Leatt (LEAT) 10-Q 10 Nov 16 2016 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 07, 2016
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Trading Symbol	leatpk
Entity Registrant Name	Leatt Corp
Entity Central Index Key	1,456,189
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		5,362,992
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well Known Seasoned Issuer	No
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q3

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Current Assets
Cash and cash equivalents	$ 953,418	$ 1,054,750
Short-term investments	58,190	58,172
Accounts receivable	3,258,193	2,901,699
Inventory	3,984,453	4,241,140
Payments in advance	531,653	208,030
Prepaid expenses and other current assets	492,388	1,070,774
Total current assets	9,278,295	9,534,565
Property and equipment, net	1,144,179	1,313,325
Deferred tax asset	115,000	115,000
Other Assets
Other receivables	0	90,000
Deposits	24,854	16,493
Intangible assets	68,703	61,273
Total other assets	93,557	167,766
Total Assets	10,631,031	11,130,656
Current Liabilities
Accounts payable and accrued expenses	2,471,045	2,560,980
Income taxes payable	222,537	384,950
Short term loan, net of finance charges	38,636	658,639
Total current liabilities	2,732,218	3,604,569
Deferred tax liabilities	73,000	73,000
Commitments and contingencies	0	0
Stockholders' Equity
Preferred stock, $.001 par value, 1,120,000 shares authorized, 120,000 shares issued and outstanding	3,000	3,000
Common stock, $.001 par value, 28,000,000 shares authorized, 5,362,992 and 5,231,823 shares issued and outstanding	130,053	130,040
Additional paid - in capital	7,467,978	7,346,782
Accumulated other comprehensive loss	(599,295)	(710,032)
Retained earnings	824,077	683,297
Total stockholders' equity	7,825,813	7,453,087
Total Liabilities and Stockholders' Equity	$ 10,631,031	$ 11,130,656

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Preferred Stock, Par Value Per Share	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized	1,120,000	1,120,000
Preferred Stock, Shares Issued	120,000	120,000
Preferred Stock, Shares Outstanding	120,000	120,000
Common Stock, Par Value Per Share	$ 0.001	$ 0.001
Common Stock, Shares Authorized	28,000,000	28,000,000
Common Stock, Shares, Issued	5,362,992	5,231,823
Common Stock, Shares, Outstanding	5,362,992	5,231,823

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues	$ 4,631,557	$ 4,655,450	$ 13,152,964	$ 13,869,961
Cost of Revenues	2,183,072	2,201,924	6,206,741	6,407,946
Gross Profit	2,448,485	2,453,526	6,946,223	7,462,015
Product Royalty Income	16,224	75,268	69,755	147,469
Operating Expenses
Salaries and wages	548,829	501,156	1,754,043	1,649,801
Commissions and consulting expenses	144,480	108,020	444,472	445,396
Professional fees	110,700	126,407	363,018	587,572
Advertising and marketing	502,522	504,017	1,216,916	1,128,772
Office rent and expenses	66,593	60,775	193,745	183,826
Research and development costs	402,924	298,200	1,083,983	884,583
Bad debt expense (recovery)	16,216	59,314	(6,341)	78,775
General and administrative expenses	505,194	435,517	1,466,992	1,349,849
Depreciation	103,586	95,677	314,584	279,953
Total operating expenses	2,401,044	2,189,083	6,831,412	6,588,527
Income from Operations	63,665	339,711	184,566	1,020,957
Other Income (Expense)
Interest and other income (expense), net	(3,270)	18,840	65,539	26,821
Total other income (expense)	(3,270)	18,840	65,539	26,821
Income Before Income Taxes	60,395	358,551	250,105	1,047,778
Income Taxes	21,139	179,585	109,325	390,770
Net Income Available to Common Shareholders	$ 39,256	$ 178,966	$ 140,780	$ 657,008
Net Income per Common Share
Basic	$ 0.01	$ 0.03	$ 0.03	$ 0.13
Diluted	$ 0.01	$ 0.03	$ 0.03	$ 0.12
Weighted Average Number of Common Shares Outstanding
Basic	5,524,078	5,231,823	5,342,648	5,211,370
Diluted	5,662,540	5,542,844	5,481,109	5,522,391
Comprehensive Income
Net Income	$ 39,256	$ 178,966	$ 140,780	$ 657,008
Other comprehensive income, net of $0 and $0 deferred income taxes in 2016 and 2015
Foreign currency translation	78,818	(138,140)	110,737	(225,031)
Total Comprehensive Income	$ 118,074	$ 40,826	$ 251,517	$ 431,977

CONSOLIDATED STATEMENTS OF OPE5

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Parenthetical) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Deferred Income Taxes	$ 0	$ 0	$ 0	$ 0

CONSOLIDATED STATEMENT OF CHANG

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 2016 - USD ($)	Preferred Stock A [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Other Comprehensive Loss [Member]	Retained Earnings [Member]	Total
Beginning Balance at Dec. 31, 2015	$ 3,000	$ 130,040	$ 7,346,782	$ (710,032)	$ 683,297	$ 7,453,087
Beginning Balance (Shares) at Dec. 31, 2015	120,000	5,231,823
Compensation cost recognized in connection with stock options			155,742			155,742
Exercise of stock options		$ 39	38,961			39,000
Exercise of stock options (Shares)		39,000
Options exercised on a cashless basis (Shares)		118,620
Cancellation of shares		$ (26)	(73,507)			(73,533)
Cancellation of shares (Shares)		(26,451)
Net income					140,780	140,780
Foreign currency translation adjustment				110,737		110,737
Ending Balance at Sep. 30, 2016	$ 3,000	$ 130,053	$ 7,467,978	$ (599,295)	$ 824,077	$ 7,825,813
Ending Balance (Shares) at Sep. 30, 2016	120,000	5,362,992

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities
Net income	$ 140,780	$ 657,008
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	314,584	279,953
Deferred income taxes	0	(865)
Stock-based compensation	155,742	1,478
Other Income	(73,533)	0
Bad debts	(13,369)	44,666
Inventory reserve	26,385	205,994
Gain on sale of property and equipment	0	(23,664)
(Increase) decrease in:
Accounts receivable	(343,125)	486,462
Inventory	230,302	(448,362)
Payments in advance	(323,623)	35,270
Prepaid expenses and other current assets	578,386	554,959
Income tax refunds receivable	0	25,000
Other receivables	90,000	90,000
Deposits	(8,361)	1,101
Increase (decrease) in:
Accounts payable and accrued expenses	(89,935)	(1,121,165)
Income taxes payable	(162,413)	68,000
Net cash provided by operating activities	521,820	855,835
Cash flows from investing activities
Capital expenditures	(93,763)	(266,439)
Proceeds from sale of property and equipment	0	29,867
Increase in short-term investments, net	(18)	(6)
Net cash used in investing activities	(93,781)	(236,578)
Cash flows from financing activities
Proceeds from exercise of stock options	39,000	31,200
Repayments of short-term loan, net	(620,003)	(588,903)
Net cash used in financing activities	(581,003)	(557,703)
Effect of exchange rates on cash and cash equivalents	51,632	(139,070)
Net decrease in cash and cash equivalents	(101,332)	(77,516)
Cash and cash equivalents - beginning	1,054,750	724,707
Cash and cash equivalents - ending	953,418	647,191
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	10,467	9,301
Cash paid for income taxes	271,737	322,770
Other noncash investing and financing activities
Common stock issued for services	155,742	1,478
Cancellation of common shares as settlement of a legal matter	$ (73,533)	$ 0

Basis of Presentation

Basis of Presentation	9 Months Ended
	Sep. 30, 2016
Basis of Presentation [Text Block]	Note 1 - Basis of presentation The consolidated balance sheet as of December 31, 2015 was audited and appears in the Form 10-K filed by the Company with the Securities and Exchange Commission on March 18, 2016. The consolidated balance sheet as of September 30, 2016 and the consolidated statements of operations and comprehensive income for the three months and nine months ended September 30, 2016 and 2015, changes in stockholders’ equity for the nine months ended September 30, 2016, cash flows for the nine months ended September 30, 2016 and 2015, and the related information contained in these notes have been prepared by management without audit. In the opinion of management, all adjustments (which include only normal recurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles as of September 30, 2016 and for all periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. While management of the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2015 as filed with the Securities and Exchange Commission in the Company’s Form 10-K.

Inventory

Inventory	9 Months Ended
	Sep. 30, 2016
Inventory [Text Block]	Note 2 - Inventory Inventory is stated at the lower of cost or market. Cost is determined using the first-in first-out (FIFO) method. Inventory consists primarily of finished goods. Shipping and handling costs are included in the cost of inventory. In assessing the inventory value, the Company must make estimates and judgments regarding reserves required for product obsolescence, aging of inventory and other issues potentially affecting the saleable condition of products. In performing such evaluations, the Company utilizes historical experience as well as current market information. The reserve for obsolescence as of the nine months ended September 30, 2016 and 2015 was $186,899 and $367,587, respectively.

Intangible Assets

Intangible Assets	9 Months Ended
	Sep. 30, 2016
Intangible Assets [Text Block]	Note 3 - Intangible Assets The Company’s intangible assets consist of acquired patents with an indefinite useful life and are thus not amortized. Intangible assets are carried at cost less impairment. Amortization expense for the nine months ended September 30, 2016 was zero. There was no impairment of intangible assets at September 30, 2016.

Short-term Loan

Short-term Loan	9 Months Ended
	Sep. 30, 2016
Short-term Loan [Text Block]	Note 4 - Short-term Loan The Company carries two product liability insurance policies; one with a U.S. insurance carrier and a second with a South African insurance carrier. The Company finances payment of its short-term insurance premiums over the period of coverage, which is generally twelve months. The U.S. short-term loan is payable in monthly installments of $71,952 over an 11 -month period at an APR of 2.897% and the South African short-term loan is payable in monthly installments of $1,708 over a 10 -month period at a flat interest rate of 3.90% . The Company repaid the U.S. short-term loan in full on September 1, 2016. The Company also carries directors and officers’ liability insurance. The Company finances payment of its short-term insurance premiums over the period of coverage, which is generally twelve months. The short-term loan is payable in eleven payments of $5,375 at a 3.397% annual interest rate.

Income Taxes

Income Taxes	9 Months Ended
	Sep. 30, 2016
Income Taxes [Text Block]	Note 5- Income Taxes The Company uses the asset and liability approach to account for income taxes. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The provision for income taxes included taxes currently payable, if any, plus the net change during the period in deferred tax assets and liabilities recorded by the Company. The Company applies the provisions of FASB ASC Topic 740-10, Accounting for Uncertainty in Income Taxes (“Standard”), which provides that the tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if the position is more likely than not of being sustained upon an examination by tax authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, the standard provides guidance on derecognition, classification, interest and penalties; accounting in interim periods, disclosure and transition, and any amounts when incurred would be recorded under these provisions. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of September 30, 2016, the Company has no unrecognized tax benefits.

Net Income Per Share of Common

Net Income Per Share of Common Stock	9 Months Ended
	Sep. 30, 2016
Net Income Per Share of Common Stock [Text Block]	Note 6 - Net Income Per Share of Common Stock Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted–average number of common stock shares and dilutive potential common shares outstanding during the period. For the nine months ended September 30, 2016, the Company had 473,000 potential common shares, consisting of 120,000 preferred shares and options to purchase 353,000 shares, outstanding.

Common Stock

Common Stock	9 Months Ended
	Sep. 30, 2016
Common Stock [Text Block]	Note 7 – Common Stock During the nine months ended September 30, 2016, 323,000 stock options were granted at an exercise price of $2.60 per share, exercisable over a 5 -year period. The fair value of the stock options granted was estimated at the date of grant using the Black Sholes option-pricing model. Based on the list of assumptions presented below, the fair value of the options granted during the nine months ended September 30, 2016, was $1.80. Expected term in years 5 years Risk-free interest rate 2.20% Expected volatility 0.88% Expected dividend yield 0.00% The expected volatility was determined with reference to the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that the options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant. Stock-based compensation expense related to vested stock options granted during the nine months ended September, 2016 was $154,440. As of September 30, 2016, there was $426,960 of unrecognized compensation costs related to unvested stock options, which is expected to be recognized over a 3 -year vesting period. In addition, on April 7, 2016, the Company issued 26,220 shares of common stock to employees who exercised employee stock options in a cashless exercise; and on March 29, 2016 an employee exercised stock options for the Company to issue 39,000 shares for $39,000. On May 24, 2016, the Company also cancelled and returned 26,451 shares of common stock, granted to a former employee, to authorized and unissued status in settlement of a legal matter. The fair value of the shares as of the date of cancellation was $73,533 and is included in other income for the nine months ended September 30, 2016. On September 1, 2016, the Company issued 92,400 shares of common stock to employees who exercised employee stock options in a cashless exercise.

Recent Accounting Pronouncement

Recent Accounting Pronouncements	9 Months Ended
	Sep. 30, 2016
Recent Accounting Pronouncements [Text Block]	Note 8 – Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09, as amended, outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date". The amendments in this update defers the effective date of Update 2014-09 for all entities by one year. The ASU, as amended, is effective for the first interim period within an annual period beginning after December 15, 2017, and early adoption is not permitted. The Company is evaluating the provisions of this update and has not determined the impact that its adoption will have on the Company’s financial position or results of operations. In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which applies to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost or net realizable value test. The ASU is effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material effect on the consolidated financial statements. In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes." This ASU requires that deferred tax assets and liabilities be classified as non-current on the balance sheet rather than being separated into current and non-current. This ASU is effective for annual and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The Company elected to retrospectively adopt this accounting standard in the beginning of the first quarter of fiscal 2016 and as a result, prior periods in the consolidated financial statements were adjusted. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU is a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases. The core principle of this ASU will require lessees to present the assets and liabilities that arise from leases on their balance sheets. The ASU is effective for public companies for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the new standard to determine the impact on the Company’s consolidated financial statements. In March 2016, the FASB issued Accounting Standards Update No 2016-09 “ Improvements to Employee Share-Based Payment Accounting In August 2016, the FASB issued Accounting Standards Update No. 2016-15, “ Statement of Cash Flows” In October 2016, the FASB issued Accounting Standards Update No. 2016-16, “ Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory In October 2016, the FASB issued Accounting Standards Update No. 2016-17, “ Consolidation” The Company does not believe there are any other recent accounting pronouncements that would have a material impact on its financial position or results of operations.

Litigation

Litigation	9 Months Ended
	Sep. 30, 2016
Litigation [Text Block]	Note 9 - Litigation In the ordinary course of business, the Company is involved in various legal proceedings involving product liability and personal injury and intellectual property litigation. The Company is insured against loss for certain of these matters. The Company will record contingent liabilities resulting from asserted and unasserted claims against it when it is probable that the liability has been incurred and the amount of the loss is reasonably estimable. The Company will disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. While the outcome of currently pending litigation is not yet determinable, the ultimate exposure with respect to these matters cannot be ascertained. However, based on the information currently available to the Company, the Company does not expect that any liabilities or costs that might be incurred to resolve these matters will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.

Subsequent Events

Subsequent Events	9 Months Ended
	Sep. 30, 2016
Subsequent Events [Text Block]	Note 10 – Subsequent Events The company has evaluated all subsequent events through the date the financial statements were released. The Company entered into a Premium Finance Agreement with AFCO Acceptance Corporation “AFCO,” dated October 13, 2016, to finance its U.S. short-term insurance over the period of the coverage. The Company is obligated to pay AFCO an aggregate sum of $637,260 in eleven payments of $58,921, at an annual interest rate of 3.397%, commencing on November 1, 2016 and ending on September 1, 2017. Any late payment during the term of the agreement will be assessed a late penalty of 5% of the payment amount due, and in the event of default AFCO has the right to accelerate the payment due under the agreement.

Common Stock (Tables)

Common Stock (Tables)	9 Months Ended
	Sep. 30, 2016
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]	Expected term in years 5 years Risk-free interest rate 2.20% Expected volatility 0.88% Expected dividend yield 0.00%

Inventory (Narrative) (Details)

Inventory (Narrative) (Details)	9 Months Ended
	Sep. 30, 2016USD ($)
Inventory 1	$ 186,899
Inventory 2	$ 367,587

Short-term Loan (Narrative) (De

Short-term Loan (Narrative) (Details)	9 Months Ended
	Sep. 30, 2016USD ($)
Short-term Loan 1	$ 71,952
Short-term Loan 2	11
Short-term Loan 3	2.897%
Short-term Loan 4	$ 1,708
Short-term Loan 5	10
Short-term Loan 6	3.90%
Short-term Loan 7	$ 5,375
Short-term Loan 8	3.397%

Income Taxes (Narrative) (Detai

Income Taxes (Narrative) (Details)	9 Months Ended
	Sep. 30, 2016
Income Taxes 1	50.00%

Net Income Per Share of Commo22

Net Income Per Share of Common Stock (Narrative) (Details)	9 Months Ended
	Sep. 30, 2016shares
Net Income Per Share Of Common Stock 1	473,000
Net Income Per Share Of Common Stock 2	120,000
Net Income Per Share Of Common Stock 3	353,000

Common Stock (Narrative) (Detai

Common Stock (Narrative) (Details)	9 Months Ended
	Sep. 30, 2016USD ($)$ / sharesshares
Common Stock 1 | shares	323,000
Common Stock 2 | $ / shares	$ 2.60
Common Stock 3	5
Common Stock 4 | $	$ 1.80
Common Stock 5 | $	154,440
Common Stock 6 | $	$ 426,960
Common Stock 7	3
Common Stock 8 | shares	26,220
Common Stock 9 | shares	39,000
Common Stock 10 | $	$ 39,000
Common Stock 11 | shares	26,451
Common Stock 12 | $	$ 73,533
Common Stock 13 | shares	92,400

Subsequent Events (Narrative) (

Subsequent Events (Narrative) (Details)	9 Months Ended
	Sep. 30, 2016USD ($)
Subsequent Events 1	$ 637,260
Subsequent Events 2	$ 58,921
Subsequent Events 3	3.397%
Subsequent Events 4	5.00%

Schedule of Share-based Payment

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions (Details)	9 Months Ended
	Sep. 30, 2016yr
Common Stock Schedule Of Share-based Payment Award, Stock Options, Valuation Assumptions 1	5
Common Stock Schedule Of Share-based Payment Award, Stock Options, Valuation Assumptions 2	2.20%
Common Stock Schedule Of Share-based Payment Award, Stock Options, Valuation Assumptions 3	0.88%
Common Stock Schedule Of Share-based Payment Award, Stock Options, Valuation Assumptions 4	0.00%