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EX-31.1 - EXHIBIT 31.1 - Leo Motors, Inc.exh_311.htm
EX-31.2 - EXHIBIT 31.2 - Leo Motors, Inc.exh_312.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 March 31, 2013
 
or
 
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

         
For the transition period from  
 
to
   

Commission file number 000-53525

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

Nevada
 
95-3909667
(State or other jurisdiction of incorporation or organization)
 
(I. R. S. Employer Identification No.)
 
291-1, Hasangok-dong, Hanam City, Gyeonggi-do, Republic of Korea
 
465-250
(Address of principal executive offices)
 
(Zip Code)

 
+82 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 [  ]
   
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 [  ]  No [  ]

 
 

 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [  ]
Accelerated filer [  ]
Non-accelerated filer [  ]
 (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 [  ]  No [x]

The number of shares of the registrant’s common stock outstanding as of March 31, 2013, was 57,681,955 shares.

 

 
 
 

 
QUARTERLY REPORT ON FORM 10-Q
for the Quarter ended March 31, 2013

TABLE OF CONTENTS

 Leo Motors, Inc.
 
INDEX TO FORM 10-Q

PART I.
FINANCIAL INFORMATION
Page
     
 
     
  1
     
  3
     
  5
     
  7
     
16
     
18
     
18
     
PART II.
OTHER INFORMATION
 
     
20
     
20
     
20
     
20
     
20
     
20
     
21

 
 
 

 
LEO MOTORS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLAR)

             
   
Balance at
 
   
3/31/2013
   
12/31/2012
 
   
(Unaudited)
   
(Audited)
 
ASSETS
 
Cash and cash equivalents
  $ 3,257     $ 430,307  
Inventories
    304,317       235,255  
Prepayment to suppliers
    269,086       303,457  
Short Term Advances
    134,771       0  
Other current assets
    5,351       600  
Total Current Assets
    716,782       969,619  
                 
Fixed assets, net
    58,157       51,153  
Deposit
    72,399       76,091  
Other non-current assets
    58,180       57,166  
Investments
    270,000       270,000  
Total Non-Current Assets
    458,736       454,410  
                 
Total Assets
  $ 1,175,518     $ 1,424,029  

 
 
1

 
LEO MOTORS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLAR)
(CONTINUED)
             
LIABILITIES AND STOCKHOLDERS' EQUITY
 
             
Current Liabilities:
           
Accounts payable and accrued expenses
  $ 511,183     $ 570,565  
Short term borrowings
    200,000       240,000  
Advance from customers
    453,492       445,455  
Due to related parties
    189,962       187,372  
Taxes payable
    144,548       158,388  
Total Current Liabilities
    1,499,185       1,601,780  
                 
Accrued retirement benefits
    67,417       91,671  
                 
Total Liabilities
    1,566,602       1,693,451  
                 
Commitments
    -       -  
                 
Stockholders' Deficit:
               
Common stock ($0.001 par value; 100,000,000 shares authorized); 57,681,955  and 56,763,623 shares issued and outstanding at March 31,  2013 and December 31, 2012
    57,682       56,764  
Additional paid-in capital
    12,665,995       12,564,656  
Accumulated other comprehensive income
    721,374       764,406  
Accumulated loss
    (16,370,620 )     (16,246,397 )
Total Stockholders' Deficit attributable to LEO MOTORS, INC.
    (2,925,569 )     (2,860,571 )
                 
Non-controlling interest
    2,534,485       2,591,149  
                 
Total Stockholders' Deficirt
    (391,084 )     (269,422 )
                 
Total Liabilities and Stockholders' Deficit
  $ 1,175,518     $ 1,424,029  
 
"See accompanying notes to consolidated financial statements"


 
2

 
LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS EXPRESSED IN US DOLLAR)

             
   
For the Three Months Ended March 31,
 
   
2013
   
2012
 
   
(Unaudited)
   
(Unaudited)
 
NET REVENUES
  $ 0     $ 5,782  
                 
COST OF REVENUES
    0       4,166  
                 
GROSS PROFIT
    0       1,616  
                 
OPERATING EXPENSES:
               
Research and development
    8,671       13,458  
Selling, general and administrative
    103,135       136,078  
                 
Total Operating Expenses
    111,806       149,536  
                 
LOSS FROM OPERATIONS
    (111,806 )     (147,920 )
                 
SHARE OF LOSS OF AN UNCONSOLIDATED AFFILIATE
    0       0  
                 
OTHER INCOME (EXPENSES)
               
Assets disposal gain, net
    0       0  
Debt Forgiveness
    0       0  
Interest Income
    5       0  
Interest expense, net
    (63,057 )     0  
Non-Operating (expense) income
    (6,029 )     (4,206 )
                 
Total Other Income (Expenses)
    (69,081 )     (4,206 )
                 
LOSS BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST
    (180,887 )     (152,126 )
                 
INCOME TAX EXPENSE
    0       0  
                 
NET LOSS
  $ (180,887 )   $ (152,126 )

 
 
3

 

LEO MOTORS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS EXPRESSED IN US DOLLAR)
(CONTINUED)

             
Less: loss attributable to non-controlling interest
  $ (56,664 )   $ (34,988 )
                 
 LOSS ATTRIBUTABLE TO LEO MOTORS, INC.
    (124,223 )     (117,138 )
                 
OTHER COMPREHENSIVE INCOME:
               
Unrealized foreign currency translation gain
    (37,764 )     (34,988 )
                 
COMPREHENSIVE LOSS ATTRIBUTABLE TO LEO MOTORS, INC.
  $ (161,987 )   $ (152,126 )
                 
NET LOSS PER COMMON SHARE:
               
Basic
  $ (0.00 )   $ (0.00 )
Diluted
  $ (0.00 )   $ (0.00 )
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
               
Basic
  $ 57,069,734     $ 53,869,865  
Diluted
  $ 57,736,401     $ 55,050,305  
 



See accompanying notes to consolidated financial statements.
 
 
4

 
LEO MOTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLAR)



             
   
For the Three Months Ended March 31,
 
   
2013
   
2012
 
   
(Unaudited)
   
(Unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (180,887 )   $ (152,126 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    7,996       4,421  
Share of loss of an unconsolidated affiliate
    0       0  
Stock-based compensation
    0       0  
Change in long term investments
    0       25,000  
Impairment of assets
    0       0  
Changes in assets and liabilities:
               
Accounts receivable
    0       45,259  
Inventories
    (69,062 )     (102,614 )
Prepayment to suppliers
    34,371       (9,175 )
Other current assets
    (4,751 )     0  
Accounts payable, other payables and accrued liability
    (59,382 )     25,228  
Short term loans
    (134,771 )     196,066  
Accrued retirement benefits
    (24,254 )     (6,084 )
Advances from customers
    8,037       0  
Taxes payable
    (13,840 )     0  
NET CASH USED IN OPERATING ACTIVITIES
    (436,543 )     25,975  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Investment in equipment
    (15,000 )     0  
Increase in other non-current assets
    0       0  
NET CASH USED IN INVESTING ACTIVITIES
    (15,000 )     0  

 
 
5

 
LEO MOTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLAR)
(CONTINUED)
 
             
CASH FLOWS FROM FINANCING ACTIVITIES:
           
Advances from related parties
    0       0  
Payment of note payable
    (40,000 )     0  
Issuance of common stock for debt
    102,257       17,824  
NET CASH PROVIDED BY FINANCING ACTIVITIES
    62,257       17,824  
                 
EFFECT OF EXCHANGE RATE ON CASH
    (37,764 )     (34,988 )
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (427,050 )     8,811  
                 
CASH AND CASH EQUIVALENTS - beginning of year
    430,307       880  
                 
CASH AND CASH EQUIVALENTS - end of year
  $ 3,257     $ 9,691  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Cash paid for:
               
Interest
  $ 0     $ 0  
Income taxes
  $ 0     $ 0  
 

See accompanying notes to consolidated financial statements.
 
 
 
6

 
NOTE 1 - COMPANY BACKGROUND
  
Company Business
  
Company is currently in development, assembly and sales of the energy storage devices and electric vehicle components.
  
Background
  
Leo Motors, 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. Leozone has continued to operate as a separate subsidiary Leo Motors Co. Ltd. of Korea since that time.
  
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. This percentage was reduced to 30% in 2011. Additionally, this investment was written down through an impairment expense during 2011 and the remaining investment was exchanged in 2012 for a return of Leo Motors stock.

On November 10, 2012 the Company and  PDI C&D/RDC SPRL Inc. ("PDI"), an affiliate of PDI Global LLC, a major architectural design company in the U.S., have signed a contract to supply an independent solar power system grafted with Leo Motors' E-Box power storage device for a housing project in the Democratic Republic of the Congo ("DRC"). The Company will have a 10% interest in the overall project.
 
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 Leo Motors Co. Ltd. Korea where the Parent Company has significant control with a shareholders ownership percentage of 57.69% at March 31, 2013 and an ownership percentage of 47.63% March 31, 2012, 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).
 
 
8

 
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.

Intangible and Long Lived Assets

The Company follows ASC 360-10, “Property, Plant, and Equipment,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Through March 31, 2013, the Company had not experienced impairment losses on its long-lived assets.
 
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.
 
 
9

 
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.
 
Foreign Currency Translation And Comprehensive Income

The reporting currency of the Company is the US$. The functional currency of the parent company is the US$ and the functional currency of the Company’s operating subsidiary is Korean Won (“KRW”). The subsidiary’s results of operations and cash flows are translated at average exchange rates during the year, assets and liabilities are translated at the unified exchange rate at the end of the year, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the functional currency financial statements into US$ are included in determining comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

 Recent Accounting Pronouncements
 
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2010-06,  Improving Disclosures about Fair Value Measurements  (“ASU No. 2010-06”). The new standard addresses, among other things, guidance regarding activity in Level 3 fair value measurements. Portions of ASU No. 2010-06 that relate to the Level 3 activity disclosures became effective for the annual reporting period beginning after December 15, 2010. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.
 
On March 5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815 “Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the guidance within the derivative literature that exempts certain credit related features from analysis as potential embedded derivatives requiring separate accounting. The ASU specifies that an embedded credit derivative feature related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another is not subject to bifurcation from a host contract under ASC 815-15-25, “ Derivatives and Hedging — Embedded Derivatives — Recognition. ” All other embedded credit derivative features should be analyzed to determine whether their economic characteristics and risks are “clearly and closely related” to the economic characteristics and risks of the host contract and whether bifurcation is required. The ASU became effective for the Company on July 1, 2010. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.
 
In May 2011, the FASB issued ASU 2011-04 which was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements.  This guidance is effective for the Company beginning on January 1, 2012.  The adoption of ASU 2011-04 is not expected to significantly impact the Company’s consolidated financial statements.
 
 
10

 
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Presentation of Comprehensive Income . ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in Accounting Standards Codification (ASC) 220, Comprehensive Income , and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. In December 2011, the FASB issued ASU 2011-12 which defers the requirement in ASU 2011-05 that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. ASU 2011-05 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011, with early adoption permitted. The adoption of ASU 2011-05, as amended by ASU 2011-12, is not expected to significantly impact the Company’s consolidated financial statements.
 
In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment.  If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required.  Otherwise, no further testing is required. The revised standard is effective for the Company for its annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The adoption of ASU 2011-08 is not expected to significantly impact the Company’s consolidated financial statements.
 
NOTE 3 - EARNINGS PER SHARE
  
The Company reports basic and diluted earnings per share (EPS) according to the provisions of ASC Topic 260, which requires the presentation of basic EPS and, for companies with complex capital structures, diluted EPS. Basic EPS excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) available to common stockholders, adjusted by other changes in income or loss that would result from the assumed conversion of those potential common shares, by the weighted number of common shares and common share equivalents (unless their effect is antidilutive) outstanding. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be antidilutive. Thus, these equivalents are not included in the calculation of diluted loss per share, resulting in basic and diluted loss per share being equal. The following is a recociliation of the computation for basic and diluted EPS for the three months ended March 31, 2013 and March 31, 2012:
 
   
For the three months ended
 
   
3/31/2013
   
3/31/2012
 
             
Net Income (Loss)
  $ (180,887 )   $ (152,126 )
                 
                 
Weighted-average common stock Outstanding -  basic
    57,069,734       53,869,865  
Equivalents
               
  Stock options
    -       1,180,440  
  Warrants
    -       -  
  Convertible Notes
    666,667       -  
Weighted-average common shares outstanding-  Diluted
    57,736,401       55,050,305  
 
 
11

 
NOTE 4 - DUE TO RELATED PARTY
  
The company is indebted to its officer for advances. Repayment is on demand without interest. The balance at March 31, 2013 was $ 189,962. Additionally during this past quarter the Company loaned money on a short term basis to one of its officers in its Korean subsidiary. The balance for this loan at March 31, 2013 was $134,771.
  
NOTE 5 - 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 March 31, 2013 and December 31, 2012, the balance of payments received in advance was $ 269,086 and $ 303,457, respectively.
 
NOTE 6 - SUBSEQUENT EVENTS
  
There are no reportable subsequent events.

NOTE 7 - GOING CONCERN

As reported in the consolidated financial statements, the Company has accumulated deficits of $(16,370,620) as March 31, 2013. The Company also has certain debts that have been in default during these periods although the creditors have not pursued collection proceedings. The Company's stockholders' deficit at March 31, 2013 was $391,084 and its current liabilities exceeded its current assets by $782,403 on March 31, 2013. These negative trends have been consistent right up through the most current fiscal quarter, except for this quarter and the sale of their only major investment, respectively.

These factors create uncertainty about  the  Company's  ability  to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable and to create operations that contribute capital from normal operations. If the Company is unable  to  obtain  adequate  capital  it  could  be  forced  to  cease operations.

In order to continue as a going concern, develop and generate revenues and achieve a profitable  level of operations, the Company will need, among other things, additional capital resources. Management's plans to obtain such resources for the  Company  include  (1) raising additional capital through sales of common stock, (2) converting  promissory notes into  common  stock  and (3) entering into acquisition agreements  with profitable  entities  with   significant   operations.   In   addition, management is continually seeking to streamline its operations and expand the business through a variety of industries, including real estate and financial management. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations.  The accompanying   consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
 
 
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NOTE 8 - COMMITMENTS AND CONTINGENCIES

(a) Lease Commitments

The Company leases its office space in Ha-Nam City in Korea which expires on March 31, 2016. The minimum obligations under such commitments for the full years ending December 31, 2013 through December 31, 2016 are listed on the table below.
 
 
 
Amount
 
For the Year Ending
     
       
2013
  $ 30,000  
2014
  $ 40,000  
2015
  $ 40,000  
2015
  $ 40,000  
2016
  $ 40,000  
         
Total Commitment
  $ 190,000  
 
(b) Strategic Investment

On November 10, 2012 the Company and PDI C&D/RDC SPRL Inc. ("PDI"), an affiliate of PDI Global LLC, a major architectural design company in the U.S., have signed a contract to supply an independent solar power system grafted with Leo Motors' E-Box power storage device for a housing project in the Democratic Republic of the Congo ("DRC"). The Company has a commitment to raise $1,000,000 to fulfill its part of the contract for strategic investment. As of March 31, 2013 the company has invested $270,000 recorded as an investment using the cost method of accounting for their 10% interest in the project.

NOTE 9 ACCOUNTS RECEIVABLE

At March 31, 2013 and December 31, 2012, accounts receivable consisted of the following:

 
31-Mar-13
 
31-Dec-12
 
 
US$
 
US$
 
Accounts receivable
  $ 0     $ 0  
Less: Allowance for doubtful accounts
    0       0  
Accounts receivable, net
  $ 0     $ 0  

 
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NOTE 10. INVENTORIES
 
Inventories at March 31, 2013 and December 31, 2012 consist of the following:
 
   
31-Mar-13
   
31-Dec-12
 
   
US$
   
US$
 
Raw material
  $ 0     $ 230,582  
Work in process
    0       4,673  
Finished goods
    304,317       0  
    $ 304,317     $ 235,255  

NOTE 11 - PROPERTY AND EQUIPMENT
 
Property and equipment consisted of the following at March 31, 2013 and December 31, 2012:
  
   
March 31,
   
December 31,
 
   
2013
   
2011
 
Vehicles
  $ 7,581     $ 7,581  
Tools
    12,906       12,906  
Office
    79,963       79,963  
Facility equipment
    110,132       95,132  
                 
 Total property and equipment
    210,582       195,582  
                 
Accumulated depreciation
    (152,425 )     (144,429 )
Property and equipment, net
  $ 58,157     $ 51,153  
 
Depreciation expense for the years ended March 31, 2013 and 2012 amounted to $7,996 and $4,421, respectively.

NOTE 12 - RESTATEMENT OF PRIOR FINANCIAL STATEMENTS

The Company had a long term investment in Leo B&T Corp. initially recorded using the equity method of accounting for investments. During 2012 it was determined from operating results of the investment that as of December 31, 2011 the Fair Market Value of the investment was impaired. Due to significant percentage of the impairment in relation to the overall investment and the overall financial statements it was determined to restate the financial results for 2012. The prior audited financial statements are presented here for comparative purposes with the only change being an impairment expense of $4,476,038 and a reduction of the investment recorded using the equity method for investments by that same amount.

 
14

 
NOTE 13 - INVESTMENTS

Our investments account consisted solely of our long term investment in Leo B&T Corp. as of December 31, 2011 for $ 483,741. This represented the Fair Market Value at that time. In January 2012 the investment was sold for that same amount reducing our investment account to zero. Later during 2012 the Company invested in a housing project in the Republic of the Congo which will use our E-Box power storage device. To date as of March 31, 2013, $270,000 has been invested with additional amounts to be added as described in note 8. This 10% interest has been recorded using the cost investment of accounting for investments.

NOTE 14 - SHORT TERM BORROWINGS

The Company continues to fund itself through borrowing and equity sales until sales return to historical levels. During the year 2012 the Company paid off the December 31, 2011 short term borrowings of $ 433,651 and borrowed additional short term funds. As of March 31, 2013 the total amount of our short term borrowings was $200,000. This was comprised of one $200,000 note that can be converted into 666,667 shares of common stock. This note is for twelve months with a zero percent stated interest rate.

NOTE 15 - SEGMENT INFORMATION

ASC Topic 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. During the quarters ended March 31, 2013 and 2012, the Company operated in one reportable business segment: the sale and manufacture of specialized electric vehicle. The Company's reportable segment is a strategic business unit that offers its product.
 
 
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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPANY:

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains forward-looking statements. These forward-looking statements include, without limitation, statements containing the words “believes,”“anticipates,”“expects,”“intends,”“projects,”“will,” and other words of similar import or the negative of those terms or expressions. Forward-looking statements in this report include, but are not limited to, expectations of future levels of research and development spending, general and administrative spending, levels of capital expenditures and operating results, sufficiency of our capital resources, our intention to pursue and consummate strategic opportunities available to us, including sales of certain of our assets. Forward-looking statements subject to certain known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  These risks and uncertainties include, but are not limited to those described in “Risk Factors” of the reports filed with the Securities and Exchange Commission.
 
 
SPECIAL NOTICE ABOUT GOING CONCERN AUDIT OPINION

OUR AUDITOR HAS ISSUED AN OPINION EXPRESSING DOUBT AS TO OUR ABILITY TO CONTINUE IN BUSINESS AS A GOING CONCERN.  YOU SHOULD READ THIS QUARTERLY REPORT ON FORM 10-Q WITH THE “GOING CONCERN” ISSUES IN MIND.
 
This Management’s Discussion and Analysis should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q (the “Financial Statements”).  The financial statements have been prepared in accordance with generally accepted accounting policies in the United States (“GAAP”).  Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.
   
Overview

Leo Motors, Inc. (the "Company") was previously actively engaged 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”).  The Company began sales of EPTS to auto makers and agricultural machinery manufacturers. Currently, the Company focuses on marketing lithium energy storage products.

Through Leo Motors, Co. Ltd, formerly named ("Leozone") a subsidiary of the Company Leo Motors, Inc. is currently engaged in the research and development (“R&D”) of multiple products, prototypes and conceptualizations based on proprietary, patented and patent pending electric power generation, drive train and storage technologies. These products include (a) E-Box electric energy storage system for solar and wind power generation devices; (b) EV components that integrate electric batteries with electric motors such as EV Controllers that use a mini-computer to control torque drive; Leozone operates through four unincorporated divisions: new product research & development (“R&D”), post R&D development such as product testing; production; and sales.

Corporate History

Leo Motors, Inc. (the “Company”) is a Nevada Corporation incorporated on September 8, 2004.  The Company established a wholly-owned operating subsidiary in Korea named Leo Motors, Co. Ltd. on July 1, 2006.
 
 
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Product Candidates

The Company’s products include (i) E-Box electric energy storage system for solar and wind power generation devices; (ii) EV components that integrate electric batteries with electric motors such as EV Controllers that use a mini-computer to control torque drive.

The Company has developed 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.  

Business Strategy

The specific goals of the Company over the next twelve months include:
 
Focus on the capitalization of the Company;
Focus on the sale of the e-Box;
Complete the build out of the manufacturing plant for the e-Box;
Continue with R&D of our EV’s and related products as capital permits.

There can be no assurance that the Company will adhere to any of the above goals.
 
The E-Box can be used as an energy supplying device in an emergency situations or as a energy storage device for use by the military; municipal and industry; corporate; solar/wind power storage; electric coolers and heaters; yatchs or small ships. The E-Box is offered in three power classes: 1kw, 3kw and 5kw.  E-Boxes for 10kw and 550kw will be developed in the future.  The E-Box is environmentally friendly with high energy density due to the use of lithium-ion battery.  The E-Box uses a multiple cell voltage balancing system via a battery management system (“BMS”).

Liquidity and Capital Resources

Our liquidity and capital resources are limited. 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 - For the Three Months Ended March 31, 2013

Revenues
 
Sales for the quarter ended March 31, 2013 were $0 compared to $5,872 for the quarter ended March 31, 2012, a decrease of $5,782. The Company is currently devoting the majority of its resources into the E-Box and current sales have declined.

 
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Cost of Sales

Costs of sales were $0 for the quarter ended March 31, 2013 compared to $4,166 for the quarter ending March 31, 2012, a decrease of $4,166. The Cost of sales in 2012 was consistent with prior years and zero for 2013, due to having no sales.

Gross Profit

Gross profit was $0 in the quarter ended March 31, 2013 compared to $1,616 for the quarter ending March 31, 2012, a decrease of $1,616. This is consistent with the lack of sales for the quarter ended March 31, 2013.

Expenses
 
During the quarter ended March 31, 2013, we incurred $8,671 in expenses, compared to $136,078 in the period ended March 30, 2012, a decrease of $32,943.

During the quarter ended March 31, 2013, we incurred $103,135 in research expenses, compared to $13,458 in the period ended March 31, 2012 a decrease of $4,787. Research expenses will always continue as part of our basic development of products and ideas. The overall percentage of R & D relative to our budget has remained constant.

 
Expenses for the period quarter consisted of the following:
             
   
Three Months Ended
 
   
March 31,
   
March 31,
 
Total General and Administrative Expenses:
 
2013
   
2012
 
               
Salaries and Benefits
 
$
63,227
   
$
49,434
 
Consulting and Service Fees
   
28,979
     
30,875
 
Selling, General and Administrative
   
10,929
     
55,769
 
Total
 
$
103,135
   
$
136,078
 

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.
 
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 
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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 March 31, 2013, 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.  
 








 
19

 
PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

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

On March 1, 2013 we issued 248,756 shares to Asher Enterprises, Inc. in conversion of outstanding debt in the amount of $15,000.00. This issuance was intended to be exempt from the registration requirements pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

On March 8, 2013 we issued 265,018 shares to Asher Enterprises, Inc. in conversion of outstanding debt in the amount of $15,000.00. This issuance was intended to be exempt from the registration requirements pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

On March 19, 2013 we issued 404,558 shares to Asher Enterprises, Inc. in conversion of outstanding debt in the amount of $12,500.00. This issuance was intended to be exempt from the registration requirements pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.
 
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLSOURES

Not Applicable.

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 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 Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS
 
XBRL Instance Document*
101.SCH
 
XBRL Schema Document*
101.CAL
 
XBRL Calculation Linkbase Document*
101.LAB
 
XBRL Label Linkbase Document*
101.PRE
 
XBRL Presentation Linkbase Document*
101.DEF
 
XBRL Definition Linkbase Document*



 
20

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated May 20, 2013
     
   
Leo Motors, Inc.
 
   
 (Registrant)
 
       
 
By:
/s/ Jung Heng Park  
   
Jung Heng Park
 
   
Chief Executive Officer
 
   
(Principal Executive Officer)
 

 
 
 
 
 
 
 
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