Leo Motors, Inc. - FORM 10-Q - December 14, 2011

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EX-32.2 - CERTIFICATION - Leo Motors, Inc.ex322.htm
EX-31.1 - CERTIFICATION - Leo Motors, Inc.ex311.htm
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EX-32.1 - CERTIFICATION - Leo Motors, Inc.ex321.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011
 
or
 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

       
For the transition period from
  
to
  

Commission file number 000-53525

Leo Motors, Inc.
(Exact name of registrant as specified in its charter)

Delaware
  
95-3909667
(State or other jurisdiction of incorporation or organization)
  
(I. R. S. Employer Identification No.)
 
1291-1, Hasangok-dong, Hanam City, Gyeonggi-do, Republic of Korea
 
465-250
(Address of principal executive offices)
  
(Zip Code)

 
+83 31 796 8870
(Registrant’s telephone number, including area code)
 
n/a
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x  No o
   
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o
Accelerated filer  o
Non-accelerated filer  o
 (Do not check if a smaller reporting company)
Smaller reporting company  x

   
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes o  No  x

The number of shares of the registrant’s common stock outstanding as of August 15, 2011 was 50,833,115 shares.
 
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Logo JPEG
QUARTERLY REPORT ON FORM 10-Q
for the Quarter ended September 30, 2011

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
  
   
Item 1.
 
Financial Statements
 3
   
Condensed Consolidated Balance Sheets
 4
 
  
Condensed Consolidated Statements of Operations and Comprehensive Income
 5
   
Condensed Consolidated Statements of Cash Flows
 6
 
  
Notes to Condensed Consolidated Financial Statements
  
 
  
Item 2.
  
Management's Discussion & Analysis of Financial Condition and Results of operations
 11
   
Item 3.
 
Quantitative and Qualitative Disclosures about Market Risk
 14
   
Item 4.
  
Controls and Procedures
 14
   
PART II - OTHER INFORMATION
  
   
Item 1.
 
Legal Proceedings
 15
   
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 15
   
Item 3.
 
Defaults Upon Senior Securities
 15
   
Item 4.
 
(Removed and Reserved)
 15
   
Item 5.
 
Other Information
 15
   
Item 6.
 
Exhibit
 15
   
Signatures
 16
 
 
-2-
 
 
Part I. Financial Information

Balance Sheets
4
Statements of Operations
5
 Statement of Cash Flows
6
Notes to Financial Statements
7
 

 
-3-
 
LEO MOTORS, INC.
  
Consolidated Balance Sheets
  
             
ASSETS
  
             
   
As of September 30
    
As of December 31
  
   
2011
    
2010
  
CURRENT ASSETS
  
(Unaudited)
    
(Audited)
  
Cash
   $ 13,362     $ 71,192  
Accounts Receivable-net of allowance of $ 8,780 and $ 8,394 ,respectively
     8,598       -  
Inventory
     1,297,149       1,054,833  
Short-term loans
     196,066       196,066  
Prepaid items and other current assets
     173,480       186,543  
                 
     TOTAL CURRENT ASSETS
     1,688,655       1,508,634  
                 
                 
Fixed assets- net of accumulated depreciation
     77,874       135,227  
Deposit and other non-current assets
     182,582       206,808  
Long -term investment in B&T Corp
     5,181,743       5,286,175  
                 
     TOTAL OTHER ASSETS
     5,442,199       5,628,210  
              0  
                  TOTAL ASSETS
   $ 7,130,854     $ 7,136,844  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  
                 
Commitments and Contingencies
                
                 
CURRENT LIABILITIES
                
 Accrued payroll
   $ 300,000     $ 300,000  
 Short term borrowings
     1,200,711       1,127,209  
  Accounts payable and accrued expenses
     481,740       494,983  
  Other payables
     850,387       332,218  
  Payments received in advance from customers
     288,805       544,224  
  Related party payable
     1,007,845       1,040,142  
                 
TOTAL CURRENT LIABILITIES
     4,129,488       3,838,776  
                 
Accrued severance benefits
     50,017       52,167  
 
                
                 
TOTAL LIABILIITIES
     4,179,505       3,890,943  
                 
                 
                 
STOCKHOLDERS' EQUITY
                
 
                
Common stock, Authorized 100,000,000 Shares, $0.001 par value,50,833,115 shares issued and outstanding, as of September 30, 2011 and December 31, 2010, respectively
     50,833       50,833  
Additional paid-in capital
     10,543,396       10,543,396  
Accumulated comprehensive income (loss)
     420,695       426,910  
Deficit
     -9,436,916       -9,148,579  
                 
     TOTAL LEO MOTORS INC. STOCKHOLDERS' EQUITY
     1,578,008       1,872,560  
                 
Stockholders Equity Attributable to Non-controlling interest
     1,373,341       1,373,341  
                 
                   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
   $ 7,130,854     $ 7,136,844  
                 
                 
See Notes to Financial Statements
  

 
 
-4-
 
 
LEO MOTORS, INC.
Consolidated Statements of Operations
(Unaudited)
   
For the 3-months ended
    
For the 9-months ended
  
   
September 30
    
steptember 30
    
September 30
    
steptember 30
  
   
2011
    
2010
    
2011
    
2010
  
   
 
    
 
    
 
    
 
  
Sales
   $ -       85,034     $ 252,555       651,656  
                                 
 TOTAL SALES
     -       85,034       252,555       651,656  
 COST OF SALES
     -       135,053       219,112       615,211  
                                 
 GROSS PROFIT
     -       (50,019 )     33,443       36,445  
                                 
 EXPENDITURES :
                                
    Officer compensation , salaries and benefits
     94,343       249,211       271,148       4,813,929  
   Consulting and service fee
     -       96,290       -       318,953  
    Selling , general and administrative
     52,237       255,492       172,613       1,017,257  
                                 
 TOTAL EXPENDITURES
     146,580       600,993       443,761       6,150,139  
                                 
 NET LOSS FROM OPERATIONS
     (146,580 )     (651,012 )     (410,318 )     (6,113,694 )
                                 
 OTHER INCOME & (EXPENSES)
                                
                                 
    Investment loss - B&T Corp.
                             -  
    Non-operating income
             4,199       -       14,070  
    Non-operating expense
     (4,646 )     (7,577 )     (30,245 )     (25,300 )
                                 
 Total Other Income & (Expenses)
     (4,646 )     (3,378 )     (30,245 )     (11,230 )
                                 
                                 
 NET LOSS BEFORE INCOME TAX & BENEFIT & NONCONTROLLING INTEREST
     (151,226 )     (654,390 )     (440,563 )     (6,124,924 )
                                 
                                 
 Income tax, net of tax benefits
     -       -       -       -  
 
                                
 NET LOSS
     (151,226 )     (654,390 )     (440,563 )     (6,124,924 )
                                 
                                 
 Loss attributable to noncontrollling interest
     40,831       305,626       118,952       757,858  
                                 
 NET INCOME  (LOSS) ATTRIBUTABLE TO LEO MOTORS, INC.
   $ (110,395 )     (348,764 )   $ (321,611 )     (5,367,066 )
                                 
                                 
 COMPREHENSIVE INCOME (LOSS);
                                
                                 
   NET LOSS
     (110,395 )     (348,764 )     (321,611 )     (5,367,066 )
 
                                
     Unrealized foreign currency transaction gain (loss)
     11,967       (67,415 )     12,540       1,256,095  
                                 
      COMPREHENSIVE INCOME (LOSS)
   $ (98,428 )     (416,179 )   $ (309,071 )     (4,110,971 )
                                 
                                 
  LOSS PER SHARE - BASIC & DILUTED
     (0.002 )     (0.007 )     (0.006 )     (0.106 )
                                 
  COMPREHENSIVE LOSS PER SHARE - BASIC & DILUTED
     (0.002 )     (0.009 )     (0.006 )     (0.081 )
                                 
 WEIGHTED AVERAGE NUMBER OF
                                
  COMMON SHARES OUTSTANDING
     50,833,115       46,737,286       50,833,115       50,783,115  
                 
See Notes to Financial Statements
  

 
 
-5-
 

 
LEO MOTORS, INC.
  
Consolidated Statements of Cash Flows
  
(Unaudited)
  
   
For the 9-months ended
  
   
September 30
    
September 30
  
   
2011
    
2010
  
             
   
 
    
 
  
CASH FLOWS FROM OPERATING ACTIVITIES
            
  Net loss
   $ (321,611 )     (5,367,066 )
    Adjustments to reconcile net loss to net cash provided by operating activities :
                
                 
Stock issued for compensation
             4,123,670  
Depreciation
     36,587       94,664  
Loss on disposition of property and equipment
             130  
Change in long-term investment
     104,432          
Changes in working capital:
                
                 
(Increase) decrease in inventory
     (242,316 )     (2,589,196 )
(Increase)  decrease in accounts receivable
     (8,598 )     235,580  
(Increase)  decrease in short term loans
                
(Increase)  decrease in advance payment
                
(Increase)  decrease in deposit/prepaid
             (724,102 )
Increase (decrease) in accrued salary
                
 Increase (decrease) in accounts payables and accrued expenses
     (13,243 )     244,771  
 Increase (decrease) in other payable
     518,169       309,478  
 Payments in advance from customers
     (255,419 )     2,124,494  
Increase (decrease) in accrued warranty expense
                
 Increase  (decrease) in taxes payable
                
 Increase (decrease) in accrued severance benefits
     (2,150 )     (1,814 )
 Increase (decrease) in other liabilities
                
    Net Cash Provided by (Used in) Operating Activities
     (184,149 )     (1,549,391 )
                 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
                
                 
Acquisition of intangible assets
             (153,702 )
Disposition (Acquisition) of fixed assets
     (22,582 )        
Outlay for or deposit refunded
     13,063       (72,019 )
Increase in other non-current assets
     24,226          
                 
Net Cash Provided by (Used in) Investing Activities
     14,707       (225,721 )
                 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
                
   Stock issued for investment in net equity interest
                
  Proceeds (repaid) from short-term borrowing
     57,867       491,209  
Increase (decrease) in short-term loan
     73,502          
 Advances from related parties
     (32,297 )        
 Increase in minority interest
             (245,835 )
 Issuance of common stocks
                
                 
 Net Cash flows from financing activities
     99,072       245,374  
                 
                 
Foreign currency translation adjustment
     12,540       1,256,095  
                 
                 
    Net Increase (Decrease) in Cash
     (57,830 )     (273,643 )
 
                
    Cash at the Beginning of the period
     71,192       499,025  
                 
    Cash at the End of the period
   $ 13,362       225,382  
                 
    Supplemental  Cash Flow Disclosures:
                
                 
Cash paid during the priod for interst
     -       -  
Cash paid during year for taxes
     -       -  
                 
                 
                 
See Notes to Financial Statements
  

 
 
 
-6-
 
LEO MOTORS, INC.
Notes to the Consolidated Financial Statements
September 30, 2011
(Unaudited)


1.  UNAUDITED INFORMATION

The consolidated balance sheet of Leo Motors Inc. (the “Company”) as of  September 30, 2011, and the consolidated statements of operations  and cash flows for the three and nine-months ended  September 30, 2011, have not been audited.  However, in the opinion of management, such information includes all adjustments (consisting only of normal recurring adjustments) which are necessary to properly reflect the financial position of the Company as of September 30, 2011, and the results of operations for the nine months ended  September  30, 2011.

Certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although management believes that the disclosures are adequate to make the information presented not misleading.  Interim period results are not necessarily indicative of the results to be achieved for an entire year.  These financial statements should be read in conjunction with the financial  statements and notes to financial statements included in the Company’s consolidated financial statements as filed on Form 10-K for the year ended December 31, 2010.

NOTE 2 - 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.

On February 11, 2010, the Company acquired 50% of Leo B&T Corp.,(“B&T”) a Korean Corporation, from two shareholders of B&T in exchange for 7,000,000 shares of the Company’s common stock.

NOTE 3 -   SUMMAY 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 Leo Motors  Co. Ltd. Korea where the Company is controlling shareholders with 57.69 % at the end of September 30, 2011 and December 31, 2010, respectively.  All inter-company transactions and balances have been eliminated upon consolidation.


 
-7-
 
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally  accepted  in the United States of America requires management to make estimates  and  assumptions  that  affect  reported  amounts  of  assets  and liabilities,  disclosure of contingent assets and liabilities at the date of the financial  statements,  and the reported amounts of revenues and expenses during the  reporting period.  Actual results could differ from those estimates.

Fair Value of Financial Instruments

For certain of the Company's financial instruments, including cash and cash equivalents,  accounts  receivable inventory and prepaid expenses, accounts payable and deferred revenues, the carrying amounts approximate fair value due to their short maturities.

Revenue Recognition

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.

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.
 
 
-8-
 
Income Taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, “Accounting for Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year; and, (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected to be taken may be recognized only if it is “more likely than not” that the position is sustainable upon examination, based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.

Loss per Share

Basic earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period.  Diluted earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of both common and preferred stock outstanding for the period

Stock-Based Compensation

SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation,"  establishes  and encourages  the use of the fair value based method of accounting for stock-based compensation  arrangements under which compensation cost is determined using the fair value of stock-based compensation determined as of the date of grant and is recognized  over  the  periods  in which the related services are rendered.  For stock  based  compensation  the Company recognizes an expense in accordance with SFAS  No.  123  and  values the equity securities based on the fair value of the security  on  the  date  of  grant.  Stock  option  awards  are valued using the Black-Scholes  option-pricing  model.

Recent Accounting Pronouncements and Impact of New Accounting Standards

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow.

NOTE 4 - EARNINGS PER SHARE

Basic  earnings  per share are calculated by dividing net loss by the weighted average  number  of  common  shares  outstanding  during  the  period.

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 Sepetmber 20, 2011 and December 31, 2010, the inventory consisted of;
 
 
  
09/30/2011
    
12/31/2010
  
             
             
Raw materials
   $ 1,016,338     $ 975,301  
Work-in-process
     301,120       99,531  
Finished goods                                                                                                           
     9,691       10,002  
TOTAL
                
 
   $ 1,327,149     $ 1,084,834  
                 
Reserve for slow moving and obsolete goods
     (30,000 )     (30,000 )
 
   $ 1,297,149     $ 1,054,834  
                                                                                     
 
-9-
 
NOTE 6 - DUE TO RELATED PARTY

The company is indebted to its officer for advances. Repayment is on demand without interest. The balance at September  30,  2011 was $ 1,007,845.

NOTE 7 - PAYMENTS RECEIVED IN ADVANCE

The Company during the periods received payments from potential customers, or deposits, on future orders. The Company's policy is to record these payments as a liability until the product is completed and shipped to the customer at which the Company recognizes revenue. As of September  30, 2011 and December 31, 2010, the balance of payments received in advance was $ 288,805  and $ 544,224, respectively.

NOTE 8 – CAPITAL STOCK

The company issued 7,000,000 shares to acquire 50 % of Leo BnT Corp. in February 2010. At $ .79 per share resulting in purchase price paid in the amount of $ 5,500,000. Also on February 8 2010, 3,000,000 shares as compensation paid to officers which was valued at $ .75 per share.  The remainder 125,000 shares were for the consulting fee and IR service paid in stock with price ranging from $ .48 to $ 1,45 per share.

Company has only one class of stock, common stock. For  the  years  ended  December  31,  2010 and 2009,   the Company issued 10,125.000 and 9,095,000 shares, respectively.  The  shares  for services were recognized as consulting and service fees.

The Company is authorized to issue 100,000,000 shares and as of September 30, 2011 and December 31, 2010 , the Company has 50,833,115 shares issued and outstanding, respectively.

Note 9 —GOING CONCERN

The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not established any profitable operations to cover its operating costs. The Company will engage in very limited activities without incurring any liabilities that must be satisfied in cash until a source of funding is secured or profitability is returned. The Company will offer noncash consideration and seek debt/equity lines as a means of financing its operations. If the Company is unable to obtain revenue producing contracts or financing or if the revenue or financing it does obtain is insufficient to cover any operating losses it may incur, it may substantially curtail or terminate its operations or seek other business opportunities through strategic alliances, acquisitions or other arrangements that may dilute the interests of existing stockholders.

NOTE 10 – SUBSEQUENT EVENTS

Management has evaluated subsequent events, and the impact on the reported results and disclosures and determined that there have not been any events that would be required to be reflected in the financial statements or the notes.
 
 
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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS:  STATEMENTS ABOUT OUR FUTURE EXPECTATIONS ARE "FORWARD-LOOKING STATEMENTS" AND ARE NOT GUARANTEES OF FUTURE PERFORMANCE.  WHEN USED HEREIN, THE WORDS "MAY," "WILL," "SHOULD," "ANTICIPATE," "BELIEVE," "APPEAR," "INTEND," "PLAN," "EXPECT," "ESTIMATE," "APPROXIMATE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INVOLVE RISKS AND UNCERTAINTIES INHERENT IN OUR BUSINESS, INCLUDING THOSE SET FORTH UNDER THE CAPTION "RISK FACTORS," IN THIS DISCLOSURE STATEMENT, AND ARE SUBJECT TO CHANGE AT ANY TIME.  OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS.  THIS FORM 10-Q DOES NOT HAVE ANY STATUTORY SAFE HARBOR FOR THIS FORWARD LOOKING STATEMENT. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENT.

This Quarterly Report on Form 10-Q contains forwarding looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  These forward looking statements are generally located in the material set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” but may be found in other locations as well.  These forward looking statements are subject to risks and uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied in the forward looking statements.  You should not unduly rely upon these statements.  Factors, risks, and uncertainties that could cause actual results to differ materially from those of the forward looking statements include, among others:

·  
Our growth strategies;
·  
Anticipated trends in our business;
·  
Our ability to make or integrate acquisitions;
·  
Our liquidity and ability to finance our research and development, manufacturing, and sales;
·  
Market conditions in the EV industry;
·  
The timing, cost and market acceptance of our EV and related products;
·  
Impact of government regulations;
·  
Our financial position, business strategy and other plans and objectives for future operations;
·  
The ability of our management team to execute its plans to meet its goals; and
·  
Other economic, competitive, governmental, legislative, regulatory, geopolitical and technological factors that may negatively impact our business, operations, and pricing.

This Management’s Discussion and Analysis should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q (the “Financial Statements”).  The financial statements have been prepared in accordance with generally accepted accounting policies in the United States (“GAAP”).  Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.

 
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Overview

Leo Motors, Inc. (the "Company") is currently in the process of development and production of Electric Power Train Systems (“EPTS”) encompassing electric scooters, electric sedans/SUVs/sports cars, and electric buses/trucks as well as several models of Electric Vehicle ("EV"). Our EPTS can replace internal combustion engines (“ICEs”).  We have begun sales of our EPTS to auto makers and agricultural machinery manufacturers.

During the last two years, we have been developing eight EPTS of increasing power rating: 3kW, 5kW, 7.5kW, 15kW, 30kW, 60kW, 120kW, and 240kW systems.  Each EPTS consists of a motor, a controller, and a battery power pack with a battery management system (“BMS”).

The Company has successfully converted existing models of small cars (ICEs under 2,000cc), and also a 24 seat bus.  The Company has begun marketing its 60kW power train kits (for compact passenger cars and small trucks) and its 120kW kits (for ICE passenger cars, buses, and trucks under 5,000cc). The Company has developed a 240kW kit (for up to 10,000cc buses and trucks) as well, and is attempting to locate a strategic partner to fund the testing and production.  

The specific goals of the Company over the next twelve months include:

·  
Market e-Boxes in USA, Japan and Australia

·  
Developing mass production facilities for power trains and BMS

·  
Finalizing the development of ZAFCG to be used in EV by September 2011, and developing mass production plant to produce ZAFCG by December 2011.

·  
Finishing the development of the 240kW system by May 2011.

·  
Developing large scale clients for our EPTS and components.

Recent Business Developments

In the last six months, the Company has been developing an electric car model for an auto manufacturer. We intend to finalize the working prototype during August 2011.  The development is at the request of the manufacturer and is not subject to any definitive agreement; however, we believe that the potential for sales of our EPTS upon successful development of the project outweighs the risk of undertaking the development.

The Company has delivered the electric tractor using max 60kW power train to Tong Yang, one of the major Agricultural Machinery Brands in Korea. After proper tests, Tong Yang may order 60kW EPTS and our engineering services.

We have developed and delivered an electric tractor at the request of Tong Yang using our 60kW EPTS.  After proper tests, Tong Yang may order 60kW EPTS and our engineering services.  This project is in the initial testing phase, and we do not have a definitive material agreement to sell our EPTS or conversion services at this time.

We have also developed the E-Box, electric power storage ranging from 3kW to 50kW for use in homes.  This project took on additional importance to the Company because of the unprecedented natural disaster in Japan.  Leo is marketing the device in the US and Japan and expects to begin sales in the third quarter of 2011.  

The Company also has developed its Zinc Air Fuel Cell Generator (“ZAFC”) to be used as range extender for EVs.  ZAFC was further developed to reduce size, weight and increase efficiency in order to move forward commercialization. The Company has successfully conducted the paid research from one of the largest oil field development companies, and found the opportunity that ZAFC can be used as a generator in many industrial sectors as well as backup generator for cars.

 
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The Company appointed two marketing partners in 2011.  The Company entered into an agreement with Claessens Consulting Compagnie (“CCC”) in the Netherlands (http://www.cccompagnie.com).  CCC will represent Leo in Europe, Middle East and Russia, and will develop the markets in these regions.  And the Company started its business in Australia as it appointed Mr. Wayne Draper who is a management member of the Company.  Mr. Draper is developing Leo's e-Box and electric bike businesses in Australia.

The Company entered into a Memorandum of Understanding (“MOU”) to license its technology to Shenzhen Rui Li Da Shebei Limited (“SRLDS”), a Chinese company.  Pursuant to the MOU, Leo will share its 56 patented technologies with SRLDS, and SRLDS will pay approximately $6 million USD to Leo for the rights.  Using Leo’s technology, SRLDS will set up an Electric Vehicle (EV) manufacturing plant in Beijing, initially investing approximately $25 million USD.  Leo will also invest approximately $3 million USD to the new plant after receiving the $6 million USD from SRLDS.  When the new plant is operational, Leo will be able to supply the major components of the EV power train including high power electric motors, battery power packs with battery management system, and power controllers.  

Liquidity and Capital Resources

Our liquidity requirements arise principally from our plans to develop EV production capability, additional product development, and marketing costs.  Although in the future we intend to fund our liquidity requirements through a combination of cash on hand and revenues from operations, during the quarter ended September 30, 2011, the Company had realized a net loss of (206,052) from operations.  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.

Results of Operations

Revenues

Sales for the nineMonths ended September  30, 2011 were $-0- compared to $651,656  for the nine Months ended September  30, 2010.  Costs of sales were $-0-  and gross profit was $-0-  in 2011 compared to $615,211 and $36,445 as costs of sales and gross profit in the same period in 2010.  2010 period’s sales represent sales from recurring business, but rather sales of samples and development services.  Our primary recurring business comes from sales of electric scooters to our Korean distributor, which occurred in mass in 2010 and did not recur in the first nine-months ended September 30, 2011.  

Expenses

During the nine  months ended September  30, 2011, we incurred $443,761 in expenses, compared to $6,150,139  in the period ended September  30 2010. The primary decrease was due to payment of Salaries and Benefits to the Board of Directors and consulting expense paid to third partiesin Stock in  2010  Expenses in each category decreased due to the higher development costs in 2010.

Expenses for the period quarter consisted of the following:

   
Six Months Ended
  
Expenses:
  
September 30,
2011
    
June 30,
2010
  
    $ -        
Salaries and Benefits
     271,148     $ 4,813,929  
Consulting and Service Fees
     -       318,953  
Selling, General and Administrative
     172,613       1,017,257  
Total
   $ 443,761     $ 6,150,139  

Salaries and Benefits – consist of total of common stock issued to our executive officers as compensation for their services as officers of the Company  and cash compensation paid to our employees during the year and the cost of all benefits provided to our employees.  
 
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Consulting and Service Fees – consist of consist of accounting, legal, and professional fees.  

Selling, General and Administrative – consists of travel expenses, entertainment expenses, communication expenses, utilities, taxes & dues, depreciation expenses, rent, repairs, vehicle maintenance, ordinary development expenses, shipping, education & training, printing, storage, advertising, insurance, office supplies and expense, payroll expenses, investor referral fees and other miscellaneous expenses.  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 4. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer (the "Certifying Officer") maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. Under the supervision and with the participation of management, the Certifying Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the Exchange Act) within 45 days prior to the filing date of this report. Based upon that evaluation, the Certifying Officer concluded that our disclosure controls and procedures are not effective in timely alerting them to material information relative to our company required to be disclosed in our periodic filings with the SEC.

CHANGES IN INTERNAL CONTROLS

During the Quarter ended June 30, 2011, there were no changes made to our internal controls over financial reporting that are reasonably likely to affect the reliability of those controls, or the accuracy of our financial reporting.  

 
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PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

The Company had entered to certain loan agreements as referenced in Note 7 of the Financial Statements for the Year Ended December 31, 2010, filed with the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2010 (incorporated herein by this reference).  Facts have come to the Company’s attention that causes the Company to believe that the debts have been extinguished.  However, the Company cannot offer any assurance that the holders of the debt will not seek to enforce rights that the holders believe they may have under the respective agreements.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – (Removed and Reserved)

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

The following exhibits are filed as part of this quarterly report on Form 10-Q:

     
No.
  
Description
     
31.1
  
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2
  
Certification of Acting Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1
  
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2
  
Certification of Acting Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101
  
Interactive Data Files (XBRL)


 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated December 14, 2011

Leo Motors, Inc.
(Registrant)

By: /s/ Jung Yong (John) Lee
Jung Yong Lee
Chief Executive Officer
and Interim Chief Financial Officer

 
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