UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period endedSeptember 30, 2009
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to
Commission file number 000-15303
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LEO MOTORS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3909667
-------- ----------
(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
291-1, Hasangok-dong, Hanam City, Gyeonggi-do, Republic of Korea 465-250
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code +82 31 796 8805
---------------
n/a
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [x]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act). Yes [ ] No [x]
The number of shares of the registrant's common stock outstanding as of
September 30, 2009 was 40,363,115 shares.
LEO MOTORS, INC.
----------------
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE NO.
- -------- --------------------- ---------
Item 1. Condensed Consolidated Interim Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30,
2009 (unaudited)...................................................F-3
Condensed Consolidated Statements of Operations
or the nine months ended September 30, 2009 (Unaudited)............F-4
Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 2009 (Unaudited)...................F-5
Notes to Condensed Consolidated Interim Financial
Statements (unaudited).............................................F-6
Item 2. Management's Discussion and Analysis................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........13
Item 4. Controls and Procedures.............................................14
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings...................................................14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.........14
Item 3. Defaults Upon Senior Securities.....................................15
Item 4. Submission of Matters to a Vote of Security Holders.................15
Item 5. Other Information...................................................15
Item 6. Exhibits............................................................15
Signatures....................................................................15
Page 2
PART I. FINANCIAL INFORMATION.
ITEM 1. CONDENSED CONSONSOLIDATED INTERIM FINANCIAL STATEMENTS
LEO MOTORS, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
September 30, 2009
SEPTEMBER 30, DECEMBER 31,
2009 2009
(Unaudited) (Audited)
--------------- --------------
CURRENT ASSETS
Cash $ 302,907 $ 32,181
Accounts Receivable, Net 32,817 13,854
Note Receivable
Inventories 73,861 35,575
Other current assets 281,425 130,568
--------------- --------------
TOTAL CURRENT ASSETS 691,010 212,178
Property and Equipment, Net 269,221 5,940
Deposits - 63,104
Intangible Assets 1,678,369 -
--------------- --------------
TOTAL OTHER ASSETS 1,947,590 69,044
TOTAL ASSETS $ 2,638,600 $ 281,222
=============== ==============
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities $ 108,262 $ 16,850
Taxes payable 7,549 2,080
Payments Received in Advance 117,495 396,197
Related Party Payable 626,945 804,794
Short-Term Borrowing 420,628 -
--------------- --------------
TOTAL CURRENT LIABILITIES 1,280,879 1,219,921
TENENT RENT DEPOSIT PAYABLE 8,414 -
--------------- --------------
TOTAL LIABILITIES 1,289,293 1,219,921
SHAREHOLDERS' EQUITY (DEFICIT)
Minority Interest 390,017 -
Common Stock (100,000,000 shares
authorized; $0.001 par 40,363,115 and
31,613,115 shares issued and outstanding
as of September 30, 2009 and December
31, 2008, respectively) 40,363 31,613
Additional Paid-in Capital 5,588,391 323,351
Comprehensive Loss - Translation 69,712 237,386
Deficit (4,739,176) (1,531,049)
--------------- --------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) 1,349,307 (938,699)
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) $ 2,638,600 $ 281,222
=============== ==============
The notes are an integral part of these financial statements
F-3
LEO MOTORS, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2009 and 2008
NINE-MONTHS ENDED
SEPTEMBER 30,
2009 2008
------------ ------------
Sales $ 512,681 $ 3,479
Cost of Goods Sold 242,518 1,369
------------ ------------
GROSS PROFIT 270,163 2,110
OPERATING COSTS AND EXPENSES
Salaries and Benefits 370,541 343,997
Service Fees 331,177 45,140
Selling, General and Administrative 220,150 285,772
------------ ------------
TOTAL OPERATING COSTS AND EXPENSES 921,868 674,909
NET LOSS FROM OPERATIONS (651,705) (672,799)
OTHER INCOME (EXPENSE)
Non-Operating Income 88,386 (89)
Non-Operating Expenses (59,839) -
------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAX BENEFIT (623,158) (672,888)
INCOME TAX
Current Income Taxes - -
Deferred Income Taxes - -
Income Tax Benefit - -
------------ ------------
- -
Minority Interest 55,642 -
------------ ------------
NET INCOME (LOSS) $ (567,516) $ (672,888)
============ ============
NET INCOME PER SHARE $ (0.015) $ (0.022)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMOM
SHARES OUTSTANDING 38,088,923 30,462,315
The notes are an integral part of these financial statements
F-4
LEO MOTORS, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2009 and 2008
NINE-MONTH S ENDED
SEPTEMBER 30, SEPTEMBER 30,
2009 2008
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (567,516) $ (672,888)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Stock for services - 60,000
Foreign Currency Translations (167,674) -
Depreciation 23,432 6,151
Comprehensive loss - foreign currency - 259,852
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Decrease (Increase) in accounts receivable (18,963) 6
Decrease (Increase) in inventories (38,286) 5,043
Decrease (Increase) in other current assets (150,857) 74,389
Increase (Decrease) in accounts payable and
accrued liabilities 91,412 14,311
Increase (Decrease) in taxes 5,469 (142,508)
--------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (822,983) (395,644)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (286,713) (8,035)
Loss in investment in a closely held-company - -
Deposit refunded 63,104 -
Expenditure for intangible assets (1,678,369) -
--------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (1,901,978) (8,035)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in equity 2,633,179 -
Increase (Decrease) in interest payable - -
Increase in Payments Received in Advance (278,702) -
Proceeds ( Repaid) from related party (177,849) 374,887
Proceeds from Short-Term Borrowing 420,628 -
Tenant Rent Deposit Payable 8,414 -
Minority Interest Investment 390,017 -
--------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 2,995,687 374,887
NET INCREASE (DECREASE) IN CASH 270,726 (28,792)
CASH, BEGINNING OF PERIOD 32,181 38,061
--------------- --------------
CASH, ENDING OF PERIOD $ 302,907 $ 9,269
=============== ==============
SUPPLEMENTAL DISCLOSURES ON INTEREST AND I
NCOME TAXES PAID
Interest paid for the period $ 5,722 $ -
=============== ==============
Income taxes paid for the period - -
=============== ==============
The notes are an integral part of these financial statements
F-5
LEO MOTORS, INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
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 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. These conditions raise substantial doubt as to the
Company's ability to continue as a growing concern. These financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. These financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts, or amounts
and classification of recorded asset amounts, or amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable inventory and prepaid expenses, accounts
payable and deferred revenues, the carrying amounts approximate fair value due
to their short maturities.
REVENUE RECOGNITION
Revenues are recognized upon sale and shipment of the product.
F-6
ACCOUNTS RECEIVABLES
Accounts receivables of the Company are reviewed to determine if their carrying
value has become impaired. The Company considers the assets to be impaired if
the balances are greater than 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.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit risk
include cash and cash equivalents.
The Company maintains its cash in well-known banks selected based upon
management's assessment of the bank's financial stability. Balances may
periodically exceed the $250,000 federal depository insurance limit; however,
the Company has not experienced any losses on deposits. The Company extends
credit based on an evaluation of the customer's financial condition, generally
without collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses, as required.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalent.
FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which is generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income (expense).
The Company will periodically evaluate whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of fixed assets
or whether the remaining balance of fixed assets should be evaluated for
possible impairment. We use an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their recoverability.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
The functional currency of the Company is the Korean Won ("KRW"). Assets and
liabilities are translated to U.S. Dollars ("USD") at the period-end exchange
rates of 0.0008412550 KRW to $ 1.00 USD and revenues and expenses are
translated at weighted average exchange rates for the period, which was
0.000761783 KRW to $ 1.00 USD . Resulting translation adjustments are recorded
as a component of stockholders' equity in other comprehensive income (loss).
F-7
ADVERTISING COSTS
Advertising costs are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes." Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
LOSS PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share," the basic income / (loss)
per common share is computed by dividing net income / (loss) available to common
stockholders by the weighted average number of common shares outstanding.
Diluted income per common share is computed similar to basic income per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized over the periods in which the related services are rendered. For
stock based compensation the Company recognizes an expense in accordance with
SFAS No. 123 and values the equity securities based on the fair value of the
security on the date of grant. Stock option awards are valued using the
Black-Scholes option-pricing model.
For the year ended December 31, 2008 the Company issued 1,300,800 shares,
1,000,000 for a reduction of debt and 300,000 for services both valued at market
at .11 per share. The shares for services were recognized as an expense in
general and administrative at $33,000.
For the quarter ended March 31, 2009 the Company issued 4,333,334 shares,
833,334 for cash and the balance valued at market at .50 and recognized a stock
for services expense of $1,750,000.
For the quarter ended June 30, 2009 1,691,666 shares were issued valued at
market of .17 and recognized a stock for services expense of $287,584.
For the quarter ended September 30, 2009, the Company issued 2,725,000 shares,
2,600,000 for cash, 125,000 for services valued at $47,500.
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
F-8
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
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.
F-9
NOTE 2 - 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 3-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 4-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 5-FIXED ASSETS
The Company's assets consist of the following:
09/30/09 12/31/08
---------- ----------
Furniture Fixtures and Equipment $ 170,850 $ 41,007
Less Accumulated Depreciation (25,876) (35,067)
---------- ----------
Net $ 144,974 $ 5,940
The Company depreciates it assets over useful lives of between 3 and 7 years.
Depreciation expense was $23,432 in 2009.
NOTE 6-DUE TO RELATED PARTY
The company at September 30, 2009 owed $ 626,945 for officer advances;
repayment is without interest on demand.
NOTE 7-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.
NOTE 8-BANK LOAN
The Company is indebted to Shin Han Bank at September 30, 2009 for $ 420,628
payable within one year, interest at prime.
F-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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-Q 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
financial statements included in this Quarterly Report on Form 10-Q (the
"Financial Statements"). The financial statements have been prepared in
accordance with generally accepted accounting policies in the United States
("GAAP"). Except as otherwise disclosed, all dollar figures included therein
and in the following management discussion and analysis are quoted in United
States dollars.
OVERVIEW
Leo Motors, Inc. (the "Company") is currently in the process of finalizing the
design and production capability of electric power train systems encompassing
electric scooters, electric sedan/SUV/sports cars, and electric buses/trucks as
well as several models of Electric Vehicles ("EV"). During this year, we have
developed electric power train systems which can replace internal combustion
engines ("ICE"), and can electrify existing IEC cars. During the past two
years, we have developed several models of EV, including electric scooters,
electric cars, and neighborhood electric vehicles ("NEV"). We also have several
other projects in development stages.
We have begun to market our three models of electric scooters: Hilless 1,3, and
5. Initially, we produced 100 units which were sold out to the dealers who will
sell our scooters in Korea, in Japan, and in the U.S. We tested our EV
conversion kit during September, 2009 and exhibited the kits in Tokyo and Seoul,
and have since sold kits and conversion services in Japan and Korea. We have
also successfully manufactured and sold our power storage system for solar and
wind powered houses and buildings, and
Our next immediate goals include production and sale of S 65 SUV and SKG
electric car by the end of 2009, which are to be sold based on order. We are
ready to produce these models using existing body and chassis, and putting our
electric power train systems. We are going to start marketing S65 and SGK from
December 2009. We also hope to begin sale of EVs in the United States by the
end of 2009. As an effort to attain this goal, we are participating in 2009
International Motorcycle Show in Long Beach, California from December 4 to
December 5, 2009.
The Reverse Tricycle Scooters have had a change in design of the vehicle into
four wheelers in order to make more speed and to ensure more safety. The
prototype of the changed model will be completed around late November. After we
monitor the responses from the market, we will arrange for manufacturing
capabilities.
Page 11
We have developed and are in the process of developing several key EV components
that we believe will be competitive with industry leading technology. During
the next twelve months, we intend to continue the development of these
components, integrate them into our own EVs, and market them to other EV
manufacturers.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements arise principally from our plans to develop EV
production capability, additional product development, and marketing costs.
Although in the future we intend to fund our liquidity requirements through a
combination of cash on hand and revenues from operations, during the nine months
ended September 30 of 2009, the Company had incurred $921,868 in expenses and
had realized $512,681 in revenues with $ 242,518 in cost of goods sold.
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 expense has increased gradually from the prior quarter to a minimum
of $70,000 per month to operate our regular business, and we are currently
seeking financing in Korea to implement our business plan.
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 in 2009 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
To date in 2009, we have raised 2,595,000,000 Korea Won financing, approximately
$2,072,000 as follows:
Date Amount Financing Type Investor
- ------- ---------- -------------- ------------------
January $ 417,000 Equity Sang Tae Kim
May 27 $ 400,000 Debt Shin Han Bank
May 30 $ 440,000 Debt Officers
July 14 $ 400,000 Equity Shi Chul Kang
Oct 15 $ 415,000 Equity Korean Individuals
----------
Total 2,072,000
We have raised 840,000 in debt financing. KIBO fund, a Korean government
operated fund for middle sized company with a advanced technology, issued a
guaranteed bond in the amount of 500,000,000 Korean Won after they evaluated our
technology. We borrowed 500,000,000 Korean Won as a short-term loan from Shin
Han Bank by the bond.
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
Page 12
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 and to keep the revenue and profit stable. 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
Revenues
The Sales for nine months ended September 30, 2009 were $512,681 compared to
$3,479 for the nine months ended September 30, 2008. Costs of sales were
$242,518 and gross profit was $270,163 compared to $1,369 as costs of sales and
$2,110gross profit in the same period in 2008. Sales during the third quarter
were not generated from regular business as most of our sales are for our
product samples or development services. We believe recurring revenue will
begin at the fourth quarter of this year as our goal is to begin mass production
and marketing of our designs.
Expenses
During the nine months ended September 30, 2009, we incurred $921,868 in
expenses, compared to $647,909 as of the end of September 30 2008. The primary
increase was due to payment of consulting service fees and development costs. We
also hired R&D and sales staff as part of the implementation of our business.
The company rented another building near its existing office to operate its
sales and administration division.
Expenses for the quarter consisted of the following:
EXPENSES: 2008 2007
Salaries and Benefits $370,541 $343,997
Service Fees 331,177 45,140
General and Administrative 220,150 285,772
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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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ITEM 4. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and Interim Chief Financial Officer (the "Certifying
Officer") maintains a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information, which is required to
be disclosed, is accumulated and communicated to management timely. Under the
supervision and with the participation of management, the Certifying Officer
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the
Exchange Act) within 45 days prior to the filing date of this report. Based
upon that evaluation, the Certifying Officer concluded that our disclosure
controls and procedures are not effective in timely alerting them to material
information relative to our company required to be disclosed in our periodic
filings with the SEC.
CHANGES IN INTERNAL CONTROLS
There were no changes in our internal control over financial reporting during
the quarter ended September 30, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 20, 2009 we issued 2,600,000 shares to two Korean individuals in
exchange for approximately $1,170,000. The shares were sold and issued in an
offering outside of the United States in accordance with Regulation S.
On August 20, 2009 we issued 50,000 shares for Services valued at $22,500. 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.
On September 21, 2009 we issued 75,000 shares for Services valued at $45,000.
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.
On October 15, 2009, we issued 300,000 shares to Dr. Kim in consideration for
joining the Company's Board of Directors. The shares were valued at market of
$0.59. The shares were issued to a Korean individual in an offering outside of
the United States in accordance with Regulation S.
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ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
The following exhibits are filed as part of this quarterly report on Form 10-Q:
31.1 Certification of Chief Executive Officer and Interim Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Interim Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 20, 2009 LEO MOTORS, INC.
(the registrant)
By: \s\Robert Kang
--------------
Robert Kang
Chief Executive Officer
and Interim Chief Financial Officer
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