UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
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Commission file number 000-53525
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LEO MOTORS, INC.
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Zero-Emmission Vehicle
Leo Motors, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 95-3909667
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(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
291-1, Hasangok-dong, Hanam City, Gyeonggi-do, Republic of Korea 465-250
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code +82 31 796 8805
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Copy to:
Cutler Law Group
3206 W. Wimbledon Dr.
Augusta, GA 30909
Fax: 800-836-0714
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($0.001 par value)
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(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ] Yes [x] No
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 [x] No
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. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ( 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "accelerated filer, large accelerated filer and smaller reporting
company" as defined in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). [ ] Yes [x] No
The aggregate market value of the common equity held by non-affiliates of the
registrant as of June 30, 2008 (the last business day of the registrant's most
recently completed second fiscal quarter) was $879,362.
The number of shares of the registrant's common stock outstanding as of March
23, 2009 was 35,946,449 shares.
LEO MOTORS, INC.
TABLE OF CONTENTS
PART I
Item 1. Business..........................................................4
Item 1A. Risk Factors.....................................................21
Item 1B. Unresolved Staff Comments........................................21
Item 2. Properties.......................................................21
Item 3. Legal Proceedings................................................21
Item 4. Submission of Matters to a Vote of Security Holders..............22
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities................22
Item 6. Selected Financial Data..........................................23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......26
Item 8. Financial Statements and Supplementary Data......................26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................37
Item 9A. Controls and Procedures..........................................37
Item 9B. Other Information................................................38
PART III
Item 10. Directors and Executive Officers of the Registrant...............38
Item 11. Executive Compensation...........................................40
Item 12. Security Ownership of Certain Beneficial Owners and Management...45
Item 13. Certain Relationships and Related Transactions...................46
Item 14. Principal Accounting Fees and Services...........................46
PART IV
Item 15. Exhibits and Financial Statement Schedules.......................47
Signatures....................................................................48
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PART I
ITEM 1. BUSINESS
A. BUSINESS DEVELOPMENT
There have been no changes to our business development during the year ended
December 31, 2008.
B. FINANCIAL INFORMATION ABOUT SEGMENTS
As defined by generally accepted accounting principles ("GAAP"), we do not have
any segments separate and apart from our business as a whole. Accordingly,
there are no measures of revenue from external customers, profit and loss, or
total assets aside from what is reported in the Financial Statements attached to
this Form 10-K.
C. BUSINESS OF THE COMPANY
OVERVIEW
Leo Motors, Inc., a Delaware Company (the "Company"), through its operating
subsidiary Leo Motors, Co. Ltd., a Korean Company ("Leozone"), is in the
business of developing and marketing Electric Vehicles ("EVs") and EV
components. Our current operations consist of developing the designs and
prototypes of our EV models, testing, establishing relationships with potential
customers, small scale sales of our EVs, and developing our business plan. Our
ultimate goal is to begin full scale manufacture of our designs, enter the
Global EV market and establish ourselves as a reputable provider of EVs and EV
components.
Our overarching strategy is to gain an initial foothold in the EV market as a
niche supplier, build our reputation as a technology leader and a socially
responsible company, and develop our catalog of products and technology while
the market for EV develops. We believe that if we can properly develop our
brand, reputation, and product capability, then when the improving price and
quality of EVs collides with the increasing demand, we will be able to reap the
rewards.
IMPLEMENTATION OF OUR BUSINESS PLAN
The following is a discussion of our overall business strategy, including our
plan to gain an initial foothold in the EV market, potential avenues for future
growth, and an overview of the various steps we plan to take and their estimated
costs.
Initial Strategy
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Initially, our strategy is to gain a foothold in the market by focusing on
custom orders by fleets and sales of our EV components to other EV and Plug-in
Hybrid EV ("PHEV") makers.
A major source of our initial operations will be to supply customized EVs to
fleets such as logistics operators, government offices, and bigger retail
companies-anyone who operates and manages a significant number vehicles from one
location. We can develop vehicles such as delivery vehicles, taxis, police and
government office cars, military vehicles, resort vehicles, and driving school
cars. We have already negotiated two deals to this effect, one with the
government of Puerto Princessa, Phillipines to supply 2,500 e-Taxis in Puerto
Princessa, and one with the Tourism Police of Thailand to supply them 600
Reverse Tricycles. To date the Company has made no further fleet sales.
Potential revenues pursuant
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to the terms of the deal are expected to be approximately $15 million from the
e-Taxis, and $4.8 for the Reverse Tricycle Scooters.
These organizations achieve much greater value than an end consumer because they
can centralize many of the costs, and better organize the management of the
devices, including charging. Plus, these highly public organizations get value
from being seen as environmentally friendly. In addition, since the supply of
these fleets is on a per-order basis, we can significantly reduce inventory
costs and the risk of overproduction.
Along with being a fleet EV supplier, we intend to manufacture and market EV
components. We have developed EV components, as more fully discussed below,
that we believe represent advances over existing component technology. We
intend to diversify our business and increase the number of future revenue
producing products by marketing our components to other EV and PHEV makers. As
more fully discussed below in Leo Motors Technology, we believe our components
can improve the power, efficiency and costs of EVs.
In addition, it is expected that major car manufacturers will enter the EV
market within the next two to three years. These manufacturers will need to
purchase the best available components in order to be competitive, and we
believe ours will be the best on the market.
Future Expansion Potential
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As our branding, our products and the EV market as a whole develops,
opportunities to expand into other areas of the EV market will open up for us.
One potential avenue is the mass production and marketing of consumer EVs, which
would be an extremely high-risk, high-reward venture. On the opposite extreme,
we could attempt to develop the Leo Motors brand as a niche leader in EV
components.
With the improving technology of EVs, several other niches may become possible.
We have already developed design concepts for electric boats, scooters and three
wheeled vehicles. Other options we may explore include lightweight aircraft,
supercars, utility vehicles, and smart low speed vehicles for the disabled. Our
management will determine which projects present the best opportunity for
expansion of the Company as the Company and the market develops.
In addition to focusing or broadening the scope of our products, we intend to
expand our business by entering new potential markets. One of our specific
goals is to enter the U.S. market by the end of 2009. We intend to establish an
office in Los Angeles, CA to run our U.S. operations. In addition, we will
consider expanding into Europe, Australia, and throughout Asia, as well as other
possible locations.
Steps toward Implementation
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The two aspects of our business plan are the development and sale of our EVs,
and the development and sales of our EV components.
We have already completed our first step in the implementation of our EV
business plan: initial product design. Although we intend to continue to design
and develop new EV models, it was critical to develop our initial cache of
designs in order to progress towards generating a recurring revenue stream.
Our next step is the development of working prototypes of our EV models, which
is also currently underway. As discussed in more detail in "Our Electric
Vehicle Designs" below, we have completed working prototypes of some of our
current designs, and are working towards others, in particular the E-Princessa
taxi. We anticipate that completion of the prototypes we are currently working
on will cost
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approximately $1,000,000 before we have fully implemented our business. After
the development of prototypes, we must pilot test the models, which we
anticipate will cost approximately $300,000 to test our current prototypes and
the prototypes on which we are currently working.
At the same time as the development of our EVs, we will be working toward the
development of our EV component technology. We anticipate it will cost
approximately $2,000,000 in further development before our components are ready
for production.
The next step is to develop production capabilities of both our EVs and EV
components. We intend to initially either outsource production or enter into
joint ventures for the production of our electric vehicles. Accordingly, we do
not expect the development of production capabilities will represent a
significant cost. Once we have entered into agreements for the production of
our EVs and components, we can begin full scale production and build our
inventory. We anticipate these steps will cost approximately $600,000, $500,000
of which is attributable to the development of production capability, and
$100,000 of which represents costs of developing inventory.
One crucial step that we have begun is the marketing and sales of our product,
which can occur at many steps in the development process. Once we have designs
we can market them to potential fleet customers. For example, we have already
entered into two joint ventures to develop EVs in the Philippines and Thailand.
We have also received interest from Hyundai Rotem, which is in the Korean
defense industry, for the potential development of our tank design, the F.A.V.
We also envision the ability to market our EVs to customers desiring custom
designs, whereby we would not have to have a design before seeking such
customers. However, we believe we may more successful in our marketing efforts
later in the development process, such as once we have a working prototype, have
production capability, or have an inventory of production models available to
sell. Our marketing efforts will continue throughout our implementation
process; we anticipate marketing will cost us approximately $200,000 before we
have fully implemented our business plan.
The steps toward implementing our business plan can be summarized by the
following table:
STEP ANTICIPATED COST ANTICIPATED TIMELINE
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Initial Design N/A Completed
Initial Prototypes $ 1,000,000 In process
EV Testing $ 300,000 May 2009
Component Development $ 2,000,000 June 2010
Production Capability $ 500,000 July 2009
Production of Inventory $ 100,000 September 2009
Marketing & Sales $ 200,000 April 2009
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TOTAL $ 4,100,000
Accordingly we will require a minimum of about $4,100,000 in additional
financing to implement our initial business plan; however we are seeking
approximately $10,000,000 in financing in order to fully implement our long term
plans, which may include the development of additional designs and exploring the
possibility of developing our own manufacturing capabilities. Our fundraising
efforts to date include attending road shows in December 2008 in New York and
San Francisco, and beginning preliminary discussions with investment banks. We
have received proposals from four such banks for financial and business
development services. Once we have entered into an agreement with one
institution, we will move forward on our financing efforts with their advice and
assistance.
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OUR CURRENT SALES ARRANGEMENTS
We have in place three agreements for the sales of our products and our
services. We have entered into an agreement with the government of Puerto
Princessa, Phillipines to supply e-Taxis in Puerto Princessa, and signed a
memorandum of understanding ("MOU") with GEM Thailand to develop, manufacture
and supply Reverse Tricycle Scooters. These agreements are laid out in greater
detail in the discussion of the e-Taxi and the Reverse Tricycle scooter below.
In addition, effective November 22, 2006, we entered into an agreement with
CUSCO Group of Seoul, Korea, for the development and design of the traffic and
transportation means (mobile vehicles, monorails, etc.) to be available
internally and externally in the theme park complex for the users of MGM Studio
City. MSC Korea, a subsidiary of CUSCO Group, has been authorized by MGM Film
Co. of USA to build MGM Studio City in Inchon, Korea. Under the agreement, our
services include research and development, economic feasibility of the moving
path and the operation system, technical feasibility study, and development and
testing of the transportation means selected. Total amount to be paid to us
under the contract is 1,500,000,000 Korean Won (about $990,000 at the current
exchange rate).
LEO MOTORS TECHNOLOGY
Multi Copper Plate Motor
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[GRAPHIC OMITTED]
EVs use electric motors as power trains. These motors are sometimes used in
harsh environments such as in wet conditions and on rough or dusty roads, and
must also perform well in extremely cold or warm weather.
Instead of using existing electric motors which may or may not have been
specifically designed to withstand these conditions, we developed an
EV-specialized motor named Multi Copper Plate ("MPC") motor. Our MCP Motor has
multiple copper plates and bars instead of coils and/or a permanent magnet. In
addition, the MCP Motor has the capability of electricity regeneration: using
the wheels, it can regenerate some of its expended electricity.
We are in the process of applying for a patent for our MCP Motor. The expected
cost of completing the development and beginning the mass production of 30 Kw, 7
Kw, and 5 Kw MCP motors is $1,000,000. We can develop the MCP Motor by January
of 2010, and start production from March 2010, if we secure the development
funds by May 2009. The development is in the engineering design stage now.
Multi Motor System
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We believe we have overcome one of the primary barriers to cost-efficient larger
and faster vehicles. Larger or faster vehicles require bigger, higher powered
motors and higher voltage batteries. For EVs, an increase in power has
traditionally meant an exponentially disproportionate increase in cost; e.g.
while a 15 Kw Multilayer BLDC motor costs approximately $2,000 on the open
market, a 60 Kw motor costs around $20,000. Our Multi Motor System ("MMS") uses
four 15 Kw motors instead of one 60 Kw motor. Costing around $8,000, it performs
at less than half the cost, and we believe it may have other benefits as well.
One benefit multiple motors may have is that it distributes the power among four
motors, which is a
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potentially more efficient method of generating wheel power. Another is the
energy saving potential of being able to operate anywhere from one low powered
motor to all four, depending on the driving mode. After accelerating to top
speed using all four motors of the MMS, the EV can switch off all but one small
motor to expend the minimal amount of energy needed to maintain cruising speeds.
Also, our system results in changing the high voltage system of larger and
faster EVs to a low voltage system, 360V to 72V.
[GRAPHIC OMITTED]
Finally, the MMS may increase EV safety by reducing the risks involved with a
motor breakdown. Much like a multiple engine jetliner, when something goes wrong
with one of the motors, the other three are able to keep working and get the
driver to safety. We also plan to develop a 60 Kw MMS by using two 30 Kw motors,
once we receive an order to produce the power train for a mini bus.
Multi Channel Battery Management System
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We have developed our own state of the art Battery Management System ("BMS"). A
BMS controls the flow of electricity charging and discharging the battery peck,
keeps the battery temperature stable, and maintains the battery cell balance.
The uncontrolled flow of electricity would destroy high priced Lithium Polymer
battery cells, but a BMS constantly maintains the battery's efficiency and
safety.
[GRAPHIC OMITTED]
We have designed our Multi Channel BMS to fully integrate with the driving
experience. Information from the battery is incorporated into the on-board
computer, so that the driver can check the full detail of the battery's status
and more effectively manage the battery. In addition, since we are developing
our BMS ourselves we can incorporate this state of the art component into our
vehicles at cost, meaning a lower end-user price.
We have already finished the development of BMS for 48, 53, 72, and 300 Volts.
We have preliminarily agreed to outsource the mass production to Nano GP. Once
the definitive agreement is signed, the mass production can be started anytime
on an order basis.
Refeulable Zinc Air-Fueled CellPower Pack
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We have recently developed, completed initial testing of, and applied for the
Refuelable Zinc Air-Fueled Cell ("ZAFC") power pack. Previously, we reported
that we were going to make rechargeable ZAFC power pack with the company who
invented ZAFC battery. We found that our development with a refuelable type
would be more efficient as a power pack for EVs as it can be used as the
generator for the zero emission Plug-in Hybrid Electric Vehicle (PHEV). The
Refuelable ZAFC power pack can generate electricity as it oxidizes tiny zinc
balls. We developed the automatic fueling devices and sludge collection filters.
The expected cost of completing the production of working prototype, pilot test
model, and mass production ready model is $1,000,000. Once funded we can finish
the mass production model by 2010.
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Design Engineering
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We provide the design and engineering service of the complete vehicle package, a
concept we call "Package Design." Factors such as road conditions, power
requirement, weight, size, climate, usage, and others all affect the design and
styling of a finished vehicle. We use a digitized vehicle design process to
optimize the drive mode and safety of our vehicles.
Using this process, we have developed several EV designs into working
prototypes. Our prototypes are physically working vehicles built for pilot
testing. They were produced in our workshop through creation of a new electric
power train, die casting of the chassis, and conversion of existing combustion
engine car frames.
Our digitized design process also allows us to project information that
generally is only available after years of expensive testing. For instance, we
can provide vehicle life cycle services in order to properly compare the costs
of EVs and the combustion engine counterparts at many levels. Also, we can
conduct computer simulated crash testing to identify problems before we engage
in the expensive real crash testing with dummies.
Original Leo Motors Designs
The following are examples of original concepts developed by our team using our
digitized design process:
[GRAPHIC OMITTED]
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Facelift Engineering
The following are examples of Leo Motors designs that have been reengineered
from existing vehicles, using our digitized design process:
[GRAPHIC OMITTED]
OUR ELECTRIC VEHICLE DESIGNS
We have already developed several EV designs, some of which have working
prototypes and have completed initial pilot testing. We anticipate that we will
have manufacturing models ready as early as October 2009. Others are in the
design phase and have no prototypes built to date. We have not begun commercial
production of any of our designs to date and, other than our joint ventures for
manufacturing the e-Taxi and the Reverse Tricycle Scooter, we currently have not
entered into any agreement for the manufacture of these designs.
S-65 Sport Utility Vehicle
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[GRAPHIC OMITTED]
The S-65 Sport Utility Vehicle was developed using the body of Toyota's Rav 4 as
a regular speed E-SUV. We have finished the engineering design for making the
prototype of S65. The prototype was scheduled to be completed by mid- April
2009. The S65 will be available only on an order basis. When taking the order,
we must receive 50% of the total order amount because we also need to pay 50% of
the costs for purchasing the parts, components, and labor. Our parts costs not
including the engine are approximately $10,000.
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Dimensions Overall Length 3850 mm/12.6 ft
Overall Width 1785 mm/5.85 ft
Overall Height 1665 mm/5.46 ft
Wheelbase 2280 mm/7.48 ft
Tread 1480 mm/4.85 ft
Road Clearance 250 mm/.82 in
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Vehicle Weight 1200 kg/2645.5
Riding Capacity 2 seater/4 seater
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Speed Max. Speed 184 kmh/68 mph
Economic Speed 60 kmh/37.2 mph
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Gradability 16
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Suspension Front shock absorber
Rear shock absorber
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Brakes Front disk
Rear disk
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Tire Front 235/60 R13
Rear 235/60 R13
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Transmission Semi auto
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Power Motor Type AC
Rated Power 30kw/40hp
Max. Power 70kw/100hp
Battery Type Lithium Polymer
Battery Capacity 172V/200A
Charger 110V/100Ah
Controller AC
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Leo SGK Passenger and Utility Vehicles
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[GRAPHIC OMITTED]
The SGK is a compact two seat vehicle originally designed by LEOM for short
range transportation or utility work. The SGK can be customized into several
types, and we plan to initially develop the SGK into a regular speed E-passenger
vehicle and both a regular speed and low speed E-utility vehicle. Once the
proper EV infrastructure is in place, we intend to make the passenger SGK
available for mass distribution through such channels as electric shops and
outlets and department stores.
The utility SGK will be developed as a delivery vehicle, farming utility truck,
and service fleet vehicle. We will be able to produce a regular speed SGK using
a LIPO battery, and a low speed SGK with a deep cycle battery.
SGK will be marketed on an order basis like the S65. We hope to have each of our
SGK models ready for manufacturing by October, 2009, when favorable new EV laws
in Korea are expected.
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Dimensions Overall Length 3300mm/10.82ft
Overall Width 1540mm/5.05ft
Overall Height 1700mm/5.57ft
Wheelbase 2350mm/7.70ft
Tread 1347mm/4.41ft
Road Clearance 200mm/7.87in
Vehicle Weight 700kg/1543lb
Riding Capacity 4 seater
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Speed Max. Speed 130 kmh/80mph
Economic Speed 60kmh/37.2mph
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Drive Distance 400km/248mi
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Suspension Front shock
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Rear shock
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Brakes Front disk
Rear disk
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Tire Front 195/60 R14
Rear 195/60 R14
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Transmission auto
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Power Motor Type PMDC
Rated Power 25kw/32.5hp
Max. Power 50kw/65hp
Battery Type Lithium Polymer
Battery Capacity 72V/150A
Charger 72V/50Ah
Controller PMDC
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V1 Tourism Vehicle
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The V1 is Resort/Tourism vehicle originally designed by LEOM. Based on the
concept behind existing resort and tourism vehicles, the V1 was designed for
transporting passengers around resorts and other tourist destinations. We have
agreed to a Memorandum of Understanding ("MOU") with Bolwell Co., Ltd., one of
the largest resort marketers in Australia to distribute the V1 or other EVs in
Australia. The Australian resort vehicle market is approximately 20,000
vehicles per year.
Rollout of the V1 will begin once we receive government approval and develop the
production capabilities. We have produced 3 V1 prototypes in January, 2009 for
pilot testing, and have yet to determine our targeted roll out date or
approximate cost of production.
[GRAPHIC OMITTED]
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Dimensions Overall Length 4325mm/14ft
Overall Width 1550mm/5ft
Overall Height 2030mm/66.66ft
Wheelbase 3165mm/10.38ft
Tread 1480mm/4.85ft
Road Clearance 250mm/9in
Vehicle Weight 1300kg/1.43ton
Riding Capacity 11 seater
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Speed Max. Speed 55kmh/34mph
Economic Speed 30kmh/18mph
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Gradiblility 10
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Suspension Front shock
Rear shock
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Brakes Front disk
Rear disk
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Tire Front 165/65 R13
Rear 165/65 R13
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Transmission auto
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Power Motor Type DC
Rated Power 9kw/12hp
Max. Power 15kw/20hp
Battery Type deep cycle
Battery Capacity 72V/250A
Charger 72V/50Ah
Controller SEPX
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Delivery Motor Cycle
- ----------------------
We have reported that we have developed two models of electric scooters, the S 3
and S 5. Both models are conversions of scooters manufactured by Jonway in
China. After the pilot test of these models, we found that in-wheel motors of
these scooters should not be used, and we gave up to start producing these
scooters. In-wheel motors are motors spinning inside of the wheels so that the
power is directly transmitted from motor to wheels, reducing the energy loss.
But we found that magnets attached inside of these motors are easily breakable
when the wheels run over speed bumps with speed.
In order to overcome that problem, we developed a motorcycle which uses a
central motor and chain or belt. Our first model, named Hilless, was developed
to sell to fleet customers in the delivery business such as the post office,
TV/Internet home shopping, Pizza, and courier services. We have completed the
prototype and are testing the Hilless. The Hilless has a top speed of 80 kph
with range of 90 Km (track test) per single charge. It ran hills more than 30
degree for 2 Km. Hilless uses a lithium Polymer power pack including the Ultra
BMS which balances the voltage differences among battery cells within 0.05~0.01
volt. We plan to produce the Hilless with orders and 50% down payment starting
in June of 2009. We will not sell this to general consumers, and will not carry
any inventory except 5 demo bikes.
Fast Attack Vehicle (FAV)
- --------------------------
Requested from Hyundai Rotem, one of the largest companies in the Korean Defense
Industry, we have developed a multipurpose strategic vehicle, or tank, for the
Korean military. An original design named the Fast Attack Vehicle ("FAV"), the
vehicle can be manned or unmanned and has remote deployable robotic
capabilities. Its 6x6 in-wheel motor system control with steering column and
skid drive control provides it the ability to traverse various harsh terrain and
the ability to turn around 360 degrees in one spot.
It is well equipped with an advanced GPS and laser scan technology for
intelligent 3D geometrical navigation. Additional features include specialized
control technology to accomplish fast target tracking with silence and speed.
We have developed the design and a working prototype for the FAV. However, the
prototype was delivered to Hyundai Rotem as the deliverable of the project, and
so we do not have a working prototype on hand. We have not developed our
expected sale price or business model with respect to the FAV, and have not
entered into any definitive agreement to manufacture or sell the FAV.
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[GRAPHIC OMITTED HERE BUT INCLUDED IN PDF VERSION]
Max Speed 50kmh/31mph
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Dimension 3.1m*2.1m*1.6m(L*W*H)
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6*6 In wheel
Type (Drive by wire)
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Seater 1 seater (manual-option)
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Max. Weight 2.5 Tons
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Suspension double wishbone
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Motor In wheel motor
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Steering type skid steering
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Wheel/Tire Skid
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Battery Lithium Polymer (172V200A)
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Waterproof/Radiant heat IP64
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E-Princessa Taxi
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[GRAPHIC OMITTED]
We have reached an agreement with the city government of Puerto Princessa,
Philippines to supply 2,500 Taxis in Puerto Princessa in order to solve its
growing pollution and gas price problems with its existing tricycle taxis. Named
the E-Princessa, the taxi is a Low Speed Vehicle-"LSV", a vehicle with a maximum
speed of less than 60 kph-and is an original design by LEOM. Our agreement with
Puerto Princessa represents not only the sale of LSV taxis, but the opportunity
to pilot test multiple thousand LSV taxis. This will save us the expense of
pilot testing the vehicle ourselves.
Pursuant to the 50/50 joint venture agreement, the Company will provide parts
and will operate the joint venture. The city will manage the financial aspects
of the joint venture. Our business model under the Agreement is to provide
tricycle drivers to spend no more on monthly payments for the eTaxi than they
currently spend on fuel for their current vehicles: the total purchase price of
about $4,000 would be reduced to about $2,500 by government subsidy and trade-in
value, which then would cost approximately $80 per month on typical financing
terms. Added to an estimated $100 per month charge for renting and swapping the
eTaxi's battery, and drivers pay no more than the $180 per month that they are
currently paying for gasoline/petrol.
The city government has already secured Php 200 million in order to subsidize
approximately US$2,000 per eTaxi. The agreement calls for a minimum of 2,500
units which would provide the Company with approximately $20 million in
revenues. We are in the process of developing the E-Princessa and expected to
have three prototype models delivered by March, 2009, but this schedule will be
delayed because the joint venture company has not received the required $600,000
payment for the prototypes. The city and Leo Motors are supposed to have
$300,000 each as paid-in capital. The city will pay the capital for the joint
venture from the subsidy, and we are going to raise funds to pay the capital.
Our goal is to begin manufacturing starting in September, 2009.
Page 14
---------- --------------- -------------
Dimensions Overall Length 3300mm/10ft
Overall Width 1540mm/5ft
Overall Height 1700mm/5ft
Wheel Base 2350mm/7ft
Tread 1347mm/53in
Road Clearance 200mm/8in
Vehicle Weight 400kg/881lb
Riding Capacity 4 seater
---------- --------------- -------------
Speed Max. Speed 50kmh/31mph
Economic Speed 30kmh/18mph
---------- --------------- -------------
Suspension Front Shock
Rear Shock
---------- --------------- -------------
Brake Front Disk
Rear Disk
---------- --------------- -------------
Tire Front 2.75 - 17 41P
Rear 2.75 - 17 41P
---------- --------------- -------------
Transmission Auto
---------- --------------- -------------
Power Motor Type ML-BLDC
Rated Power 5kw/6hp
Max. Power 10kw/13.1hp
Battery Type 48v/53a
Charger 48v/20ah
Controller Type ML-BLDC
---------- --------------- -------------
Reverse Tricycle Scooter
- --------------------------
[GRAPHIC OMITTED]
We have signed an MOU to form a joint venture with Global Electric Motor Cars
Asia Co., Ltd. in Thailand ("GEM Thailand") to develop a reverse tricycle
scooter. The joint venture will create Leo Motorcars Co. Ltd. (Thailand) ("LMT")
which will develop and operate the venture. We are in the process of developing
the design and building prototypes for eventual manufacture in a plant located
in Thailand, with production targeted to begin in October 2009.
Development Schedule of Our Products
- ------------------------------------
The following is an overview of the stage and targeted manufacture date of our
EVs and components:
PRODUCT STAGE TARGET
- ------- ----- ------
Multi Copper Plate Motor Engineering Design March 2010
Multi Motor System Pilot Test June 2009
Multi Channel BMS Manufacturing April 2009
Refuelable ZAFC Power Pack Engineering Design August 2010
S 65 Working Prototype September 2009
SGK Working Prototype February 2010
V1 Working Prototype September 2009
Delivery Motor Cycle Pilot Test June 2009
E-Princessa Texi Engineering Design September 2009
Reverse Tricycle Scooter Engineering Design March 2010
Page 15
"Target" means the expected month when mass production can be started. We are in
the process of seeking financing for the cost of completing the working
prototype and beginning mass production. If the financing is delayed or is not
made, the target month will be accordingly delayed, or the project may be
cancelled.
MARKET FOR ELECTRIC VEHICLES
The market for Electric Vehicles represents a narrow but rapidly growing sector
in the overall vehicle market. Currently the most productive market for EVs is
fleet operators, that is, any organization that operates many vehicles from a
central location, primarily government agencies and large companies. These
organizations include delivery operations, taxis, police and other government
offices, the military, resorts, municipal bus lines, and rental car agencies.
The consumer market for EVs is still relatively small due to high prices and
lack of EV infrastructure, however it is growing and is expected to continue to
grow as the technology and price of EVs improves. As with the most new products
that are different from established norms, it is impossible to accurately
forecast the market for EVs. The future market for consumer EVs will depend
greatly on the availability of EV infrastructure and the actions of governments
with respect to EVs.
OPERATIONS
Currently our operations consist of development of our products and technology,
and marketing of our current models and design concepts. Although we plan to
have several manufacturing facilities throughout Asia and possibly Australia,
Europe, and the United States, we currently do not have any manufacturing
facilities.
Research and Development
- ------------------------
We conduct all of our research and development ("R&D") in-house at our workshop
and offices in South Korea.
We spent approximately US$419,298 on our R&D activities in 2008, as summarized
by the following table:
ITEM MODEL STATUS AMOUNT(US$)
- -------- ----------------------------- ---------------- -----------
Scooter Electric Scooter / Motorcycle Continue in 2009 125,789
- -------- ----------------------------- ---------------- -----------
S-65 (Sport Utility Vehicle) Continue in 2009 83,860
Vehicle ----------------------------- ---------------- -----------
SGK / E Princessa Continue in 2009 209,649
- -------- ----------------------------- ---------------- -----------
TOTAL 419,298
- -------- ----------------------------------------------- -----------
Page 16
Key Suppliers
- --------------
We depend on several suppliers of parts and raw materials for our products.
These include the following:
Part Supplier(s)
- ---- -----------
Polymer Battery EIG, KOKAM, Power Tech
Motor Ace electric Co., Ltd., Advanced DC Motor,
SEN Motors, Presto Asia, Hyosung.
Controller Cutis, Nuri, Sen Motors
Charger Alpha Tronics, Nuri
BMS Nano GP, Nuri
Body Platform Mytech
Marketing
- ---------
Our initial marketing strategy is to focus on individual sales to fleets and EV
manufacturers. We have already begun marketing our existing products and design
concepts to governments and companies throughout the world, and have several
deals already in place. In addition, we have developed strategic contacts in
Korea, China, Japan, Europe, Australia, and elsewhere, which we believe will
help present opportunity for additional sales.
We plan to emphasize the following selling points:
- - The current crisis in combustion fuel prices
- - Saving the globe from carbon dioxide and global warming
- - Technological development of EV components in terms of price, size,
capacity, and efficiency
- - The overall price of EV is dropping
- - Favorable social supports in laws, taxes, and subsidies
Distribution
- ------------
The Company has entered into an agreement with SEA Motors Group, Inc., a
Delaware Company ("SEA"), to act as the Company's consultant in the Philippines.
SEA will distribute the products assembled in our Joint Venture in Puerto
Princessa. Pursuant to the agreement, SEA will receive 2.6% in cash of the
contract amount from sales and 1,300,000 shares for the sales of 2,500 e-Taxis
in the Philippines. We have not yet developed our plan of distribution other
than for the E-Princessa.
Manufacturing
- -------------
We intend to outsource manufacturing of our EV models or form joint ventures for
the purpose of establishing and operating manufacturing facilities.
We have agreed to form a 50/50 joint venture with the city government of Puerto
Princesa to establish and operate the manufacturing the E-Princessa taxi in
Puerto Princessa. The setting up of the joint venture company has been delayed
by delays in payment of initial capital, but we hope to begin manufacturing of
the taxi by September 2009.
We have entered into an MOU with GEM Thailand to establish and operate the
manufacturing of the Reverse Tricycle Scooter. However, a definitive agreement
has not yet been executed.
Page 17
We have preliminarily agreed to outsource the manufacturing of our BMS to Nano
GP. Once the definitive agreement is signed, manufacturing can begin
immediately upon orders being placed.
We do not have any other agreements to either outsource manufacturing of, or
form joint ventures for the manufacturing of our EVs with any other party. As
the market for our product develops, we may decide to establish our own
manufacturing facilities, or enter into further agreements to manufacture EVs in
other locations.
COMPETITION AND MARKET SHARE
We are currently in the process of developing our products for manufacturing,
and so to date we do not have any share of the EV market. When we do, we will
face competition from several sources. Within the EV industry, there are a few
market leaders and numerous smaller companies attempting to gain a market share.
The companies include:
- - Tesla Motors
- - Miles Electric Vehicles
- - Think
- - Universal Electric Vehicle ("UEV")
- - Phoenix Motorcars
- - ZENN Motor Company
- - Global Electric Motorcars ("GEM") (a division of Chrysler)
- - Smart EV (developed by Daimler Chrysler)
- - Smith Electric Vehicles
Among our EV competitors, we consider Tesla, Miles, and Think to be our biggest
competitors. Tesla has developed the Roadster, an electric sports car for a
price of around $100,000 USD. It has a top speed of 125 mph and can achieve 0
to 60 in around four seconds. Think is developing the City, an urban commuter
with a top speed of 62 mph. They plan to release it in Europe this year for a
price of $34,000 USD, and a year or two later in the U.S. for a projected price
of around $17,000. Miles already makes and sells 2 low speed EVs, manufactured
in China, and plans to roll out a highway speed EV in the near future. In
addition, ZENN Motors has products very similar to our current models and is
publicly traded on the Toronto Stock Exchange.
We also face competition from traditional auto makers in two ways. Not only do
EVs compete directly with traditional combustion engine vehicles, but several
industry giants have begun development of EVs of their own. For example, GM has
unveiled the concept design for its new Chevrolet Volt EV, and announced plans
to have it on the market by 2010.
Our component sales will also face competition from EV component suppliers, most
notably Power Motor Systems and EV Solution Business.
OTHER MATTERS
Employees
- ---------
We currently have 12 employees, all of which are full time. We believe our
relationship with our employees is good.
Page 18
Intellectual Property
- ----------------------
Our business model depends on the development and protection of our intellectual
property, most notably the technology behind our motors and batteries. We
currently have two patents, one for our Multi Motor System ("MMS") and the
second for one of our EV designs. Each patent was filed with the Korea
Intellectual Property Office and is valid only in Korea. As we have not applied
for or received patent protection in the US or any other country, there is a
distinct risk that we will not be able to adequately protect our intellectual
property rights in these countries.
Granted Patents:
Motor Patent Patent No. Korea 10-0682489
- ------------ ----------- -------------------------------------------------
Issue Date 2007.2.7
----------- -------------------------------------------------
Expiration
Date 2027.2.7
----------- -------------------------------------------------
Name Multi Motor Device
----------- -------------------------------------------------
Connect more than 2 electric motors to an axis of
crank, normally use one motor, but operate other
Description electric motors in time of emergency.
----------- -------------------------------------------------
Design Patent Patent No. Korea 30-0490413
- ------------- ----------- --------------------------------------------------
Issue Date 2008.5.6
----------- --------------------------------------------------
Expiration
Date 2023.5.5
----------- --------------------------------------------------
creator Lee Jung Yong, and 5 other persons
----------- --------------------------------------------------
Design being suited to Electric vehicles, it is an
original work of a Leo Motors design team. Being
submitted to the Seoul International Auto Show on
Description April, 2006.
----------- --------------------------------------------------
Patent Applications:
Application Application
Number Date Title of the Invention Inventor
============== =========== ============================ =============
Korea 10-2008- Air Cooled Water Proof
0124285 12/8/2008 Battery Stack Assembly Jung Yong Lee
- -------------- ----------- ---------------------------- -------------
Zinc-Air fuel cell stack
Korea 10-2008- assembly for Zero
0124286 12/8/2008 Emission-PHEV Jung Yong Lee
- -------------- ----------- ---------------------------- -------------
Electric automobile power
promotion apparatus (Air
Korea 10-2008- Turbine Generator, Air Jet,
0124287 12/8/2008 Motor Drive Assistance) Jung Yong Lee
- -------------- ----------- ---------------------------- -------------
We are also in the process of filing for a patent only in Korea for our Multi
Copper Plate motor and for three patents for MMS controllers during April 2009.
As we develop new technologies and designs, we will need to file additional
patents to ensure our intellectual property rights are protected.
Page 19
Regulation
- ----------
Need for Government Approval
In South Korea, those who want to fabricate, assemble or import automobiles in
accordance with the applicable automobile control laws must apply to Ministry of
Land, Transport and Maritime Affairs to register as a manufacturer and receive a
manufacturers' registration certificate. We received the manufacturer's
certificate in July 2006.
Effect of Government Regulation
We are in the business of fabrication and sale of automobiles and other
vehicles, and accordingly we are subject to several laws related to automobile
fabrication, sales, import, and operation.
South Korea's laws related to automobile manufacturers regulate registration,
safety criteria, type approval, inspection, maintenance, testing, etc. of
automobiles. There are also laws regulating noise allowance and vibrations made
by vehicles, and environmental laws (as discussed below). Complying with the
strict regulation of automobile manufacturing is costly and could significantly
affect our ability to become profitable. In addition, failure to comply with
these laws could subject our Company to penalties, which could include severe
fines or the removal of government approval to do business in the EV industry.
Although we fully intend to comply with all applicable rules and regulations, we
cannot assure that we will be able to do so.
In addition, the operation of automobiles is subject to several sources of
regulation, including traffic laws and civil liability for negligent or other
harmful use. Although these laws primarily regulate the end user of our
products, it is possible that we as the manufacturer may become subject to
derivative liability from these laws. We believe that the risk of these laws
affecting us, while possible, is unlikely.
Also, it is important to note that the above laws of South Korea have no content
related to electric automobiles, so our electric automobile must be registered
as a general automobile, and must comply with the same standards if they will be
able to run on the general road. The differences between EVs and conventional
vehicles makes it difficult and, in our opinion, unnecessary for EVs to comply
to the same standards as conventional vehicles and so will make it difficult to
gain approval to run our EVs on public roads.
The government of South Korea is currently reviewing revision of laws related to
electric automobiles. Although we expect law changes that will greatly
facilitate the incorporation of EVs into the mainstream of South Korean streets,
we cannot be certain that these changes will occur. If they do not, it could
materially affect our ability to market our EVs to consumers. We intend to
eventually to export and sell our EVs to the United States and Europe, where
laws for electric automobiles are already in place.
Effect of Environmental Regulation
Our country's automobiles are subject to several environmental regulations,
including air preservation, noise and vibration control. Accordingly, we are
required to limit the air contaminants, noise and vibrations of our vehicles to
certain levels. Failure to do so may impose fines or other penalties on the
Company. For example, light oil vehicles generate more air contaminants than
gasoline vehicles, and so light oil vehicle users are paying the environment
improvement tax.
However, our EVs generate almost no noise or vibration because they have no
engine, and emit no air contaminants due to the use of gasoline because they
move through the operation of motors using electric
Page 20
batteries. Therefore, it is highly unlikely that we will be adversely affected
by air environment preservation laws and noise/vibration control laws.
Moreover, the Korean Ministry of Environment is currently proceeding with a
subsidy support project for governmental purchases of low pollution vehicles
(electric scooters and hybrid cars), and the subsidy support plan is under
review for other electric automobiles in the future. Several other governments
have put in place subsidy, finance, and tax incentive programs as well. We
believe that the continued support of environmental regulation in South Korea
and abroad will significantly benefit our ability to market our products.
ITEM 1A. RISK FACTORS
Not required by smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We filed a registration statement on Form 10 on December 10, 2008, and an
Amendment No. 1 to the Form 10 on March 3, 2009. We have received comments from
the SEC on Amendment No. 1 and are in the process of responding to them. Until
the Form 10 has cleared comments, we and our shareholders cannot rely on the
Form 10 or our subsequent periodic reports to satisfy a requirement of current
adequate information for any securities transactions.
We do not currently have any other unresolved staff comments.
ITEM 2. PROPERTIES
We operate out of an office and workshop located at 291-1, Hasangok-dong, Hanam
City, Gyeonggi-do, Republic of Korea 465-250.
At this time we do not intend to establish any manufacturing facilities
ourselves. Instead we will either outsource manufacturing of our products, or
enter into joint ventures with partners who will provide the manufacturing
facilities.
We have not entered into any agreement to outsource our manufacturing to date.
We have agreed in principal to form two joint ventures for the manufacture of
the E-Princessa taxi in Puerto Princessa, and of the Reverse Tricycle Scooter in
Thailand. The joint ventures will establish and operate the manufacturing
facilities, the details of which we expect to be available by June, 2009.
As the market for our product develops, we may decide to establish our own
facilities in various locations, outsource manufacturing of our other products,
or enter into additional joint ventures for the manufacturing of our EVs.
ITEM 3. LEGAL PROCEEDINGS
None.
Page 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our common stock is quoted in United States markets on the Pink Sheets,
maintained by Pink Sheets LLC, a privately owned company headquartered in New
York City, under the symbol "LEOM." There is no assurance that the common stock
will continue to be traded on the Pink Sheets or that any liquidity exists for
our shareholders.
MARKET PRICE
The following table shows the high and low per share price quotations of the
Company's common stock as reported by the Pink Sheets for the periods presented.
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions, and may not necessarily represent actual transactions. The Pink
Sheets market is extremely limited and the prices quoted by brokers are not a
reliable indication of the value of the common stock. The periods presented
represent fiscal quarters, with the fourth quarter of each year ending on
December 31.
HIGH LOW
Fiscal 2008
First Quarter $0.56 $0.10
Second Quarter $0.27 $0.05
Third Quarter $1.01 $0.07
Fourth Quarter $0.40 $0.15
As of December 31, 2008, the Company had 100,000,000 shares of common stock
authorized with 31,613,115 shares issued and outstanding, and approximately
5,912,315 freely tradable shares in the public float. These shares were held by
approximately 854 shareholders of record and Company estimates by over 1,000
beneficial shareholders.
PENNY STOCK REGULATIONS
Our common stock is quoted in United States markets on the Pink Sheets,
maintained by Pink Sheets LLC, a privately owned company headquartered in New
York City, under the symbol "LEOM." On March 20, 2009 the last reported sale
price of our common stock was $0.25 per share. As such, the Company's common
stock may be subject to provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), commonly
referred to as the "penny stock rule."
Section 15(g) and Rule 15g-9 sets forth certain requirements for transactions in
penny stocks, in particular that either (1) the transaction meets one of a few
specific exemptions, or (2) the broker dealer executing the transaction for a
customer (a) obtain informed consent from the customer and (b) make an
individualized determination of the customer's suitability for trading in penny
stocks based on personal
Page 22
financial information. Rule 15g-9(d) incorporates the definition of "penny
stock" that is found in Rule 3a51-1 of the Exchange Act. The SEC generally
defines "penny stock" to be any equity security that has a market price less
than $5.00 per share, subject to certain exceptions. As long as the Company's
common stock is deemed to be a penny stock, trading in the shares will be
subject to additional sales practice requirements on broker-dealers who sell
penny stocks to persons other than established customers and accredited
investors.
DIVIDENDS
The Company has not issued any dividends on the common stock to date, and does
not intend to issue any dividends on the common stock in the near future. We
currently intend to use all profits to further the growth and development of the
Company.
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 2008, the Company made no issuances of
securities that have not otherwise been reported. We have reported various
issuances made during the period on our Registration Statement on Form 10, as
amended most recently on March 3, 2009, which Form 10 is hereby incorporated
herein by this reference.
PURCHASES OF EQUITY SECURITIES
None.
ITEM 6. SELECTED FINANCIAL DATA
Not required by smaller reporting companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD-LOOKING STATEMENTS
Statements about our future expectations are "forward-looking statements" within
the meaning of applicable Federal Securities Laws, and are not guarantees of
future performance. When used herein, the words "may," "will," "should,"
"anticipate," "believe," "appear," "intend," "plan," "expect," "estimate,"
"approximate," and similar expressions are intended to identify such
forward-looking statements. These statements involve risks and uncertainties
inherent in our business, including those set forth in Item 1A under the caption
"Risk Factors," in this Annual Report on Form 10-K for the year ended December
31, 2008, and other filings with the SEC, and are subject to change at any time.
Our actual results could differ materially from these forward-looking
statements. We undertake no obligation to update publicly any forward-looking
statement.
OVERVIEW
Leo Motors, Inc. (the "Company") is currently in the process of finalizing the
design and production capability of several models of Electric Vehicle ("EV").
During the past two years, we have developed seven models of EV, two electric
scooters, three electric cars, one three-wheeled vehicle, and one neighborhood
electric vehicle ("NEV"). We also have several other projects in development
stages.
Page 23
The specific goals of the Company over the next twelve months include:
- - Manufacture and sale of our E-Princessa taxi by the middle of 2009
- - Production of S 3 and S 5 electric scooters by May, 2009, and sale by
June, 2009
- - Production and sale of V1 Resort Bus by April, 2009
- - Production and sale of S 65 SUV and SKG electric car by second half of
2009
- - Production and sale of Reverse Tricycle Scooter in Thailand by July, 2009
- - Sale of EVs in the United States by the end of 2009
In addition, we have developed and are in the process of developing several key
EV components that we believe will be competitive with industry leading
technology. During the next twelve months, we intend to continue the
development of these components, integrate them into our own EVs, and market
them to other EV manufacturers.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements arise principally from our plans to develop EV
production capability, additional product development, and marketing costs.
Although in the future we intend to fund our liquidity requirements through a
combination of cash on hand and revenues from operations, during 2008, the
Company had incurred $317,761 in expenses and had realized only $823,479 in
revenues. Accordingly, our ability to initiate our plan of operations and
continue as a going concern is currently dependent on our ability to raise
external capital.
Our monthly operating cost including salaries and general expense is currently
approximately $40,000, after changing our operating plan in December 2008 to
reduce our intended fixed cost investment. We have already secured our annual
operating budget for 2009 with current cash holdings, which at our current burn
rate will sustain operations until approximately February 2010. Through 2008 we
have relied on approximately $1,500,000 in cash advances from Mr. Jung Yong Lee,
Director & CTO. We are not currently relying on the officer for additional cash
advances, and he is not under any obligation to advance any further cash. If we
are unable to do so, our ability to sustain operations through 2010 and beyond
will depend on our ability to obtain alternate forms of financing.
We will require a minimum of $4,100,00 to implement our business plan, but are
currently seeking up to $10,000,000 in additional financing, and we may be
required to seek additional funding. Our efforts in this regard include
attending road shows in December 2008 in New York and San Francisco, and
beginning preliminary discussions with investment banks. We have received
proposals from four such banks for financial and business development services.
Once we have entered into an agreement with one institution, we will move
forward on our financing efforts with their advice and assistance.
To date we have raised approximately $617,000 inequity financing, $200,000 in
November 2008 and $417,000 in January 2009.
We have not raised any financing on the issuance of debt other than in the form
of cash advances from one of our officers. We believe that it will be very
difficult to obtain any other form of debt financing due to our current lack of
revenues from operations and the current state of our balance sheet, including a
lack of hard assets against which to borrow. Accordingly, we are focusing on
obtaining equity financing.
As we have not generated significant revenues and have not raised a significant
amount of equity financing to date, there is substantial doubt as to our ability
to continue in the short term and long term as a going concern. Our plan in the
short term is to continue our operations at their current level, which our
Page 24
current cash holdings amounted $383,485 at the end of February will cover
through fiscal 2009. Our long term survival will depend on the growth of our
operations towards full scale manufacturing and sales of our EVs, which in turn
will depend on our ability to raise sufficient financing. If our fund raising
efforts should fail or fall short of our goal, we will have to restructure our
business plan in order to sustain our operations. However, in that event we may
be unable to implement our business plan or continue operations.
RESULTS OF OPERATIONS - 2008 VS. 2007
Revenues
Sales for the year ended December 31, 2008, were $82,435 compared to $172,316
for the year ended December 31, 2007. Costs of sales were $35,511 and gross
profit was $46,924 compared to $121,846 in costs of sales and $50,470 in gross
profit for 2007. These sales are not generated from regular business operations
as most of our sales are of product samples or development services. The
company has almost completed the development of products for mass production
which will be launched in the market beginning this year. During the year we
also received a $390,000 prepayment for the resort EV pursuant to our agreement
with CUSCO, but the amount has been carried forward to 2009 and it was recorded
as revenues at March 2009.
The following is a detailed description of the products sold in 2008:
Date Product Unit Price
----- ------------------- ---- -------
1/24 4 wheel Cart 1 $ 1,764
2/25 Charger 1 $ 231
7/1 Scooter 1 $ 1,294
7/9 Motor bike 1 $ 6,774
10/30 Jammer Battery 1 $ 2,865
11/26 EV advanced payment 1 $60,988
11/27 Polymer Battery 1 $ 8,519
Expenses
During the year, we incurred $317,761 in expenses, compared to $1,061,916 in
2007. The primary decrease was due to downsizing the business operation during
2008. The company cut down the number of employees from 14 in 2007 to 5 in
2008. The Office also moved to the new building in Gyeonggi province with lower
rental cost and operation cost.
Expenses for 2008 and 2007 consisted of the following:
Expenses: 2008 2007
Salaries and Benefits $169,149 $ 76,559
Service Fees 23,132 64,708
General and Administrative 125,480 920,649
Salaries and Benefits - consist of total cash compensation paid to our employees
during the year and the cost of all benefits provided to our employees.
Page 25
Service Fees - consist of consist of accounting, legal, and professional fees.
General and Administrative - consists of travel expenses, entertainment
expenses, communication expenses, utilities, taxes & dues, depreciation
expenses, rent, repairs, vehicle maintenance, ordinary development expenses,
shipping, education & training, printing, storage, advertising, insurance,
office supplies and expense, payroll expenses, investor referral fees and other
miscellaneous expenses.
OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description Page
- ----------- ----
Report of Independent Registered Public Accounting Firm.....................F-27
Consolidated Balance Sheets.................................................F-28
Consolidated Statements of Operations.......................................F-29
Consolidated Statements of Changes in Shareholders' Interest................F-30
Consolidated Statements of Cash Flows.......................................F-31
Notes to Consolidated Financial Statements..................................F-32
Page 26
GRUBER & COMPANY LLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Leo Motors, Inc.,
We have audited the accompanying balance sheet of Leo Motors, Inc. as of
December 31, 2008 and 2007 and the related statements of operations,
stockholders equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform our audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides 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 the Company as at December 31,
2008 and 2007 and the results of its' operations and its' stockholders equity
and cash flows for the years then in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the notes to the financial
statements, the Company has incurred lossesThis item among others, raises
substantial doubt about its ability to continue as a going concernThese
financial statements do not include any adjustments that might result from the
outcome of this uncertainty
\s\ Gruber & Company LLC
- ------------------------
Gruber & Company LLC
Dated March 20, 2009
Lake St. Louis, MO 63367
F-27
LEO MOTORS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2008 and 2007
DECEMBER 31, DECEMBER 31,
2008 2007
-------------- --------------
ASSETS
Current Assets:
Cash in Bank $ 32,181 $ 38,061
Accounts Receivable-net of
allowance of $11,735 and 0 13,854 14,541
Inventory 35,575 19,315
Prepaid Costs 130,568 162,335
-------------- --------------
Total Current Assets 212,178 234,252
Fixed Assets-Net 5,940 24,541
-------------- --------------
Deposits 63,104 111,327
-------------- --------------
TOTAL ASSETS $ 281,222 $ 370,120
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and
Accrued Expenses 16,850 14,945
Taxes Payable 2,080 34,788
Payments Received in Advance 396,197 534,300
Related Party Payable 804,794 991,591
-------------- --------------
Total Current Liabilities 1,219,921 1,575,624
-------------- --------------
Total Liabilities 1,219,921 1,575,624
STOCKHOLDERS' EQUITY
Comprehensive Gain ( Loss)-
Translation (loss) gain 237,386 (52,446)
Common Stock, Authorized
200,000,000 Shares, $0.001
par value, 31,613,115 and
30,312,315, shares issued and
outstanding respectively. 31,613 30,312
Additional Paid in Capital 323,351 181,570
Retained Deficit (1,531,049) (1,364,940)
-------------- --------------
Stockholders' Deficit (938,699) (1,205,504)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 281,222 $ 370,120
============== ==============
The accompanying notes are an integral part of these financial statements.
F-28
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended December 31, 2008 and 2007
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2008 2007
SALES $ 82,435 $ 172,316
COST OF SALES (35,511) (121,846)
-------------- --------------
GROSS PROFIT 46,924 50,470
EXPENDITURES:
Salaries and Benefits 169,149 76,559
Service Fees 23,132 64,708
General and Administrative 125,480 920,649
-------------- --------------
TOTAL EXPENDITURES 317,761 1,061,916
NET LOSS FROM OPERATIONS (270,837) (1,011,446)
OTHER INCOME (EXPENSE)
Interest Expense/Currency
Transaction (540) (1,467)
Other Income 105,268 5,769
-------------- --------------
NET LOSS $ (166,109) $ (1,007,144)
Weighted Avg. Shares 30,637,515 30,312,315
Loss per share (0.005) (0.033)
The accompanying notes are an integral part of these financial statements.
F-29
LEO MOTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2008 and 2007
Additional
Comprehensive Common Stock Paid in Earnings
Income (Loss) Shares Amount Capital (Deficit) Total
-------------- ---------- ------- ----------- ------------ ------------
Balance, January 1, 2007 - 30,312,315 $30,312 $ 181,570 $ (357,796) $ (145,914)
----------- ------------
Net Loss for the year (52,446) - - - (1,007,144) (1,059,590)
-------------- ---------- ------- ----------- ------------ ------------
Balance December 31, 2007 (52,446) 30,312,315 30,312 181,570 (1,364,940) (1,205,504)
Stock issued for debt and services - 1,300,800 1,301 141,781 - 143,082
Net Loss for the year 289,832 - - - (166,109) 123,723
-------------- ---------- ------- ----------- ------------ ------------
Balance December 31, 2008 237,386 31,613,115 31,613 323,351 (1,531,049) (938,699)
============== ========== ======= =========== ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
F-30
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31, 2008 and 2007
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (166,109) $ (1,007,144)
Adjustments to reconcile net loss to net cash
provided by operating activities: Stock issued 143,082 -
Depreciation 18,601 35,000
Comprehensive loss 289,832 (45,457)
(Increase) in Inventory (16,260) (19,315)
(Increase) Decrease in Accounts Receivable 687 (139)
(Increase) Decrease in Deposits/Prepaid 79,990 224,763
Increase (Decrease) in Accounts Payable
and Accrued Expenses/Payments in Advance (136,198) (127,348)
Increase in Taxes and Advances (32,708) 27,148
-------------- --------------
NET CASH FLOWS USED IN OPERATING ACTIVITIES 180,917 (912,492)
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets - -
CASH FLOWS FROM FINANCING ACTIVITIES:
-
Proceeds from related party - 936,596
Debt reduction related party (186,797) -
-------------- --------------
NET CASH FLOWS FROM FINANCING ACTIVITIES (186,797) 936,596
NET INCREASE (DECREASE) IN CASH (5,880) 24,104
CASH AT THE BEGINNING OF THE PERIOD 38,061 13,957
-------------- --------------
CASH AT THE END OF THE PERIOD $ 32,181 $ 38,061
============== ==============
Income taxes paid - -
============== ==============
Interest expense paid - -
The accompanying notes are an integral part of these financial statements.
F-31
LEO MOTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
Leo Motors, Inc, Inc(the "Company") was originally incorporated as Classic Auto
Accessories, a California Corporation on July 2, 1986. The Company then
underwent several name changes from FCR Automotive Group, Inc. to Shini
Precision Machinery, Inc. to Simco America Inc. and then to Leo Motors. The
Company had been dormant since 1989, and effectuated a reverse merger on
November 12, 2007 with Leozone Inc., a South Korean Company, which is the maker
of electrical transportation devices. The merger essentially exchanges shares in
Leo Motors, Inc. for shares in Leozone. As this is a reverse merger the
accounting treatment of such is that of a combination of the two entities with
the activity of Leozone, Inc. the surviving entity, going forward. The financial
statements reflect the activity for all periods presented as if the merger had
occurred January 1, 2007.
Basis of Presentation and Going Concern
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The company has
incurred material losses and has a negative equity. These conditions raise
substantial doubt as to the Company's ability to continue as a growing concern.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty. These financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts, or amounts and classification of recorded asset amounts, or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
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
Revenues are recognized upon sale and shipment of the product.
F-32
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
six months 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. The Company has
established a reserve on receivables of $11,735 in 2008.
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit risk
include cash and cash equivalents.
The Company maintains its cash in well-known banks selected based upon
management's assessment of the bank's financial stability. Balances may
periodically exceed the $250,000 federal depository insurance limit; however,
the Company has not experienced any losses on deposits. The Company extends
credit based on an evaluation of the customer's financial condition, generally
without collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses, as required.
Cash Equivalents
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalent.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which is generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income (expense).
The Company will periodically evaluate whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of fixed assets
or whether the remaining balance of fixed assets should be evaluated for
possible impairment. We use an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their recoverability.
Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
The functional currency of the Company is the Korean WonAssets and liabilities
are translated to U.S. Dollars at the period-end exchange rates ($.000792393)
and ($.00107527) respectively and revenues and expenses are translated at
weighted average exchange rates for the period, which was (.000924059) and
(00119269) respectively. Resulting translation adjustments are recorded as a
component of stockholders' equity in other comprehensive income (loss).
F-33
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes." Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases. 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.
Loss per Share
In accordance with SFAS No. 128, "Earnings Per Share," the basic income / (loss)
per common share is computed by dividing net income / (loss) available to common
stockholders by the weighted average number of common shares outstanding.
Diluted income per common share is computed similar to basic income per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
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.
For the year ended December 31, 2008 the Company issued 1,300,800 shares,
1,000,000 for a reduction of debt and 300,000 for services both valued at market
at .11 per share. The shares for services were recognized as an expense in
general and administrative at $33,000.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (FAS
141(R)). This Statement provides greater consistency in the accounting and
financial reporting of business combinations. It requires the acquiring entity
in a business combination to recognize all assets acquired and liabilities
assumed in the transaction, establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed, and
requires the acquirer to disclose the nature and financial effect of the
business combination. FAS 141(R) is effective for fiscal years beginning after
December 15, 2008. We will adopt FAS 141(R) no later than the first quarter of
fiscal 2009 and are currently assessing the impact the adoption will have on our
financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160. Noncontrolling Interests in
Consolidated Financial Statements (FAS 160). This Statement amends Accounting
Research Bulletin No. 51, Consolidated
F-34
Financial Statements, to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. FAS 160 is effective for fiscal years beginning after December 15,
2008. We will adopt FAS 160 no later than the first quarter of fiscal 2009 and
are currently assessing the impact the adoption will have on our financial
position and results of operations.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, which permits entities to choose to
measure at fair value eligible financial instruments and certain other items
that are not currently required to be measured at fair value. The standard
requires that unrealized gains and losses on items for which the fair value
option has been elected be reported in earnings at each subsequent reporting
date. SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. We have adopted SFAS No. 159 which has had no impact on our financial
position and results of operations.
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R). SFAS No. 158 requires company plan
sponsors to display the net over- or under-funded position of a defined benefit
postretirement plan as an asset or liability, with any unrecognized prior
service costs, transition obligations or actuarial gains/losses reported as a
component of other comprehensive income in shareholders' equity. SFAS No. 158 is
effective for fiscal years ending after December 15, 2006. We adopted the
recognition provisions of SFAS No. 158 as of the end of fiscal 2007. The
adoption of SFAS No. 158 did not have an effect on the Company's financial
position or results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 establishes a framework for measuring fair value in generally accepted
accounting principles, clarifies the definition of fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not require any new
fair value measurements. However, the application of SFAS No. 157 may change
current practice for some entities. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We have adopted SFAS No. 157 and it
has had no impact on our financial position and results of operations.
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
in Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48). This
interpretation clarifies the application of SFAS No. 109, Accounting for Income
Taxes, by defining a criterion that an individual tax position must meet for any
part of the benefit of that position to be recognized in an enterprise's
financial statements and also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006, but earlier adoption is permitted. The Company has adopted
this and there is no impact of the application of the Interpretation to its
financial statements.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per share are calculated by dividing net income by the weighted
average number of common shares outstanding during the period.
NOTE 4 - ACCOUNTS RECEIVABLE
The Company recognizes a receivable on sales of parts and electrical motor
equipment. The Company has established a reserve for allowance for doubtful
accounts in 2008 equal to $11,735.
F-35
NOTE 5 - INVENTORY
The Company accounts for its inventory under the FIFO method and lower of cost
or market method of costing. The company's inventory consists of parts for the
electric transportation industry.
NOTE 6 - FIXED ASSETS
The Company's assets consist of the following:
Furniture Fixtures and Equipment $41,007 $41,007
Less Accumulated Depreciation (35,067) (16,466)
Net $ 5,940 $24,541
The Company depreciates it assets over useful lives of between 3 and 7 years.
Depreciation expense was $18,601 in 2008.
NOTE 7 - DUE TO RELATED PARTY
The company is indebted to its officer for advances. Repayment is on demand
without interest.
The Company reduced this obligation by the issuance of 1,000,800 valued at
$110,088 during 2008.
NOTE 8 - 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.
F-36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
------------------------------------------------
Our management, including our Principal Executive and Principal Financial
Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Securities Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2008. Our disclosure controls and
procedures are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a
et seq.) is recorded, processed, summarized, and reported, within the time
periods specified in the 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 an issuer in the reports
that it files or submits under the Act is accumulated and communicated to the
issuer's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Based on this evaluation, our
Chief Executive and Principal Financial Officer concluded that our disclosure
controls and procedures were not effective as of December 31, 2008.
(b) Management's Report on Internal Control over Financial Reporting
----------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-a5(f)
under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. GAAP. Our internal control over financial reporting
includes 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 our assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and
directors; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use of disposition of our assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Under the supervision of our Chief Executive Officer, our management assessed
the effectiveness of our internal control over financial reporting as of
December 31, 2008. In making this assessment, management used the criteria set
forth in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
our management has concluded that our internal control over financial reporting
was ineffective as of December 31, 2008 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.
Page 37
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 annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this Annual Report on Form 10-K. Our registered
public accounting firm will not be required to opine on internal controls until
fiscal 2010.
(c) Change in Internal Controls
------------------------------
There were no changes in our internal control over financial reporting during
the quarter ended December 31, 2008, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTOR AND EXECUTIVE OFFICER SUMMARY
The following table sets forth the names, ages, and principal offices and
positions of our current directors, executive officers, and persons we consider
to be significant employees. The Board of Directors elects our executive
officers annually. Our directors serve one-year terms or until their successors
are elected, qualified and accept their positions. The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors. There are no family relationships or understandings between any of
the directors and executive officers. In addition, there was no arrangement or
understanding between any executive officer and any other person pursuant to
which any person was selected as an executive officer.
NAME OF DIRECTOR OR OFFICER AGE POSITION
Shi Chul ("Robert") Kang 47 Chief Executive Officer, President
and Interim Chief Financial Officer
Jung Yong ("John") Lee 43 Chief Technical Officer and Director
Chul Ho Kim 53 Director
Page 38
EXECUTIVE OFFICER AND DIRECTOR BIOS
Shi Chul (Robert) Kang, Chief Executive Officer, President and Interim Chief
- ----------------------------------------------------------------------------
Financial Officer
- -----------------
Dr. Kang is a marketing Ph.D. and has worked in international advertising and
corporate marketing for more than 25 years. He began his carrier at Oricom, the
largest ad agency in Korea and a McCann Ericson affiliate. Dr. Kang managed Leo
Burnett Korea and BBDO Dong Bang, advertising companies, introducing these
companies to Korea. He founded one of the leading advertising companies in
Korea, Ad Express and On & Off, and managed the firms for 11 years. One & Off
merged into WPP Group as he became president of META B, a management consulting
firm. Recently, he served as president of Pico North Asian, a multinational
global event marketing company in Hong Kong for two years. Dr. Kang joined the
Company as its chairman, CEO and interim CFO on November 1, 2008, and will focus
on business development, global marketing, and financing of Leo Motors.
He got his BS (Literature) at Korea Univ. MA (Advertising) in University of
Oregon, and Ph.D. (Marketing) at Dongguk Univ. in Korea.
Jung Yong (John) Lee,Chief Technical Officer and Director
- ---------------------------------------------------------
Mr. Lee joined the Company's operating subsidiary as its CEO and President in
June 2006, and joined the Company upon its acquisition on September 3, 2007. In
November 2008 he resigned as CEO and President but remained with the Company as
CTO and Director. Prior to joining the Company, Mr. Lee has held several
positions in EV design and projects. He lead the Research and Development
Department for Geo EV beginning in 2002, and for Pyeonghwa Motors, a Korean car
manufacturer and dealer, beginning in February 2004. His experience includes
heading projects that have incorporated the Polymer Battery, Dual Motor System,
and alternative energy vehicle design. He has also worked on the Ford SUV
Concept Project for 1997's Melbourne Motor show, the City Car Project, and the
Limousine Project.
Mr. Lee received his Masters of Industrial Design (Vehicle Styling) from RMIT
University in Melbourne, Australia, and his PhD in Industrial Design from the
University of New South Wales in Sydney, Australia. He has taught Engineering
Industrial Design at Dankook University in Seoul, South Korea.
Chul-Ho Kim, Director
- ---------------------
Mr. Kim holds several positions of responsibility in the automotive engineering
field. He is a professor in the Department of Automotive Engineering at Seoul
National University of Technology in South Korea, involved with ongoing research
in Electric Vehicles and EV Solutions. He is also currently the Vice President
for the Korea Association of Automotive Technicians and heads the Center for
Automotive Engineering Research. With more than 20 years as a professional
engineer, he has won the Korean Excellent Technology (KT) Award and the Jang
Young Sil Invention Award from the Korean Ministry of Science and Technology
(both in 1989) and continues to contribute to the changing automotive world.
Mr. Kim has been with the Company's operating subsidiary since its inception,
and joined the Company upon its acquisition on September 3, 2007.
LEGAL AND DISCIPLINARY HISTORY
No officer, director or control person of the Company has been the subject of:
1. A conviction in a criminal proceeding or named as a defendant in a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
Page 39
2. The entry of an order, judgment, or decree, not subsequently reversed,
suspended or vacated, by a court of competent jurisdiction that permanently
or temporarily enjoined, barred, suspended or otherwise limited such
person's involvement in any type of business, securities, commodities, or
banking activities;
3. A finding or judgment by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission, the Commodity Futures
Trading Commission, or a state securities regulator of a violation of
federal or state securities or commodities law, which finding or judgment
has not been reversed, suspended, or vacated; or
4. The entry of an order by a self-regulatory organization that permanently or
temporarily barred, suspended or otherwise limited such person's
involvement in any type of business or securities activities.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires our directors and officers, and persons who own more than ten percent
of the Common Stock to file reports of ownership and changes in ownership with
the Securities and Exchange Commission ("SEC") and the American Stock Exchange.
SEC regulations require reporting persons to furnish us with copies of all
Section 16(a) forms they file.
Based solely on our review of the copies of the Forms 3, 4 and 5 and amendments
thereto furnished to us by the persons required to make such filings during
fiscal 2008 and our own records, we believe that Mr. Kang, Mr. Lee, Chul Ho Kim,
and Gun Il Kim each failed to file timely a Form 3 to report initial beneficial
ownership.
CORPORATE GOVERNANCE.
We have not adopted a code of ethics do date. We are in the process of
evaluating the standards of conduct necessary for the deterrence of malfeasance
and the promotion of ethical conduct and accountability, and will determine
whether a code of ethics is necessary based on our evaluation.
The Company does not have a standing Nominating Committee. There have been no
changes to the procedures whereby security holders may recommend nominees to the
registrant's board of directors.
The Company is not a "listed issuer" as defined by Rule 10A-3, and does not have
a standing Audit Committee. We do not have a financial expert serving on our
board of directors.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Objectives and Philosophy of our Executive Compensation Program
- ---------------------------------------------------------------------
We do not have a standing compensation committee. Our board of directors as a
whole makes the decisions as to employee benefit programs and officer and
employee compensation. The primary objectives of our executive compensation
programs are to:
Page 40
- - attract, retain and motivate skilled and knowledgeable individuals;
- - ensure that compensation is aligned with our corporate strategies and
business objectives;
- - promote the achievement of key strategic and financial performance measures
by linking short-term and long-term cash and equity incentives to the
achievement of measurable corporate and individual performance goals; and
- - align executives' incentives with the creation of stockholder value.
To achieve these objectives, our board of directors evaluates our executive
compensation program with the objective of setting compensation at levels they
believe will allow us to attract and retain qualified executives. In addition,
a portion of each executive's overall compensation is tied to key strategic,
financial and operational goals set by our board of directors. We also
generally provide a portion of our executive compensation in the form of options
that vest over time, which we believe helps us retain our executives and align
their interests with those of our stockholders by allowing the executives to
participate in our longer term success as reflected in asset growth and stock
price appreciation.
Named Executive Officers
- --------------------------
The following table identifies our principal executive officer, our principal
financial officer and our most highly paid executive officers during the last
full fiscal period reported herein, who, for purposes of this Compensation
Disclosure and Analysis only, are referred to herein as the "named executive
officers."
Name Corporate Office
---------------------- ------------------------------
Shi Chul (Robert) Kang President, CEO and Interim CFO
Jung Yong Lee Former CEO
Han Young Kim Former CEO
Components of our Executive Compensation Program
- -----------------------------------------------------
At this time, the primary elements of our executive compensation program are
base salaries and option grant incentive awards, although the board of directors
has the authority to award cash bonuses, benefits and other forms of
compensation as it sees fit.
We do not have any formal or informal policy or target for allocating
compensation between short-term and long-term compensation, between cash and
non-cash compensation or among the different forms of non-cash compensation.
Instead, we have determined subjectively on a case-by-case basis the appropriate
level and mix of the various compensation components. Similarly, we do not rely
extensively on benchmarking against our competitors in making compensation
related decisions, although we may consider industry compensation trends as one
of many factors in our case-by-case determination of proper compensation.
Base salaries
- --------------
Base salaries are used to recognize the experience, skills, knowledge and
responsibilities required of our named executive officers. Base salary, and
other components of compensation, may be evaluated by our board of directors for
adjustment based on an assessment of the individual's performance and
compensation trends in our industry.
Page 41
- ------
Equity Awards
- -------------
Our stock option award program is the primary vehicle for offering long-term
incentives to our executives. Our equity awards to executives have typically
been made in the form of warrants. We believe that equity grants in the form of
warrants provide our executives with a direct link to our long-term performance,
create an ownership culture, and align the interests of our executives and our
stockholders.
Cash bonuses
- -------------
Our board of directors has the discretion to award cash bonuses based on our
financial performance and individual objectives. The corporate financial
performance measures (revenues and profits) will be given the greatest weight in
this bonus analysis. We have not yet granted any cash bonuses to any named
executive officer nor have we yet developed any specific individual objectives
while we wait to attain revenue and profitability levels sufficient to undertake
any such bonuses.
Benefits and other compensation
- -------------------------------
Our named executive officers are permitted to participate in such health care,
disability insurance, bonus and other employee benefits plans as may be in
effect with the Company from time to time to the extent the executive is
eligible under the terms of those plans. As of the date of this Registration
Statement, we have not implemented any such employee benefit plans.
CURRENT LEVELS OF EXECUTIVE COMPENSATION
Summary Annual Salary
- -----------------------
As discussed above, we have agreed to pay the Named Executive Officers an annual
salary. Base salary may be increased from time to time with the approval of the
board of directors. The following table summarizes the agreed annual salary of
each of the named executive officers.
Name Annual Salary
----------- --------------
Robert Kang $ 300,000
Agreed Compensation
- -------------------
Robert Kang, President, Chief Executive Officer and Interim Chief Financial
Officer - Mr. Kang will earn an annual Salary of $ 300,000 as compensation for
his services as president and CEO.
GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL YEAR 2008
The Company currently does not participate in any equity award plan. During
fiscal 2008, we did not grant any equity awards under any equity award plan.
OPTION EXERCISES FOR FISCAL 2008
During fiscal 2008, none of the named executive officers exercised options.
Page 42
NONQUALIFIED DEFERRED COMPENSATION
We currently offer no defined contribution or other plan that provides for the
deferral of compensation on a basis that is not tax-qualified to any of our
employees, including the named executive officers.
COMPENSATION OF DIRECTORS
We intend to use a combination of cash and equity-based compensation to attract
and retain candidates to serve on our board of directors. We do not compensate
directors who are also our employees for their service on our board of
directors. We have not provided any other compensation to any member of our
Board of Directors for the fiscal year ended December 31, 2008.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We do not currently have a standing Compensation Committee. Our entire board of
directors participated in deliberations concerning executive officer
compensation.
COMPENSATION COMMITTEE REPORT
The board of directors has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management and,
based on such review and discussions, the board of directors has recommended
that this Compensation Discussion and Analysis be included in this Registration
Statement on Form 10.
Page 43
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to, or accrued by, the Company's highest paid
executive officers during the fiscal years ended December 31, 2007 and December 31, 2006. No restricted stock
awards, long-term incentive plan payout or other types of compensation, other than the compensation identified in
the chart below and its accompanying notes, were paid to these executive officers during that fiscal year.
NAMED ANNUAL ANNUAL OTHER COMPENSATION LONG TERM
EXECUTIVE COMPENSATION COMPENSATION ANNUAL RESTRICTED COMPENSATION LTIP
OFFICER YEAR SALARY ($) BONUS ($) COMPENSATION STOCK (#) OPTIONS PAYOUTS ALL OTHER
- -------------- ---- ------------- ------------- ------------ ------------- ------------ ------- ---------
Robert Kang 2008 25,0002 0 0 0 0 0 0
Jung Yong Lee1 2007 86,0933 0 0 0 0 0 0
2008 48,5514 0 0 0 0 0 0
<FN>
(1) Jung Yong Lee was the Company's President and CEO from September 19, 2007 to November 18, 2008.
(2) Robert Kang became the Company's President and CEO on November 18, 2008. Salary amount represents one
month's prorated portion of agreed $300,000 per year salary.
(3) Number represents average 2007 exchange rate between US$ and Korean Won. Mr. Lee was paid 80 million Korean
Won for his services in 2007.
(4) Number represents average 2008 exchange rate between US$ and Korean Won. Mr. Lee was paid 52 million Korean
Won for his services in 2008.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END TABLE
The following table sets forth information regarding the outstanding warrants
held by our named officers as of December 31, 2008.
OPTION AWARDS
NUMBER OF NUMBER OF EQUITY INCENTIVE PLAN AWARDS: OPTION
SECURITIES UNDERLYING SECURITIES UNDERLYING NUMBER OF SECURITIES EXERCISE OPTION
UNEXERCISED OPTIONS UNEXERCISED OPTIONS UNDERLYING UNEXERCISED PRICE EXPIRATION
NAME (#) EXERCISABLE (#) UNEXERCISABLE UNEARNED OPTIONS ($) DATE
- ------------- --------------------- --------------------- ----------------------------- --------- ----------
Robert Kang 0 0 - - -
Jung Yong Lee 0 0 - - -
Page 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of our common stock as of
March 23, 2009. The table shows the amount of shares owned by:
(1) each person known to us who owns beneficially more than five
percent of the outstanding shares of any class of the Company's stock,
based on the number of shares outstanding as of March 23, 2009;
(2) each of the Company's Directors and Executive Officers; and
(3) all of its Directors and Executive Officers as a group.
AMOUNT OF SHARES PERCENT OF SHARES
IDENTITY OF BENEFICIALLY BENEFICIALLY
PERSON OR GROUP OWNED OWNED(1,2) CLASS
- ---------------------- ---------------- ------------------ ------
Robert Kang 700,000 1.95% Common
CEO, President
and Interim CFO
Jung Yong Lee 3,000,000 8.35% Common
CTO and Director
Chul Ho Kim 200,000 0.56%
Director
Gun Il Kim 8,100,000 22.53% Common
611 Lotte Village
1642-25 Seocho-Dong
Seocho-Gu, Seoul Korea
Jong In Kwon 2,200,000 6.12% Common
103-604 World Meridian
Apt 297
Yeomchang Dong
Kangseo Gu Seoul Korea
Jin Wook Choi 2,200,000 6.12% Common
5-208 Hyundai Apt 840
Shindang Dong
Joong-Gu Seoul Korea
Kyeong Ae Kim 1,650,000 4.59% Common
130-1101 Sk Bookhansan
City Apt 1353
Mee-A Dong
Kangbuk Gu Seoul Korea
All Directors and 3,900,000 10.8% Common
Officers as a Group
Page 45
(1) The percentage of shares owned is based on 35,946,449 shares being
outstanding as of March 23, 2009. If the beneficially owned shares of any
individual or group in the above table include any options, warrants, or other
rights to purchase shares in the Company's stock, such right to purchase shares
(if any) is disclosed by footnote below and the percentage of shares owned
includes such shares as if the right to purchase had been duly exercised.
(2) BENEFICIAL OWNERSHIP OF SECURITIES: Pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, involving the determination of beneficial
owners of securities, a beneficial owner of securities is person who directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise has, or shares, voting power and/or investment power with respect to
the securities, and any person who has the right to acquire beneficial ownership
of the security within sixty days through means including the exercise of any
option, warrant or conversion of a security.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
SEA MOTORS, INC.
The Company has entered into a Letter of Intention with Sea Motors, Inc.
("SEA"), whereby SEA would receive 10% of the contract amount from our sales in
the Philippines, half in common stock and half in cash proceeds. Subsequent to
entering the agreement, Shi Chul Kang, an executive officer of Sea Motors, Inc.,
joined the Company as its President and CEO. In January 2009 we entered into a
definitive consulting agreement with SEA whereby we agreed to pay 1,300,000
shares of common stock and 2.6% of the cash proceeds from the sales of 2,500
E-Taxis in Puerto Princesa. Dr. Kang resigned his position with SEA prior to
execution of the definitive agreement but after performing certain consulting
services in anticipation thereof, and thus the Company agreed to pay a
consulting fee of 700,000 shares of common stock and 2.4% cash of the amount
from the sales of 2,500 E-Taxis in Puerto Princesa directly to Dr. Kang.
As of the date hereof, the Company has not entered into any other agreements
with related parties, and there are no other conflicts of interests of any of
the Company's officers, directors or affiliates known to the Company.
DIRECTOR INDEPENDENCE
The Company is not listed on any national exchange, or quoted on any
inter-dealer quotation service, that imposes independence requirements on any
committee of the Company's directors, such as an audit, nominating or
compensation committee. As all of the Company's directors are employees of the
Company, the Company does not have any independent directors on its Board by any
definition of director independence.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following is a summary of the fees paid to Gruber & Company LLC, the
Company's independent public accounting firm, during the fiscal years ended
December 31, 2008 and 2007.
2008 2007
---------- -----
Audit fees(2) $30,000(1) $ -
Audit-related fees - -
Tax fees - -
All other fees - -
TOTAL $ 30,000 $ -
Page 46
(1) Fees for the audit of our 2007 and 2006 financial statements
(2) So far in 2009 we have paid $15,000 to Gruber & Company for the audit of our
2008 financial statements.
AUDIT COMMITTEE PRE-APPROVAL OF SERVICES OF PRINCIPAL ACCOUNTANTS
The Company does not have a standing audit committee. The Board as a whole has
the authority and responsibility to select, evaluate, determine the compensation
of, and, where appropriate, replace the independent auditor. After determining
that providing the non-audit services is compatible with maintaining the
auditor's independence, the board pre-approves all audits and permitted
non-audit services to be performed by the independent auditor, except for de
minimus amounts. If it is not practical for the board to meet to approve fees
for permitted non-audit services, the board has authorized its chairman to
approve them and to review such pre-approvals with the Board at its next
meeting.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SCHEDULES.
The following consolidated financial statements of Leo Motors, Inc. and
Subsidiaries are included herein by reference to the pages listed in "Item 8.
Financial Statements and Supplementary Data":
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2008 and 2007
Consolidated Statements of Operations for the years ended December 31,
2008, and 2007
Consolidated Statements of Changes in Shareholders' Interest for the
years ended December 31, 2008 and 2007
Consolidated Statements of Cash Flows for the years ended December 31,
2008 and 2007
Notes to Consolidated Financial Statements
EXHIBITS
The following Exhibits are included herein:
31.1 Certification of the Principal Executive and Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)
or Rule 15d-14(a)).
32.1 Certification by the Principal Executive and Principal Financial Officer of
Leo Motors, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
Page 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(the registrant)
By \s\ Robert Kang
---------------
Robert Kang
Chief Executive Officer, President and
Interim Chief Financial Officer
Date: March 30, 2009
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