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 ended March 31, 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
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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 March
31, 2009 was 31,613,115 shares.
LEO MOTORS, INC.
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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
March 31, 2009 (unaudited) F-3
Condensed Consolidated Statements of Operations for
the three months ended March 31, 2009 (Unaudited) F-4
Condensed Consolidated Statement of Cash Flows for
the three months ended March 31, 2009 (Unaudited) F-5
Notes to Condensed Consolidated Interim Financial
Statements (unaudited) F-6
Item 2. Management's Discussion and Analysis 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk. 11
Item 4. Controls and Procedures 11
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings 12
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits 13
Signatures 14
Page 2
PART I. FINANCIAL INFORMATION.
ITEM 1. CONDENSED CONSONSOLIDATED INTERIM FINANCIAL STATEMENTS
LEO MOTORS, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
March 31, 2009
MARCH 31, DECEMBER 31,
2009 2008
------------ --------------
ASSETS
Current Assets:
Cash in Bank $ 156,511 $ 32,181
Accounts Receivable-net of
allowance of $11,735 and 0 46,414 13,854
Inventory 4,772 35,575
Prepaid Costs 134,630 130,568
------------ --------------
Total Current Assets 342,327 212,178
Fixed Assets-Net 1,190 5,940
Deposits 58,187 63,104
------------ --------------
TOTAL ASSETS $ 401,704 $ 281,222
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued
Expenses 35,527 16,850
Taxes Payable 37,203 2,080
Payments Received in Advance - 396,197
Related Party Payable 1,412,229 804,794
------------ --------------
Total Current Liabilities 1,484,957 1,219,921
------------ --------------
Total Liabilities $ 1,484,957 $ 1,219,921
============ ==============
STOCKHOLDERS' EQUITY
Common Stock, Authorized
100,000,000 Shares, $0.001 par
value, 31,613,115 shares issued
and outstanding 35,946 31,613
Additional Paid in Capital 2,485,685 323,351
Comprehensive income (loss) 21,212 237,386
Retained Deficit (3,626,096) (1,531,049)
------------ --------------
Stockholders' Deficit (1,083,253) (938,699)
============ ==============
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 401,704 $ 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 Three Months Ended March 31, 2009 and 2008
and for the period from Inception (July 1, 2006) to March 31, 2009
THE PERIOD FROM
THE THREE THE THREE INCEPTION
MONTHS ENDED MONTHS ENDED (JULY 1, 2006)
MARCH 31, MARCH 31, TO MARCH 31,
2009 2008 2009
-------------- -------------- -----------------
SALES $ 359,881 $ 2,254 $ 614,632
COST OF SALES 208,203 - 208,203
-------------- -------------- -----------------
GROSS PROFIT 151,678 2,254 406,429
EXPENDITURES:
Salaries and Benefits 26,214 117,748 394,430
Service Fees 34,552 24,758 266,210
General and Administrative 2,201,662 98,098 3,570,237
-------------- -------------- -----------------
TOTAL EXPENDITURES 2,262,428 240,604 4,230,877
-------------- -------------- -----------------
NET PROFIT (LOSS)
FROM OPERATIONS (2,110,750) (238,350) (3,824,448)
OTHER INCOME (EXPENSE)
Other Income 15,703 8,628 126,740
-------------- -------------- -----------------
NET PROFIT (LOSS) $ (2,095,047) $ (229,722) $ (3,697,708)
============== ============== =================
PROFIT (LOSS) PER SHARE $ 0.002 $ (0.008)
============== ==============
WEIGHTED AVERAGE SHARES 31,613,115 30,312,315
============== ==============
The notes are an integral part of these financial statements
F-4
LEO MOTORS, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2009 and 2008
and for the period from Inception (July 1, 2006) to March 31, 2009
THE PERIOD FROM
THE THREE THE THREE INCEPTION (JULY
MONTHS ENDED MONTHS ENDED 1, 2006)
MARCH 31, MARCH 31, TO MARCH 31,
2009 2008 2009
-------------- -------------- -----------------
Net Profit (Loss) $ (2,094,845) $ (227,610) $ (3,694,596)
Currency Transaction Loss (202) (2,112) (3,112)
-------------- -------------- -----------------
Total Comprehensive Income $ (2,095,047) $ (229,722) $ (3,697,708)
The notes are an integral part of these financial statements
F-5
LEO MOTORS, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2009 and 2008
and for the period from Inception (July 1, 2006) to March 31, 2009
THE PERIOD
THE THREE THE THREE FROM INCEPTION
MONTHS ENDED MONTHS ENDED (JULY 1, 2006)
MARCH 31, MARCH 31, TO MARCH 31,
2009 2008 2009
-------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (2,095,047) $ (229,722) $ (3,697,708)
Adjustments to reconcile net
loss to net cash provided by
operating activities: Stock
issued 2,166,667 2,381,361
Depreciation 4,750 4,000 39,817
Comprehensive loss (216,174) 30,346 21,212
(Increase) in Inventory 30,803 1,032 (4,772)
(Increase) Decrease in Accounts
Receivable (32,560) (2,870) (46,414)
(Increase) Decrease in
Deposits/Prepaid 855 127,693 (192,817)
Increase (Decrease) in Accounts
Payable and Accrued Expenses/
Payments in Advance (303,750) 2,678 505,486
Increase in Taxes and Advances 35,123 (24,704) 37,201
-------------- ------------- --------------
NET CASH FLOWS USED IN
OPERATING ACTIVITIES (409,333) (91,547) (956,634)
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed Assets - (41,007)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds - 211,882
Proceeds from related party 546,807 78,374 1,129,067
Debt reduction related party - - (186,797)
-------------- ------------- --------------
NET CASH FLOWS FROM FINANCING
ACTIVITIES 546,807 78,374 1,154,152
NET INCREASE (DECREASE) IN CASH 124,330 (13,173) 156,511
CASH AT THE BEGINNING OF
THE PERIOD 32,181 38,061 -
-------------- ------------- --------------
CASH AT THE END OF THE PERIOD $ 156,511 $ 24,888 $ 156,511
============== ============= ==============
Income taxes paid - - -
Interest expense paid - - -
The notes are an integral part of these financial statements
F-6
LEO MOTORS, INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 Shini
Precision Machinery, Inc. to Simco America Inc. and then to Leo Motors. The
Company had been dormant since 1989, and effectuated a reverse merger on
November 12, 2007 with Leozone Inc., a South Korean Company, which is the maker
of electrical transportation devices. The merger essentially exchanges shares in
Leo Motors, Inc. for shares in Leozone. As this is a reverse merger the
accounting treatment of such is that of a combination of the two entities with
the activity of Leozone, Inc. the surviving entity, going forward.
The 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 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-7
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.
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 $250,000 federal depository insurance limit; however,
the Company has not experienced any losses on deposits. The Company extends
credit based on an evaluation of the customer's financial condition, generally
without collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses, as required.
Cash Equivalents
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalent.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which is generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income (expense).
The Company will periodically evaluate whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of fixed assets
or whether the remaining balance of fixed assets should be evaluated for
possible impairment. We use an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their recoverability.
Comprehensive Income
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
The functional currency of the Company is the Korean Won. Assets and
liabilities are translated to U.S. Dollars at the period-end exchange rates
($.00023014) and ($.000792393) respectively and revenues and expenses are
translated at weighted average exchange rates for the period, which was
(.0006959899) and (001044067) respectively. Resulting translation adjustments
are recorded as a component of stockholders' equity in other comprehensive
income (loss).
F-8
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 valued
at market at .50 and recognized a stock for services expense of $2,166,667.
For the period ended March 31, 2009 there was no stock expense.
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
F-9
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.
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.
F-10
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 (39,817) (35,067)
Net $ 1,190 $ 5,940
The Company depreciates it assets over useful lives of between 3 and 7 years.
Depreciation expense was $4,750 in 2009.
NOTE 7-DUE TO RELATED PARTY
The company is indebted to its officer for advances. Repayment is on demand
without interest.
The Company reduced this obligation by the issuance of 1,000,800 valued at
$110,088 during 2008.
NOTE 8-PAYMENTS RECEIVED IN ADVANCE
The Company during the periods received payments from potential customers, or
deposits, on future orders. The Company's policy is to record these payments as
a liability until the product is completed and shipped to the customer at which
the Company recognizes revenue.
F-11
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 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:
- Manufacture and sale of our E-Princessa taxi by the middle of 2009
- Production and sale of our Motorcycle design by June 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
- Marketing of our EV conversion kit and conversion services by the end of
2009
- Testing of EV conversion kit on Toyota RAV-4 model during May and June
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.
Summary of Recent Business Developments
In April 2009, we completed testing of the EV conversion kit on the Kia Morning
model. The conversion kit included our 300 volt Battery Management System, a
60kW water-cooled AC motor with controller, a
Page 12
lithium polymer power pack, and a home charger. Until we find a partner to
supply vehicle bodies, we intend to market the conversion kit as well as
conversion services.
In February 2009 we delivered the V-1 resort bus to CUSCO pursuant to our
agreement with them.
In March 2009, we developed our electric motorcycle. We have entered into sales
agreement for this e-motorcycle with Bike Lease, subject to successful product
testing by Bike Lease. If the product successfully completes testing, the
agreement calls for a minimum of 3,000 units in the first year. We have signed
an agreement with Chulin to manufacture the motorcycles.
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
quarter of 2009, the Company had incurred $95,761 in expenses and had realized
$359,881 in revenues with $ 208, 203 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.
We expense a minimum of $ 40,000 to operate our regular business, but is
currently seeking up to $1,500,000 financing in Korea to implement our business
plan. We have received proposals from several venture capitals and private
investors in Korea.
Our monthly operating cost including salaries and general expenses is at a
minimum approximately $40,000, however we are seeking additional financing in
Korea to finance the expenditures needed to being implementing our current
business goals. 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
To date we have raised approximately $617,000 in equity financing, $200,000 in
November 2008 and $417,000 in January 2009.
We have not raised any financing on the issuance of debt other than in the form
of cash advances from one of our officers. We believe that it will be very
difficult to obtain any other form of debt financing due to our current lack of
revenues from operations and the current state of our balance sheet, including a
lack of hard assets against which to borrow. Accordingly, we are focusing on
obtaining equity financing.
As we have not generated significant revenues and have not raised a significant
amount of equity financing to date, there is substantial doubt as to our ability
to continue in the short term and long term as a going concern. Our plan in the
short term is to continue our operations at their current level, which our
current cash holdings will cover through fiscal 2009. Our long term survival
will depend on the growth
Page 13
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
Revenues
The Sales for the first quarter ended March 31, 2009 were $359,881 compared to
$2,254 for the first quarter ended March 31, 2008. Costs of sales were $208,203
and gross profit was $151,678 compared to $0 as costs of sales and $2,254 as
gross profit in the same period in 2008. The sales during this 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 this year as
our goal is to begin mass production and marketing of our designs. The sale of
the resort EV bus for $358,166 was contracted with CUSCO in 2006, but has been
carried forward to 2009 and was recorded as revenue in March 2009.
The following is a detailed description of the products sold during the quarter:
DATE PRODUCT UNITS PRICE
1/20 Electric Scooter 1 $ 1,913
2/19 Electric Resort Bus 1 $ 358,166
Expenses
During the quarter, we incurred $2,262,428 in expenses, compared to $240,604 in
the March 31 2008. The primary increase was due to payment of consulting service
fees. Other expenses during the quarter decreased due to downsizing of business
operations during 2008. The company reduced the number of employees from 15 in
March 31, 2008 to7 in March 31, 2009. We also moved our offices to a new
building in Gyeonggi province with lower rental cost and operation cost.
Expenses for the quarter consisted of the following:
EXPENSES: 2008 2007
Salaries and Benefits $ 26,214 $117,748
Service Fees 23,132 24,758
Service Fees paid by Stock priced at $0.50 2,166,667 -
General and Administrative 34,995 98,098
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
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 90 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 March 31, 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
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
The following exhibits are filed as part of this quarterly report on Form
10-Q:
10.6 Agreement between the Company and Bike Lease Co. Ltd. dated April 14, 2009.
10.7 OEM Supply Contract between the Company and Chulin dated April 23, 2009.
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: May 15, 2009 LEO MOTORS, INC.
(the registrant)
By: \s\Shi Chul Kang
----------------
Shi Chul Kang
Chief Executive Officer
and Interim Chief Financial Officer
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