UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
AMENDMENT 2
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
____________________________
/
==============================/
LEO MOTORS, INC.
/======================================
____________________/ Zero-Emmission Vehicle
Leo Motors, Inc.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 95-3909667
- --------------------------------------------------------------------------------
(State or other jurisdiction (I. R. S. Employer Identification No.)
of incorporation or organization)
291-1, Hasangok-dong, Hanam Ciry, Gyeonggi-do, Republic of Korea 465-250
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: +82 31 796 8805
---------------
Copy to:
Cutler Law Group
3206 W. Wimbledon Dr.
Augusta, GA 30909
Fax: 800-836-0714
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None N/A
-------------------------------- ---------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
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
definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a
smaller reporting company)
TABLE OF CONTENTS
Item 1. Description of Business............................................3
Item 1A. Risk Factors......................................................22
Item 2. Financial Information.............................................27
Item 3. Description of Property...........................................33
Item 4. Security Ownership of Certain Beneficial Owners and Management....33
Item 5. Directors and Executive Officers, Promoters and Control Persons...34
Item 6. Executive Compensation............................................37
Item 7. Certain Relationships and Related Transactions....................41
Item 8. Legal Proceedings.................................................41
Item 9. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters............................42
Item 10. Recent Sales of Unregistered Securities...........................43
Item 11. Description of Securities.........................................45
Item 12. Indemnification of Directors and Officers.........................47
Item 13. Financial Statements and Supplementary Data.......................47
Item 14. Changes in and Disagreements with Accountants.....................47
Item 15. Financial Statements and Exhibits.................................47
Signatures....................................................................48
ITEM 1. DESCRIPTION OF BUSINESS.
A. BUSINESS DEVELOPMENT.
Leo Motors, Inc., a Delaware Corporation, through its wholly-owned operating
subsidiary Leo Motors, Co. Ltd., a Korean Company ("Leozone"), is a development
stage company in the business of developing electric vehicles ("EV") and EV
components.
On September 3, 2007, the Company acquired Leozone (then "Leozone Co. Ltd.") as
its operating business, and changed its name to Leo Motors, Inc. on October 2,
2007 to better reflect its operating business. On November 5, 2007, the Company
changed its trading symbol from SCMA to LEOM. The Company also subsequently
changed the name of Leozone to Leo Motors, Co. Ltd.
The Company was originally incorporated in California as N. Org., Inc. on
December 12, 1983. The Company changed its name to Natural Organics Corporation
on January 3, 1986, to Classic Auto Accessories of North America on November 18,
1987, and to FCR Automotive Group, Inc. on July 26, 1988. On September 20, 2004
the Company reincorporated in Delaware by merging into FCR Automotive Group,
Inc., a Delaware Corporation, which was organized on September 8, 2004.
On July 26, 2005, the Company acquired Shinil Precision Co., Ltd., a Korean
Company, as its operating business and on July 18, 2005 changed its name to
Shinil Precision Machinery, Inc. to reflect its anticipated new business. Upon
failure of certain terms and conditions of the acquisition agreement, the
Company returned the shares of Shinil and recovered and cancelled the Company's
shares issued in the acquisition.
The Company has not been in bankruptcy, receivership, or any similar proceeding,
and, to the best knowledge of management, has not defaulted on the terms of any
note, loan, lease, or other indebtedness or financing arrangement requiring the
issuer to make any material payments. We had $394,320 in assets, $172,316 in
revenues and a loss of $1,007,114 as of and for the year ended December 31,
2007. We had $287,974 in assets, $3,479 in revenues and a loss of $672,888 as
of and for the nine months ended September 30, 2008. At April 10, 2009 we had
cash reserves of $176,588. Our auditor has issued an opinion expressing doubt
as to our ability to continue as a going concern.
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.
3
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 a development
stage company 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.ewards.
Initial Strategy
- -----------------
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 entered into an agreement with the government of Puerto Princesa,
Phillipines to supply 2,500 e-Taxis in Puerto Princesa, subject to our paying
$300,000 into the joint venture, and a memorandum of understanding ("MOU") with
GEM Thailand to supply Reverse Tricycles. To date the Company has made no
further fleet sales. Potential revenues pursuant to the terms of the e-Taxi
deal are expected to be about $20 million, not including costs of sales and
distribution, beginning July 2009. Potential revenues from the Reverse
Tricycles have not been determined as we have not yet executed the definitive
agreement.
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.
4
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 intend to market to compete with 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.
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 will
attempt to show them that ours are the best on the market.
Future Expansion Potential
- ----------------------------
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,
sports cars, 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
- ---------------------------
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-Princesa
taxi. We anticipate that completion of the prototypes we are currently working
on will cost approximately $1,000,000 before we have fully implemented our
business. After the development of prototypes, we must pilot test the models,
which we
5
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
----------------------- ----------------- --------------------
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
----------------------- ----------------- --------------------
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
6
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.
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
Princesa, Phillipines to supply e-Taxis in Puerto Princesa, and signed an MOU
one with GEM Thailand to develop, manufacture and supply Reverse Tricycle
Scooters. The e-Taxi agreement requires us to pay $300,000 into the joint
venture. The agreement and MOU 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).
The agreement with Cusco expires Dec 31 2010. Under the agreement, the Company
delivered a resort EV to Cusco, and the sales amount of $462,107 was recorded as
revenue in March 2009.
LEO MOTORS TECHNOLOGY
Multi Copper Plate Motor
- ------------------------
[GRAPHIC OMITTED HERE BUT INCLUDED IN PDF VERSION]
EVs use electric motors as power trains. These EV 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.
We 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
7
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.
We intend to begin mass production of the MCP Motor through an outsourced
supplier by November 2009, which supplier will be selected by September 2009. We
are in the process of applying for a patent for our MCP Motor.
Multi Motor System
- ------------------
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 is 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 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 HERE BUT INCLUDED IN PDF VERSION]
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 have completed successful pilot testing of the four
motor MMS. 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
- -------------------------------------------
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 HERE BUT INCLUDED IN PDF VERSION]
8
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 Cell Power Pack
- ------------------------------------------
We have recently developed, completed initial testing of, and applied for a
patent for the Refuelable Zinc Air-Fueled Cell ("ZAFC") power pack. Previously,
we reported that we were going to make a 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. Provided we receive
adequate funding, we can finish the mass production model by 2010. Delays in
financing may result in delays in production.
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
- -----------------------------
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 S-65. The prototype was scheduled to be completed by mid- April
2009. The S-65 will be initially available on an order basis only. 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 (which do not include an engine) are about $10,000.
[GRAPHIC OMITTED HERE BUT INCLUDED IN PDF VERSION]
9
---------- ---------------- -----------------
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
Vehicle Weight 1200 kg/2645.5
Riding Capacity 2 seater/4 seater
---------- ---------------- -----------------
Speed Max. Speed 184 kmh/68 mph
Economic Speed 60 kmh/37.2 mph
---------- ---------------- -----------------
Gradability 16
---------- ---------------- -----------------
Suspension Front shock absorber
Rear shock absorber
---------- ---------------- -----------------
Brakes Front disk
Rear disk
---------- ---------------- -----------------
Tire Front 235/60 R13
Rear 235/60 R13
---------- ---------------- -----------------
Transmission Semi auto
---------- ---------------- -----------------
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
---------- ---------------- -----------------
Leo SGK Passenger and Utility Vehicles
- -------------------------------------------
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 we have
received sufficient financing and the proper EV infrastructure is in place, we
intend to make the passenger type SGK available for mass distribution through
such channels as electric shops and outlets and department stores.
[GRAPHIC OMITTED HERE BUT INCLUDED IN PDF VERSION]
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.
Both types of SGK will be initially marketed on an order basis like the S-65.
We hope to have each of our SGK models ready for by-order manufacturing by
October, 2009, when favorable new EV laws in Korea are expected.
10
---------- ---------------- ---------------
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
---------- ---------------- ---------------
Speed Max. Speed 130 kmh/80mph
Economic Speed 60kmh/37.2mph
---------- ---------------- ---------------
Drive Distance 400km/248mi
---------- ---------------- ---------------
Suspension Front shock
Rear shock
---------- ---------------- ---------------
Brakes Front disk
Rear disk
---------- ---------------- ---------------
Tire Front 195/60 R14
Rear 195/60 R14
---------- ---------------- ---------------
Transmission auto
---------- ---------------- ---------------
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
---------- ---------------- ---------------
V1 Tourism Vehicle
- --------------------
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. In addition, production will be dependent on the
availability of sufficient financing, or will be completed on an order basis
with some or all of the purchase price paid up front
[GRAPHIC OMITTED HERE BUT INCLUDED IN PDF VERSION]
11
---------- ---------------- --------------
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
---------- ---------------- --------------
Speed Max. Speed 55kmh/34mph
Economic Speed 30kmh/18mph
---------- ---------------- --------------
Gradiblility 10
---------- ---------------- --------------
Suspension Front shock
Rear shock
---------- ---------------- --------------
Brakes Front disk
Rear disk
---------- ---------------- --------------
Tire Front 165/65 R13
Rear 165/65 R13
---------- ---------------- --------------
Transmission auto
---------- ---------------- --------------
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
---------- ---------------- --------------
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 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
12
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.
[GRAPHIC OMITTED HERE BUT INCLUDED IN PDF VERSION]
Max Speed 50kmh/31mph
----------------------- --------------------------
Dimension 3.1m*2.1m*1.6m(L*W*H)
----------------------- --------------------------
6*6 In wheel
Type (Drive by wire)
----------------------- --------------------------
Seater 1 seater (manual-option)
----------------------- --------------------------
Max. Weight 2.5 Tons
----------------------- --------------------------
Suspension double wishbone
----------------------- --------------------------
Motor In wheel motor
----------------------- --------------------------
Steering type skid steering
----------------------- --------------------------
Wheel/Tire Skid
----------------------- --------------------------
Battery Lithium Polymer (172V200A)
----------------------- --------------------------
Waterproof/Radiant heat IP64
----------------------- --------------------------
E-Princesa Taxi
- ----------------
We have reached an agreement with the city government of Puerto Princesa,
Philippines to supply 2,500 Taxis in Puerto Princesa in order to solve its
growing pollution and gas price problems with its existing tricycle taxis.
Named the E-Princesa, 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 Princesa 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.
[GRAPHIC OMITTED HERE BUT INCLUDED IN PDF VERSION]
Pursuant to the agreement, the Company will provide parts, will provide $300,000
in capital, and will operate the joint venture. The city will provide Php200
million (approximately $4.2 million as of April 2, 2009) in capital over the
course of the joint venture, including an initial payment of Php14 million
(approximately $292,000). The agreement contemplates entry into a definitive
Joint Venture Agreement that has not been completed.
Our business model under the Agreement is to provide tricycle drivers to spend
no more on
13
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. We anticipate revenue from the e-Princessa beginning in July
2009.
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, not including costs of sales such as our distribution fee to SEA
Motors. We are in the process of developing the E-Princesa. We 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
approximately $600,000 payment for the prototypes. The city and Leo Motors are
supposed to have about $300,000 each as initial 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 our portion of the capital. Our goal is to begin
manufacturing starting in September, 2009.
---------- --------------- -------------
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
---------- --------------- -------------
14
Reverse Tricycle Scooter
- --------------------------
[GRAPHIC OMITTED HERE BUT INCLUDED IN PDF VERSION]
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 Motorcycle Pilot Test June 2009
E-Princesa Taxi Engineering Design September 2009
Reverse Tricycle Scooter Engineering Design March 2010
"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.
15
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. In 2007 we spent approximately $577,112 on research
and development activities. Our R&D activities in 2007 are summarized in the
following table:
ITEM MODEL STATUS Amount(US$)
- -------------- --------------------------- ----------------- -----------
Parts & System BLDC MOTOR Completed 78,000
--------------------------- ----------------- -----------
BMS (battery
management system) Completed 37,871
- -------------- --------------------------- ----------------- -----------
Scooter Electric Scooter Continue in 2008 103,763
- -------------- --------------------------- ----------------- -----------
Other EV3 (Neighborhood Started in 2006;
Vehicles Electric Vehicle) Completed in 2007 6,360
--------------------------- ----------------- -----------
S-15(Sport Utility Vehicle) Continue in 2008 59,790
--------------------------- ----------------- -----------
SGK(Neighborhood
Electric Vehicle) Continue in 2008 179,557
--------------------------- ----------------- -----------
V1( Resort Mini
Bus for Resort) Completed 111,771
- -------------- --------------------------- ----------------- -----------
TOTAL 577,112
- -------------- --------------------------- ----------------- -----------
We spent approximately $419,298 on our R&D activities in 2008, as summarized by
the following table:
ITEM MODEL STATUS Amount(US$)
- ------- ------------------------------ ---------------- -----------
Scooter Electric Scooter / Motorcycle Continue in 2009 125,789
- ------- ------------------------------ ---------------- -----------
Vehicle S-65 (Sport Utility Vehicle) Continue in 2009 83,860
------------------------------ ---------------- -----------
SGK / E Princesa Continue in 2009 209,649
- ------- ------------------------------ ---------------- -----------
TOTAL 419,298
- ------- ------------------------------ ---------------- -----------
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
16
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
- - Revolutionary 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
Princesa. 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-Princesa.
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-Princesa taxi in
Puerto Princesa. The setting up of the joint venture company has been delayed
by delays in payment of initial capital, including $300,000 from us, but we hope
to begin manufacturing of the e-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.
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.
17
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.
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.
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.
20
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 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.
21
ITEM 1A. RISK FACTORS.
The Company faces a number of risks and uncertainties.
RISK FACTORS CONCERNING OUR BUSINESS AND OPERATIONS:
WE HAVE A LIMITED OPERATING HISTORY, WHICH MAY MAKE IT DIFFICULT FOR INVESTORS
TO PREDICT OUR FUTURE PERFORMANCE BASED ON OUR CURRENT OPERATIONS.
Leo Motors, Co. Ltd ("Leozone"), our operating business, was organized in July,
2006, and since inception has spent the majority of its time developing its
products and business plan. The Company accordingly has a limited operating
history, which may not be a reliable indicator of our future performance. The
company will not realize profitability unless it can successfully implement its
plan of operation.
WE WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON
ACCEPTABLE TERMS. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, AS NEEDED, THE
FUTURE GROWTH OF OUR BUSINESS AND OPERATIONS WOULD BE SEVERELY LIMITED.
The automotive industry in general, and the EV industry specifically, is
extremely capital intensive. Our plan of operation requires substantial capital
investment; we estimate the implementation of our initial business plan will
require a minimum of approximately $4,100,000 in additional financing, and
possibly up to $10,000,000 for full implementation. To date we have raised only
approximately $617,000 in equity financing, and have received about $1,500,000
in cash advances from Mr. Lee, one of our officers. The loan is due on demand
and Mr. Lee is under no obligation to advance additional cash, which presents
additional risks to investors and creditors that the Company will be unable to
repay Mr. Lee and meet its other obligations.
Our ability to implement our plan of operation will depend upon our ability to
raise additional capital, possibly through the issuance of long-term or
short-term indebtedness or the issuance of our equity securities in private or
public transactions.
If we raise additional capital through the issuance of debt, this will result in
increased interest expense. If we raise additional funds through the issuance
of equity or convertible debt securities, the percentage ownership of the
Company held by existing shareholders will be reduced and those shareholders may
experience significant dilution. In addition, new securities may contain
rights, preferences or privileges that are senior to those of our common stock.
Our ability to raise sufficient financing both through debt and equity means is
substantially likely to be affected by the current economic crisis in the United
States and internationally. With the tightening of credit markets and the
extreme volatility of stock prices, it is much more difficult to find investors
willing to invest in a young Company that has yet to establish recurring
revenue.
Accordingly, we may be unable to obtain acceptable financing necessary to
implement our plan of operation on suitable terms, if at all. Our ability to
develop our business would suffer if we
22
are unable to raise the additional funds on acceptable terms, which would have
the effect of limiting our ability to increase our revenues or possibly attain
profitable operations in the future.
WE DEPEND ON KEY EMPLOYEES AND PERSONNEL TO OPERATE OUR BUSINESS, WHICH COULD
ADVERSELY AFFECT THE COMPANY'S ABILITY TO OPERATE IF WE ARE UNABLE TO RETAIN OR
REPLACE THESE PERSONS.
Our future success is largely dependent upon its existing management team,
including Jung Yong Lee, our Chief Technology Officer, and Robert Kang, our
President and CEO. The loss of one or more of these officers or directors
through injury, death or termination of employment could result in the
investment of significant time and resources for recruiting and replacement. In
addition, we may not be able to find the right mix of talent and experience to
replace our existing team. The existing team may not be able to successfully
manage the growth of the Company or attract the new talent that will be
necessary to run the Company at a high level.
IF WE ARE UNABLE TO GAIN OR MAINTAIN A TECHNOLOGICAL ADVANTAGE, WE MAY NOT BE
ABLE TO EFFECTIVELY COMPETE IN THE EV MARKET.
Our business plan depends largely on our technological advantage over other EV
manufacturers. In the EV market, it is extremely important to have the best
technology available. If we are unable to establish ourselves as technology
leaders in the industry, it will significantly affect our ability to market our
products.
Moreover, the technology in the EV market is evolving rapidly. Even if we
establish our technology as an industry standard, we cannot be certain how long
it will remain as such. We will be required to engage in continued and costly
R&D to continue to develop our technology in an effort to keep our technological
advantage, and even then we may not succeed. If we are unable to maintain our
technological advantage, it will significantly affect our ability to market our
products.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS.
Our business plan depends largely on our technological advantage over other EV
manufacturers. Accordingly, our ability to become profitable will significantly
depend on our ability to protect our intellectual property rights.
To protect our rights, we will rely on a combination of copyright and trademark
laws, trade secrets, confidentiality agreements with employees and third parties
and protective contractual provisions. Further, we have two patents in place
and several other patent applications in progress and will rely on patents once
they are issued. Despite our efforts to protect our proprietary rights,
unauthorized parties may copy aspects of our products or services or obtain and
use information that we regard as proprietary. In addition, others could
possibly independently develop substantially equivalent intellectual property.
If we do not effectively protect our intellectual property, our business could
suffer.
Also, our two patents are filed only in Korea, and have not received patent
protection from the United States Patent and Trademark Office or
internationally, and our current patent applications
23
will also only be filed in Korea. Accordingly, we may encounter significant
difficulty enforcing our intellectual property rights in countries other than
Korea. We may be unable to establish jurisdiction over persons infringing on
our patents in countries that recognize our patent. Even if we are able to
bring an action, the courts may not provide the same level of protection as in
Korea, or may rule that our patent does not extend to use in the country where
the infringement took place. If we are unable to adequately protect our
intellectual property rights, our ability to effectively compete in the market
could suffer.
In addition, we may have to litigate to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
other parties' proprietary rights. From time to time, we may receive notice of
claims of infringement of other parties' proprietary rights. Any such claims
could be time-consuming, result in costly litigation, divert management's
attention, cause product or service release delays, require us to redesign our
products or services or require us to enter into royalty or licensing
agreements. These royalty or licensing agreements, if required, may not be
available on acceptable terms or at all. If a successful claim of infringement
were made against us and we could not develop non-infringing technology or
license the infringed or similar technology on a timely and cost-effective
basis, our business could suffer.
WE FACE COMPETITION FROM SEVERAL SOURCES, WHICH MAY MAKE IT MORE DIFFICULT TO
GAIN AND MAINTAIN A SHARE OF THE EV MARKET.
While the EV market comprises only a small percentage of the entire automotive
market, there are numerous companies attempting to develop and market EVs,
including major players in the auto industry such as Mitsubishi, BMW, and Ford.
Mitsubishi plans to market the "i MiEV" in late 2009. A compact electric car,
the i MiEV uses a single 47 kW motor to drive both rear wheels instead of four
in-wheel electric motors. It has a top speed of 130 km/h with a range of 160Km
with a single charge. BMW Group, which owns the British automotive brand Mini,
recently revealed its electric Mini. The "Mini E" has a 150kw (204 hp) motor,
speed electronically limited to 95 mph, and a 0-60 mph time of about 8.5
seconds. The eight hour charge time gives a range of about 150 miles.
With the Congressional bailout and the strong supports from the new government,
the "big three" auto makers may also be major competitors in the EV market. GM
announced the final prototype of its Plug-in Hybrid Electric Vehicle (PHEV),
Volt. It has an all-electric 161 hp motor, along with a gasoline/E85 combustion
engine designed solely to recharge the high voltage electric battery pack when
it gets low. GM claims the Volt will achieve 0 to 60 mph in 8.5 seconds, and
have a top speed of at least 100 mph. The 6 hour charge and a full tank of gas
will have a range of about 400 miles. Ford Motor Company plans to build a
zero-emission lithium ion electric vehicle to go on sale in 2011. According to
Ford, the Fusion-sized car has an expected range as far as 100 miles on a single
charge. The onboard battery charger will be capable of plugging into a 110- or
220-volt outlet. Charging time is expected to be 12 hours at 110 volts and half
that at 220 volts. Chrysler LLC's ENVI division announced plans to have
production models of EVs by 2010.
24
If we are unable to adequately separate ourselves from these sources of EV
competition, we may be unable to gain a sufficient share of the EV market to
become profitable.
In addition, EVs are in direct competition with combustion vehicles and other
forms of transportation, including bus lines and trains. The ability of the EV
market to grow will depend on their ability to compete with these other forms of
transportation, which will in turn depend on the development of environmentally
friendly laws, the changing attitudes of consumers, and the improvement of EV
price, efficiency, and performance. If the EV market as a whole does not
develop, we may be unable to gain a sufficient share of the EV market to become
profitable.
IF FAVORABLE CHANGES IN EV LAWS ARE NOT MADE, IT WILL BE MORE DIFFICULT TO
MARKET OUR PRODUCTS IN THE JURISDICTIONS THAT FAIL TO MAKE THE LAW CHANGES.
In several jurisdictions in which we intend to market our products, EVs are
subject to the same regulatory standards as combustion vehicles. Our management
believes that this is completely unnecessary, as EVs have far different
capabilities and safety concerns, particularly with Low Speed Vehicles ("LSVs")
and Neighborhood Electric Vehicles ("NEVs"), which are simpler forms of LSVs
such as golf carts. Moreover, forcing EVs to comply with the rigorous standards
of their more dangerous combustion equivalents makes is cost prohibitive for EV
manufacturers. We are currently only able to market our products to private
fleets, or to consumers in countries that provide different levels of access to
public roads depending on the capability of the vehicle. For instance, the
United States allows LSVs and NEVs only on roads with a posted speed limit of 35
mph or less. In South Korea, these vehicles are not allowed on any public road.
Although steps are being taken in the legislative processes of South Korea and
other of our key intended markets to make law changes favorable to EVs, we
cannot be certain that these changes will occur. If they do not, our ability to
market our EVs in those jurisdictions will be severely limited.
THE DANGEROUS NATURE OF OUR PRODUCTS PUTS US AT RISK TO POTENTIAL LIABILITY.
Automobiles and other motor vehicles are by their nature highly dangerous to
operate. Even our electric LSVs such as scooters and NEVs carry a high risk of
injury or property damage if handled improperly. As the manufacturer, it is
possible that we could face liability for such injury or damage. Such potential
liability will depend on the manufacturer's liability laws in the various
jurisdictions in which we intend to sell our products.
Moreover, the already high risk of injury and property damage creates an even
greater risk to the Company in the event the Company is found to have been
actually at fault in the design, manufacture, or maintenance of its EVs or any
of its components. If we become liable for injury or property damage caused by
our products, it could materially affect our cash on hand and make it more
difficult to invest in the development of our business.
25
WE MAY FACE UNFORESEEN DIFFICULTIES IN TRANSFORMING OUR CONCEPTS INTO WORKING
PRODUCTS.
Several of our EV designs are still in the concept and design phase and do not
yet have working prototypes. In addition, we are attempting to incorporate new
and innovative concepts into the design of our EVs that have not been done
before. This process inherently carries a significant risk that concepts will
not translate effectively to working models. If, for example, we do not
sufficiently account for differences in size, weight, energy use, heat, and
other factors, we may not be able to successfully transform our designs into
working production models. If we encounter such unforeseen difficulties and are
unable to progress our designs into production models, our ability to generate
revenue may suffer.
OUR INDUSTRY IS HIGHLY SENSITIVE TO CHANGES IN OIL PRICES, WHICH CREATES
SUBSTANTIAL VOLATILITY IN THE DEMAND FOR OUR PRODUCTS.
Like all alternative energy industries, the demand for EVs has a direct
relationship with the price of oil. As the price of oil rises, the demand for
alternatives to petroleum products, such as EVs, increases. Since the price of
oil is volatile, so then may be the demand for our products. For example,
during the recent economic slump the price of oil has collapsed, which has
reduced the strain of high gas prices on consumers. This in turn has resulted
in a reduction of interest in alternative energy vehicles. The volatility of
the demand for EVs makes it more difficult for investors to predict our revenue
potential.
RISK FACTORS CONCERNING INVESTMENT IN OUR COMPANY:
THERE IS ONLY A LIMITED PUBLIC MARKET FOR OUR SHARES, AND IF AN ACTIVE MARKET
DOES NOT DEVELOP, INVESTORS MAY HAVE DIFFICULTY SELLING THEIR SHARES.
There is a limited public market for our common stock. We cannot predict the
extent to which investor interest in us will lead to the development of an
active trading market or how liquid that trading market might become. If a
trading market does not develop or is not sustained, it may be difficult for
investors to sell shares of our common stock at a price that is attractive. As
a result, an investment in our common stock may be illiquid and investors may
not be able to liquidate their investment readily or at all when he/she desires
to sell.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS.
Our common stock is deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934. The SEC generally
defines "penny stock" to be any equity security that has a market price less
than $5.00 per share, subject to exceptions.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by
26
reducing the number of potential investors, and may make it more difficult for
investors in our common stock to sell shares to third parties or to otherwise
dispose of them. This could cause our stock price to decline.
FUTURE SALES BY OUR STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR
ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS.
Sales of our common stock in the public market could lower the market price of
our common stock. Sales may also make it more difficult for us to sell equity
securities or equity-related securities in the future at a time and price that
our management deems acceptable or at all.
OUR AUDITOR HAS ISSUED A GOING CONCERN OPINION, WHICH RAISES SUBSTANTIAL DOUBT
AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.
In its report to management, Gruber & Company LLC, our independent registered
public accounting firm, has issued an opinion with respect to the Company's
ability to continue as a going concern. This opinion states that the company's
losses, among other items, raise substantial doubt about our ability to continue
as a going concern, and that the financial statements do not include any
adjustment to account for this uncertainty. If the Company is unable to
continue as a going concern, investors may be unable to rely on the information
contained in the financial statements.
THE ABSENCE OF ANY INDEPENDENT DIRECTORS CREATES INHERENT CONFLICTS OF INTEREST,
WHICH MAY MAKE IT MORE DIFFICULT TO RELY ON THE OBJECTIVITY OF THE COMPANY'S
DIRECTORS.
The Company currently has 2 directors, each of whom is an employee of the
Company. This presents an inherent conflict of interests as there is no
separation of the Company's management and its Board of Directors. One of the
primary duties of a Board of Directors is to provide supervision and oversight
of management. The absence of any directors who are not also members of
management raises doubt as to the Board's willingness to fulfill its oversight
duties to the shareholders when they directly conflict with the interests of
management.
INVESTORS MAY HAVE TROUBLE BRINGING SUITS AGAINST A COMPANY WHICH IS
SUBSTANTIALLY OFF-SHORE.
The Company's operations to date occur almost exclusively outside of the United
States. In the event legal action is needed against the Company or its
directors or officers, it may be difficult and costly, if possible at all, to do
so. Investors may not be able to bring suit in a court in the United States,
and may have to travel overseas and/or hire foreign counsel. In addition,
investors may have to rely upon foreign laws, including conflict of law rules,
with which they may be unfamiliar or that may not provide as much protection as
would the laws of the United States. Even if investors are successful in
obtaining a judgment decree against, or agreeing to a settlement with the
Company in the US or elsewhere, a Korean court may not enforce such a decree or
agreement on the Company or its directors or officers, and the investor may be
unable to subsequently bring an original cause of action in Korea.
27
ITEM 2. FINANCIAL INFORMATION
FORWARD LOOKING STATEMENTS: STATEMENTS ABOUT OUR FUTURE EXPECTATIONS ARE
"FORWARD-LOOKING STATEMENTS" 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 UNDER THE CAPTION "RISK FACTORS," IN THIS DISCLOSURE STATEMENT,
AND ARE SUBJECT TO CHANGE AT ANY TIME. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS. THIS FORM 10 DOES NOT HAVE
ANY STATUTORY SAFE HARBOR FOR THIS FORWARD LOOKING STATEMENT. WE UNDERTAKE NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENT.
This Management's Discussion and Analysis should be read in conjunction with the
following financial statements included in this Form 10 (the "Financial
Statements):
- - Financial statements for the year ended December 31, 2008
- - Financial statements for the years ended December 31, 2007 and December 31,
2006
The financial statements have been prepared in accordance with generally
accepted accounting policies in the United States ("GAAP"). Except as otherwise
disclosed, all dollar figures included therein and in the following management
discussion and analysis are quoted in United States dollars.
PLAN OF OPERATION
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.
The specific goals of the Company over the next twelve months include:
- - Development of the E-Princesa prototype by March, 2009, and manufacture
and sale of by 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.
28
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 the year ended
December 31, 2008 the Company had incurred $317,761 in expenses and had realized
only $82,435 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
Jung Yong Lee, one of our officers, which we were able to use to develop
prototypes of seven EV model designs. The loan is not pursuant to any formal
agreement and is due on demand. We are not currently relying on Mr. Lee for
additional cash advances, and he is not under any obligation to advance any
further cash. However, if we should need to do so in the future, we believe we
could negotiate acceptable terms for cash advances from our officers or from our
majority shareholder. 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.
Despite being able to reach this stage in our development with limited funding,
the EV and general automotive industries are extremely capital intensive, and we
will need substantial additional financing in order to produce and sell our EVs.
Our anticipated minimum costs of implementing our business plan are summarized
as follows:
STEP ANTICIPATED COST
----------------------- -----------------
Initial Prototypes $ 1,000,000
EV Testing $ 300,000
Component Development $ 2,000,000
Production Capability $ 500,000
Production of Inventory $ 100,000
Marketing & Sales $ 200,000
----------------------- -----------------
TOTAL $ 4,100,000
Accordingly we will require a minimum of $4,100,00, 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.
29
To date we have raised approximately $617,000 inequity financing, $200,000 in
November 2008 and $417,000 in January 2009. In addition, we have agreed to form
a joint venture in the Philippines to produce and market our E-Princesa Taxi.
Pursuant to the joint venture agreement, the Government of Puerto Princesa is to
provide a total capital investment of 200 million Philippine Pesos (Php)
(approximately $4.2 million as of April 2, 2009), with an initial investment of
Php14 million (approximately $292,000), and the Company is to contribute
$300,000. However, the joint venture has not been capitalized to date.
We have not raised any financing on the issuance of debt other than in the form
of the cash advances from Mr. Lee. 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
current cash holdings 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
Year Ended December 31, 2008
- -------------------------------
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
30
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.
Salaries and Benefits during the period increased from $76,559 to $169,149,
which we attribute to the growth of our business. We do not anticipate a
significant increase in salaries and benefits until and unless we are able to
further grow our business with additional financing.
Service Fees - consist of consist of accounting, legal, and professional fees.
Services fees decreased significantly from 2007 to 2008, which we attribute to
scaling back our operations pending sufficient financing.
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. General and Administrative expenses during the period
decreased significantly from $920,649 in the same period in 2007 to $125,480.
This represents payment of extraordinary fixed costs during 2007 as a result of
beginning our operations, including some of the costs associated with acquiring
of our operating subsidiary.
Year Ended December 31, 2007*
- ---------------------------------
*The following results of operation for the year ended December 31, 2007 combine
the results of the Company and its operating subsidiary, Leo Motors Co. Ltd
(then Leozone Co. Ltd.) ("Leozone"), which was acquired during the year.
31
Revenues
During the year ended December 31, 2007, we had $172,316 in revenues from sales
of our EVs, compared to no revenue in 2006. Costs of sales were $121,846, and
gross profit was $50,470, compared to zero costs of sales and zero gross profit
in 2006. These sales primarily consisted of the special order of our Military
FAV by Hyundai Rotem. We do not attribute these sales to the full
implementation of our business plan, but rather to isolated transactions, and
thus they are not indicative of our future potential revenues.
The following is a detailed description of the products sold in 2007:
Date Buyer Product Unit Price
- ----- ----------------------------- ---- ------
9/ 5 Rotem Military FAV advanced payment n/a 63,818
9/15 Jeil Excess Motor Scooter 1 9,605
10/31 Rotem Military FAV 1 95,727
12/12 Dalim Motors Motors Scooter 1 3,166
Expenses
During the year, we incurred $1,108,291 in expenses, compared to $357,796 in
2006. The increase in expenses represents the fact that Leozone was organized
during 2006 and that operations during the period were limited to developing our
business plan and beginning the initial stages of our product development
programs. Expenses for 2007 and 2006 consisted of the following:
EXPENSES: 2007 2006
Salaries and Benefits $ 76,559 $ -
Stock for Services 46,375 122,508
Service Fees 64,708 143,817
General and Administrative 920,649 91,471
------------------
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.
Stock for Services - consist of the fair market value for the stock provided to
the company founder and investor representatives for investor referrals.
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. We attribute the significant increase from the prior
year to the fact that Leozone was organized during 2006 and that operations
during the period were limited
32
to developing our business plan and beginning the initial stages of our product
development programs.
Year Ended December 31, 2006
- --------------------------------
The year ended December 31, 2006, represented a dormant period for the Company,
as its activities were limited to seeking an operating business to acquire.
There were no revenues and no expenditures during the period.
OFF-BALANCE SHEET ARRANGEMENTS
The company has no off-balance sheet arrangements.
ITEM 3. DESCRIPTION OF PROPERTY.
We operate out of an office and workshop located at 291-1, Hasangok-dong, Hanam
Ciry, 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-Princesa taxi in Puerto Princesa, 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 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table shows the beneficial ownership of our common stock as of
February 25, 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 February 25, 2009;
(2) each of the Company's Directors and Executive Officers; and
(3) all of its Directors and Executive Officers as a group.
33
AMOUNT OF SHARES PERCENT OF SHARES
IDENTITY OF BENEFICIALLY BENEFICIALLY
PERSON OR GROUP OWNED OWNED1,2 CLASS
- ---------------------- ---------------- ------------------ ------
Robert Kang, CEO,
President and
Interim CFO 700,000 1.95% Common
- ---------------------- ---------------- ------------------ ------
Jung Yong Lee, CTO and
Director 3,000,000 8.35% Common
- ---------------------- ---------------- ------------------ ------
Chul Ho Kim, Director 200,000 0.56% Common
- ---------------------- ---------------- ------------------ ------
Gun Il Kim
611 Lotte Village
1642-25 Seocho-Dong
Seocho-Gu, Seoul Korea 8,100,000 22.53% Common
- ---------------------- ---------------- ------------------ ------
Jong In Kwon
103-604 World Meridian
Apt 297
Yeomchang Dong
Kangseo Gu Seoul Korea 2,200,000 6.12% Common
- ---------------------- ---------------- ------------------ ------
Jin Wook Choi
5-208 Hyundai Apt 840
Shindang Dong
Joong-Gu Seoul Korea 2,200,000 6.12% Common
- ---------------------- ---------------- ------------------ ------
Kyeong Ae Kim
130-1101 Sk Bookhansan
City Apt 1353
Mee-A Dong
Kangbuk Gu Seoul Korea 1,650,000 4.59% Common
- ---------------------- ---------------- ------------------ ------
All Directors and
Officers as a Group 3,900,000 10.8 % Common
- ---------------------- ---------------- ------------------ ------
(1) The percentage of shares owned is based on 35,946,449 shares being
outstanding as of February 25, 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 exercisable within sixty days,
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 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
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
34
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
EXECUTIVE OFFICER AND DIRECTOR BIOS
Shi Chul (Robert) Kang,Chief Executive Officer and President
- ------------------------------------------------------------
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
between November 193 and August 1985, 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 between
January 1986 to August 1989. He founded one of the leading advertising
companies in Korea in September 1989, Ad Express and On & Off, and managed the
firms until September 2000. One & Off merged into WPP Group as he became
president of META B, a management consulting firm from October 2000 to October
2001. Between November 2001 and December 2005 he founded and ran the marketing
consulting firm MN Research as chairman and Chief Executive Officer. Recently,
he served as president of Pico North Asian, a multinational global event
marketing company in Hong Kong for from February 2006 to March 2008. 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. From March 2002 to June 2004 he was Chief
of Research and Development for Pyeonghwa Motors, a Korean car manufacturer and
dealer. From January 2005 to October 2005 he was Chief of Research and
Development for GEO EV Co. Ltd. He founded Leozone in January 2006 and has been
with the Company since then. His experience includes heading projects that have
incorporated the
35
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
- ---------------------
For more than 10 years, Mr. Kim has been 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);
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.
36
ITEM 6. EXECUTIVE COMPENSATION.
COMPENSATION DISCUSSION AND ANALYSIS
Objectives and Philosophy ofour 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:
- - 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
37
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.
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 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.
38
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, CEO, and interim CFO.
GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL YEAR 2007
The Company currently does not participate in any equity award plan. During
fiscal 2007, we did not grant any equity awards under any equity award plan.
OPTION EXERCISES FOR FISCAL 2007
During fiscal 2007, none of the named executive officers exercised options.
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, 2007.
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.
39
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
- -------------- ---- ------------- ------------- ------------ ------------- ------------ ------- ---------
Han Young Kim(1) 2006 0 0 0 0 0 0 0
2007 0 0 0 0 0 0 0
Sang Bo Lee(2) 2006 0 0 0 0 0 0 0
2007 0 0 0 0 0 0 0
Jung Yong Lee(3) 2007 86,093(4) 0 0 0 0 0 0
(1) Han Young Kim was the Company's President and CEO from September 30, 2005 to
September 19, 2007.
(2) Sang Bo Lee was the Company's Chief Financial Officer and Secretary from
September 30, 2005 to September 19, 2007.
(3) Jung Yong Lee was the Company's President and CEO from September 19, 2007 to
November 18, 2008. On November 18, 2008, Shi Chul Kang became the Company's
President and CEO.
(4) Number represents average 2007 exchange rate between US$ and Korean Won.
Mr. Lee was paid 8 million Korean Won for his services in 2007.
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
- ------------- --------------------- --------------------- ----------------------------- --------- ----------
Shi Chul Kang 0 0 - - -
40
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 superseding the LOI 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. Cash
fees will be paid on a pro rata basis as sales are made, and the shares will be
issued to SEA and Dr. Kang once the sales agreement between the joint venture
and the Company is executed. If all sales are made, SEA will receive cash of
approximately $520,000 and Dr. Kang will receive approximately $480,000, based
on a sale price of about $4,000 per vehicle and $4,000 per battery. Dr. Kang
continues to have a direct material interest in this transaction.
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.
OFFICER LOAN
The Company has received approximately $1,500,000 in cash advances from Jung
Yong Lee, one of its officers. The loan is not pursuant to any formal agreement
and is due on demand.
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. We
did not use a definition of independence of any national securities exchange or
inter-dealer quotation service to determine the independence of our directors.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings and, to the
Company's knowledge, no such proceedings are threatened or contemplated by any
party.
41
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
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. We currently have no plan to apply to have our common stock
listed or quoted on any other market, quotation service or exchange, however we
may in the future.
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.
The Company acquired its current operating business on October 2, 2007. Prior
to then, the Company's common stock rarely traded and did not reflect any
existing business. As a consequence, pricing prior to such date would not
reflect any real stock transactions or pricing and has been omitted.
HIGH LOW
Fiscal 2007
Fourth Quarter (from October 2) $0.56 $0.11
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
Fiscal 2009
First Quarter $1.01 $0.11
Second Quarter (through April 24) $0.51 $0.10
As of April 27, 2009, the Company had 100,000,000 shares of common stock
authorized with 35,946,449 shares issued and outstanding, and approximately
5,912,315 freely tradable shares in the public float. These shares were held by
approximately 859 shareholders of record and Company estimates by over 1,000
beneficial shareholders.
42
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.
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 February 25, 2009 the last reported sale
price of our common stock was $0.45 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 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.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On January 28, 2009, we issued 833,334 shares of our common stock to an
accredited investor for the amount of about $417,000 (500,000,000 Korean Won).
This issuance was completed in accordance with Section 4(2) of the Securities
Act and Regulation D in an offering without any public offering or distribution.
These shares are restricted securities and include an appropriate restrictive
legend. The accredited investor executed and delivered representations
containing facts that establish him as an "Accredited Investor" as defined by
Rule 501(a) of the Securities Act. The Company investigated the representations
and determined that they were accurate.
On January 28, 2009, we issued 700,000 shares to Robert Kang, currently our
Chief Executive Officer, President and Interim Chief Financial Officer, in
consideration for consulting services performed prior to joining the Company
valued at $252,000. This issuance was completed in accordance with Section 4(2)
of the Securities Act and Regulation D in an offering without any public
offering or distribution.
On January 28, 2009, we issued 1,300,000 shares to SEA Motors, Inc. in
consideration for consulting services valued at $468,000. This issuance was
completed in accordance with Section
43
4(2) of the Securities Act and Regulation D in an offering without any public
offering or distribution.
On January 28, 2009, we issued 500,000 shares to a consulting firm in
consideration for consulting services valued at $180,000. This issuance was
completed in accordance with Section 4(2) of the Securities Act and Regulation D
in an offering without any public offering or distribution.
On January 28, 2009, we issued 1,000,000 shares to a consulting firm in
consideration for consulting services valued at $360,000. This issuance was
completed in accordance with Section 4(2) of the Securities Act and Regulation D
in an offering without any public offering or distribution.
On October 24, 2008, we issued 1,000,800 shares of our common stock to 27
accredited investors for the amount of about $200,000. This issuance was
completed in accordance with Section 4(2) of the Securities Act and Regulation D
in an offering without any public offering or distribution. These shares are
restricted securities and include an appropriate restrictive legend. Each
accredited investor executed and delivered representations containing facts that
establish them as "Accredited Investors" as defined by Rule 501(a) of the
Securities Act. The Company investigated the representations and determined that
they were accurate.
On February 1, 2008, the Company issued 300,000 shares to consultants for
services valued at $60,000. This issuance was completed in accordance with
Section 4(2) of the Securities Act in an offering without any public offering or
distribution. These shares are restricted securities and include an appropriate
restrictive legend. The consultants executed and delivered representations
containing facts that establish them as "Accredited Investors" as defined by
Rule 501(a) of the Securities Act. The Company investigated the representations
and determined that they were accurate.
On November 5, 2007, the Company issued 200,000 shares to consultants for
services valued at $44,800. This issuance was completed in accordance with
Section 4(2) of the Securities Act in an offering without any public offering or
distribution. These shares are restricted securities and include an appropriate
restrictive legend. The consultants executed and delivered representations
containing facts that establish them as "Accredited Investors" as defined by
Rule 501(a) of the Securities Act. The Company investigated the representations
and determined that they were accurate.
On November 12, 2007, the Company issued 24,200,000 shares valued at $24,200 to
the shareholders of Leozone in exchange for 100% of the outstanding common stock
of Leozone. This issuance was completed in accordance with Section 4(2) of the
Securities Act in an offering without any public offering or distribution.
These shares are restricted securities and include an appropriate restrictive
legend.
44
ITEM 11. DESCRIPTION OF SECURITIES.
The following sets forth the material terms of the Company's securities.
However, a more detailed description of our securities is contained in the
Company's Articles of Incorporation.
COMMON STOCK
Our Articles of Incorporation authorize the issuance of up to 100,000,000 shares
of common stock, par value $0.001. There were 35,946,449 shares of common stock
issued and outstanding as of April 27, 2009.
Holders of our common stock are entitled to one vote per share on all matters to
be voted on by the stockholders. Holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor. In the event of a liquidation, dissolution,
or winding up of the Company, the holders of common stock are entitled to share
ratably in all of our assets which are legally available for distribution after
payment of all debts and other liabilities and liquidation preference of any
outstanding common stock.
Holders of our common stock have no preemptive rights to purchase common stock.
There are no conversion or redemption rights or sinking fund provisions with
respect to the common stock. The outstanding shares of common stock are validly
issued, fully paid and non-assessable.
NUMBER OF SHARES OUTSTANDING
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 828 shareholders of record and Company estimates by more than
1,000 beneficial shareholders.
As of December 31, 2007, the Company had 100,000,000 shares of common stock
authorized with 30,312,315 shares issued and outstanding and approximately
5,912,315 freely tradable shares in the public float. These shares were held by
approximately 800 shareholders of record and Company estimates by more than
1,000 beneficial shareholders.
As of December 31, 2006, the Company had 100,000,000 shares of common stock
authorized with 28,537,315 shares issued and outstanding and approximately
3,412,315 freely tradable shares in the public float. These shares were held by
approximately 800 shareholders of record and Company estimates by more than
1,000 beneficial shareholders.
PREFERRED STOCK
Our Articles of Incorporation do not authorize the issuance of Preferred Stock.
There are presently no shares of preferred stock outstanding.
45
WARRANTS
The Company currently has no outstanding warrants or other rights to purchase
shares of the Company's common stock.
DIVIDEND POLICY
Holders of the Company's common stock will be entitled to receive cash dividends
when declared by the Board of Directors of the Company, out of funds legally
available for payment thereof. However, if dividends are not declared by the
Board of Directors, no dividends shall be paid. Under Delaware General
Corporation Law, a corporation is prohibited from paying dividends if the
Company, as a result of paying such dividends, would not be able to pay its
debts as they come due, or if the Company's total liabilities and preferences to
preferred shareholders if any exceed total assets. Any payment of cash
dividends of the Common Stock in the future will be dependent upon the Company's
financial condition, results of operations, current and anticipated cash
requirements, plans for expansion, as well as other factors the Board of
Directors deems relevant.
It is not anticipated that any cash dividends will be paid in the foreseeable
future. While the Company's dividend policy will be based on the operating
results and capital needs of the business, it is anticipated that all earnings,
if any, will be retained to finance the future expansion of the Company's
business. Therefore, prospective investors who anticipate the need for
immediate income by way of cash dividends from their investment should not
purchase the Shares offered.
REPORTS TO STOCKHOLDERS
The Company intends to comply with the periodic reporting requirements of the
Securities Exchange Act of 1934. The Company plans to furnish its stockholders
with an annual report for each fiscal year ending December 31, containing
financial statements audited by its independent certified public accountants.
The SEC maintains an Internet site at www.sec.gov that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC. The public may also read and copy any materials we
file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 (call 1-800-SEC-0330 for information).
TRANSFER AGENT
The transfer agent and registrar for our Common Stock is:
Madison Stock Transfer Inc.
PO Box 145
Brooklyn, NY 11229
46
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law provides, in effect, that any person made a
party to any action by reason of the fact that he is or was a director, officer,
employee or agent of our company may and, in certain cases, must be indemnified
by our company against, in the case of a non-derivative action, judgments,
fines, amounts paid in settlement and reasonable expenses (including attorneys'
fees) incurred by him as a result of such action, and in the case of a
derivative action, against expenses (including attorneys' fees), if in either
type of action he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of our company and in any criminal
proceeding in which such person had reasonable cause to believe his conduct was
lawful. This indemnification does not apply, in a derivative action, to matters
as to which it is adjudged that the director, officer, employee or agent is
liable to our company, unless upon court order it is determined that, despite
such adjudication of liability, but in view of all the circumstances of the
case, he is fairly and reasonably entitled to indemnification for expenses.
At present, there is no pending litigation or proceeding involving any director
or officer as to which indemnification is being sought, nor are we aware of any
threatened litigation that may result in claims for indemnification by any
director or officer.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Set Forth Below.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Prior to appointing Gruber & Company LLC as our registered independent public
auditing firm, the Company was dormant and had not engaged a registered
independent public auditing firm.
Since engaging Gruber & Company, there have been no disagreements between the
Company and our registered independent public auditing firm on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope of procedure, which disagreements, if not resolved to the satisfaction of
such firm, would have caused them to make reference to the subject matter
thereof in their report on the Company's financial statements for such periods.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
FINANCIAL STATEMENTS
Please see the following financial statements set forth below beginning on page
F-1:
- - Financial statements for the year ended December 31, 2008
- - Financial statements for the years ended December 31, 2007 and December 31,
2006;
47
EXHIBITS
3.1 Articles of Incorporation Leo Motors, Inc. as amended.*
3.2 Restated bylaws of Leo Motors, Inc.*
10.1 Agreement between the Company and Keimyung University dated
November 14, 2007.*
10.2 Memorandum of Agreement between the City Government of Puerto
Princessa, Philippines, Leo Motors, Inc., and Sea Motors, Inc.*
10.3 Agreement between the Company and Cusco, Inc. dated November 22, 2006.**
10.4 Agreement between the Company and Leo Motorcars Co. Ltd. (Thailand)
dated February 15, 2008.**
10.5 Letter of Intention between the Company and SEA Motors dated December
29, 2008.**
* Filed with the Company's registration statement on Form 10 filed December 10,
2008, and hereby incorporated herein by this reference.
** Filed with the Company's Amendment no. 1 to the registration statement on
Form 10 filed March 3, 2009, and hereby incorporated herein by this reference.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
LEO MOTORS, INC.
(Registrant)
Date: April 27, 2009 By: \s\ Robert Kang
---------------
Robert Kang
President, Chief Executive Officer
and Interim Chief Financial Officer
48
LEO MOTORS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Year Ended December 31, 2008
- -------------------------------------------------------------
Report of Independent Registered Public Accounting Firm.. . . . . . F-2
Consolidated Balance Sheets as at December 31.. . . . . . . . . . . F-3
Consolidated Statement of Operations for the year ended
December 31, 2008. . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Comprehensive Income for the
year ended December 31, 2008.. . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Changes in Stockholders'
Equity for the year ended December 31, 2008. . . . . . . . . . F-6
Consolidated Statements of Cash Flows for the year ended
December 31, 2008. . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to the Consolidated Financial Statements. F-8
Years Ended December 31, 2007 and December 31, 2006
- -------------------------------------------------------------
Report of Independent Registered Public Accounting Firm.. . . . . . F-14
Consolidated Balance Sheets as at December 31, 2007 and
December 31, 2006. . . . . . . . . . . . . . . . . . . . . . . F-15
Consolidated Statement of Operations for the years ended
December 31, 2007 and December 31, 2006. . . . . . . . . . . . F-16
Consolidated Statements of Comprehensive Income for the years
ended December 31, 2007 and December 31, 2006. . . . . . . . . F-17
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2007 and December 31, 2006. . F-18
Consolidated Statements of Cash Flows for the years ended
December 31, 2007 and December 31, 2006. . . . . . . . . . . . F-19
Notes to the Consolidated Financial Statements. . . . . . . . . . . F-20
F-1
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 losses. This item among others, raises
substantial doubt about its ability to continue as a going concern. These
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-2
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
Common Stock, Authorized
100,000,000 Shares, $0.01 par
value, 31,613,115 and 30,312,315
shares issued and outstanding 31,613 30,312
Additional Paid in Capital 323,351 181,570
Comprehensive Income (Loss) 237,386 (52,446)
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-3
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended December 31, 2008 and 2007
FOR THE PERIOD
OF INCEPTION
YEAR ENDED YEAR ENDED JULY 1, 2006 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2008
-------------- -------------- -----------------
SALES $ 82,435 $ 172,316 $ 254,751
COST OF SALES 35,511 121,846 157,357
-------------- -------------- -----------------
GROSS PROFIT 46,924 50,470 97,394
EXPENDITURES:
Salaries and Benefits 169,149 76,559 368,216
Service Fees 23,132 64,708 231,658
General and Administrative 125,480 920,649 1,137,600
-------------- -------------- -----------------
TOTAL EXPENDITURES 317,761 1,061,916 1,737,473
NET LOSS FROM OPERATIONS (270,837) (1,011,446) (1,640,079)
OTHER INCOME (EXPENSE)
Other Income 105,268 5,769 111,037
-------------- -------------- -----------------
NET LOSS $ (165,569) $ (1,005,677) $ (1,529,042)
Loss per share (0.005) (0.033)
Weighted Avg. Shares 30,637,515 30,312,315
The accompanying notes are an integral part of these financial statements.
F-4
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Years ended December 31, 2008 and 2007
FOR THE PERIOD
OF INCEPTION
YEAR ENDED YEAR ENDED JULY 1, 2006 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2008
------------ ------------ ---------------
Net Loss $ (165,569) $(1,005,677) $ (1,529,042)
Currency Transaction Loss (540) (1,467) (2,007)
Total Comprehensive Income (Loss) $ (166,109) $(1,007,144) $ (1,531,049)
The accompanying notes are an integral part of these financial statements.
F-5
LEO MOTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2008 and 2007
Additional
Comprehensive Commo n 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)
The accompanying notes are an integral part of these financial statements.
F-6
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31, 2008 and 2007
FROM JULY 1,
YEAR ENDED YEAR ENDED 2006 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2008 2007 2008
------------ ------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (166,109) $(1,007,144) $ (1,531,049)
Adjustments to reconcile net
loss to net cash
provided by operating activities:
Stock issued 143,082 - 143,082
Depreciation 18,601 35,000 61,866
Comprehensive loss 289,832 (45,457) 237,386
(Increase) in Inventory (16,260) (19,315) (35,575)
(Increase) Decrease in Accounts
Receivable 687 (139) (13,854)
(Increase) Decrease in Deposits/
Prepaid 79,990 224,763 (61,318)
Increase (Decrease) in Accounts
Payable and Accrued Expenses/
Payments in Advance (136,198) (127,348) (121,253)
Increase in Taxes and Advances (32,708) 27,148 536,380
------------ ------------ --------------
NET CASH FLOWS USED IN
OPERATING ACTIVITIES 180,917 (912,492) (784,335
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets - (159,153) (200,160)
CASH FLOWS FROM FINANCING ACTIVITIES:
104,158 211,882
Proceeds from related party - 991,591 991,591
Debt reduction related party (186,797) - (186,797)
------------ ------------ --------------
NET CASH FLOWS FROM FINANCING
ACTIVITIES (186,797) 1,095,749 1,016,676
NET INCREASE (DECREASE) IN CASH (5,880) 24,104 32,181
CASH AT THE BEGINNING OF THE PERIOD 38,061 13,957
------------ ------------
CASH AT THE END OF THE PERIOD $ 32,181 $ 38,061 $ 32,181
============ ============ ==============
Income taxes paid - - -
Interest expense paid - - -
The accompanying notes are an integral part of these financial statements.
F-7
LEO MOTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
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 Shinil
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. The Company is a development stage enterprise under
SFAS No. 7, as principal operations have begun but the Company has not realized
substantial revenues.
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 going 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.
F-8
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.
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.
The Company anticipates adopting a warranty and return policy granting a one
year limited warranty. The policy will warrant that the products will be free
from defects in material and workmanship and meet Seller's published
specifications at the time of shipment under normal use and regular service and
maintenance. The Company is evaluating the accounting treatment for product
returns and warranties and will provide an allowance at the time of sale.
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 $250,000 federal depository insurance limit; however,
the Company has not experienced any losses on deposits. The Company extends
credit based on an evaluation of the customer's financial condition, generally
without collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses, as required.
Cash Equivalents
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalent.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which is generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost
F-9
and accumulated depreciation are removed from the accounts and any gain or loss
is reflected in other income (expense).
The Company will periodically evaluate whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of fixed assets
or whether the remaining balance of fixed assets should be evaluated for
possible impairment. We use an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their recoverability.
Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
The functional currency of the Company is the Korean Won. Assets and liabilities
are translated to U.S. Dollars at the period-end exchange rates ($.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).
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
F-10
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 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
F-11
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.
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.
F-12
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-13
GRUBER & COMPANY LLC
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Leozone, Inc.
We have audited the accompanying balance sheet of Leozone, Inc. as of December
31, 2007 and 2006 and the related statements of operations, stockholders equity
and cash flows for the years then ended and for the period July 1, 2006 to
December 31, 2007. 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,
2007 and 2006 and the results of its' operations and its' stockholders equity
and cash flows for the years then ended and for the period of inception from
July 1, 2006 to December 31, 2007 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 losses. This item among others raises
substantial doubt about its ability to continue as a going concern. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty
\s\ Gruber & Company LLC
- ------------------------
Gruber & Company LLC
Dated September 6,2008
Lake St. Louis, MO 63367
F-14
LEO MOTORS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
DECEMBER 31, DECEMBER 31,
2007 2006
-------------- --------------
ASSETS
Current Assets:
Cash in Bank $ 38,061 $ 13,957
Accounts Receivable 14,541 14,402
Inventory 19,315
-------------- --------------
Prepaid Costs 29,981
Total Current Assets 101,898 28,359
-------------- --------------
Fixed Assets-Net 156,895 32,742
-------------- --------------
Deposits 111,327 366,071
-------------- --------------
TOTAL ASSETS $ 370,120 $ 427,172
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses 14,945 142,293
Taxes Payable 34,788 3,320
Payments Received in Advance 534,300 538,620
Related Party Payable 991,591
-------------- --------------
Total Current Liabilities 1,575,624 684,233
Total Liabilities 1,575,624 684,233
-------------- --------------
Stockholders' Equity
Common Stock, Authorized
100,000,000 Shares, $0.01
par value, 30,312,315, shares
issued and outstanding 30,312 30,312
Additional Paid in Capital 181,570 77,412
Comprehensive Loss
-Translation (loss) (52,446) (6,989)
Retained Deficit (1,364,940) (357,796)
-------------- --------------
Stockholders' Deficit (1,205,504) (257,061)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 370,120 $ 427,172
============== ==============
The accompanying notes are an integral part of these financial statements.
F-15
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
December 31, 2007 and 2006
FOR THE PERIOD FOR THE PERIOD
FOR THE FROM INCEPTION FROM INCEPTION
YEAR ENDED JULY 1, 2006) TO JULY 1, 2006) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 2007
-------------- ------------------ -----------------
SALES $ 172,316 $ - $ 172,316
COST OF SALES 121,846 - 121,846
-------------- ------------------ -----------------
GROSS PROFIT 50,470 - 50,470
EXPENDITURES:
Salaries and Benefits 76,559 122,508 199,067
Service Fees 64,708 143,817 208,526
-------------- ------------------ -----------------
General and
Administrative 920,649 91,471 1,012,120
TOTAL EXPENDITURES 1,061,916 357,796 1,419,712
-------------- ------------------ -----------------
NET LOSS FROM OPERATIONS (1,011,446) (357,796) (1,369,242)
OTHER INCOME (EXPENSE)
-
Other Income 5,769 5,769
NET LOSS $ (1,005,677) $ (357,796) $ (1,363,473)
============== ================== =================
Weighted Avg. Shares 30,312,315 30,312,315
Loss per Share (0.033) (0.012)
The accompanying notes are an integral part of these financial statements.
F-16
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF COMREHENSIVE INCOME
December 31, 2007 and 2006
FOR THE PERIOD FOR THE PERIOD
FOR THE FROM INCEPTION FROM INCEPTION
YEAR ENDED (JULY 1, 2006) TO (JULY 1, 2006) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2007 2006 2007
-------------- ------------------- -------------------
Net Loss $ (1,005,677) $ (357,796) $ (1,363,473)
Transaction loss on
currency Differential (1,467) - (1,467)
-------------- ------------------- -------------------
Total Comprehensive
income $ (1,007,144) $ (357,796) $ (1,364,940)
F-17
LEO MOTORS, INC
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
December 31, 2007 and 2006
Comprehensive Retained
Common Stock Loss Earnings
Shares Amount APIC (Deficit) Total
------------ -------- --------------- ------------ ------------
Balance, July 1, 2006 - $ - $ - $ - $ -
Common Stock issued to founders 30,312,315 30,312 77,412 - 107,724
-
Net Loss for the period ended December 31, 2006 - - (6,989) (357,796) (364,785)
------------ -------- --------------- ------------ ------------
Balance December 31, 2006 30,312,315 30,312 70,423 (357,796) (257,061)
Capital Contribution 104,158 - 104,158
Net loss for the year ended December 31, 2007 (45,457) (1,007,144) (1,052,601)
------------ -------- --------------- ------------ ------------
Balance December 31, 2007 30,312,315 30,312 129,124 (1,364,940) (1,205,504)
============ ======== =============== ============ ============
The accompanying notes are an integral part of these financial statements.
F-18
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
December 31, 2007 and 2006
FOR THE PERIOD
FOR THE FOR THE FROM INCEPTION
YEAR ENDED PERIOD ENDED (JULY 1, 2006)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
2007 2006 2007
------------- ------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,007,144) $ (357,796) $ (1,364,940)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation 35,000 8,265 43,265
Comprehensive loss (45,457) (6,989) (52,446)
(Increase) in Inventory (19,315) (19,315)
(Increase) Decrease in
Accounts Receivable (139) (14,402) (14,541)
(Increase) Decrease in
Deposits/Prepaid 224,763 (366,071) (141,308)
Increase (Decrease) in Accounts
Payable and Accrued Expenses (127,348) 142,293 14,945
Increase in Taxes and Advances 27,148 541,940 569,088
------------- ------------- ---------------
NET CASH FLOWS USED IN
OPERATING ACTIVITIES (912,492) (52,760) (965,252)
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets (159,153) (41,007) (200,160)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds for Sale of Stock 104,158 107,724 211,882
Proceeds from related party 991,591 991,591
------------- ------------- ---------------
NET CASH FLOWS FROM
FINANCING ACTIVITIES 1,095,749 107,724 1,203,473
NET INCREASE (DECREASE) IN
CASH 24,104 13,957 38,061
CASH AT THE BEGINNING OF
THE PERIOD 13,957 -
------------- ------------- ---------------
CASH AT THE END OF THE PERIOD $ 38,061 $ 13,957 $ 38,061
============= ============= ===============
INCOME TAXES PAID - -
INTEREST EXPENSE PAID - -
The accompanying notes are an integral part of these financial statements.
F-19
LEO MOTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007 and 2006
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
Leo Motors, 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 has 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 Company
is a development stage enterprise under SFAS No. 7, as operations have commenced
but the Company has not yet begun to realize substantial revenues.
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 going 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.
Management plans to take the following steps that it believes will be sufficient
to provide the Company with the ability to continue in existence.
Management intends to merge with a public "shell" vehicle and raise money
through the sale of its stock. Financing enabling the Company to complete the
transaction has been completed.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the country-regionplaceUnited States of America requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities, disclosure of contingent assets
F-20
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.
Accounts receivable 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 not
established a reserve as receivables are minimal.
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 $100,000 federal depository insurance limit; however,
the Company has not experienced any losses on deposits. The Company extends
credit based on an evaluation of the customer's financial condition, generally
without collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses, as required.
Cash Equivalents
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalent.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which is generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other
F-21
disposition of a depreciable asset, cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in other income
(expense).
The Company will periodically evaluate whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of fixed assets
or whether the remaining balance of fixed assets should be evaluated for
possible impairment. We use an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their recoverability.
Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
The functional currency of the Company is the Korean WonAssets and liabilities
are translated to U.S. Dollars at the period-end exchange rates ($.00107527) and
revenues and expenses are translated at weighted average exchange rates for the
year, which was (.00104564) . Resulting translation adjustments are recorded as
a component of stockholders' equity in other comprehensive income (loss).
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. As of May
31, the company has a conversion feature basic and dilutive shares are
presented.
F-22
Stock-Based Compensation
Effective January 1, 2006, the Company prospectively adopted FAS 123 R , Stock
- -Based Payments, and related Securities and Exchange Commission rules included
in Staff Accounting Bulletin No. 107. Under this method, compensation cost
recognized beginning January 1, 2006 will include costs related to all
share-based payments granted subsequent to December 31, 2005 based on the
grant-date fair value estimated in accordance with the provisions of FAS 123 R.
Compensation cost for stock options granted to employees is recognized ratably
over the vesting period.
Prior to January 1, 2006 the Company has retroactively adopted FAS 123R and
recorded compensation expense at the determined market price. That market price
was the amount after founder shares that the Company raised money at. This
amount, for the most part was $0.25 per share. In 2005 the company issued shares
for services valued at $30,000.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No 46, "Consolidation of
Variable Interest Entities" (an interpretation of Accounting Research Bulletin
(ARB) No. 51, Consolidation Financial Statements). Interpretation 46 addresses
consolidation by business enterprises of entities to which the usual condition
of consolidation described in ARB-5 does not apply. The Interpretation changes
the criteria by which one company includes another entity in its consolidated
financial statements.
The general requirement to consolidate under ARB-51 is based on the presumption
that an enterprise's financial statement should include all of the entities in
which it has a controlling financial interest (i.e., majority voting interest).
Interpretation 46 requires a variable interest entity to receive a majority of
the entity's residual returns or both. A company that consolidated a variable
interest entity is called the primary beneficiary of that entity. In December
2003, the FASB concluded to revise certain elements of FIN 46, primarily to
clarify the required accounting for interests in variable interest entities.
FIN-46R replaces FIN-46. that was issued in January, 2003. FIN-46R exempts
certain entities from its requirements and provides for special effective dates
for entities that have fully or partially applied FIN-46 as of December 24,
2003. In certain situations, entities have the option of applying or continuing
to apply FIN-46 for a short period of time before applying IN-46R. In general,
for all entities that were previously considered special purpose entities, FIN
46 should be applied for registrants who file under Regulation SX in periods
ending after March 31, 2004, and for registrants who file under Regulation SB,
in periods ending after December 15, 2004. The Company does not expect the
adoption to have a material impact on the Company's financial position or
results of operations.
During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", effective for contracts entered
into or modified after September 30, 2003, except as stated below and for
hedging relationships designated after September 30, 2003. In addition, except
as stated below, all provisions of this Statement should be applied
prospectively. The provisions of this Statement that relate to Statement 133
Implementation Issues that have been effective for fiscal quarters that began
prior to June 15,
F-23
2003, should continue to be applied in accordance with their respective
effective dates. In addition, paragraphs 7(a) and 23(a), which relate to
forward purchases or sales of when-issued securities or other securities that do
not yet exist, should be applied to both existing contracts and new contracts
entered into after September 30, 2003. The adoption of this statement had no
impact on the Company's financial statements.
During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective for public entities at the beginning of the first interim period
beginning after June 15, 2003. This Statement establishes standards for how an
issuer classifies and measures certain financial instrument with characteristics
of both liabilities and equity. It requires that an issuer classify a
freestanding financial instrument that is within its scope as a liability (or an
asset in some circumstances). Many of those instruments were previously
classified as equity. Some of the provisions of this Statement are consistent
with the current definition of liabilities in FASB Concepts Statement No. 6,
Element of Financial Statements. The adoption of this statement had no impact on
the Company's financial statements.
In December 2003, the FASB issued a revised SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" which replaces the
previously issued Statement. The revised Statement increases the existing
disclosures for defined benefit pension plans and other defined benefit
postretirement plans. However, it does not change the measurement or recognition
of those plans as required under SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Specifically, the revised
Statement requires companies to provide additional disclosures about pension
plan assets, benefit obligations, cash flows, and benefit costs of defined
benefit pension plans and other defined benefit postretirement plans. Also,
companies are required to provide a breakdown of plan assets by category, such
as debt, equity and real estate, and to provide certain expected rates of return
and target allocation percentages for these asset categories. The Company has
implemented this pronouncement and has concluded that the adoption has no
material impact to the financial statements.
In December, 2003, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." SAB 104 supersedes
SAB 11, "Revenue Recognition in Financial Statements." SAB 104's primary
purpose is to rescind accounting guidance contained in SAB 101 related to
multiple element revenue arrangements, superseded as a result of the issuance of
EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
Additionally, SAB 104 rescinds the SEC's Revenue Recognition in Financial
Statements Frequently Asked Questions and Answers (the FAQ) issued with SAB 101
that had been codified in SEC Topic, 13, Revenue Recognition. Selected portions
of the FAQ have been incorporated into SAB 104. While the wording of SAB 104
has changed to reflect the issuance of EITF 00-21, the revenue recognition
principles of SAB 101 remain largely unchanged by the issuance of SAB 104, which
was effective upon issuance. The adoption of SAB 104 did not impact the
financial statements.
F-24
In March, 2004, the FASB approved the consensus reached on the Emerging Issues
Task Forces (ETIF) Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The objective of this
Issue is to provide guidance for identifying impaired investments. EITF 03-1
also provides new disclosure requirements for investments for investments are
deemed to be temporarily impaired. In September 204, the FASB issued a FASB
Staff Position (FSP) EITF 03-1-1 that delays the effective date of the
measurement and recognition are effective only for annual periods ending after
June15,2004. The Company has evaluated the impact of the adoption of the
disclosure requirements of EITF 03-1 and does not believe it will have an impact
to the Company's overall combined results of operations or combined financial
position. Once the FASB reaches a final decision on the measurement and
recognition provisions, the Company will evaluate the impact of the adoption of
EITF 03-1.
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment of
ARB No. 43, Chapter 4 ("SFAS No. 151". The amendments made by SFAS 151 clarify
that abnormal amount of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as current-period charges and
require the allocation of fixed production overheads to inventory based on the
normal capacity of the production facilities. The guidance is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal
years beginning after November 23, 2004. The Company has evaluated the impact
of the adoption of SFAS 151, and does not believe the impact will be significant
to the Company's overall results of operations or financial position.
In December 2004, the FASB issued SFAS No. 152, "Accounting for Real Estate
Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS
152") SFAS 152 amends SFAS No. 66, "Accounting for Sales of Real Estate", to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, "Accounting for Real Estate Time-Sharing Transactions". SFAS 152 also
amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real
Estate Projects", to state that the guidance for (a) incidental operations and
(b) costs incurred to sell real estate projects does not apply to real estate
time-sharing transactions. The accounting for those operations and costs is
subject to the guidance in SOP04-2. SFAS 152 is effective for financial
statements for fiscal years beginning after June 15, 2005, with earlier
applications encouraged. The Company has evaluated the impact of the adoption
of SFAS 152, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
F-25
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Asset,
an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."
The amendments made by SFAS 153 are based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basis
measurement principle (fair value) for exchanges of similar productive assets.
That exception required that some nonmonetary exchanges, although commercially
substantive, to be recorded on a carryover basis. By focusing the exception on
exchanges that lack commercial substance, the FASB believes SFAS No. 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after the date of issuance. The
provisions of SFAS No. 153 shall be applied prospectively. The Company has
evaluated the impact of the adoption of SFAS 153, and does not believe the
impact will be significant to the Company's overall results of operations or
financial position.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"). SFAS 123R will provide investors and other users of
financial statements with more compete and neutral financial information by
requiring that the compensation costs relating to share-based payment
transactions be recognized in financial statements. That cost will be measured
based on the fair value of the equity or liability instruments issued SFAS 123R
covers a wide range of share-based compensation arrangements including share
options, restricted share plans, performance-based awards, share appreciation
rights and employee share purchase plans. SFAS 123R replaces SFAS No. 123,
"Accounting for Stock-Based Compensation", and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees". SFAS 123, as originally issued in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable fair-value based method been used. Public entities
(other than those filing as small business issuers) will be required to apply
SFAS 123R as of the first interim or annual reporting period that begins after
June 15, 2005. The Company has evaluated the impact of the adoption of SFAS 123R
and does not believe the impact will be significant to the Company's overall
results of operations or financial position.
In June, 2005, the Financial Accounting Standards Board ('FASB") issued SFAS No.
154, Accounting Changes and Error Corrections - a replacement of APB No. 20 and
FAS No. 3" ("SFAS No. 154"). SFAS No. 154 provides guidance on the accounting
for and reporting of accounting changes and error corrections. It
establishes, unless impracticable, retrospective application as the required
method for reporting a change in accounting principle in the absence of explicit
transition requirements specify to the newly adopted accounting principle. SFAS
No. 154 also provides guidance for determining whether retrospective application
of a change in a accounting principle is impracticable. The correction of an
error in previously issued financial
F-26
statements is not an accounting change. However, the reporting of an error
correction involves adjustments to previously issued financial statements
similar to those generally applicable to reporting an accounting change
retrospectively. Therefore, the reporting of a correction of an error by
restating previously issued financial is also addressed by SFAS No. 154. SFAS
No. 154 is required to be adopted in fiscal years beginning after December 15,
2005. The Company does not believe its adoption in fiscal year 2007 will have a
material impact on its results of operations or financial position.
In March, 2005, the SEC issued guidance on FASB SFAS 123R, "Share-Based
Payments" ("SFAS No. 123R"). Staff Accounting Bulletin No. 107 ("SAB 107") was
issued to assist preparers by simplifying some of the implementation challenges
of SFAS No. 123R while enhancing the information that investors receive. SAB
107 creates a framework that is premised on two themes: (a) considerable
judgment will be required by preparers to successfully implement SFAS no. 123R,
specifically when valuing employee stock options; and (b) reasonable
individuals, acting in good faith, may conclude differently on the fair value of
employee stock options. Key topics covered by SAB 107 include (a) valuation
models - SAB 107 reinforces the flexibility allowed by SFAS No. 123R to choose
an option-pricing model that meets the standard's fair value measurement
objective; (b) expected volatility - SAB 107 provides guidance on when it would
be appropriate to rely exclusively on either historical or implied volatility;
and ( c) expected term - the new guidance includes examples and some simplified
approaches to determining the expected term under certain circumstances. The
Company will apply the principles of SAAB 107 in conjunction with its adoption
of SOFAS No. 123R.
In June, 2005, the Emerging Issues Task Force (EAT) issued No. 05-06,
"Determining the Abortinaction Period of Leasehold Improvements Acquired in a
Business Combination" (EAT No. 05-06). EAT No. 05-06 provides that the
amortization period for leasehold improvements acquired in a business
combination or purchased after the inception of a lease to be the shorter of (a)
the useful life of the assets or (b) a term that includes required lease periods
and renewals that are reasonably assured upon the acquisition of the purchase.
The guidance in EAT No. 05-06 will be applied prospectively and is effective for
periods beginning afar June 29, 2005. The Company does not believe its adoption
will have a material impact on its consolidated results of operations or
financial position.
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 not established a reserve for allowance for doubtful
accounts, as all accounts to date have been satisfied in full.
F-27
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 at
December 31, 2007 for the electric transportation industry.
NOTE 6-FIXED ASSETS
The Company's assets consist of the following:
Furniture Fixtures and Equipment $191,895 $41,007
Less Accumulated Depreciation (35,000) (8,265)
Net $156,895 $32,742
The Company depreciates it assets over useful lives of between 5 and 7 years.
Depreciation expense was $35,000 and $8,265 for the years respectively.
NOTE 7-DUE TO RELATED PARTY
The company is indebted to its officer for advances. Repayment is on demand
without interest.
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-28