UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended June 30, 2010
--------------------------------------------
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
---------
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
- --------------------------------------------------------------------------------
(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 June 30,
2010 was 50,783,115 shares.
LEO MOTORS, INC.
----------------
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE NO.
- --------------------------------------------------------------------------------
Item 1. Consolidated Interim Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2010 (unaudited) F-3
Consolidated Statements of Operations for the six months ended
June 30, 2010 (Unaudited) F-4
Consolidated Statements of Changes in Stockholders' Equity for
the six months ended June 30, 2010 (unaudited) F-5
Consolidated Statement of Cash Flows for the six months ended
June 30, 2010 (Unaudited) F-6
Notes to Condensed Consolidated Interim Financial
Statements (unaudited) F-7
Item 2. Management's Discussion and Analysis 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 18
Item 4. Controls and Procedures 19
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 20
Signatures 20
PART I. FINANCIAL INFORMATION.
ITEM 1. CONDENSED CONSONSOLIDATED INTERIM FINANCIAL STATEMENTS
LEO MOTORS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2010
AS OF JUNE 30, AS OF DECEMBER 31,
2010 2009
ASSETS (UNAUDITED) (AUDITED-RESTATED)
- ------------------------------------------------- ---------------- --------------------
CURRENT ASSETS
Cash in banks $ 851,289 $ 499,025
Accounts Receivable-net of allowance of $8,394
and $11,735, respectively 12,377 244,670
Inventory 2,339,254 395,001
Prepaid costs and other current assets 1,552,814 151,067
---------------- --------------------
TOTAL CURRENT ASSETS 4,755,734 1,289,763
Fixed assets- net of accumulated depreciation 264,485 157,981
Deposit 165,059 107,640
Investment in net equity interest 10,850,000 -
---------------- --------------------
TOTAL OTHER ASSETS 11,279,544 265,621
---------------- --------------------
TOTAL ASSETS $ 16,035,278 $ 1,555,384
================ ====================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- -------------------------------------------------
Commitments and Contingencies
CURRENT LIABILITIES
Short term borrowings $ 413,121 $ 428,229
Accounts payable and accrued expenses 649,477 433,004
Other payables 311,531 5,847
Taxes Payable - -
Payments received in advance from customers 2,958,108 296,167
Related party payable - -
---------------- --------------------
TOTAL CURRENT LIABILITIES 4,332,237 1,163,247
Accrued severance benefits 26,624 30,031
---------------- --------------------
TOTAL LIABILIITIES 4,358,861 1,193,278
Minority interest 1,055,861 1,020,428
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, Authorized 100,000,000
Shares, $0.001 par value, 50,783,115 and
40,708,115 shares issued and outstanding 50,783 40,708
Additional paid-in capital 19,262,850 3,964,160
Comprehensive income (Loss) 1,394,890 406,476
Deficit (10,087,968) (5,069,666)
---------------- --------------------
TOTAL STOCKHOLDERS' DEFICIT 10,620,555 (658,322)
---------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 16,035,278 $ 1,555,384
================ ====================
The notes are an integral part of these financial statements
F-3
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Six Months Ended June 30, 2010 and 2009
(Unaudited
) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2010 2009 2010 2009
------------ ------------ ------------ ------------
Sales $ 554,159 $ 29,128 $ 566,622 $ 389,009
Cost of Goods Sold 472,818 25,063 480,158 233,266
------------ ------------ ------------ ------------
GROSS PROFIT 81,341 4,065 86,464 155,743
OPERATING COSTS AND EXPENSES
Salaries and Benefits 122,113 236,131 4,564,718 262,345
Service Fees 77,122 31,201 222,663 65,753
Selling, General and Administrative 331,041 680,212 761,765 2,465,207
------------ ------------ ------------ ------------
TOTAL OPERATING COSTS AND EXPENSES 530,276 947,544 5,549,146 2,793,305
------------ ------------ ------------ ------------
NET LOSS FROM OPERATIONS (448,935) (943,479) (5,462,682) (2,637,562)
OTHER INCOME (EXPENSE)
Non-Operating Income 846 - 9,871 -
Non-Operating Expenses (7,005) (18,752) (17,723) (3,049)
------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAX BENEFIT (455,094) (962,231) (5,470,534) (2,640,611)
INCOME TAX
Current Income Taxes - - - -
Deferred Income Taxes - - - -
Income Tax Benefit - - - -
Attributable to minority interest (203,030) - (452,232) -
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (252,064) $ (962,231) $(5,018,302) $(2,640,611)
============ ============ ============ ============
NET INCOME PER SHARE $ (0.00) $ (0.03) $ (0.11) $ (0.08)
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMOMN
SHARES OUTSTANDING 50,783,115 36,792,282 46,737,286 34,625,615
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS)
NET LOSS $ (252,064) $ (962,231) $(5,018,302) $(2,640,611)
Currency transaction gain (loss) 988,414 (1,231) 988,414 (1,029)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ 736,350 $ (963,462) $(4,029,888) $(2,641,640)
============ ============ ============ ============
The notes are an integral part of these financial statements
F-4
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
For the Six Months Ended June 30, 2010 and 2009
(Unaudited)
ADDITIONAL RETAINED
COMMON STOCK PAID IN COMPREHENSIVE EARNINGS
SHARES AMOUNT CAPITAL INCOME(LOSS) (DEFICIT) TOTAL
---------- ----------- ----------- --------------- ------------- ------------
Balance, January 1, 2010 40,708,115 $ 40,708 $ 3,964,160 $ 406,476 $ (5,069,666) $ (658,322)
Common stock issued for
compensation, Feb 8, 2010 3,075,000 3,075 4,455,690 4,458,765
Common stock issued for
acquisition of BnT Co. ltd. 7,000,000 7,000 10,843,000 10,850,000
Foreign currency translation
adjustment 988,414 988,414
Net loss for the year ended
December 31, 2009 (5,018,302) (5,018,302)
---------- ----------- ----------- --------------- ------------- ------------
Balance, June 30, 2010 50,783,115 $ 50,783 $19,262,850 $ 1,394,890 $(10,087,968) $10,620,555
========== =========== =========== =============== ============= ============
The notes are an integral part of these financial statements
F-5
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2010 and 2009
(Unaudited)
SIX MONTHS ENDED
JUNE 30, 2010 JUNE 30, 2009
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,018,302) $ (2,640,611)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Stock for services 4,458,766 2,037,584
Depreciation 53,950 5,940
Loss on disposition of property and equipment 130 -
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Decrease (Increase) in accounts receivable 232,293 (32,560)
Decrease (Increase) in inventories (1,944,253) 30,400
Decrease (Increase) in deposit and prepaid (1,401,747) 2,215
Increase (Decrease) in accounts payable and accrued liabilities 216,473 83,325
Increase (Decrease) in other payable 305,684 -
Increase (Decrease) in advance from customers 2,661,941 -
Increase (Decrease) in accrued severance benefits (3,407) -
--------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (438,472) (513,707)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in net equity interest (10,850,000) -
Purchase of property and equipment - -
Loss in investment in a closely held-company - -
Outlay for deposit (57,419) -
--------------- ---------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (10,907,419) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued to invest in net equity interest 10,850,000 -
Proceeds from short-term borrowing (15,108) -
Increase (Decrease) in interest payable - -
Increase in minority interest 35,433 -
Proceeds ( Repaid) from advance from customers - 1,626,901
Proceeds from related party/bank - 392,083
Debt reduction - related party and payment in advance - (600,594)
Minority Interest Investment - -
--------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 10,870,325 1,418,390
CHANGE IN CASH DUE TO FOREIGN CURRENCY TRANSLATION ADJUSTMENT 988,414 (372,064)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 512,848 532,619
CASH, BEGINNING OF PERIOD 499,025 32,181
--------------- ---------------
CASH, END OF PERIOD $ 1,011,873.0 $ 564,800.0
=============== ===============
SUPPLEMENTAL DISCLOSURES ON INTEREST AND INCOME TAXES PAID
Interest paid for the period $ - $ -
=============== ===============
Income taxes paid for the period $ - $ -
=============== ===============
The notes are an integral part of these financial statements
F-6
LEO MOTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
NOTE 1 - BACKGROUND
Company Business
- -----------------
Leo Motors, Inc. (the "Company") is engaged in the development, assembly and
sales of electric vehicles ("EVs").
Background
- ----------
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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant account policies of the Company is presented to
assist in understanding the Company's financial statements. The financial
statements and the notes are the representation of the Company's management, who
are responsible for their integrity and objectivity. These accounting policies
conform to U.S. generally accepted accounting principles ("USGAAP") and have
been consistently applied in the preparation of the financial statements.
Basis of Presentation and Consolidation
- -------------------------------------------
These financial statements and related notes are expressed in US dollars. The
Company's fiscal year-end is December 31. The consolidated financial statements
include the financial statements of the Company, its wholly owned subsidiaries.
All inter-company transactions and balances have been eliminated upon
consolidation.
Use of Estimates
- ------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
- ---------------------------------------
For certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable inventory and prepaid expenses, accounts
payable and deferred revenues, the carrying amounts approximate fair value due
to their short maturities.
F-7
Revenue Recognition
- --------------------
The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements". In general, the Company records revenue when persuasive evidence of
an arrangement exists, services have been rendered or product delivery has
occurred, the sales price to the customer is fixed or determinable, and
collectability is reasonably assured. The following policies reflect specific
criteria for the various revenues streams of the Company:
The Company generates revenue from the delivery of goods and records revenues
when the sales are completed, already collected or collectability is reasonably
assured, there is no future obligation and there is remote chance of future
claim or refund to the customers.
Revenue from periodic maintenance agreements is generally recognized ratably
over the respective maintenance periods provided no significant obligations
remain and collectability of the related receivable is probable.
Revenue from the performance of services is recognized upon completion of the
service.
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 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.
Accounts Receivables
- ---------------------
Accounts receivables of the Company are reviewed to determine if their carrying
value has become impaired.
F-8
The Company considers the assets to be impaired if the balances are greater than
one-year old. Management regularly reviews accounts receivable and will
establish an allowance for potentially uncollectible amounts when appropriate.
When accounts are written off, they will be charged against the allowance.
Receivables are not collateralized and do not bear interest.
Concentration of Credit Risk
- -------------------------------
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, cash equivalents and trade accounts
receivable. The Company places its cash with high credit quality financial
institutions in Korea. The Company has not experienced any losses in such bank
accounts through June 30, 2010. At June 30, 2010, our bank deposits were
$851,289.
The Company extends credit based on an evaluation of the customer's financial
condition, generally without collateral. Exposure to losses on receivables is
principally dependent on each customer's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses, as required.
Cash Equivalents
- -----------------
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalent.
Fixed Assets
- -------------
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which is generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income (expense).
The Company will periodically evaluate whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of fixed assets
or whether the remaining balance of fixed assets should be evaluated for
possible impairment. We use an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their recoverability.
Comprehensive Income
- ---------------------
The Company follows ASC Topic 220 Comprehensive Income, formerly Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in the financial statements.
The functional currency of the Company is the Korean Won. Assets and
liabilities are translated to U.S. Dollars at the period-end exchange rates
($.000826241) and ($.0007584166) respectively and revenues and expenses are
translated at weighted average exchange rates for the period, which was
($.000866664) and ($.000742274) respectively. Resulting translation adjustments
are recorded as a component of stockholders' equity in other comprehensive
income (loss).
F-9
Advertising Costs
- ------------------
Advertising costs are expensed as incurred.
Income Taxes
- -------------
The Company accounts for income taxes under ASC Topic 740, formerly SFAS 109,
"Accounting for Income Taxes." Under the asset and liability method, 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. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment. ASC
Topic 740 also requires that uncertain tax positions are evaluated in a two-step
process whereby (1) it is determined whether it is more likely than not that the
tax positions will be sustained based on the technical merits of the position
and (2) for those tax positions that meet the more-likely-than-not recognition
threshold, the largest amount of tax benefit that is greater than fifty percent
likely of being realized upon ultimate settlement with the related tax authority
would be recognized
Loss per Share
- ----------------
In accordance with ASC Topic 260 formerly 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.
Consulting and Service Fees
- ------------------------------
Consulting and Service Fees consist of accounting, legal, and professional fees
and for the period, most of it was paid in common stock.
Research and Development
- --------------------------
According to Statement of Financial Accounting Standards No 2, research and
product development costs are expensed as incurred.
Stock-Based Compensation
- -------------------------
The Company has adopted ASC Topic 718, formerly SFAS No. 123, "Accounting for
Stock-Based Compensation," which 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.
F-10
Foreign Currency Translation
- ------------------------------
Transactions and balances originally denominated in U.S. dollars are presented
at their original amounts. Transactions and balances in other currencies are
converted into U.S. dollars in accordance with ASC Topic 830-20, formerly SFAS
No. 52, "Foreign Currency Translation", and are included in determining net
income or loss.
The Company's reporting currency is the U.S. dollar. The functional currency of
the Company's Korean subsidiaries is the Korean Won (KRW). For foreign
operations with the local currency as the functional currency, assets and
liabilities are translated from the local currencies into U.S. dollars at the
exchange rate prevailing at the balance sheet date and weighted average rates of
exchange for the period for revenues, costs, and expenses. Net gains and losses
resulting from foreign exchange transactions are included in the consolidated
statements of operations. The cumulative translation adjustment and effect of
exchange rate changes on cash at June 30, 2010 was $576,588. Translation
adjustments resulting from the process of translating the local currency
financial statements into U.S. dollars are included in determining accumulated
comprehensive loss. As of June 30, 2010 and for the period then ended, the
exchange rate for the local currency, KRW was $ 1 USD for 1,129 and 1,144 KRW,
respectively.
Recent Accounting Pronouncements and Impact of New Accounting Standards
- --------------------------------
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position, or cash flow.
NOTE 3 - EARNINGS PER SHARE
Basic loss per share are calculated by dividing net loss 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 June 30, 2010 balance of accounts receivable was $12,377, net of
reserve for doubtful accounts.
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. As of June 30, 2010, the inventory consisted
of:
Raw materials $ -
Work in Process 2,339,254
Finished goods -
----------
TOTAL $ 810,198
==========
F-11
NOTE 6 - FIXED ASSETS
The Company's fixed assets consist of the following:
Structures $ 2,545
Vehicles 78,127
Tools 36,282
Equipment, furniture , fixtures and equipment 246,245
----------
363,208
Less Accumulated Depreciation (98,723)
----------
Net $ 264,485
==========
The Company depreciates it assets over useful lives of between 3 and 7 years.
Depreciation expense was $53,950 for the six month period ended June 30, 2010.
NOTE 7 - INVESTMENT IN NET EQUITY OF LEO BNT CO., LTD
On February 11, 2010, Leo Motors, Inc. (the "Company") entered into an agreement
to purchase 50% of Leo BnT Co. Ltd, a Korean Corporation ("BNT"), from two
shareholders of BNT in exchange for 7,000,000 shares of the Company's common
stock. The purchase price was valued at $ 1.55 per share or $10,850,000.
NOTE 8 - 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 and cash repayment in 2009.
NOTE 9 - PAYMENTS RECEIVED IN ADVANCE
The Company during the periods received payments from potential customers, or
deposits, on future orders. The Company's policy is to record these payments as
a liability until the product is completed and shipped to the customer at which
the Company recognizes revenue. As of June 30, 2010, the balance of payments
received in advance was $2,958,108.
NOTE 10 - BANK LOAN
The Company is indebted to Shin Han Bank at June 30, 2010 for $413,121, payable
in May 2010, interest at 6.57 % per annum. The loan is secured by guarantee
issued by "KIBO", a Korean government agency created to guarantee loans to
small-to-medium technology companies.
NOTE 11 - CAPITAL STOCK
Company is authorized to issue up to 100,000,000 common shares at $0.001 par
value. Total number of common shares issued and outstanding as of June 30, 2010
were 50,783,115 shares and 40,708,115 shares, December 31, 2009.
F-12
For the six months ended June 30, 2010, 10,075,000 new shares were issued,
7,000,000 shares for the purchase of 50 % interest in Leo B & T Inc., valued at
$ 1.55 per share or $ 10,850,000, 3,000,000 shares for compensation and 75,000
shares for consulting service, latter two valued at $ 1.45 per share or $
4,458,750.
NOTE 12 - OPERATING RISK
(a) Concentration of credit risk
Financial instruments that potentially expose the Company to concentration of
credit risk consist primarily of cash. The Company places its cash with
financial institutions with high credit ratings.
(b) Country risk
Revenues of the Company are mainly derived from the sale in Korea. The Company
hopes to expand its operations to other Countries, however, such expansion has
not been commenced and there are no assurances that the Company will be able to
achieve such an expansion successfully. Therefore, a downturn or stagnation in
the economic environment of Korea could have a material adverse effect on the
Company's financial condition.
(c) Product risk
The Company might have to compete with larger companies who have greater funds
available for expansion, marketing, research and development and the ability to
attract more qualified personnel. There can be no assurance that Company will
remain competitive should this occur.
(d) Exchange risk
The Company cannot guarantee that the current exchange rate will remain steady,
therefore there is a possibility that the Company could post the same amount of
profit for two comparable periods and because of a fluctuating exchange rate
actually post higher or lower profit depending on exchange rate of Korean Won
were converted to U.S. dollars on that date. The exchange rate could fluctuate
depending on changes in the political and economic environments without notice.
(e) Key personnel risk
The Company's future success depends on the continued services of few
individuals and loss of one or several of their service would be detrimental to
the Company and could have an adverse effect on business development. The
Company does not currently maintain key man insurance on their life but plan to
implement in near future. Future success is also dependent on the ability to
identify, hire, train and retain other qualified managerial and other employees.
NOTE 13 - SEGMENT INFORMATION
The following information is presented in accordance with SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information. In period
ended June 30, 2010, the Company operated in a single reportable business
segment, sales of specialized electric vehicle.
The Company's reportable segments are strategic business units that offer
different products. The Company's reportable segments, although integral to the
success of the others, offer distinctly different
F-13
products and services and require different types of management focus. As such,
these segments are managed separately.
Condensed information with respect to these reportable business segments for the
period is as follows:
Sales from specialized electric vehicles $566,622
(single segment for the period)
NOTE 14 - COMMITMENT AND CONTINGENCIES
13.1 Lease Commitments
Company leases its office space and assembly facilities in HaNam City in Korea
which expires on March 31, 2011 and its monthly minimum rental is $ 6,875.
The minimum obligations under such commitments for the years ending December 31
until its expiration are:
Year 2010 $ 82,500
Year 2011 $ 86,600
Year 2012 $ 91,000
Rental expense for the period ended June 30, 2010 was $19,522.
13.2 Litigation
The Company has no threatened, pending or unsettled litigation as of August 19,
2010, the date the financial statement is available for issuance.
NOTE 15 - CONTRACTS
In May, 2010, the Company appointed M&M Corp as its exclusive Korean provider of
electric scooters. Upon entering the agreement, M&M paid the Company
400,000,000 Korean Won for the order of 170 units of e-scooters. On April 2,
2010, M&M placed a definitive order for 1,170 units for 4.2 billion Korean Won
(approximately $3.73 Million US), and has advanced a down payment of 30 billion
Korean Won (approximately $2.66 million US).
NOTE 16-GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
loss of $5,018,302 during the quarter ended June 30, 2010, and as of that date,
the Company has a deficit of $9,573,491. Those factors create an uncertainty
about the Company's ability to continue as a going concern. Management of the
Company has developed a plan to continue as a going concern by focusing on
increasing short term revenues from sales of its e-Bikes and EV conversion
services. In April, 2010 the Company received its first large scale order for
its EVs, which upon fulfillment will generate the Company's first significant
revenues from its main plan of operation. See Note 15 above.
The ability of the Company to continue as a going concern is dependent on
attaining profitable operations and the success of its business plan. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
..
F-14
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 ("EPTS")
encompassing electric scooters, electric sedan/SUV/sports cars, and electric
buses/trucks as well as several models of Electric Vehicles ("EVs"). Our EPTS
can replace internal combustion engines ("ICEs"). We intend to market our EPTS
to car makers or conversion service providers. During the last two years, we
have been developing eight EPTS of varying power: 3kW, 5kW, 7.5kW, 15kW, 30kW,
60kW, 120kW, and 240kW systems. Each EPTS consists of motor, controller, and
battery power pack with our proprietary Battery Management System ("BMS").
The Company has successfully converted existing models of small cars (internal
combustion engines under 2,000cc), and also a 24 seat bus. The Company launched
60kW power train kits (for compact passenger cars and small trucks) and 120kW
kits (for under 5,000cc ICE passenger cars, buses, and trucks). The Company has
also developed a 240kW kit (for 10,000cc buses and trucks). The 240kW kit is
under testing until October of 2010.
The company has also developed a Low Speed EV ("LSV"), a four-wheeled electric
scooter, and electric bikes. This year, the company launched its electric bikes,
and is now selling them to its distributors. The company also has developed Zinc
Air Fuel Cell Generator to be used as range extender for EVs.
During the period we began marketing of our three models of electric scooters:
Hilless 1, 3, and 5. Initially we produced 100 units, and they were sold out to
the dealers who will sell our scooters in Korea, in Japan, and in the U.S. In
Korea, the company appointed a country distributor, named M&M, a company listed
on KOSDAQ, a division of the Korea Stock Exchange (KRX). These scooters are
being presented to the government organizations such as the post office and
police, social organizations, bigger companies, and delivery businesses. We
have received an initial order of 1,187 electric scooters from M&M for total
potential revenues of 4.2 billion Korean Won (approximately $ 3.73 million USD),
Page 15
including a down payment of 3 billion Korean Won (about $ 2.66 million USD).
The company has delivered 202 units by the end of June, and will deliver 651
units during August, and 334 units by the end of October.
The specific goals of the Company over the next twelve months include:
- - Obtaining mass production facilities for our power trains and BMS
- - Finishing the development of the fast driving electric motor cycle named
"Eleven" by November 2010
- - Finalizing the development of ZAFCG to be used in EVs by March 2011, and
obtaining mass production plant to produce ZAFCG
- - Finishing the development and testing of the 240kW system by December
2010.
RECENT BUSINESS DEVELOPMENTS
First Major Order and Recurring Revenues
During the first half of this year, we have received our first major order for
our EVs from M&M Corp., with an advance payment of approximately $2.66 million
US. By beginning to fulfill this order, we have begun to earn our first
significant revenues from operations and have exited the Development Stage.
Development of the Zinc Air Fuel Cell Generator - A New Form of Hybrid Electric
Vehicle
Our most important recent product development of the Company is the Zinc Air
Fuel Cell Generator ("ZAFCG"). With the ZAFCG, Leo has developed a way to
extract more than 20% more electricity than other companies have achieved, to
the Company's knowledge. We also developed the ZAFC generation system to be
operated from inside of the vehicle, for greater user control and convenience.
Leo has applied for patents for technologies to feed zinc balls into the system
automatically, to collect sludge in the filter, and to stop the electricity
generation as soon as the battery is fully charged or whenever the driver
decides to stop the generation of electricity from the ZAFCG. In testing, we
found that 1kg of Zinc Balls can generate 12.5kW electric energy in our ZAFC
generator, meaning that a single 3 liter Zinc Tank (21.6kg) can operate a 15kW
power train for 18 hours at maximum power.
If our test results can be successfully transferred to production models of EVs,
we believe that this technology has the potential to supplant existing petroleum
based hybrid vehicles with a new, more environmentally friendly, and more
economical form of Zinc -Fueled Hybrid Electric Vehicles. The current market
price of Zinc balls is approximately $3.40 US.
Successful Testing of the Battery Management System
Another important development in the first half of this year is our Battery
Management System ("BMS"). Our new BMS has been tested to charge in up to 4 C
mode (4 times the electric rating of a battery, per hour). The charging
capabilities of existing BMS known to the Company were only 0.5 C (half the
electric rating of a battery, per hour).
What this means is, for example, a 30kW power pack cannot charge more than 15kW
per hour using existing BMS because the BMS can manage only half of the electric
power rating per hour. Using Leo's new BMS with its improved electrical charge
rating, the power pack can be fully charged less than 15 minutes.
Page 16
Another achievement of Leo's new invention is that the size of the BMS became
70% smaller than existing BMS known to the Company. Leo intends to transform
major parts of the BMS into silicon chips to further minimize the size, weight,
and heat emissions from inside of BMS.
Our plan is to try to further develop our BMS technology to a rating of up to 12
C, although until we have successfully developed this ability we cannot be
certain of our success. Leo's new BMS will be tested by many battery
manufacturers and EV manufacturers who may be seeking a marketing opportunity.
We believe that BMS is the most crucial part in an EV's battery power pack, and
is one of the most expensive parts in an EV.
Other Developments
Recently, we have developed a compact sized, full speed electric truck using a
maximum 60kW power train. The new development was made in using the body and
chassis of the Labo, a GM Daewoo compact truck model. GM Daewoo is a member and
part of the General Motors Company operating in South Korea.
The Company has also participated in 2010 EV Korea in Seoul from July 14 to 16,
2010. Leo exhibited all of its current products including power trains, BMS,
ZAFCG, converted vehicles, and new Low Speed EV ("LSV"). The Company is also
participating in the Money Show in San Francisco in August, and in EV Battery
Tech USA in Detroit in September.
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 first two
quarters of 2010, the Company had incurred $5,549,146 in expenses and had
realized only $566,622 in revenues. Accordingly, our ability to initiate our
plan of operations and continue as a going concern is currently dependent on our
ability to either generate significant new revenues or raise external capital.
Our monthly operating cost including salaries and general expense is currently
approximately $150,000, as we focus on our e-Bikes and power trains. In April
2010 we received approximately $3 million in an advance payment from our
distribution agreement in Korea; accordingly, we have already secured our annual
operating budget for 2010. However, in order to continue the projects we have
put on hold, we will require additional revenues or financing.
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.
Page 17
RESULTS OF OPERATIONS
Revenues
Sales for the six months ended June 30, 2010 were $566,622 compared to $389,009
for the six months ended June 30, 2009. Costs of sales were $480,158 and gross
profit was $86,464 in 2010 compared to $233,266 and $155,743 as costs of sales
and gross profit in the same period in 2009. The sales during this period were
mainly generated from the electric scooters business. The order of 1,187
electric scooters was received from M&M Co., Ltd, our domestic distributor, for
total revenues of 4.2 billion Korean Won (approximately $3.73 million USD) upon
fulfillment of the full order. 202 units were delivered by the end of June, and
the rest of 986 units will be completed by the end of the third quarter. We
believe recurring revenue will begin this year as our goal is to begin mass
production and marketing of our products.
Expenses
During the six month period, we incurred $5,549,146 in expenses, compared to
$2,793,305 in the same period in 2009. The primary increase was due to payment
of Salaries and Benefits to the Board Director paid in Stock and development
costs. We also hired R&D and sales staff to activate our business. The company
rented another building near the existing office to operate the sales and
administration functions of our operations. As the electric scooter has been
launched in domestic market and the company started mass production of the
scooter, our marketing expenses and indirect costs also increased significantly.
Expenses for the quarter consisted of the following:
SIX MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
EXPENSES: 2010 2009
--------------- ---------------
Salaries and Benefits $ 4,564,718 $ 262,345
Service Fees 222,663 65,753
Selling, General and Administrative 761,765 2,465,207
Total Operating Costs and Expenses 5,549,146 2,793,305
--------------- ---------------
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.
Consulting and Service Fees - consist of consist of accounting, legal, and
professional fees.
Selling, 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.
Page 18
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 June 30, 2010, 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
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
Page 19
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: August 23, 2010 LEO MOTORS, INC.
(the registrant)
By: \s\Robert Kang
--------------
Robert Kang
Chief Executive Officer
and Interim Chief Financial Officer
Page 20