Leo Motors, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Leo Motors, Inc.	Financial_Report.xls
EX-32.2 - EXHIBIT 32.2 - Leo Motors, Inc.	ex322.htm
EX-32.1 - EXHIBIT 32.1 - Leo Motors, Inc.	ex321.htm
EX-31.2 - EXHIBIT 31.2 - Leo Motors, Inc.	ex312.htm
EX-31.1 - EXHIBIT 31.1 - Leo Motors, Inc.	ex311.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, 2015

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)

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)

+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 x

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 April 30, 2015 was 157,196,947 shares.

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

	Balance at
	3/31/2015				12/31/2014
	(Unaudited)				(Unaudited)
Assets
Current Assets
Cash and cash equivalents		$	466,458			$	217,178
Accounts receivable			952,378				542,210
Inventories			295,159				279,783
Prepayment to suppliers			297,720				306,969
Other current assets			228,192				49,705
Total Current Assets			2,239,907				1,395,845
Fixed assets, net			185,984				38,620
Deposit			227,896				51,601
Intangible assets			63,831				63,831
Goodwill			3,057,003				2,444,558
Total Assets		$	5,774,621			$	3,994,455
Liabilities and Equity(Deficit)
Current Liabilities:
Accounts payable and accrued expenses		$	3,313,266			$	2,152,951
Short term borrowings			471,689				448,801
Advance from customers			44,035				40,951
Due to related parties			116,617				150,637
Taxes payable			241,021				159,478
Notes Payable current portion			353,747				526,257
Derivative liability			0				819,922
Total Current Liabilities			4,540,375				4,298,997
Accrued retirement benefits			2,075				2,150
Notes Payable			327,701				145,316
Total Liabilities			4,870,151				4,446,463
Commitments (Note 8)			-				-
Leo Motors, Inc.("LEOM") Equity(Deficit):
Common stock ($0.001 par value; 220,000,000 shares authorized); 154,144,244 and 138,624,206 shares issued and outstanding at March 31, 2015 and December 31, 2014			154,144				138,624
Additional paid-in capital			19,396,940				17,723,248
Accumulated other comprehensive income			507,974				511,229
Accumulated loss			(21,883,963	)			(21,357,211	)
Total Equity(Deficit) Leo Motors, Inc.			(1,824,905	)			(2,984,110	)
Non-controlling interest			2,729,375				2,532,102
Total Equity(Deficit)			904,470				(452,008	)
Total Liabilities and Equity(Deficit)		$	5,774,621			$	3,994,455

"See accompanying notes to consolidated financial statements"

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

	For the Three Months Ended March 31,
	2015			2014
	(Unaudited)			(Unaudited)
Revenues	$	42,771		$	0

Cost of Revenues		0			0
Gross Profit		42,771			0

Operating Expenses		358,411			1,237,447
Income(loss) from Continuing Operations		(315,640	)		(1,237,447	)

Other Income (Expenses)
Interest expense		(280,975	)		(29,028	)
Non-Operating (expense) income		1,197			7
Total Other Income (Expenses)		(279,778	)		(29,021	)

Income(loss) from Continuing Operations Before Income Taxes		(595,418	)		(1,266,468	)

Income Tax Expense		0			0
Net Income(Loss)	$	(595,418	)	$	(1,266,468	)

Income(loss) attributable to non-controlling interest	$	(68,666	)	$	(122,209	)

Net Income(Loss) Attributable To Leo Motors, Inc.		(526,752	)		(1,144,259	)

Other Comprehensive Income:
Net Income(loss)	$	(526,752	)	$	(1,144,259	)
Unrealized foreign currency translation gain		(3,255	)		(1,094	)

Comprehensive Income(loss) Attributable to Leo Motors, Inc.	$	(530,007	)	$	(1,145,353	)
Net Loss per Common Share:
Basic	$	(0.00	)	$	(0.02	)
Diluted	$	(0.00	)	$	(0.02	)
Weighted Average Common Shares Outstanding:
Basic	$	149,069,490		$	72,000,239
Diluted	$	149,972,010		$	73,180,679

"See accompanying notes to consolidated financial statements"

LEO MOTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLAR)
	For the Three Months Ended March 31,
	2015			2014
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(595,418	)	$	(1,266,468	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		4,500			4,507
Amortization debt discount		275,176			26,872
Foreign currency translation		(3,255	)		(1,094	)
Stock-based compensation		38,820			1,129,500
Changes in assets and liabilities:
Accounts Receivable		(410,168	)		0
Inventories		(15,376	)		(22,951	)
Prepayment to suppliers		9,249			15,399
Other assets		(178,487	)		(460	)
Accounts payable, other payables and accrued expenses		1,160,315			102,738
Accrued retirement benefits		(75	)		(17,414	)
Advances from customers		3,084			0
Taxes payable		81,543			3,359
Net cash used in operating activities:		369,908			(26,012	)
Cash flows from investing activities:
Investment in equipment		(151,864	)		0
Payments on deposits		(176,295	)
Net cash provided(used) in investing activities:		(328,159	)		0
Cash flows from financing activities:
Proceeds from notes payable		201,380			25,089
Payments on notes payable		(22,886	)		0
Proceeds from issuance of warrants		29,037			0
Net cash provided(used) by financing activities:		207,531			25,089
NET DECREASE IN CASH AND CASH EQUIVALENTS		249,280			(923	)

Cash and cash equivalents - beginning of year		217,178			1,774

Cash and cash equivalents - end of year	$	466,458		$	851
Supplemental disclosure of cash flow activities:
Interest	$	0		$	0
Income taxes	$	0		$	0
Supplemental disclosures of non cash activities:
Conversion of derivative liability	$	819,922		$	0
Goodwill on acquisition	$	641,687		$	0
Conversion of debt for common stock	$	801,433		$	0
Common stock issued for services	$	38,820		$	1,129,500

"See accompanying notes to consolidated financial statements"

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. This project has incurred an impairment charge as details in these footnotes.

On July 1, 2014, Leo Motors, Inc., a Nevada Corporation (the “Company”) acquired all of the outstanding common stock of LGM Co. Ltd., a corporation incorporated in the Republic of Korea (“LGM”), from LGM’s shareholders, which represents 813,747 shares of LGM common stock, in exchange for 47,352,450 shares of the Company's common stock pursuant to the Share Swap Agreement entered into by and between LGM and the Company. Pursuant to the Agreement, LGM became a wholly-owned subsidiary of the Company.

On March 29, 2015 the Company acquired a 50% interest in both Leo Motors Factory 1 and 2 which are auto repair shops that specialize in repairing hand-made luxury cars such as Ferrari, Lamborghini, Bentley, Porsche, and Rolls Royce. The Company also acquired a 50% interest in Leo Trade(formerly Erum Motors) specializing in trading luxury cars. With these acquisitions, Leo Motors will develop Korea’s first “Electric Vehicle Repair Shop” which will repair Hybrid cars as well as pure electric cars for large auto makers. Leo Motors will additionally add major Electric Vehicle dealerships to Leo Trade. Currently acquired Leo Motors Factory 1and 2 do not have EV repair technology and Leo Motors provides this technology for them. . Leo Motors is currently working with Leo Trade to build Electric Vehicle dealerships. These acquired entities will be presented on a consolidated basis as the parent company has significant control of the business through the Board of Directors which can decide decisions split on strictly on common share ownership percentages.

NOTE 2 – 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 and LGM Co. LTD where the Parent Company has significant control. 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.

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.

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, 2015, 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.

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

The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. The Company currently does not have any recent accounting pronouncements that they are studying and feel may be applicable.

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 reconciliation of the computation for basic and diluted EPS for the three months ended March 31, 2015 and 2014:


	For the three months ended
	3/31/2015			3/31/2014

Net Income (Loss)	$	(595,418	)	$	(1,266,468	)


Weighted-average common stock Outstanding - basic		149,069,490			72,000,239
Equivalents
Stock options		-			0
Warrants		-			0
Convertible Notes		902,520			1,180,440
Weighted-average common shares
outstanding- Diluted		149,972,010			73,180,679

NOTE 4 - DUE TO RELATED PARTY

The company is indebted to its officer for advances. Repayment is on demand without interest. The balance was $116,617 at March 31, 2015 and $150,637 at December 31, 2014.

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, 2015 and December 31, 2014, the balance of payments received in advance was $297,720 and $ 306,969, respectively.

NOTE 6 - GOING CONCERN

As reported in the consolidated financial statements, the Company has accumulated deficits of as of March 31, 2015 and its current liabilities exceeded its current assets. These negative trends have been consistent over the last few years except for asset sales.

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 cannot 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.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

(a) Lease Commitments

The Company leases its office space in Ha-Nam City in Korea which expires on December 31, 2016. The minimum obligations under such commitments for the years ending December 31, 2015 through December 31, 2017 are listed on the table below.


For the years	Amount
Ending

2015		40,000
2016		30,000
2017		0

Total Commitment	$	70,000

(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 had a commitment to raise $1,000,000 to fulfill its part of the contract for strategic investment. This investment was impaired in full as of December 31, 2014 and completion of the project looks doubtful.

NOTE 8 - INVENTORIES

Inventories consist of the following:


	31-Mar-15			31-Dec-14
	US$			US$
Raw material		$	0		$	0
Work in process			295,159			279,783
Finished goods			0			0
		$	295,159		$	279,783

NOTE 9 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:


	31-Mar-15			31-Dec-14
Vehicles	$	114,680		$	7,581
Tools		92,612			12,906
Office		107,100			79,963
Facility equipment		210,502			157,966

Total property and equipment		524,894			258,416

Accumulated depreciation		(338,910	)		(219,796	)
Property and equipment, net	$	185,984		$	38,620

Depreciation expense for the three months ended March 31, 2015 and 2014 amounted to $4,500 and $4,507, respectively.

NOTE 10 - INVESTMENTS

During 2012 the Company started its investment in a housing project in the Republic of the Congo which will use our E-Box power storage device. To date as of September 30, 2014, $270,000 had 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. During the year ended December 31, 2014 the completion of this project has come into question. Due to this and other factors the Company has impaired the investments in full with a charge off of $762,000.

NOTE 11 - SHORT TERM BORROWINGS AND NOTES PAYABLE

The Company continues to fund itself through borrowing and equity sales until sales return to historical levels.

At December 31, 2014 the Company had short term borrowings of $448,801. The notes are short term working capital advances that have been advanced to their Korean Subsidiary from various local parties. These advances are due on demand carry no interest rate and no collateral.

Additionally the company has borrowed $819,922 in short term convertible notes at a 4% interest rate. These funds were used to fund expansion of our LGM acquisition earlier this year. The derivative components are detailed in footnote 15 and these loans were completely converted in February 2015 into 14,924,263 shares of our common stock.

NOTE 12 - INCOME TAXES

The Company has experienced losses during most years since its inception. As a result, it has incurred no Federal income tax. The Internal Revenue Code allows net operating losses (NOL’s) to be carried forward and applied against future profits for a period of twenty years; an NOL of $21,952,629 had accumulated at March 31, 2015 on U.S. operations and has been carried forward. The potential tax benefit of the NOL’s has been recognized on the books of the Company, but offset by a valuation allowance.

Under current accounting guidance, recognition of deferred tax assets is permitted unless it is more likely than not that the assets will not be realized. The Company has recorded deferred tax assets using statutory rates, as presented below. The valuation reserve increased by $1,523,385 during the three months ended March 31, 2015.



	Total
Deferred Tax Assets	$	7,463,894
Realization Allowance		(7,463,894	)
Balance Recognized	$	-

The effective tax rate is as follows:



Statutory Federal Rate	34	%
Effect of Valuation Allowance	(34	%)
Effective Rate	0	%

NOTE 13 - INTANGIBLE ASSETS

The Company accounts for its long-lived assets in accordance with Accounting Standards Codification (“ASC”) Topic 360-10-05, “Accounting for the Impairment or Disposal of Long-Lived Assets.” ASC Topic 360-10-05 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value or disposable value. The Company increased goodwill as a result of its first quarter acquisitions by $641,687 and also determined that none of its long-term assets at March 31, 2015 and December 31, 2014 were impaired.

	31-Mar-15		31-Dec-15
Patents	$	63,554	$	63,554
Trademarks		277		277
Goodwill		3,086,245		2,444,558
Intangible assets		3,150,076		2,508,389
Less impairments		0		0
Intangible assets, net	$	3,150,076	$	2,508,389

NOTE 14 - 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 three months ended March 31, 2015 and 2014, 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.

NOTE 15 – DERIVATIVE LIABILITY

The Company accounts for derivative financial instruments in accordance with ASC 815, which requires that all derivative financial instruments be recorded in the balance sheets either as assets or liabilities at fair value.

The Company’s derivative liability is an embedded derivative associated with one of the Company’s convertible promissory notes. The convertible promissory note was issued on July 31, 2014, (the "Note"), is a hybrid instruments which contain an embedded derivative feature which would individually warrant separate accounting as a derivative instrument under Paragraph 815-10-05-4. The embedded derivative feature includes the conversion feature to the Note. Pursuant to Paragraph 815-10-05-4, the value of the embedded derivative liability have been bifurcated from the debt host contract and recorded as a derivative liability resulting in a reduction of the initial carrying amount (as unamortized discount) of the notes, which are amortized as debt discount to be presented in other (income) expenses in the statements of operations using the effective interest method over the life of the notes.

The embedded derivative within the note have been valued using the Black Scholes approach, recorded at fair value at the date of issuance; and marked-to-market at each reporting period end date with changes in fair value recorded in the Company’s statements of operations as “change in the fair value of derivative instrument”.

As of March 31, 2015 and December 31, 2014, the estimated fair value of derivative liability was determined to be $0 and $819,922, respectively. On July 31, 2014, the derivative liability was recognized with a debt discount of $825,529. During the three months ended March 31, 2015, the loan was converted to common stock and the remaining unamortized debt discount of $275,176 was recorded against as a charge to interest expense.

Summary of Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheet:

		Fair Value Measurement Using
Carrying Value		Level 1			Level 2			Level 3		Total
	-0-			-			-		-0-			-0-
$	-0-		$	-		$	-	$	-0-		$	-0-

Summary of the Changes in Fair Value of Level 3 Financial Liabilities

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2015:

	Derivative Liability
Fair value, December 31, 2014	$	819,922
Additions		-0-
Change in fair value		-0-
Transfers in and/or out of Level 3		(819,922	)
Fair value, March 31, 2015	$	-0-

NOTE 16 - ACQUISITIONS

Leo Motors consolidation	LEO Motors			LEO Motors			LGM			LEO Motors			LEO Motors			LEO Trade			ELIM			Consolidated
March 31, 2015	US			Korea						Factory 1			Factory 2			(f/k/a/ Erum)			ENTRIES			Statements
All numbers shown in US Dollars																			DR(CR)			3/31/2015
ASSETS
Cash and cash equivalents	$	374			67853			211,957			91,187			2914			92173			0			466,458
Accounts receivable		0			0			476,777			8,754			48,425			418,422			0			952,378
Inventories		0			0			295,159			0			0			0			0			295,159
Prepayment to suppliers		0			137,236			160,484			0			0			0			0			297,720
Other current assets		0			7,297			57,403			1,595			125,212			36,685			0			228,192
Total Current Assets		374			212,386			1,201,780			101,536			176,551			547,280						2,239,907

Fixed assets, net		6,744			10,530			16,846			63,683			88,181			0			0			185,984
Deposit		0			46,234			22,637			4,804			145,196			9,025			0			227,896
Intangible assets		0			63,831			0			0			0			0			0			63,831
Goodwill		0			0			0			0			0			0			3,057,003			3,057,003
Investment in subsidiaries		8,089,368			0			0			0			0			0			-8,089,368			0
Total Non-Current Assets		8,096,112			120,595			39,483			68,487			233,377			9,025						3,534,714

Total Assets	$	8,096,486			332,981			1,241,263			170,023			409,928			556,305			-5,032,365			5,774,621
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	1,139,889			1,060,342			291,900			97,840			307,112			416,183			0			3,313,266
Short term borrowings		0			256,392			183,245			32,052			0			0			0			471,689
Advance from customers		0			30,381			9,141			0			4,513			0			0			44,035
Due to related parties		0			116,617			0			0			0			0			0			116,617
Taxes payable		0			137,780			10,673			13,559			78,783			226			0			241,021
Notes Payable current portion		0			0			0			0			0			353,747			0			353,747
Total Current Liabilities		1,139,889			1,601,512			494,959			143,451			390,408			770,156						4,540,375

Long Term Notes		0			36,698			117,075			0			173,928			0			0			327,701
Accrued severance benefits		0			2,075			0			0			0			0			0			2,075

Total Liabilities		1,139,889			1,640,285			612,034			143,451			564,336			770,156						4,870,151
Stockholders' Equity:
Common stock		154,144			2,831,276			284,870			90,253			135,379			180,505			(3,522,283	)		154,144
Additional paid-in capital		21,253,084			1,831,184			1,285,902			0			0			0			(4,973,230	)		19,396,940
Accumulated other comprehensive income		277,678			225,403			4,893			0			0			0			0			507,974
Accumulated loss		(14,728,309	)		(6,195,167	)		(946,436	)		(63,681	)		(289,787	)		(394,356	)		733,773			(21,883,963	)
Total Stockholders' Deficit attributable to LEO MOTORS, INC.		6,956,597			(1,307,304	)		629,229			26,572			(154,408	)		(213,851	)					(1,824,905	)
Non-controlling interest		0			0			0			0			0			0			2,729,375			2,729,375
Total Stockholders' Deficit		6,956,597			(1,307,304	)		629,229			26,572			(154,408	)		(213,851	)					904,470
Total Liabilities and Stockholders' Deficit	$	8,096,486			332,981			1,241,263			170,023			409,928			556,305			(5,032,365	)		5,774,621

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPANY:

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 Annual Report on Form 10-K (the “Financial Statements”). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States (“GAAP”). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.

Overview

Leo Motors, Inc. (the “Company”) is a Nevada Corporation incorporated on September 8, 2004. The Company established a wholly-owned operating subsidiary in Korea named Leo Motors, Co. Ltd. (“Leozone”) on July 1, 2006. Through Leozone the Company is 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. Leozone operates through four unincorporated divisions: new product research & development (“R&D”), post R&D development such as product testing, production, and sales.

The Company’s products include (i) E-Box electric energy storage system for solar and wind power generation devices; and (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 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”). Company began sales of EPTS to auto makers and agricultural machinery manufacturers.

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.

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

l	· Focus on the capitalization of the Company;
l	· Focus on the sale of the E-Boats and E-Box;
l	· Business development in China by establishing joint venture company in China, and in Japan;
l	· Continue with R&D of our EV’s, electric boats, and related products as capital permits.

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; yachts 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-polymer battery. The E-Box uses a multiple cell voltage balancing system via a battery management system (“BMS”).

The Company is developing new battery exchange system using its patented cartridge battery exchange system which will solve the cost barriers of the electric vehicle to make them less expensive than their Internal Combustion Engine (ICE) counterparts and to help solve battery charging problems. With evolutionary batter exchange system, the Company’s EV’s can exchange battery within one minute using simple and low cost equipment. This technology can be best used in fleet managed vehicles such as city buses, taxis, and garbage trucks because it can be used any road sides.

Recent Business Developments

On July 1, 2014, the Company acquired all of the outstanding common stock of LGM Co. Ltd., a corporation incorporated in the Republic of Korea (“LGM”), from LGM’s shareholders, which represents 813,747 shares of LGM common stock, in exchange for 47,352,450 shares of the Company's common stock (the “Transaction”) pursuant to the Share Swap Agreement entered into by and between LGM and the Company (the “Agreement”). Pursuant to the Agreement, LGM became a wholly-owned subsidiary of the Company.

On March 31, 2015, the Company acquired by merger 50% of three companies; Leo Motors Factory I, Leo Motors Factory II, and Erum Motors, through capital investment. Leo Motors Factory 1 and 2 are auto repair shops which are specialized in repairing hand-made luxury cars. Erum is specialized in trading luxury cars. These companies are making revenues successfully. And their revenues will be consolidated as the revenue of Leo Motors. With the acquisitions, Leo Motors will develop the Korea’s first “Electric Vehicle Repair Shop” which will repair Hybrid cars as well as pure electric cars for large auto makers. And Leo Motors will add major EV dealerships to Erum.

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 Quarter Ended March 31, 2015

Revenues

Sales for the three months ended March 31, 2015 were $42,771 compared to $0 for the three months ended March 31, 2014, an increase of $42,771. The Company is currently restructuring its product line in conjunction with its acquired subsidiaries.

General and Administrative Expenses

Expenses for the period quarter consisted of the following:

	For the Three Months Ended
	March 31,			March 31,
Total General and Administrative Expenses:	2015			2014

Salaries and Benefits		$	126,456		$	1,129,500
Consulting and Service Fees			54,324			71,905
Selling, General and Administrative			177,631			36,042
Total		$	358,411		$	1,237,447

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.

Other Income (Expenses)

During the three months ended March 31, 2015, we incurred $279,778 in net other expenses, compared to $0 in the three months ended March 31, 2014 a decrease of $29,021. [Interest expense increased by $251,947 for the period based on increased borrowing.

Net Income (Loss)

The net loss for the three months ending March 31, 2015 decreased to $595,418 from $1,266,468 for the three months ending March 31, 2015, an decrease of $671,050. As outlined above the Company has had very limited sales as it restructures its product lines.

Liquidity and Capital Resources

The Company’s total assets at March 31, 2015 were $5,831,807 and total current liabilities were $4,540,373. Significant losses from operations have been incurred since inception and there is an accumulated deficit of $(21,856,019) as of March 31, 2015. Continuation as a going concern is dependent upon attaining capital to achieve profitable operations while maintaining current fixed expense levels.

Off-Balance Sheet Arrangements

None.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 4.CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and our principal financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and our principal financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. There was no change in our internal controls or in other factors that could affect these controls during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our CEO and our CFO, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our CEO and our CFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that material information required to be disclosed is made known to management and others, as appropriate, to allow timely decision regarding required disclosure and that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our management, with the participation of the CEO, evaluated the effectiveness of the Company’s internal control over financial reporting as of March 31, 2015. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Tread way Commission (COSO) in Internal Control — Integrated Framework. Based on this evaluation, our management, with the participation of the CEO, concluded that, as of March 31, 2015, our internal control over financial reporting was ineffective 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.

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 the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the fourth quarter of the year ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

None.

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

• On February 4, 2015 we issued 295,775 shares for consulting services to Darrin M. Ocasio. 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 4, 2015 we issued 5,693,165 shares to Mr. Yong Woo Kim in conversion of outstanding debt in the amount of $305,723. 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 February 4, 2015 we issued 4,754,655 shares to Mr. Mi Sun Jung in conversion of outstanding debt in the amount of $ 255,325. 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 February 4, 2015 we issued 4,476,443 shares to Mr. Yong Woo Kim in conversion of outstanding debt in the amount of $240,385. 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 February 13, 2015 we issued 300,000 shares for consulting services to Princeton Research. 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 April 21, 2015 we issued 1,801,802 shares to Mr. Uk Hee Jo in conversion of cash investment in the amount of $180,180.20. 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 April 21, 2015 we issued 900,901 shares to Mr. Chul Hun Choi in conversion of cash investment in the amount of $90,090.10. 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 April 27, 2015 we issued 350,000 shares for consulting services to Darrin M. Ocasio. 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.

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 Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

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.

	Leo Motors, Inc.

May 20, 2015	By:	/s/ Jun Heng Park
		Jun Heng Park
		Chief Executive Officer (Principal Executive Officer) and Director

May 20, 2015	By:	/s/ JeongYoul Choi
		JeongYoul Choi
		Chief Financial Officer (Principal Financial and Accounting Officer) and Director

Leo Motors, Inc. - FORM 10-Q - May 20, 2015

Attached files

Leo Motors, Inc. Reports