51% and Leo AIC owning 49%.
On August 1, 2017, the Company acquired 15.66% of Leo Kartrena. The Company invested an aggregate of Two Hundred Sixty Million (260,000,000 KRW) South Korean Won (approximately $226,000 USD), or Seven Hundred (700 KRW) South Korean Won (approximately $0.61 USD per share), to Leo Kartrena in consideration for the issuance of Three Hundred Seventy One Thousand Four Hundred Twenty Eight (371,428) shares of Leo Kartrena’s common stock (the “Investment Shares”). Leo Kartrena is an electric Go Kart development company which will use the battery swappable electric Go Kart developed by LGM. As its Go Kart venues develop, Leo Kartrena will be a significant client of LGM and the Company.
On October 11, 2017, LGM, a subsidiary of the Company started marketing its proprietary Plug-in Hybrid Boat (PHEB) propulsion system. LGM's new 90 horsepower PHEB propulsion system consists of an electric propulsion system powered by a 67kW electric motor, controller, 24 kWh Lithium Ion battery power pack, and a diesel engine generator that charges between 3kWh >
Liquidity and Capital Resources
Our liquidity and capital resources are limited. Accordingly, our ability to initiate our plan of operations and continue as a going concern is currently dependent on our ability to either generate significant new revenues or raise external capital.
Results of Operations - For the Three and Nine Months Ended September 30, 2017
REVENUE. Revenues for the three months ended September 30, 2017 and 2016 were $988,582 and $792,037, respectively. Revenues for the nine months ended September 30, 2017 and 2016 were $1,821,525 and $2,344,199, respectively. The decrease is due to the decrease of the sales of Leo Factory 1, Leo Factory 2 and Leo Trading.
COST OF REVENUE. Cost of Revenues for the three months ended September 30, 2017 and 2016 were $783,186 and $503,484, respectively. Cost of Revenues for the nine months ended September 30, 2017 and 2016 were $1,574,605 and $1,484,572, respectively.
OPERATING EXPENSES. Operating expenses for the three months ended September 30, 2017 and 2016 were $1,076,492 and $1,759,520, respectively. Operating expenses for the nine months ended September 30, 2017 and 2016 were $4,160,535 and $3,676,871, respectively. The above expenses include depreciation and amortization amounts of
$78,547 and $20,864 for the three months ended September 30, 2017 and 2016, respectively, and $123,969 and $66,286 for the nine months ended September 30, 2017 and 2016, respectively.
OTHER INCOME (EXPENSE). Other income (expense) was $(2,013,997) and $(153,212) for the three months ending September 30, 2017 and 2016 respectively. Other income (expense) was $(1,907,170) and $41,151 for the three months ending September 30, 2017 and 2016 respectively. The major difference was the write off of goodwill in the third quarter of 2017 of $2,613,486. This category includes income and expense from non-operational sources and the effects of currency transaction gains or (losses). The reason for the fluctuations in the currency gains/losses is the change in valuation of the Korean Won.
NON-CONTROLLING INTEREST. The non-controlling interest portion of the net loss for the three months ended September 30, 2017 and 2016 was $(157,484) and $(126,853), respectively. The non-controlling interest portion of the net loss for the nine months ended September 30, 2017 and 2016 was $(744,960) and $(86,890), respectively.
COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) includes the Company’s net income (loss) plus the unrealized currency translation gain (loss) for the period. For the three months ended September 30, 2017 and 2016, the Company recorded comprehensive gain or (loss) of $(2,984,650) and $(1,830,133), respectively, which were made up of unrealized losses on currency translation. For the nine months ended September 30, 2017 and 2016, the Company recorded comprehensive gains or (losses) of $(5,854,974) and $(2,806,417), respectively, which were made up of unrealized losses on currency translation.
Liquidity and Capital Resources
As of September 30, 2017, the Company had a negative working capital of $(6,477,682), comprised of current assets of $2,714,862 and current liabilities of $9,192,545. This represents a decrease of $2,208,807 from the working capital (deficit) maintained by the Company of $(4,268,875) as of December 31, 2016.
Net cash provided by (used in) operations for the nine months ended September 30, 2017 was $698,326 compared with $(1,778,400) for the nine months ended September 30, 2016.
Net cash (used) in investing activities for the nine months ended September 30, 2017 and 2016 was $(1,320,951) and $(61,608), respectively.
Net cash provided by financing activities for the nine months ended September 30, 2017 and 2016 was $1,861,529 and $3,093,970, respectively.
Non-controlling Interest
The applicable portion of the earnings or loss attributable to non-controlling interests is offset in this section. In the nine months ended September 30, 2017 and 2016, the attributable portion to non-controlling interests were $(744,960) and $(86,890) respectively.
Off-Balance Sheet Arrangements
As of September 30, 2017, the Company did not have any off-balance sheet arrangements (as the phrase is defined by SEC rules applicable to this report) which have or are reasonably likely to have a material adverse effect on our financial condition, results of operations or liquidity.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.
Item 4.Controls and Procedures. Company to confirm accuracy with auditor
As of the end of the quarterly period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and our principal financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and our principal financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. There was no change in our internal controls or in other factors that could affect these controls during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our CEO and our CFO, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that material information required to be disclosed is made known to management and others, as appropriate, to allow timely decision regarding required disclosure and that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our management, with the participation of the CEO, evaluated the effectiveness of the Company’s internal control over financial reporting as of September 30, 2017. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Tread way Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management, with the participation of the CEO, concluded that, as of September 30, 2017, our internal control over financial reporting was ineffective and there are material weaknesses in our internal control over financial reporting.
A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses relate to the limited number of persons responsible for the recording and reporting of financial information, the lack of separation of financial reporting duties, and the limited size of our management team in general. We are in the process evaluating methods of improving our internal control over financial reporting, including the possible addition of financial reporting staff and the increased separation of financial reporting responsibility, and intend to implement such steps as are necessary and possible to correct these material weaknesses.
This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this quarterly report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth quarter of the year ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.
Item 1A. Risk Factors.
There have been no changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The following exhibits are filed as part of this quarterly report on Form 10-Q:
Exhibit No. |
| Description | ||
|
|
| ||
31.1 |
|
| ||
31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
| |
32.1 |
|
| ||
101.INS |
| XBRL Instance Document* |
| |
101.SCH |
| XBRL Taxonomy Extension Schema Document* |
| |
101.CAL |
| XBRL Taxonomy Calculation Linkbase Document* |
| |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document* |
| |
101.LAB |
| XBRL Taxonomy Label Linkbase Document* |
| |
101.PRE |
| XBRL Taxonomy Presentation Linkbase Document* |
| |
*Filed herewith.
**Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Leo Motors, Inc. |
| |
|
|
|
|
November 20, 2017 | By: | /s/ Shi Chul Kang |
|
|
| Shi Chul Kang |
|
|
| Co-Chief Executive Officer (Principal Executive Officer) |
|
|
|
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November 20, 2017 | By: | /s/ Jun Heng Park |
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| Jun Heng Park |
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| Co-Chief Executive Officer (Executive Officer) |
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November 20, 2017 | By: | /s/ Jeong Youl Choi |
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| Jeong Youl Choi |
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| Chief Financial Officer (Principal Financial and Accounting Officer) |
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