UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
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Commission file number 000-53525
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_____________________________
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LEO MOTORS, INC.
_____________________/======================================
Zero-Emmission Vehicle
Leo Motors, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 95-3909667
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(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
291-1, Hasangok-dong, Hanam City, Gyeonggi-do, Republic of Korea 465-250
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code +82 31 796 8805
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Copy to:
Cutler Law Group
3355 W. Alabama Ste. 1150
Houston, TX 77098
Fax: 800-836-0714
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($0.001 par value)
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(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ] Yes [x] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [x] No
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ( 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of "accelerated filer, large accelerated filer and smaller reporting
company" as defined in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). [ ] Yes [x] No
The aggregate market value of the common equity held by non-affiliates of the
registrant as of June 30, 2008 (the last business day of the registrant's most
recently completed second fiscal quarter) was $879,362.
The number of shares of the registrant's common stock outstanding as of March
23, 2009 was 35,946,449 shares.
LEO MOTORS, INC.
TABLE OF CONTENTS
PART I
Item 1. Business..........................................................4
Item 1A. Risk Factors......................................................8
Item 1B. Unresolved Staff Comments.........................................8
Item 2. Properties........................................................8
Item 3. Legal Proceedings.................................................9
Item 4. (Removed and Reserved)............................................9
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.................9
Item 6. Selected Financial Data..........................................10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......12
Item 8. Financial Statements and Supplementary Data......................13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.........................................29
Item 9A. Controls and Procedures..........................................30
Item 9B. Other Information................................................30
PART III
Item 10. Directors and Executive Officers of the Registrant...............30
Item 11. Executive Compensation...........................................33
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters..................................37
Item 13. Certain Relationships and Related Transactions, and Director
Independence.....................................................38
Item 14. Principal Accounting Fees and Services...........................38
PART IV
Item 15. Exhibits and Financial Statement Schedules.......................39
Signatures....................................................................39
Page 3
Page 3
PART I
ITEM 1. BUSINESS
A. BUSINESS DEVELOPMENT
There were no changes to Business Development during the year.
B. FINANCIAL INFORMATION ABOUT SEGMENTS
As defined by generally accepted accounting principles ("GAAP"), we do not have
any segments separate and apart from our business as a whole. Accordingly,
there are no measures of revenue from external customers, profit and loss, or
total assets aside from what is reported in the Financial Statements attached to
this Form 10-K.
C. BUSINESS OF THE COMPANY
OVERVIEW
Leo Motors, Inc., a Delaware Company (the "Company"), through its operating
subsidiary Leo Motors, Co. Ltd., a Korean Company ("Leozone"), is in the
business of developing and marketing Electric Vehicles ("EVs") and EV
components. Our current operations consist of developing the designs and
prototypes of our EV models, testing, establishing relationships with potential
customers, small scale sales of our EVs, and developing our business plan. Our
ultimate goal is to begin full scale manufacture of our designs, enter the
Global EV market and establish ourselves as a reputable provider of EVs and EV
components.
Our overarching strategy is to gain an initial foothold in the EV market as a
niche supplier, build our reputation as a technology leader and a socially
responsible company, and develop our catalog of products and technology while
the market for EV develops.
CHANGES TO OUR BUSINESS
There were many changes to our business during the year ended December 31, 2009.
Our business plan remains to become a technology provider in the global EV
market, however, due to the need to generate revenues in short term we decided
to focus our efforts in 2009 on the development and marketing of electric
scooters. The electric scooter market is widely open in many countries
including Korea, Japan, and the US, and electric scooters are easier to
capitalize, and are made more affordable for us because we can use technology we
have developed. The market for electric motorcycles and scooters is growing
because internal combustion engine ("ICE") motorcycles and scooters make
enormous emissions and noises.
We have developed three models of electric scooters, entered into agreements to
manufacture and distribute them, and are in the process of testing and
developing our marketing for the e-Bikes. We are targeting only fleet markets
such as local government bodies, delivery companies, parks, and big companies
during 2010. After we receive purchase orders, we have to spend at least
$100,000 to keep the inventory. We are going to spend $100,000 for market costs
during 2010.
In 2009, we finished test runs of vehicles with one 60kW power train (which
includes a motor, controller and battery power packs), and two 60 kW multi motor
power train. Using a single 60kW power train,
Page 4
we developed electrified compact cars with existing car brands such as the
Hyundai Morning and Nissan Cube models. These models have engines under
2,000cc. We also electrified a 24 seat bus using two 60kW motors.
Electrification means the conversion of ICE cars into electric motor powered
cars. These models were successfully tested, performing expressway speeds (more
than 60 Mph), and showing good torque in high RPMs. They were able to pass ICE
cars in the expressway, and could drive long hilly roads. With these test
results, we are going to market our 60kW power train to existing car companies,
and many fleet operators such as school bus and garbage truck operators who are
interested in converting their ICE vehicles into EVs.
Our next step is the development of working prototypes of 120kW and 240 kW power
trains which will be used in heavy duty vehicles such as buses and trucks.
120kW and 240 kW controllers are currently underway.
We have spent $270,000 for the development of e-Bikes, and have already invested
$500,000 for the development of our power trains. We anticipate that completion
of the 120kW power train and 240 kW power train prototypes by the end of April
2010. The development of these power trains will cost approximately $500,000
US before we have fully implemented our business. After the development of
prototypes, we must pilot test the models, which we anticipate will cost
approximately $300,000 to test our current prototypes and the prototypes on
which we are currently working. Our initial plan was to complete working
prototypes of all of our EV designs, but in 2009 we revised this plan, and we
will not make prototypes of our passenger car designs until we achieve success
in our bike and power train businesses.
The next step is to develop production capabilities of both our e-Bikes s and EV
power trains. We intend to initially either outsource production or enter into
joint ventures for the production of our electric vehicles and components.
Accordingly, we do not expect the development of production capabilities will
represent a significant cost. Once we have entered into agreements for the
production of our EVs and components, we can begin full scale production and
build our inventory. We anticipate these steps will cost approximately
$600,000, $500,000 of which is attributable to the development of production
capability such as moulds and manufacturing tool developments for controllers
and Battery Management Systems (BMS's), and $100,000 of which represents costs
of developing inventory.
The steps toward implementing our business plan can be summarized by the
following table:
e-Bikes
STEP ANTICIPATED COST ANTICIPATEDSTART DATE
----------------------- ----------------- ---------------------
Initial Design $ N/A Completed
Initial Prototypes $ N/A Completed
Testing $ N/A Completed
Component Development $ N/A Completed
Production Capability $ N/A Completed
Production of Inventory $ 100,000 May 2010
Marketing & Sales $ 100,000 In process
----------------------- ----------------- ---------------------
TOTAL 200,000
Power Trains
STEP ANTICIPATED COST ANTICIPATEDSTART DATE
----------------------- ----------------- ---------------------
Initial Design N/A Completed
Initial Prototypes $ 500,000 April 2010
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Testing $ 500,000 May 2010
Production Capability $ 500,000 September 2010
Production of Inventory $ 100,000 December 2010
Marketing & Sales $ 100,000 In process
----------------------- ----------------- ---------------------
TOTAL 1,700,000
In addition to broadening the scope of our products, we intend to expand our
business by entering new potential markets. One of our specific goals is to
enter the US, Japanese, and EU markets by the end of 2010. However, if we are
unable to timely finance our operations and to get the appropriate local
partners, entering the these markets will not be feasible.
SALES AND DISTRIBUTION ARRANGEMENTS
Since the beginning of 2009, we have entered into the following agreements or
memoranda for the potential sales of our products and our services.
M&M Corp
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We have appointed M&M Corp as our exclusive Korean provider of our electric
scooters. Upon entering the agreement, M&M paid us 400,000,000 Korean Won as
the down payment for the order of 170 units of e-scooters. In April, 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 300 billion
Korean Won (approximately $2.66 million US).
Japanese Dealer
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We have entered into an MOU with Global Commerce in Japan in 2009. We have
developed e-Box, a compact electric car through electrification of Nissan Cube.
We also sold 10 units of our e-bikes to be used for samples and exhibition.
Global Commerce was satisfied with our developments and scooters. For
electrification of power trains for cars, Global Commerce needs to conduct more
research and to find potential clients before they make decision to enter into
the business. If they are successful, we expect definitive purchase orders for
e-Boxes and scooters from Global Commerce during 2010.
Under the MOU, Global Commerce must pay 40% of the total amount of any
definitive order in advance, 30% upon production, and the final 30% before we
ship the products.
Bike Lease Electric Motor Cycles
------------------------------------
We have entered into an agreement with Bike Lease in Korea, which is a motor
cycle leasing company, to provide them with our electric motor cycles. The
agreement calls for the purchase of 3,000 units of H5 annually at a price of
3,500,000 Korean Won (approximately $3,000). But as we finalized the
development, the cost increased such that we must raise the price to $4,000 per
unit. Thus, we need amend the contract. If Bike Lease accepts the changed
price, we expect approximately $12 million in revenues per year from this
agreement.
We have contracted with Chulin Home Tech Co., Ltd. to manufacture the electric
motor cycles for Bike Lease. Production is conditional on Chulin receiving
adequate funds, and so Bike Lease must pay 30% of the total amount in advance,
40% 30 days after initiation of production, and 30% when receiving the products.
In addition, Chulin cannot accommodate more than 1,000 units per month.
Page 6
Puerto Princesa e-Taxis
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We had entered into an agreement with the government of Puerto Princesa,
Phillipines to supply 2,500 e-Taxis in Puerto Princesa. However, the production
of the e-Taxis was delayed because the required initial capital had not been
paid into the joint venture. We had raised sufficient funding to satisfy our
obligation to pay $300,000 into it, however the city government had not yet paid
its initial required contribution of Php14 million (approximately $300,000).
This project was delayed more than one year. Since we received no progress from
the City, we dropped this project and focused on other projects.
Thailand Reverse Tricycle Scooters
-------------------------------------
We have signed a Memorandum of Understanding ("MOU") with Global Electric Motor
Cars Asia Co., Ltd. in Thailand ("GEM Thailand") to develop, manufacture and
supply Reverse Tricycle Scooters. The MOU anticipates the execution of a
definitive agreement, but currently is not an enforceable contract. We have
been unable to make any progress with negotiating the definitive agreement. We
are going to drop this project if we cannot enter the definitive agreement by
June of 2010.
MGM Studio City (Korea) Tourism Vehicle
--------------------------------------------
Effective November 22, 2006, we entered into an agreement with CUSCO Group of
Seoul, Korea, for the development and design of the traffic and transportation
means (mobile vehicles, monorails, etc.) to be available internally and
externally in the theme park complex for the users of MGM Studio City. MSC
Korea, a subsidiary of CUSCO Group, has been authorized by MGM Film Co. of USA
to build MGM Studio City in Inchon, Korea. Under the agreement, our services
include research and development, economic feasibility of the moving path and
the operation system, technical feasibility study, and development and testing
of the transportation means selected. Total amount to be paid to us under the
contract was 1,500,000,000 Korean Won (about $990,000 at the current exchange
rate).
Under the agreement, the Company developed and delivered a V1 resort EV to
CUSCO, which is a resort/tourism vehicle designed to transport passengers around
resorts and other tourist destinations. The sales amount of $462,107 was
recorded as revenue in March 2009.
The agreement with CUSCO expires Dec 31, 2010. CUSCO has suspended the MGM
Studio City project currently until negotiations with the local government to
purchase the land are completed. During this time we have stopped providing any
services or products to CUSCO, therefore we cannot expect any further revenue
from the agreement within near future.
EV CONTROLLERS
We have typically used controllers which were made to order by outside
suppliers. They are conversions from controllers used in industrial electric
machinery. More than half of the parts in these controllers are useless for the
purposes of our EVs. We also found that these controllers must be programmable
if they are to control the speed and torque of EV motors and communicate with
the EV's power pack. Therefore, we have been developing our own controllers
since July 2009.
We intend to develop an EV-specialized controller imbedded with our power
management solutions. These modes solutions are designed to make EVs run long
and steep hills, avoid suddenly losing power after reaching peak power, and
successfully pass other ICE cars on high speed roads through by allowing quick
acceleration at high speed (60 mph or more).
Page 7
We intend to develop our controllers programmable in a way that they can be
customized in various vehicle types and power requirements. We plan to reduce
the size and costs of our own design controllers by eliminating unnecessary
parts in existing controllers and integrating circuits into digital chipsets.
MARKETING
Our initial marketing strategy is to focus on individual sales to fleets and EV
manufacturers. We have already begun marketing our scooters to governments and
companies throughout the world.
We plan to emphasize the following selling points:
- Our scooters can achieve comparable power with ICE scooters as it
generates proper torque in any RPM ranges, and can mount hills without power
loss.
- We have a wide range of power trains available, including the 1kW, 3kW,
6kW, 10kW, 15kWS, 30kW, 30kW, 60kW, and 120kW power system. Our 240kW power
system is under development. Using our Multi Motor System, we can achieve power
more than 240kW. Thus we can cover all electric power requirements from
smallest scooters to truck and buses.
- We have many different voltage battery management systems (BMS) available,
including 48 volt, 72 volt, 140 volt, 320 volt, and 380 volt. Our BMS balances
the voltage differences between cells up to 1 micro volt, for more efficient and
safer charging and discharging.
ITEM 1A. RISK FACTORS
Not required by smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We filed a registration statement on Form 10 on December 10, 2008, and
Amendments to the Form 10 on March 3, 2009, April 27, 2009, and September 9,
2009. We have received comments from the SEC on the latest Amendment and are in
the process of responding to them. Until the Form 10 has cleared comments, we
and our shareholders cannot rely on the Form 10 or our subsequent periodic
reports to satisfy a requirement of current adequate information for any
securities transactions.
In addition to comments on our form 10, we are subject to a continuing
requirement to update our Quarterly and Annual Reports to be consistent with any
changes made to our Form 10.
We do not currently have any other unresolved staff comments.
ITEM 2. PROPERTIES
We operate out of an office and workshop located at 291-1, Hasangok-dong, Hanam
City, Gyeonggi-do, Republic of Korea 465-250.
At this time we do not intend to establish any manufacturing facilities
ourselves. Instead we will either outsource manufacturing of our products, or
enter into joint ventures with partners who will provide the manufacturing
facilities.
Page 8
As the market for our product develops, we may decide to establish our own
facilities in various locations, outsource manufacturing of our other products,
or enter into additional joint ventures for the manufacturing of our EVs.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. (REMOVED AND RESERVED)
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our common stock is quoted in United States markets on the Pink Sheets,
maintained by Pink OTC Markets, Inc., a privately owned company headquartered in
New York City, under the symbol "LEOM." There is no assurance that the common
stock will continue to be traded on the Pink Sheets or that any liquidity exists
for our shareholders.
MARKET PRICE
The following table shows the high and low per share price quotations of the
Company's common stock as reported by the Pink Sheets for the periods presented.
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions, and may not necessarily represent actual transactions. The Pink
Sheets market is extremely limited and the prices quoted by brokers are not a
reliable indication of the value of the common stock. The periods presented
represent fiscal quarters, with the fourth quarter of each year ending on
December 31.
HIGH LOW
Fiscal 2009
First Quarter $0.70 $0.11
Second Quarter $1.05 $0.10
Third Quarter $0.80 $0.39
Fourth Quarter $3.42 $0.50
As of December 31, 2009, the Company had 100,000,000 shares of common stock
authorized with 40,708,115 shares issued and outstanding, and approximately
9,294,694 freely tradable shares in the public float. These shares were held by
approximately 885 shareholders of record and Company estimates by over 1,000
beneficial shareholders.
PENNY STOCK REGULATIONS
Our common stock is quoted in United States markets on the Pink Sheets,
maintained by Pink OTC Markets, Inc., a privately owned company headquartered in
New York City, under the symbol "LEOM." On March 31, 2009 the last reported
sale price of our common stock was $2.00 per share. As such, the
Page 9
Company's common stock may be subject to provisions of Section 15(g) and Rule
15g-9 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
commonly referred to as the "penny stock rule."
Section 15(g) and Rule 15g-9 sets forth certain requirements for transactions in
penny stocks, in particular that either (1) the transaction meets one of a few
specific exemptions, or (2) the broker dealer executing the transaction for a
customer (a) obtain informed consent from the customer and (b) make an
individualized determination of the customer's suitability for trading in penny
stocks based on personal financial information. Rule 15g-9(d) incorporates the
definition of "penny stock" that is found in Rule 3a51-1 of the Exchange Act.
The SEC generally defines "penny stock" to be any equity security that has a
market price less than $5.00 per share, subject to certain exceptions. As long
as the Company's common stock is deemed to be a penny stock, trading in the
shares will be subject to additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors.
DIVIDENDS
The Company has not issued any dividends on the common stock to date, and does
not intend to issue any dividends on the common stock in the near future. We
currently intend to use all profits to further the growth and development of the
Company.
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 2009, and in the subsequent period through
the date hereof the Company made the following issuances of unregistered
securities:
On February 3, 2010 we issued 3,000,000 shares to members of our management team
as compensation for their services. 2,000,000 shares were issued to our
president, Mr. Kang. 500,000 shares each were issued to Jung Yong Lee and Young
Il Kim. This issuance was completed in accordance with Section 4(2) of the
Securities Act in an offering without any public offering or distribution.
These shares are restricted securities and include an appropriate restrictive
legend.
On February 22, 2010 we issued 7,000,000 shares to purchase 50% of Leo B&T.
This issuance was completed in accordance with Section 4(2) of the Securities
Act in an offering without any public offering or distribution. These shares
are restricted securities and include an appropriate restrictive legend.
PURCHASES OF EQUITY SECURITIES
None.
ITEM 6. SELECTED FINANCIAL DATA
Not required by smaller reporting companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD-LOOKING STATEMENTS
Statements about our future expectations are "forward-looking statements" within
the meaning of
Page 10
applicable Federal Securities Laws, and are not guarantees of future
performance. When used herein, the words "may," "will," "should," "anticipate,"
"believe," "appear," "intend," "plan," "expect," "estimate," "approximate," and
similar expressions are intended to identify such forward-looking statements.
These statements involve risks and uncertainties inherent in our business,
including those set forth in Item 1A under the caption "Risk Factors," in this
Annual Report on Form 10-K for the year ended December 31, 2008, and other
filings with the SEC, and are subject to change at any time. Our actual results
could differ materially from these forward-looking statements. We undertake no
obligation to update publicly any forward-looking statement.
OVERVIEW
Leo Motors, Inc. (the "Company") is currently focusing on the development,
production, marketing and sale of its e-Scooters and power trains. We also have
several other projects in development stages that have been put on hold pending
the success of our e-Scooters and power trains.
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 2009, the
Company had incurred $3,357,968 in expenses and had realized only $896,953 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 $65,000, as we focus on our e-Bikes and power trains. In April
2010 we received approximately $3 million in revenues from our distribution
agreement in Korea; accordingly, we have already secured our annual operating
budget for 2009. 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.
RESULTS OF OPERATIONS - 2009 VS. 2008
Revenues
Sales for the year ended December 31, 2009, were $896,953 compared to $82,435
for the year ended December 31, 2008. Costs of sales were $787,423 and gross
profit was $109,530 compared to $35,511 in costs of sales and $46,924 in gross
profit for 2008.
The sales made through December 31, 2009 are not generated from recurring
business operations as most of our sales to date are of product samples or
development services. The company has almost completed the development of
electric bike for mass production which will be launched in the market during
the 2nd or 3rd quarters of 2010. During the year we also received 3 orders to
convert engine vehicles to electric vehicles, which amounted to $318,814; and we
delivered our Resort EV to Cusco, which amounted to $391,726 in revenues.
Page 11
The following is a detailed description of the products sold in 2009:
Product Units Price
---------------------- ----- --------
e-Bike 14 $ 40,761
Resort EV 1 $391,726
Power train 3 $ 54,615
World Box 3 $ 91,009
Service for Conversion 3 $318,841
Expenses
During the year, we incurred $3,357,968 in expenses, compared to $317,761 in
2008. The primary increase was due to payment of consulting and service fee by
stock for $2,413,055. The company also hired more than 18 employees during 2009
and the number of employees was increased from 6 in 2008 to 24 in 2009. The
company also rented an additional two buildings near our existing office as an
R&D Center and a sales office.
Expenses for 2009 and 2008 consisted of the following:
Expenses: 2009 2008
Salaries and Benefits $ 598,418 $169,149
Consulting and Service Fees 2,413,055 23,132
Selling, General and Administrative 346,495 125,480
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.
OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
Page 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description Page
------------------------------------------------------------ ----
Report of Independent Registered Public Accounting Firm F-14
Consolidated Balance Sheets F-15
Consolidated Statements of Operations F-16
Consolidated Statements of Changes in Shareholders' Interest F-17
Consolidated Statements of Cash Flows F-18
Notes to Consolidated Financial Statements F-19
Page 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Shareholders and Board Members of Leo Motors, Inc.:
We have audited the accompanying consolidated statements of financial position
of Leo Motors Inc. as of December 31, 2009 and 2008 and the related
consolidated statements of operation, changes in stockholders' interst and cash
flows for each of the years then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for my opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidataed financial position of Leo Motors, Inc.
as of December 31, 2009 and 2008, and the results of its consolidated operations
and its cash flows for each of the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 15 to the
financial statements the Company incurred a net loss during the years ended
December 31, 2009 and 2008 and has a retained deficit at December 31, 2009.
These conditions raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding those matters are also described in
Note 15. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
\s\ Gruber & Company LLC
----------------------------
Gruber & Company LLC
Dated April 5, 2010
Lake St. Louis, Missouri
F-14
LEO MOTORS, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
ASSETS NOTE 2009 2008
------------------------------------------ ------- ------------ ------------
CURRENT ASSETS
Cash in banks $ 499,025 $ 32,181
Accounts Receivable-net of allowance
of $8,394 and $11,735, respectively NOTE 4 244,670 13,854
Inventory NOTE 5 395,001 35,575
Prepaid costs and other current assets 151,067 130,568
------------ ------------
TOTAL CURRENT ASSETS 1,289,763 212,178
Fixed assets- net of accumulated
depreciation NOTE 6 157,981 5,940
Deposit 107,640 63,104
------------ ------------
TOTAL OTHER ASSETS 265,621 69,044
------------ ------------
TOTAL ASSETS $ 1,555,384 $ 281,222
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Commitments and Contingencies NOTE 13
CURRENT LIABILITIES
Short term borrowings NOTE 9 $ 428,229 $ -
Accounts payable and accrued expenses 433,004 16,850
Other payables 5,847
Taxes Payable - 2,080
Payments received in advance
from customers NOTE 8 296,167 396,197
Related party payable NOTE 7 - 804,794
------------ ------------
TOTAL CURRENT LIABILITIES 1,163,247 1,219,921
Accrued severance benefits 30,030 -
------------ ------------
TOTAL LIABILIITIES 1,193,277 1,219,921
Minority interest 1,020,428 -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, Authorized
100,000,000 Shares, $0.001 par
value, 40,708,115 and 31,613,115,
shares issued and outstanding NOTE 10 40,708 31,613
Additional paid-in capital 3,964,160 323,351
Comprehensive income (Loss) 406,476 237,386
Deficit (5,069,666) (1,531,049)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIT (658,322) (938,699)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,555,384 $ 281,222
============ ============
Please see the accompanying notes
F-15
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the fiscal years ended
December 31,
NOTE 2009 2008
------ ---------------- -------------
Sales NOTE 1 $ 896,953 $ 82,435
---------------- -------------
TOTAL SALES 896,953 82,435
COST OF SALES (787,423) (35,511)
---------------- -------------
GROSS PROFIT 109,530 46,924
EXPENDITURES :
Salaries and benefits 598,418 169,149
Consulting and service fees NOTE 1 2,413,055 23,132
Selling , general and administrative 346,495 125,480
---------------- -------------
TOTAL EXPENDITURES 3,357,968 317,761
---------------- -------------
NET LOSS FROM OPERATIONS (3,248,438) (270,837)
OTHER INCOME & (EXPENSES)
Interest income 1,631 -
Interest expense (9,551) -
Non-operating income 92,652 105,268
Non-operating expense (214,738) -
---------------- -------------
Total Other Income & (Expenses) (130,006) 105,268
---------------- -------------
NET LOSS BEFORE INCOME TAX & BENEFIT (3,378,444) (165,569)
Current income taxes NOTE 1 - -
Loss attributable to minority interest (160,173) -
---------------- -------------
NET INCOME (LOSS) $ (3,538,617) $ (165,569)
================ =============
COMPREHENSIVE LOSS:
Unrealized foreign currency
transaction gain (loss) NOTE 1 4,698 (540)
---------------- -------------
COMPREHENSIVE INCOME (LOSS) $ (3,533,919) $ (166,109)
================ =============
LOSS PER SHARE - BASIC & DILUTED NOTE 3 (0.09) (0.01)
================ =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 37,743,179 30,637,515
================ =============
Please see the accompanying notes
F-16
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Additional Total
Common Stock Paid in Comprehensive Earnings Stockholders'
Shares Amount Capital income(Loss) (Deficit) Equity
----------- ------- ----------- --------------- ------------ ---------------
Balance, January 1, 2008 $30,312,315 $30,312 $ 181,570 $ - $ (357,796) $ (145,914)
Net loss for the year (52,446) (1,007,144) (1,059,590)
Balance December 31, 2007 30,312,315 30,312 181,570 (52,446) (1,364,940) (1,205,504)
Stock issusd for debt and services 1,300,800 1,301 141,781 143,082
net Loss for the year 289,832 (166,109) 123,723
----------- ------- ----------- --------------- ------------ ---------------
Balance, December 31, 2008 31,613,115 31,613 323,351 237,386 (1,531,049) (938,699)
Stocks issued for service and
cash during the year 9,095,000 9,095 3,640,809 3,649,904
Net loss for the year ended
December 31, 2009 (3,538,617) (3,538,617)
Foreign currency translation adjustment 169,090 169,090
----------- ------- ----------- --------------- ------------ ---------------
Balance, December 31, 2009 40,708,115 $40,708 $ 3,964,160 $ 406,476 $(5,069,666) $ (658,322)
=========== ======= =========== =============== ============ ===============
Please see the accompanying note
F-17
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the fiscal years ended
December 31
2009 2008
---------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,538,617) $ (166,109)
Adjustments to reconcile net loss to
net cash provided by operating
activities : Stock issued - 143,082
Depreciation 39,195 18,601
Comprehensive loss 169,090 289,832
(Increase) decrease in inventory (359,426) (16,260)
(Increase) decrease in accounts receivable (230,816) 687
(Increase) decrease in deposit/prepaid (20,499) 79,990
Increase (decrease) in accounts payables
and accrued expenses 416,154 -
Increase (decrease) in other payable 5,847 -
Payments in advance from customers (100,030) (136,198)
Increase (decrease) in taxes payable (2,080) (32,708)
Increase (decrease) in accrued
severance benefits 30,030 -
---------------- -------------
Net Cash Provided by (Used in)
Operating Activities (3,591,152) 180,917
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (191,236) -
Outlay for deposit (44,536) -
---------------- -------------
Net Cash Provided by (Used in)
Investing Activities (235,772) -
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowing, net
of repayment during the period 428,229 -
Debt reduction related party (804,794) (186,797)
Increase in minority interest 1,020,428 -
Issuance of common stocks 3,649,904 -
---------------- -------------
Net Cash flows from financing activities 4,293,767 (186,797)
Effect of exchange rate on cash - -
---------------- -------------
Net Increase (Decrease) in Cash 466,843 (5,880)
Cash at the Beginning of the period 32,181 38,061
---------------- -------------
Cash at the End of the period $ 499,025 $ 32,181
================ =============
Supplemental Cash Flow Disclosures:
Cash paid during year for interest $ 9,551 $ -
================ =============
Cash paid during year for taxes $ - $ -
================ =============
Please see the accompanying notes
F-18
LEO MOTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
NOTE 1 - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Business
-----------------
Company is currently in development, assembly and sales of the specialized
electric vehicle.
Background
----------
Leo Motors, Inc, Inc (the "Company") was originally incorporated as Classic Auto
Accessories, a California Corporation on July 2, 1986. The Company then
underwent several name changes from FCR Automotive Group, Inc. to Shini
Precision Machinery, Inc. to Simco America Inc. and then to Leo Motors. The
Company had been dormant since 1989, and effectuated a reverse merger on
November 12, 2007 with Leozone Inc., a South Korean Company, which is the maker
of electrical transportation devices. The merger essentially exchanges shares in
Leo Motors, Inc. for shares in Leozone. As this is a reverse merger the
accounting treatment of such is that of a combination of the two entities with
the activity of Leozone, Inc. the surviving entity, going forward. The financial
statements reflect the activity for all periods presented as if the merger had
occurred January 1, 2007.
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-19
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 is recognized when risk of ownership and title pass to the buyer,
generally upon the delivery of professional services. Pricing is fixed and
determinable according to the Company's published brochures and price lists.
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
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. The Company has
established a reserve on receivables of $ 8,394 in 2009 and $11,735 in
2008.
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 December 31, 2009. At December 31, 2009, our bank deposits
were $498,238.
The Company extends credit based on an evaluation of the customer's financial
condition, generally
without collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses, as required.
F-20
Cash Equivalents
-----------------
For purposes of reporting cash flows, the Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalent.
Fixed Assets
-------------
Fixed assets are stated at cost, less accumulated depreciation. Depreciation is
provided principally on the straight-line method over the estimated useful lives
of the assets, which is generally 3 to 10 years. The cost of repairs and
maintenance is charged to expense as incurred. Expenditures for property
betterments and renewals are capitalized. Upon sale or other disposition of a
depreciable asset, cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in other income (expense).
The Company will periodically evaluate whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of fixed assets
or whether the remaining balance of fixed assets should be evaluated for
possible impairment. We use an estimate of the related undiscounted cash flows
over the remaining life of the fixed assets in measuring their recoverability.
Comprehensive Income
---------------------
The Company follows ASC Topic 220 Comprehensive Income formerly Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting and display of comprehensive
income and its components in the financial statements.
The functional currency of the Company is the Korean Won. Assets and liabilities
are translated to U.S. Dollars at the period-end exchange rates ($.000856458)
and revenues and expenses are translated at weighted average exchange rates for
the period, which was (.0000783453) and resulting translation adjustments are
recorded as a component of stockholders' equity in other comprehensive income
(loss).
Advertising Costs
------------------
Advertising costs are expensed as incurred. The total advertising expense were $
2,992 and have been included as part of selling and marketing expenses.
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
F-21
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
------------------------------
It consist of consist of accounting, legal, and professional fees and in 2009,
most of it 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.
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 December 31, 2009 was $ 4,698. 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 December 31, 2009 and for the year then ended, the
exchange rate for the local currency, KRW was $ 1 USD for 1,167.60and 1,276.40
KRW, respectively.
F-22
Recent Accounting Pronouncements
----------------------------------
In April 2009, the FASB released ASC Topic 820, formerly FSP SFAS 157-4,
Determining Fair Value When Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly ("SFAS No. 157-4"). SFAS No. 157-4 supersedes SFAS No. 157-3. SFAS No.
157-4 provides guidance on how to determine the fair value of assets and
liabilities when the volume and level of activity for the asset/liability has
significantly decreased. SFAS No. 157-4 also provides guidance on identifying
circumstances that indicate a transaction is not orderly. In addition, SFAS No.
157-4 requires disclosure in interim and annual periods of the inputs and
valuation techniques used to measure fair value and a discussion of changes in
valuation techniques. SFAS No. 157-4 is effective for interim and annual periods
ending after June 15, 2009 (June 30, 2009 for the Company) and shall be applied
prospectively. SFAS No. 157-4 does not have a material impact on the preparation
of and disclosures in the Company's financial statements.
In May 2009, the FASB issued ASC Topic 855-10-5, formerly SFAS No. 165,
Subsequent Events ("SFAS No. 165"). SFAS No. 165 establishes general standards
of accounting for and disclosures of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued.
It requires entities to disclose the date through which it has evaluated
subsequent events and the basis for that date. SFAS No. 165 is effective for
interim and annual periods ending after June 15, 2009. The Company adopted SFAS
No. 165 on June 30, 2009 (see note 10 in the notes to the financial statements
included in this Report on Form 10-K).
In June 2009, the FASB issued an amendment of ASC Topic 860, formerly SFAS No.
166, Accounting for Transfers of Financial Assets, an amendment of FASB
Statement No. 140 ("SFAS No. 166"). The objective of SFAS No. 166 is to improve
the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor's continuing
involvement, if any, in transferred financial assets. SFAS No. 166 removes the
concept of a qualifying special-purpose entity from Statement 140 and removes
the exception from applying FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, to qualifying special-purpose entities.
Additionally, SFAS No. 166 defines the term participating interest to establish
specific conditions for reporting a transfer of a portion of a financial asset
as a sale, and also requires that a transferor recognize and initially measure
at fair value all assets obtained (including a transferor's beneficial interest)
and liabilities incurred as a result of a transfer of financial assets accounted
for as a sale. SFAS No. 166 is effective for fiscal periods ending after
November 15, 2009 (January 1, 2010 for the Company). The Company is currently
evaluating the impacts and disclosures related to SFAS No. 166.
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R) ("SFAS No. 167"). SFAS No. 167 amends guidance in Interpretation 46
(R) for determining whether an entity is a variable interest entity in addition
to subjecting enterprises to a number of other requirements including, among
other things: (i) requiring an enterprise to perform an analysis to determine
whether the enterprise's variable interest or interests give it a controlling
financial interest in a variable interest entity and specifies the
characteristics the primary beneficiary of a variable interest entity must have
to be designated as such; (ii) requiring an enterprise to assess whether it has
an implicit financial responsibility to ensure that a variable interest entity
operates as designed when determining whether it has the power to direct the
activities of the variable interest entity that most significantly impact the
entity's economic performance; (iii) requiring the ongoing reassessments of
whether an enterprise is the primary beneficiary of a variable interest entity;
(iv) the elimination of the quantitative approach previously required for
determining the primary beneficiary of a variable interest entity, and (v)
adding an additional reconsideration event for determining whether an entity is
a variable interest entity when any changes in
F-23
facts and circumstances occur such that investors of the equity investment at
risk, as a group, lose the power from voting or similar rights of the investment
to direct the activities of the entity that have the most significant impact on
the entity's economic performance. SFAS No. 167 is effective for fiscal and
interim periods ending after November 15, 2009 (January 1, 2010 for the
Company). The Company is currently evaluating the impacts and disclosures
related to SFAS No. 167.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162 ("SFAS No. 168"). SFAS No. 168 establishes
the FASB Accounting Standards Codification as the source of authoritative
accounting principles recognized by FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with GAAP.
SFAS No. 168 is effective for fiscal and interim periods ending after September
15, 2009 (September 30, 2009 for the Company). The Company is currently
evaluating the impacts and disclosures related to SFAS No. 168.
In August 2009, the FASB issued Accounting Standards Update ("ASU") 2009-05,
Fair Value Measurements and Disclosures - Measuring Liabilities at Fair Value
(amendments to ASC Topic 820, Fair Value Measurements and Disclosures). ASU
2009-05 provides clarification that in circumstances in which a quoted price in
an active market for the identical liability is not available, a reporting
entity is required to measure fair value using certain techniques. ASU 2009-05
also clarifies that when estimating the fair value of a liability, a reporting
entity is not required to include a separate input or adjustment to other inputs
relating to the existence of a restriction that prevents the transfer of a
liability. ASU 2009-05 also clarifies that both a quoted price in an active
market for the identical liability at the measurement date and the quoted price
for the identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair value
measurements. ASU 2009-05 is effective for interim and annual periods beginning
after August 27, 2009. The Company adopted this guidance on November 1, 2009
which did not have a material impact on its financial position, results of
operations or cash flows.
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures - Improving Disclosures about Fair Value Measurements (amendments to
ASC Topic 820, Fair Value Measurements and Disclosures). ASU 2010-06 amends the
disclosure requirements related to recurring and nonrecurring measurements. The
guidance requires new disclosures on the transfer of assets and liabilities
between Level 1 (quoted prices in active market for identical assets or
liabilities) and Level 2 (significant other observable inputs) of the fair value
measurement hierarchy, including the reasons and the timing of the transfers.
Additionally, the guidance requires a roll forward of activities on purchases,
sales, issuance, and settlements of the assets and liabilities measured using
significant unobservable inputs (Level 3 fair value measurements). The guidance
is effective for interim and annual periods beginning after December 15, 2009.
The adoption of ASU 2010-06 is not expected to have a material impact on the
Company's financial position, results of operations or cash flow.
In February 2010, the FASB issued ASU 2010-09, Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements (amendments to ASC Topic 855,
Subsequent Events). ASU 2010-09 clarifies that subsequent events should be
evaluated through the date the financial statements are issued. In addition,
this update no longer requires a filer to disclose the date through which
subsequent events have been evaluated. This guidance is effective for financial
statements issued subsequent to February 24, 2010. The Company adopted this
guidance on this date, which did not have a material impact on its financial
position, results of operations or cash flows.
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.
F-24
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. December 31, 2009 balance of accounts receivable was $ 244,670, net
of reserve for doubtful accounts. The Company has established a reserve for
allowance for doubtful accounts in 2009 equal to $8,394.
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 December 31, 2009, the inventory
consisted of:
Raw materials $161,947
Finished goods 233,054
--------
TOTAL $395,001
========
NOTE 6 - FIXED ASSETS
The Company's assets consist of the following:
Vehicles $ 77,753
Tools 67,679
Equipment, furniture , fixtures and equipment 55,396
---------
200,828
Less Accumulated Depreciation (42,847)
---------
Net $157,981
=========
The Company depreciates it assets over useful lives of between 3 and 7 years.
Depreciation expense was $ 39,195 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 and cash repayment in 2009.
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. As of December 31, 2009, the balance of payments
received in advance was $ 296,167.
F-25
NOTE 9-BANK LOAN
The Company is indebted to Shin Han Bank at December 31, 2009 for $ 428,229,
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 10 - CAPITAL STOCK
Company has only one class of stock, common stock. For the year ended
December 31, 2009 the Company issued 9,095,000 shares. The shares for
services were recognized as an expense in Consulting and service fees. The
Company us authorized to issue 100,000,000 shares and as of December 31, 2009,
the Company has 40,708,115 shares issued and outstanding.
NOTE 11 - 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.
F-26
NOTE 12 - 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 December 31, 2009, 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 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 $ 896,953
NOTE 13 - COMMITMENT AND CONTINGENCIES
13.1 Lease Commitments
Company leases its office space and assembly facilities in HaNam City in Korea
which expires on 03/31/2011 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 December 31, 2009 were $ 32,252.
13.2 Litigation
The Company has no threatened, pending or unsettled litigation as of April 5,
2010, the date the financial statement is available for issuance.
NOTE 14 - SUBSEQUENT EVENTS
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.
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 300 billion
Korean Won (approximately $2.66 million US).
F-27
NOTE 15-GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
loss of $3,538,617 during the year ended December 31, 2009, and as of that date,
the Company has a deficit of $5,069,666. 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 theCompany 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 14 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-28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
-----------------------------------------------------
Our management, including our Principal Executive and Principal Financial
Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Securities Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2009. Our disclosure controls and
procedures are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a
et seq.) is recorded, processed, summarized, and reported, within the time
periods specified in the Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Act is accumulated and communicated to the
issuer's management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Based on this evaluation, our
Chief Executive and Principal Financial Officer concluded that our disclosure
controls and procedures were not effective as of December 31, 2009.
(b) Management's Report on Internal Control over Financial Reporting
-----------------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-a5(f)
under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with U.S. GAAP. Our internal control over financial reporting
includes those policies and procedures that: (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and
directors; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use of disposition of our assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Under the supervision of our Chief Executive Officer, our management assessed
the effectiveness of our internal control over financial reporting as of
December 31, 2009. In making this assessment, management used the criteria set
forth in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
our management has concluded that our internal control over financial reporting
was ineffective as of December 31, 2009 and there are material weaknesses in our
internal control over financial reporting. A material weakness is a deficiency,
or a combination of control deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.
Page 29
The material weaknesses relate to the limited number of persons responsible for
the recording and reporting of financial information, the lack of separation of
financial reporting duties, and the limited size of our management team in
general. We are in the process evaluating methods of improving our internal
control over financial reporting, including the possible addition of financial
reporting staff and the increased separation of financial reporting
responsibility, and intend to implement such steps as are necessary and possible
to correct these material weaknesses.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this Annual Report on Form 10-K. Our registered
public accounting firm will not be required to opine on internal controls until
fiscal 2010.
(c) Change in Internal Controls
------------------------------
There were no changes in our internal control over financial reporting during
the quarter ended December 31, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTOR AND EXECUTIVE OFFICER SUMMARY
The following table sets forth the names, ages, and principal offices and
positions of our current directors, executive officers, and persons we consider
to be significant employees. The Board of Directors elects our executive
officers annually. Our directors serve one-year terms or until their successors
are elected, qualified and accept their positions. The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors. There are no family relationships or understandings between any of
the directors and executive officers. In addition, there was no arrangement or
understanding between any executive officer and any other person pursuant to
which any person was selected as an executive officer.
NAME OF DIRECTOR OR OFFICER AGE POSITION
Chief Executive Officer, President
Robert S. C. Kang 49 and Interim Chief Financial Officer
Jung Yong ("John") Lee 45 Chief Technical Officer and Director
Young Il Kim 54 Director
Page 30
EXECUTIVE OFFICER AND DIRECTOR BIOS
Robert S. C.Kang, Chief Executive Officer, President and Interim Chief Financial
--------------------------------------------------------------------------------
Officer
-------
Dr. Kang is a marketing Ph.D. and has worked in international advertising and
corporate marketing for more than 25 years. He began his carrier at Oricom, the
largest ad agency in Korea and a McCann Ericson affiliate. Dr. Kang managed Leo
Burnett Korea and BBDO Dong Bang, advertising companies, introducing these
companies to Korea. He founded one of the leading advertising companies in
Korea, Ad Express and On & Off, and managed the firms for 11 years. One & Off
merged into WPP Group as he became president of META B, a management consulting
firm. Recently, he served as president of Pico North Asian, a multinational
global event marketing company in Hong Kong for two years. Dr. Kang joined the
Company as its chairman, CEO and interim CFO on November 1, 2008, and will focus
on business development, global marketing, and financing of Leo Motors.
He got his BS (Literature) at Korea Univ. MA (Advertising) in University of
Oregon, and Ph.D. (Marketing) at Dongguk Univ. in Korea.
Jung Yong (John) Lee, Chief Technical Officer and Director
------------------------------------------------------------------
Mr. Lee joined the Company's operating subsidiary as its CEO and President in
June 2006, and joined the Company upon its acquisition on September 3, 2007. In
November 2008 he resigned as CEO and President but remained with the Company as
CTO and Director. Prior to joining the Company, Mr. Lee has held several
positions in EV design and projects. He lead the Research and Development
Department for Geo EV beginning in 2002, and for Pyeonghwa Motors, a Korean car
manufacturer and dealer, beginning in February 2004. His experience includes
heading projects that have incorporated the Polymer Battery, Dual Motor System,
and alternative energy vehicle design. He has also worked on the Ford SUV
Concept Project for 1997's Melbourne Motor show, the City Car Project, and the
Limousine Project.
Mr. Lee received his Masters of Industrial Design (Vehicle Styling) from RMIT
University in Melbourne, Australia, and his PhD in Industrial Design from the
University of New South Wales in Sydney, Australia. He has taught Engineering
Industrial Design at Dankook University in Seoul, South Korea.
Young Il Kim, Director
-------------------------
Dr. Kim joined the Company on October 11, 2009. Dr. Kim began his career in the
auto industry in 1988, at Panther Sports Car as Senior Designer and Manager. He
later served as Chief Designer of commercial vehicles and concept vehicles at
Sang-Yong Motor Company before joining the Hyundai Motor Group in 1995.
From 1995 through 2007, Dr. Kim held various positions of increasing
responsibility under the Hyundai and Kia Motors Group umbrella, including Chief
Designer at Hyundai Precision through March 2005, Chief Designer and Senior Vice
President at Hyundai and Kia Marketing Division from March 2005 to September
2006, and Executive Vice President in the Marketing Division in charge of Brand
and Design Differentiation between Hyundai and Kia Motors from September 2006 to
February 2007. From then until March 2009 he was CEO and President of Innocean
Worldwide, a Marketing and Advertising Company of the Hyundai and Kia Group.
Dr. Kim, who holds an Industrial Designer of Product Design degree from
Wuppertal University, Germany, and a PhD in Design from Kook-Min University,
Seoul, Korea, has enjoyed a distinguished academic career as well, having
lectured at various colleges and universities on the subjects of design and
Page 31
marketing since 2000. Dr. Kim was a visiting professor at Gothenburg University,
Sweden during the 2004/05 academic year, and is currently serving as a visiting
professor at Kyung-hee University, where he began in August 2009.
LEGAL AND DISCIPLINARY HISTORY
No officer, director or control person of the Company has been the subject of:
1. A conviction in a criminal proceeding or named as a defendant in a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
2. The entry of an order, judgment, or decree, not subsequently reversed,
suspended or vacated, by a court of competent jurisdiction that permanently or
temporarily enjoined, barred, suspended or otherwise limited such person's
involvement in any type of business, securities, commodities, or banking
activities;
3. A finding or judgment by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission, the Commodity Futures Trading
Commission, or a state securities regulator of a violation of federal or state
securities or commodities law, which finding or judgment has not been reversed,
suspended, or vacated; or
4. The entry of an order by a self-regulatory organization that permanently
or temporarily barred, suspended or otherwise limited such person's involvement
in any type of business or securities activities.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires our directors and officers, and persons who own more than ten percent
of the Common Stock to file reports of ownership and changes in ownership with
the Securities and Exchange Commission ("SEC") and the American Stock Exchange.
SEC regulations require reporting persons to furnish us with copies of all
Section 16(a) forms they file.
Based solely on our review of the copies of the Forms 3, 4 and 5 and amendments
thereto furnished to us by the persons required to make such filings during
fiscal 2008 and our own records, we believe that no officer or director failed
to file timely a Form 3, 4 or 5 during the year ending December 31, 2009.
CORPORATE GOVERNANCE.
We have not adopted a code of ethics do date. We are in the process of
evaluating the standards of conduct necessary for the deterrence of malfeasance
and the promotion of ethical conduct and accountability, and will determine
whether a code of ethics is necessary based on our evaluation.
The Company does not have a standing Nominating Committee. There have been no
changes to the procedures whereby security holders may recommend nominees to the
registrant's board of directors.
The Company is not a "listed issuer" as defined by Rule 10A-3, and does not have
a standing Audit Committee. We do not have a financial expert serving on our
board of directors.
Page 32
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Objectives and Philosophy of our Executive Compensation Program
----------------------------------------------------------------------
We do not have a standing compensation committee. Our board of directors as a
whole makes the decisions as to employee benefit programs and officer and
employee compensation. The primary objectives of our executive compensation
programs are to:
- attract, retain and motivate skilled and knowledgeable individuals;
- ensure that compensation is aligned with our corporate strategies and
business objectives;
- promote the achievement of key strategic and financial performance measures
by linking short-term and long-term cash and equity incentives to the
achievement of measurable corporate and individual performance goals; and
- align executives' incentives with the creation of stockholder value.
To achieve these objectives, our board of directors evaluates our executive
compensation program with the objective of setting compensation at levels they
believe will allow us to attract and retain qualified executives. In addition,
a portion of each executive's overall compensation is tied to key strategic,
financial and operational goals set by our board of directors. We also
generally provide a portion of our executive compensation in the form of options
that vest over time, which we believe helps us retain our executives and align
their interests with those of our stockholders by allowing the executives to
participate in our longer term success as reflected in asset growth and stock
price appreciation.
Named Executive Officers
--------------------------
The following table identifies our principal executive officer, our principal
financial officer and our most highly paid executive officers during the last
full fiscal period reported herein, who, for purposes of this Compensation
Disclosure and Analysis only, are referred to herein as the "named executive
officers.
Name Corporate Office
---------------------- ------------------------------
Shi Chul (Robert) Kang President, CEO and Interim CFO
Components of our Executive Compensation Program
-----------------------------------------------------
At this time, the primary elements of our executive compensation program are
base salaries and option grant incentive awards, although the board of directors
has the authority to award cash bonuses, benefits and other forms of
compensation as it sees fit.
We do not have any formal or informal policy or target for allocating
compensation between short-term and long-term compensation, between cash and
non-cash compensation or among the different forms of non-cash compensation.
Instead, we have determined subjectively on a case-by-case basis the appropriate
level and mix of the various compensation components. Similarly, we do not rely
extensively on benchmarking against our competitors in making compensation
related decisions, although we may consider industry compensation trends as one
of many factors in our case-by-case determination of proper compensation.
Page 33
Base salaries
--------------
Base salaries are used to recognize the experience, skills, knowledge and
responsibilities required of our named executive officers. Base salary, and
other components of compensation, may be evaluated by our board of directors for
adjustment based on an assessment of the individual's performance and
compensation trends in our industry.
Equity Awards
--------------
Our stock option award program is the primary vehicle for offering long-term
incentives to our executives. Our equity awards to executives have typically
been made in the form of warrants. We believe that equity grants in the form of
warrants provide our executives with a direct link to our long-term performance,
create an ownership culture, and align the interests of our executives and our
stockholders.
Cash bonuses
-------------
Our board of directors has the discretion to award cash bonuses based on our
financial performance and individual objectives. The corporate financial
performance measures (revenues and profits) will be given the greatest weight in
this bonus analysis. We have not yet granted any cash bonuses to any named
executive officer nor have we yet developed any specific individual objectives
while we wait to attain revenue and profitability levels sufficient to undertake
any such bonuses.
Benefits and other compensation
----------------------------------
Our named executive officers are permitted to participate in such health care,
disability insurance, bonus and other employee benefits plans as may be in
effect with the Company from time to time to the extent the executive is
eligible under the terms of those plans. As of the date of this Registration
Statement, we have not implemented any such employee benefit plans.
CURRENT EXECUTIVE COMPENSATION
Summary Annual Salary
-----------------------
As discussed above, we have agreed to pay the Named Executive Officers an annual
salary. Base salary may be increased from time to time with the approval of the
board of directors. The following table summarizes the agreed annual salary of
each of the named executive officers.
Name Annual Salary
----------- --------------
Robert Kang $ 300,000
Agreed Compensation
--------------------
Robert Kang, President, Chief Executive Officer and Interim Chief Financial
Officer - Dr. Kang will earn an annual Salary of $ 300,000 as compensation for
his services as president and CEO.
Page 34
GRANTS OF PLAN-BASED AWARDS TABLE FOR FISCAL YEAR 2009
On January 15, 2010, the Company adopted an employee stock option plan,
designated as the "2010 Employee Stock Option Plan. During fiscal 2009, we did
not grant any equity awards under any equity award plan. 10,000,000 options
were issued to our CEO on February 1, 2010.
OPTION EXERCISES FOR FISCAL 2009
During fiscal 2009, none of the named executive officers exercised options.
NONQUALIFIED DEFERRED COMPENSATION
We currently offer no defined contribution or other plan that provides for the
deferral of compensation on a basis that is not tax-qualified to any of our
employees, including the named executive officers.
COMPENSATION OF DIRECTORS
We intend to use a combination of cash and equity-based compensation to attract
and retain candidates to serve on our board of directors. We do not compensate
directors who are also our employees for their service on our board of
directors. We issued 300,000 shares of common stock to Young Il Kim upon his
appointment to the board of directors on October 11, 2009. We have not provided
any other compensation to any member of our Board of Directors for the fiscal
year ended December 31, 2009.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We do not currently have a standing Compensation Committee. Our entire board of
directors participated in deliberations concerning executive officer
compensation.
COMPENSATION COMMITTEE REPORT
The board of directors has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management and,
based on such review and discussions, the board of directors has recommended
that this Compensation Discussion and Analysis be included in this Registration
Statement on Form 10.
Page 35
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to, or accrued by, the Company's highest paid executive
officers during the fiscal years ended December 31, 2009 and December 31, 2008. No restricted stock awards,
long-term incentive plan payout or other types of compensation, other than the compensation identified in the chart
below and its accompanying notes, were paid to these executive officers during that fiscal year.
NAMED ANNUAL ANNUAL OTHER COMPENSATION LONG TERM
EXECUTIVE COMPENSATION COMPENSATION ANNUAL RESTRICTED COMPENSATION LTIP
OFFICER YEAR SALARY ($) BONUS ($) COMPENSATION STOCK (#) OPTIONS PAYOUTS ALL OTHER
---------------- ---- ------------- ------------- ------------ ------------- ------------ ------- ---------
Robert Kang 2008 25,000(2) 0 0 0 0 0 0
2009 336,527 0 0 0 0 0 0
Jung Yong Lee(1) 2008 48,551(3) 0 0 0 0 0 0
2009 32,810 0 0 0 0 0 0
(1) Jung Yong Lee was the Company's President and CEO from September 19, 2007 to November 18, 2008.
(2) Robert Kang became the Company's President and CEO on November 18, 2008. Salary amount represents one month's
prorated portion of agreed $300,000 per year salary.
(3) Number represents average 2008 exchange rate between US$ and Korean Won. Mr. Lee was paid 52 million Korean
Won for his services in 2008.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END TABLE
The following table sets forth information regarding the outstanding warrants held by our named
officers as of December 31, 2009.
OPTION AWARDS
---------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SECURITIES SECURITIES EQUITY INCENTIVE
UNDERLYING UNDERLYING PLAN AWARDS: OPTION
UNEXERCISED UNEXERCISED NUMBER OF SECURITIES EXERCISE OPTION
OPTIONS OPTIONS UNDERLYING UNEXERCISED PRICE EXPIRATION
NAME (#) EXERCISABLE (#) UNEXERCISABLE UNEARNED OPTIONS ($) DATE
-------------- --------------- ----------------- ---------------------- --------- ----------
Robert Kang(1) 0 0 - - -
(1) Mr. Kang was issued 10,000,000 options in Fiscal 2010.
Page 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the beneficial ownership of our common stock as of
April 14, 2010. The table shows the amount of shares owned by:
(1) each person known to us who owns beneficially more than five percent of
the outstanding shares of any class of the Company's stock, based on the number
of shares outstanding as of April 14, 2010;
(2) each of the Company's Directors and Executive Officers; and
(3) all of its Directors and Executive Officers as a group.
AMOUNT OF PERCENT OF
IDENTITY OF SHARES SHARES
PERSON OR BENEFICIALLY BENEFICIALLY
GROUP OWNED OWNED(1,2) CLASS
------------------------------------- ------------ ------------- ------
Robert Kang
CEO, President
and Interim CFO 16,450,000(3) 27.1% Common
------------ ------------- ------
Jung Yong Lee
CTO and Director 3,500,000 6.9% Common
------------ ------------- ------
Young Il Kim
Director 500,000 1.6% Common
------------ ------------- ------
All Directors and Officers as a Group 20,450,000 33.7% Common
------------------------------------- ------------ ------------- ------
(1) The percentage of shares owned is based on 50,708,115 shares being
outstanding as of April 14, 2010. If the beneficially owned shares of any
individual or group in the above table include any options, warrants, or other
rights to purchase shares in the Company's stock, such right to purchase shares
(if any) is disclosed by footnote below and the percentage of shares owned
includes such shares as if the right to purchase had been duly exercised.
(2) BENEFICIAL OWNERSHIP OF SECURITIES: Pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, involving the determination of beneficial
owners of securities, a beneficial owner of securities is person who directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise has, or shares, voting power and/or investment power with respect to
the securities, and any person who has the right to acquire beneficial ownership
of the security within sixty days through means including the exercise of any
option, warrant or conversion of a security.
(3) Includes 6,450,000 shares and options to purchase 10,000,000 shares, issued
under the 2010 Employee Stock Option Plan.
Page 37
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
SEA MOTORS, INC.
In January 2009 we entered into a definitive consulting agreement with SEA
Motors, of which Dr. Kang was formerly part of management. Dr. Kang joined Leo
Motors subsequent to entering the agreement. Dr. Kang resigned his position
with SEA prior to execution of the definitive agreement but after performing
certain consulting services in anticipation thereof, and thus the Company agreed
to pay a consulting fee of 700,000 shares of common stock directly to Dr. Kang.
As of the date hereof, the Company has not entered into any other agreements
with related parties, and there are no other conflicts of interests of any of
the Company's officers, directors or affiliates known to the Company.
DIRECTOR INDEPENDENCE
The Company is not listed on any national exchange, or quoted on any
inter-dealer quotation service, that imposes independence requirements on any
committee of the Company's directors, such as an audit, nominating or
compensation committee. As all of the Company's directors are employees of the
Company, the Company does not have any independent directors on its Board, as
defined by the New York Stock Exchange.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following is a summary of the fees paid to Gruber & Company LLC, the
Company's independent public accounting firm, during the fiscal years ended
December 31, 2008 and 2007.
2009 2008
------- --------
Audit fees $35,000 $30,0001
------- --------
Audit-related fees - -
Tax fees - -
All other fees - -
TOTAL $35,000 $-30,000
(1) Fees for the audit of our 2007 and 2006 financial statements
AUDIT COMMITTEE PRE-APPROVAL OF SERVICES OF PRINCIPAL ACCOUNTANTS
The Company does not have a standing audit committee. The Board as a whole has
the authority and responsibility to select, evaluate, determine the compensation
of, and, where appropriate, replace the independent auditor. After determining
that providing the non-audit services is compatible with maintaining the
auditor's independence, the board pre-approves all audits and permitted
non-audit services to be performed by the independent auditor, except for de
minimus amounts. If it is not practical for the board to meet to approve fees
for permitted non-audit services, the board has authorized its chairman to
approve them and to review such pre-approvals with the Board at its next
meeting.
Page 38
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SCHEDULES.
The following consolidated financial statements of Leo Motors, Inc. and
Subsidiaries are included herein by reference to the pages listed in "Item 8.
Financial Statements and Supplementary Data":
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Operations for the years ended December 31, 2009, and
2008
Consolidated Statements of Changes in Shareholders' Interest for the years ended
December 31, 2009 and 2008
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and
2008
Notes to Consolidated Financial Statements
EXHIBITS
The following Exhibits are included herein:
31.1 Certification of the Principal Executive and Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a)
or Rule 15d-14(a)).
32.1 Certification by the Principal Executive and Principal Financial Officer of
Leo Motors, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LEO MOTORS, INC.
(THE REGISTRANT)
By \s\ Robert Shi Chul Kang
----------------------------
Robert Shi Chul Kang
Chief Executive Officer, President and
Interim Chief Financial Officer
Date: April 15, 201
Page 39