10-Q 1 leomotors10q09302016.htm 10-Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
(Mark One)

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

For the quarterly period ended September 30, 2016
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
 
81-4108026
(State or other jurisdiction of incorporation or organization)
 
(I. R. S. Employer Identification No.)
 
3F Bokwang Bldg., Seowoon-ro 6 Gil 14, Seocho-Gu, Seoul, Republic of Korea
 
06734
(Address of principal executive offices)
 
(Zip Code)

+ 82-70-4699-3585
(Registrant's telephone number, including area code)
 
Not applicable
(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 ☒ 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 (Sec.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  ☒

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

The number of shares of the registrant's common stock outstanding as of November 9, 2016 was 165,687,913  shares.
 


 
 Item 1. Financial Statements.
 
 
 
             
LEO MOTORS, INC.
  
CONSOLIDATED BALANCE SHEETS
  
(AMOUNTS EXPRESSED IN US DOLLAR)
  
             
   
Balance at
  
   
9/30/2016
    
12/31/2015
  
             
Assets
  
Current Assets
            
Cash and cash equivalents
  
$
1,497,771
    
$
243,809
  
Accounts receivable
    
978,069
      
1,565,114
  
Inventories
    
869,213
      
496,971
  
Prepayment to suppliers
    
625,370
      
279,229
  
Other current assets
    
22,210
      
32,107
  
Total Current Assets
    
3,992,633
      
2,617,230
  
Fixed assets, net
    
133,651
      
163,001
  
Deposit
    
346,255
      
346,659
  
Intangible assets
    
88,503
      
63,831
  
Goodwill
    
3,717,931
      
3,057,003
  
Total Assets
  
$
8,278,973
    
$
6,247,724
  
Liabilities and Equity(Deficit)
  
Current Liabilities:
                
Accounts payable and accrued expenses
  
$
4,882,656
    
$
4,082,198
  
Short term borrowings
    
0
      
7,661
  
Advance from customers
    
757,617
      
795,431
  
Due to related parties
    
108,000
      
140,396
  
Taxes payable
    
59,458
      
99,584
  
Notes Payable current portion
    
145,560
      
49,397
  
Total Current Liabilities
    
5,953,291
      
5,174,667
  
Accrued retirement benefits
    
160,878
      
92,948
  
Notes payable long term
    
240,214
      
273,646
  
Other long term liabilities
    
126,361
      
129,748
  
Total Liabilities
    
6,480,744
      
5,671,009
  
Commitments (Note 8)
    
-
      
-
  
Leo Motors, Inc.("LEOM") Equity(Deficit):
                
Common stock ($0.001 par value; 300,000,000 shares authorized); 164,124,118  and 158,948,604 shares issued and outstanding at September 30,  2016 and December 31, 2015
    
164,124
      
158,949
  
Additional paid-in capital
    
21,052,333
      
20,367,272
  
Accumulated other comprehensive income
    
1,280,985
      
1,251,120
  
Accumulated loss
    
(27,953,301
)
    
(25,404,609
)
Total Equity(Deficit) Leo Motors, Inc.
    
(5,455,859
)
    
(3,627,268
)
Non-controlling interest
    
7,254,088
      
4,203,983
  
Total Equity(Deficit)
    
1,430,307
      
576,715
  
Total Liabilities and Equity(Deficit)
  
$
8,278,973
    
$
6,247,724
  
                 
"See accompanying notes to consolidated financial statements"
  




 
                         
LEO MOTORS, INC.
  
CONSOLIDATED STATEMENTS OF OPERATIONS
  
(AMOUNTS EXPRESSED IN US DOLLAR)
  
                         
   
For the Three Months Ended
    
For the Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2016
    
2015
    
2016
    
2015
  
 
  
(Unaudited)
    
(Unaudited)
    
(Unaudited)
    
(Unaudited)
  
Revenues
  
$
792,037
    
$
922,326
    
$
2,344,199
    
$
2,331,294
  
                                 
Cost of Revenues
    
503,484
      
414,240
      
1,484,572
      
1,027,969
  
Gross Profit
    
288,553
      
508,086
      
859,627
      
1,303,325
  
 
                                
Operating Expenses
    
1,759,520
      
956,180
      
3,676,871
      
3,138,024
  
Income(loss) from Continuing Operations
    
(1,470,967
)
    
(448,094
)
    
(2,817,244
)
    
(1,834,699
)
                                 
Other Income (Expenses)
                                
Interest expense
    
(7,817
)
    
(3,031
)
    
(25,581
)
    
(313,332
)
Non-Operating (expense) income
    
60,100
      
38,636
      
96,597
      
41,553
  
Total Other Income (Expenses)
    
52,283
      
35,605
      
71,016
      
(271,779
)
 
                                
Income(loss) from Continuing Operations Before Income Taxes
    
(1,418,684
)
    
(412,489
)
    
(2,746,228
)
    
(2,106,478
)
 
                                
Income Tax Expense
    
459
      
0
      
459
      
0
  
Net Income(Loss)
  
$
(1,419,143
)
  
$
(412,489
)
  
$
(2,746,687
)
  
$
(2,106,478
)
                                 
Income(loss) attributable to non-controlling interest
  
$
(126,853
)
  
$
(55,017
)
  
$
(213,743
)
  
$
(150,422
)
                                 
Net Income(Loss) Attributable To Leo Motors, Inc.
    
(1,292,290
)
    
(357,472
)
    
(2,532,944
)
    
(1,956,056
)
                                 
Other Comprehensive Income:
                                
Net Income(loss)
  
$
(1,419,143
)
  
$
(412,489
)
  
$
(2,746,687
)
  
$
(2,106,478
)
Unrealized foreign currency translation gain
    
(205,495
)
    
29,447
      
(29,865
)
    
286,611
  
                                 
Comprehensive Income(loss) Attributable to Leo Motors, Inc.
  
$
(1,624,638
)
  
$
(383,042
)
  
$
(2,776,552
)
  
$
(1,819,867
)
Net Loss per Common Share:
                                
Basic
  
$
(0.01
)
  
$
(0.00
)
  
$
(0.02
)
  
$
(0.01
)
Diluted
  
$
(0.01
)
  
$
(0.00
)
  
$
(0.02
)
  
$
(0.01
)
Weighted Average Common Shares Outstanding:
                                
Basic
  
$
163,919,011
    
$
158,163,934
    
$
162,853,353
    
$
154,950,420
  
Diluted
  
$
163,919,011
    
$
158,163,934
    
$
162,853,353
    
$
154,950,420
  
                                 
"See accompanying notes to consolidated financial statements"
  

 


 
LEO MOTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLAR)
  
             
    
For the Nine Months Ended September 30,
  
   
2016
    
2015
  
             
Cash flows from Operating Activities:
            
Net loss
  
$
(2,746,687
)
  
$
(2,106,478
)
Adjustments to reconcile net loss to net cash
                
used in operating activities:
                
Depreciation and amortization
    
66,286
      
186,973
  
Amortization debt discount
    
0
      
275,176
  
Foreign currency translation
    
29,865
      
(286,611
)
Stock-based compensation
    
206,112
      
488,046
  
Changes in assets and liabilities:
                
Accounts Receivable
    
587,045
      
(1,151,979
)
Inventories
    
(372,242
)
    
(479,169
)
Prepayment to suppliers
    
(346,141
)
    
(407,610
)
Other assets
    
10,301
      
(423,676
)
Accounts payable, other payables and accrued expenses
    
797,071
      
357,970
  
Accrued retirement benefits
    
67,930
      
21
  
Advances from customers
    
(37,814
)
    
7,458
  
Taxes payable
    
(40,126
)
    
57,844
  
Net cash used in operating activities:
    
(1,778,400
)
    
(3,482,035
)
Cash flows from investing activities:
                
Investment in assets
    
(61,608
)
    
(294,654
)
Net cash provided(used) in investing activities:
    
(61,608
)
    
(294,654
)
Cash flows from financing activities:
                
Proceeds from notes payable
    
423,448
      
427,208
  
Proceeds on related party debt net
    
32,396
      
0
  
Payments on notes payable
    
(235,175
)
    
(505,977
)
Payments on notes payable - related party
    
0
      
(56,258
)
Proceeds from issuance of stock & warrants
    
2,873,301
      
3,887,383
  
Net cash provided(used) by financing activities:
    
3,093,970
      
3,752,356
  
Net Increase in cash and cash equivalents:
    
1,253,962
      
(24,333
)
                 
Cash and cash equivalents - beginning of year
    
243,809
      
217,178
  
                 
Cash and cash equivalents - end of period
  
$
1,497,771
    
$
192,845
  
Supplemental disclosure of cash flow activities:
                
Interest
  
$
25,581
    
$
18,825
  
Income taxes
  
$
0
    
$
0
  
Supplemental disclosures of non cash activities:
                
Conversion of derivative liability
  
$
0
    
$
819,922
  
Goodwill on acquisition
  
$
660,928
    
$
612,445
  
Conversion of debt for common stock
  
$
0
    
$
1,901,433
  
Common stock issued for services
  
$
206,112
    
$
488,046
  
                 
"See accompanying notes to consolidated financial statements"
     
 

LEO MOTORS, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2016
 
NOTE 1 - COMPANY BACKGROUND
 
Leo Motors, Inc. (the "Company" or "we") is currently in the business of the development, assembly and sales of energy storage devices and electric vehicle components.
 
The Company was originally incorporated in California as N. Org., Inc. on December 12, 1983. The Company then underwent several name changes from Natural Organics Corporation to Classic Auto Accessories of North America and then to FCR Automotive Group, Inc. On September 20, 2004, the Company reincorporated  in  Delaware by merging into FCR Group, Inc.,  a  Delaware Automotive corporation,  which  was  organized  on  September  8, 2004. On July  26,  2005,  the Company acquired Shinil Precision Co., Ltd., a Korean Company,  as  its  operating  business  and on July 18, 2005, changed its name to Shinil  Precision Machinery, Inc. to reflect its anticipated new business. Upon failure of certain terms  and  conditions  of  the acquisition agreement, the Company  returned the shares of Shinil and recovered and cancelled the Company's shares  issued  in  the  acquisition. In 2012, the Company changed its domicile to Nevada.
 
The Company had been dormant since 1989, and consummated a reverse merger on November 12, 2007 with Leozone Inc., a South Korean corporation ("Leozone"), which is a maker of electrical transportation devices. The merger essentially exchanged shares of the Company for shares in Leozone. As this was a reverse merger, the accounting treatment of such is that of a combination of the two entities with the activity of Leozone 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., a South Korean corporation ("B&T"), from two shareholders of B&T in exchange for 7,000,000 shares of the Company's common stock. Our ownership in B&T was reduced to 30% in 2011. Additionally, this investment was written down as impairment expense during 2011 and the remaining investment was exchanged in 2012 for a return of the Company's stock.

On November 10, 2012, the Company signed an agreement with PDI C&D/RDC SPRL Inc. ("PDI"), an affiliate of PDI Global LLC, a major architectural design company in the U.S., to supply an independent solar power system grafted with the Company's 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, 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. Upon closing of the Share Swap Agreement, LGM became a wholly-owned subsidiary of the Company.

On March 31, 2015, the Company acquired 50% interest in each of Leo Motors Factory, Inc. ("Leo Factory 1") and Leo Motors Factory 2, Inc. ("Leo Factory 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 50% interest in Leo Trading Inc. (formerly Erum Motors, Inc.) ("Leo Trade") specializing in the trading of luxury cars. 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.

On June 3, 2016, the Company acquired a 50% interest in Lelcon Co., LTD. The Company develops car diagnostic and controlling device. The company is based in South Korea. As of June 3, 2016, Lelcon Co., Ltd. operates as a subsidiary of the Company.



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 September 30, 2016, 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 six months ended September 30, 2016 and 2015:
 
   
For the periods ended
  
   
9/30/2016
    
9/30/2015
  
             
Net Income (Loss)
  
$
(2,746,687
)
  
$
(2,106,478
)
 
                
 
                
Weighted-average common stock Outstanding -  basic
    
162,853,353
      
154,950,420
  
Equivalents
                
  Stock options
    
-
      
0
  
  Warrants
    
-
      
0
  
  Convertible Notes
    
0
      
0
  
Weighted-average common shares
                
outstanding-  Diluted
    
162,853,353
      
154,950,420
  

 
NOTE 4 - DUE TO RELATED PARTY

The company is indebted to its officers for advances. Repayment is on demand without interest and the funds are used for working capital as needed. The balance was $108,000 at September 30, 2016 and $140,396 at December 31, 2015.

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 September 30, 2016 and December 31, 2015, the balance of payments received in advance was $625,370 and $ 279,229, respectively.
 
  
NOTE 6 - GOING CONCERN

As reported in the consolidated financial statements, the Company has accumulated deficits of 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 period ending September 30, 2016 through December 31, 2018 are listed on the table below.

     
For the Year
Amount
  
Ending
    
     
2016
  
$
55,207
  
2017
    
101,249
  
2018 and beyond
    
0
  
         
Total Commitment
  
$
156,456
  



 
NOTE 8 – INVENTORIES
 
Inventories consist of the following:
  
30-Sep-16
    
31-Dec-15
  
   
US$
    
US$
  
Raw material
  
$
0
    
$
0
  
Work in process
    
869,213
      
496,971
  
Finished goods
    
0
      
0
  
 
  
$
869,213
    
$
496,971
  


NOTE 9 - PROPERTY AND EQUIPMENT
 
Property and equipment consisted of the following:
  
30-Sep-16
    
31-Dec-15
  
             
Vehicles
  
$
146,268
    
$
146,268
  
Tools
    
95,771
      
95,771
  
Office
    
109,447
      
109,447
  
Facility equipment
    
247,438
      
210,502
  
 Total property and equipment
    
598,924
      
561,988
  
Accumulated depreciation
    
(465,273
)
    
(398,987
)
Property and equipment, net
  
$
133,651
    
$
163,001
  

  
Depreciation expense for the nine months ended September 30, 2016 and 2015 amounted to $66,286 and $158,327, respectively.

NOTE 10 - INVESTMENTS

During 2012, the Company invested in a housing project in the Republic of the Congo which would use our E-Box power storage device. $270,000 had been invested. Their 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 - 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 $27,973,553 had accumulated at September 30, 2016 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, and is 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 $799,783 during the quarter ended September 30, 2016.




Loss 12/31/15
    
(25,404,609
)
Current
    
(2,532,944
)
NOL
    
(27,937,553
)
 
The effective tax rate is as follows:

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


NOTE 12 - SHORT TERM BORROWINGS AND NOTES PAYABLE

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

As of September 30, 2016, the major components of our notes and borrowings consisted of the following:

   
9/30/16
    
12/31/15
  
Bank loan six month note extended with 12 month term
            
renewable periods with a variable interest rate currently at 3.65%
            
interest only payable monthly and securred by the company.
  
$
0
      
45,505
  
 
                
Bank loan six month note extended with 12 month term
                
renewable periods with a variable interest rate currently at 6.24%
                
interest only payable monthly.
    
0
      
75,775
  
 
                
Bank loan six month note extended with 12 month term
                
renewable periods with a variable interest rate currently at 3.28%
                
interest only payable monthly and securred by the company
    
0
      
85,245
  
 
                
Bank loan four year note extended with 12 month with extension
                
fully amortizing with a variable interest rate currently at 3.83%
                
payable monthly.
    
0
      
35,718
  
 
                
Equity Line of credit agreement with a 12 month term dated May 27, 2016
                
May 27, 2016 with minimum draw downs of $25,000 and convertible
                
into company common stock.
    
240,214
      
0
  
 
                
Equity Line of credit agreement with a 12 month term dated
                
May 27, 2016 with minimum draw downs of $25,000 and convertible
                
into company common stock.
    
90,990
      
46,800
  
 
                
Bank loan six month note extended with 12 month term
                
renewable periods with a variable interest rate currently at 7.25%
                
interest only payable monthly.
    
54,570
      
34,000
  
 
                
Total Liabilities
    
385,774
      
323,043
  
 
                
Less current portion
    
145,560
      
49,397
  
 
                
Long tem debt
  
$
240,214
      
273,646
  


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 $612,445 and also determined that none of its long-term assets at September 30, 2016 and December 31, 2015 were impaired.
 


   
30-Sep-16
    
31-Dec-15
  
Patents
  
$
88,226
    
$
63,554
  
Trademarks
    
277
      
277
  
Goodwill
    
3,717,931
      
3,057,003
  
Intangible assets
    
3,806,434
      
3,120,834
  
Less impairments
    
0
      
0
  
Intangible assets, net
  
$
3,806,434
    
$
3,120,834
  


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 nine months ended September 30, 2016 and 2015, 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 - ACQUISITIONS

On March 29, 2015, the Company acquired a 50% interest in each of 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 specializing in trading luxury cars.  The consolidation of these acquisitions is presented below.
 
 
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
  

 
On June 3, 2016, the Company acquired a 50% interest in Lelcon Co., LTD. The Company develops car diagnostic and controlling device. The Company is based in South Korea. As of June 3, 2016, Lelcon Co., Ltd. operates as a subsidiary of Leo Motors, Inc.

 


 
   
Leo Motors
    
LELC
    
Pro Forma
    
Pro Forma
  
   
3/31/2016
    
3/31/2016
    
AJE
    
Consolidated
  
                         
Assets
  
Current Assets
                        
Cash and cash equivalents
  
$
130,874
    
$
998
          
$
131,872
  
Accounts Receivable
    
1,015,447
      
14,031
            
1,029,478
  
Inventories
    
838,785
      
37,879
            
876,664
  
Prepayment to suppliers
    
382,545
      
0
            
382,545
  
Stockholder loans
    
0
      
129,066
            
129,066
  
Other current assets
    
199,073
      
2,905
            
201,978
  
Total Current Assets
    
2,566,724
      
184,879
            
2,751,603
  
Fixed assets, net
    
142,137
      
33,242
            
175,379
  
Deposit
    
346,255
      
0
            
346,255
  
Other non-current assets
    
87,275
      
1,228
            
88,503
  
Investments
    
500,000
      
0
    
$
(500,000
)
    
0
  
Goodwill
    
3,057,003
      
0
      
470,559
      
3,527,562
  
Total Assets
  
$
6,699,394
    
$
219,349
            
$
6,889,302
  
 
                                
Liabilities and Equity(Deficit)
  
Current Liabilities:
                                
Accounts payable and accrued expenses
  
$
3,748,487
    
$
50,193
            
$
3,798,680
  
Current portion notes payable
    
264,158
      
85,034
              
349,192
  
Advance from customers
    
496,385
      
0
              
496,385
  
Due to related parties
    
136,887
      
0
              
136,887
  
Taxes payable
    
155,151
      
4,429
              
159,580
  
Total Current Liabilities
    
4,801,068
      
139,656
              
4,940,724
  
Accrued retirement benefits
    
96,518
      
0
              
96,518
  
Other long term liabilities
    
196,579
      
0
              
196,579
  
Long term debt net of current portion
    
95,599
      
0
              
95,599
  
Total Liabilities
    
5,189,764
      
139,656
              
5,329,420
  
Commitments
    
-
      
-
                  
Leo Motors, Inc.("LEOM") Equity(Deficit):
                                
Common stock ($0.001 par value; 300,000,000 shares authorized); 163,198,512 shares issued and outstanding at March 31, 2016
    
164,614
      
169,348
      
(169,348
)
    
164,614
  
Additional paid-in capital
    
21,488,871
      
0
              
21,488,871
  
Accumulated other comprehensive income
    
1,329,240
      
1,805
              
1,331,045
  
Accumulated loss
    
(25,827,119
)
    
(91,460
)
    
55,233
      
(25,863,346
)
Total Equity(Deficit) Leo Motors, Inc.
    
(2,844,394
)
    
79,693
              
(2,878,816
)
Non-controlling interest
    
4,354,024
      
0
      
84,674
      
4,438,698
  
Total Equity(Deficit)
    
1,509,630
      
79,693
              
6,889,302
  
Total Liabilities and Equity(Deficit)
  
$
6,699,394
    
$
219,349
      
0
    
$
6,804,628
  

 

 
 
   
Leo Motors
    
LELC
    
Pro Forma
    
Pro Forma
  
   
3/31/2016
    
3/31/2016
    
AJE
    
Consolidated
  
 
                        
Revenues
  
$
745,706
    
$
14,161
          
$
759,867
  
Cost of Revenues
    
291,014
      
9,346
            
300,360
  
Gross Profit
    
454,692
      
4,815
            
459,507
  
                               
Operating Expenses
    
908,860
      
40,422
            
949,282
  
                               
Income(loss) from Continuing Operations
    
(454,168
)
    
(35,607
)
          
(489,775
)
Other Income (Expenses)
                              
Assets disposal gain, net
    
0
      
0
            
0
  
Debt Forgiveness
    
0
      
0
            
0
  
Interest expense
    
(9,328
)
    
(630
)
          
(9,958
)
Non-Operating (expense) income
    
5,330
      
10
            
5,340
  
Total Other Income (Expenses)
    
(3,998
)
    
(620
)
          
(4,618
)
                               
Income(loss) from Continuing Operations Before Income Taxes
    
(458,166
)
    
(36,227
)
          
(494,393
)
Income Tax Expense
    
0
      
0
            
0
  
Net Income(Loss)
  
$
(458,166
)
  
$
(36,227
)
        
$
(494,393
)
                               
Income(loss) attributable to non-controlling interest
  
$
(35,655
)
  
$
0
          
$
(35,655
)
Net Income(Loss) Attributable To Leo Motors, Inc.
  
$
(422,511
)
  
$
(36,227
)
        
$
(458,738
)
Other Comprehensive Income:
                              
Net Income(loss)
  
$
(422,511
)
  
$
(36,227
)
        
$
(458,738
)
Unrealized foreign currency translation gain
    
78,120
      
1,921
            
80,041
  
Comprehensive Income(loss) Attributable to Leo Motors, Inc.
  
$
(344,391
)
  
$
(34,306
)
  
$
0
    
$
(378,697
)
Net Loss per Common Share:
                                
Basic
  
$
(0.00
)
                  
$
(0.00
)
Diluted
  
$
(0.00
)
                  
$
(0.00
)
Weighted Average Common Shares Outstanding:
                                
Basic
  
$
163,198,512
                    
$
164,613,340
  
Diluted
  
$
163,198,512
                    
$
164,613,340
  

 
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements in this Management's Discussion and Analysis ("MD&A"), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "would," "expect," "intend," "could," "estimate," "should," "anticipate," or "believe," and similar expressions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.  Readers should carefully review the risk factors and related notes included under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 30, 2016.

The following MD&A is intended to help readers understand the results of our operation and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Interim Unaudited Financial Statements and the accompanying Notes to Interim Unaudited Financial Statements under Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Growth and percentage comparisons made herein generally refer to the three months ended September 30, 2016 compared with the three months ended September 30, 2015 unless otherwise noted. Unless otherwise indicated or unless the context otherwise requires, all references in this document to "we, "us, "our," the "Company," and similar expressions refer to Leo Motors, Inc., and depending on the context, its subsidiaries.

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") 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 R&D, post R&D development such as product testing, production, and sales.

The Company's products include (i) the E-Box electric energy storage system for solar and wind power generation devices; (ii) Electric Vehicle ("EV") and electric boat components that integrate electric batteries with electric motors such as EV controllers that use a mini-computer to control torque drive; (iii) luxury car repair and trading services; (iv) electric boat power train systems ranging from 40 to 250 kW, including motor, controller, and battery power packs; and (iv) on-board diagnostic and controlling devices for connected car services based on an Internet of Things (IoT) platform.

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 EVs. Our EPTS can replace internal combustion engines ("ICEs").  

 
 
The Company has developed eight EPTS of increasing power rating: 3kW, 5kW, 7.5kW, 15kW, 30kW, 60kW, 120kW, and 240kW.  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 buses and trucks up to 10,000cc) 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:
 
· focus on the capitalization of the Company;
· focus on the sale of the E-Boats and E-Box;
· business development in China by establishing joint venture company in China; and
· continue with R&D of our EV's, electric boats, and related products as capital permits.
 
The Company's E-Box can be used as an energy supplying device in an emergency situations or as an 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 BMS.
 
The Company is developing new battery exchange system using its patented cartridge battery exchange system which will solve the cost barriers of the EV to make them less expensive than their ICE counterparts and to help solve battery charging problems. With an evolutionary battery exchange system, the Company's EVs can exchange batteries 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 along any road sides.
 
On July 1, 2014, the Company acquired all of the outstanding common stock of LGM Co. Ltd., an electric boat company incorporated in the Republic of Korea ("LGM"). LGM has developed electric fishing boats with 40 to 250 kW power trains. LGM's 120W power train boat was registered to the National Federation of Fisheries Cooperatives as the first marketable electric boat product in Korea. With the registration, our customers of electric fishing boats can receive a government subsidy when they purchase the 120kW power train boat from us. On May 4, 2016, the Company sold its first fishing boat to the Korean government. The Korean government is renting the Company's electric fishing boats to the fishermen who are interested in electrifying their fishing boats.
 
The Company also expanded its businesses into luxury car repairing and trading services by acquiring three companies in 2015. The Company acquired 50% ownership of each of three companies: Leo Motors Factory I, Leo Motors Factory II, and Leo Trading. The Company provides luxury car repairing services through Leo Motors Factory I and Leo Motors Factory II which have "high end" maintenance equipment and facilities. Leo Trading is specializing in trading luxury cars. Another objective of these acquisitions is for the Company to establish Korea's first "Electric Vehicle Repair Shop" designed to maintain and repair hybrid cars as well as pure electric cars to fulfill the growing needs of the large auto makers and "green" consumers. The Company also intends to add major electric vehicle dealerships to the Leo Trading lineup.
 
In 2016, the Company acquired 50% ownership of Lelcon Co., Ltd. ("Lelcon"). Lelcon has proprietary connected car technology crucial in the development of smart EVs. This strategic acquisition allows the Company to accelerate development of its fleet EV management systems based on Internet of Things (IoT) and Artificial Intelligence (AI) platforms. Lelcon has developed a system branded as "AutoNsight" that is an on-board diagnostic and controlling device that detects, reports, and controls the status of power system components including motors, controllers, transmissions, ABS breaking systems, battery power packs, information and communication systems including on-board navigation, entertainment systems, and comfort systems. Based on an IoT platform, AutoNsight is connected through mobile internet.  EV status can be remotely monitored and controlled in a control tower through computer based devices including notebooks, tablets and smart phones.  AutoNsight is available for both EV and ICE vehicles, and is compatible with Google Auto and Apple Car Play.
 
 
 
Lelcon's AutoNsight is expected to reduce the amount of time needed for the Company to market the Company's connected electric buses and electric delivery trucks.  The Company will also enjoy significant savings in development costs.  For the Company's battery swapping system for fleet EVs, the Company has continued to invest in developing a mobile network based connected car system.  Lelcon's technology provides such mobile network based system without further investment.
 
Recent Business Developments
 
The Company received an order from one of the world's largest home electronics brands to develop a mobile Internet connect product based on Internet of Things platform. The Company worked with Lelcon to fulfill the order, and the order was delivered. The client name, date, and specific project title cannot be disclosed because of non-disclosure agreement with the client.

On September 9, 2016, LGM increased it capital of $3,656,011 (4,156,885,000 Korean Won) through funding. With the increase of capital the Company's ownership in LGM changed from 91.3% to 81.8%.

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 September 30, 2016
 
Revenues
 
Sales for the three months ended September 30, 2016 were $792,037 compared to $922,326 for the three months ended September 30, 2015, a decrease of $130,289. The Company's revenue experienced a slight decrease due to overall market conditions.

General and Administrative Expenses

Expenses for the period quarter consisted of the following:

 
For the Three Months Ended
  
 
September 30,
  
September 30,
  
Total General and Administrative Expenses:
2016
  
2015
  
 
        
Salaries and Benefits
  
$
1,333,073
    
$
608,070
  
Consulting and Service Fees
    
74,865
      
47,286
  
Selling, General and Administrative
    
351,582
      
300,824
  
Total
  
$
1,759,520
    
$
956,180
  

Salaries and Benefits consist of total 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 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 September 30, 2016, we received $52,283 in net other income(expenses), compared to $35,605 in the three months ended September 30, 2015, an increase of $16,978.

Net Income (Loss)

The net loss for the three months ending September 30, 2016 decreased to $1,292,290 from $412,489 for the three months ending September 30, 2015, an increase of $934,818. As outlined above the Company has had very limited sales as it restructures its product lines.

Results of Operations - For the Nine months Ended September 30, 2016
 
Revenues
 
Sales for the nine months ended September 30, 2016 were $2,344,199 compared to $2,331,294 for the nine months ended September 30, 2015, an increase of $12,905. The Company is reporting sales relatively flat for the period. A slight decrease for the last three months has offset slight increases from earlier in the year.
 
General and Administrative Expenses

Expenses for the nine months ended September 30, 2016 and September 30, 2015 consisted of the following:

 
For the Nine months Ended
  
 
September 30,
  
September 30,
  
Total General and Administrative Expenses:
2016
  
2015
  
 
        
Salaries and Benefits
  
$
2,057,832
    
$
1,644,273
  
Consulting and Service Fees
    
282,501
      
503,550
  
Selling, General and Administrative
    
1,336,538
      
990,201
  
Total
  
$
3,676,871
    
$
3,138,024
  
 
Salaries and Benefits consist of total 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 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 nine months ended September 30, 2016, we received $71,016 in net other income(expenses), compared to ($271,779) in net expenses in the nine months ended September 30, 2015, a decrease of $342,795.

Net Income (Loss)

The net loss for the nine months ending September 30, 2016 increased to $2,532,844 from $2,106,478 for the nine months ending September 30, 2015, an increase of $576,888. As outlined above the Company has had very limited sales as it restructures its product lines.
 

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 through additional borrowing or the sale of additional equity.

The Company's total current assets at September 30, 2016 were $3,992,633 and total current liabilities were $5,953,291.  Significant losses from operations have been incurred since inception and there is an accumulated deficit of $27,953,301 as of September 30, 2016.  Continuation as a going concern is dependent upon attaining capital to achieve profitable operations while maintaining current fixed expense levels.

Off-Balance Sheet Arrangements
 
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.

Item 4. Controls and Procedures.

As of the end of the quarterly 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 September 30, 2016. 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 September 30, 2016, our internal control over financial reporting were not 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 quarterly 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 quarterly report.
  
Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter 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.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.  We are not currently aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition, or operating results.

Item 1A.  Risk Factors.

There have been no changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.  Defaults upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

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:

Exhibit
No.
 
Description
  
 
 
 
  
31.1
 
Certification of Co-Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
 
31.2
 
Certification of Co-Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
 
31.3
  
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
  
32.1
 
Certification of the Co-Principal Executive Officers and the Chief Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
 
101.INS
  
XBRL Instance Document*
  
101.SCH
  
XBRL Taxonomy Extension Schema Document*
  
101.CAL
  
XBRL Taxonomy Calculation Linkbase Document*
  
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document*
  
101.LAB
  
XBRL Taxonomy Label Linkbase Document*
  
101.PRE
  
XBRL Taxonomy Presentation Linkbase Document*
  
*Filed herewith.
**Furnished herewith.
 

 
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.
 
 
 
 
 
November 14, 2016
By:
/s/ Jun Heng Park
 
 
 
Jun Heng Park
 
 
 
Co-Chief Executive Officer (Principal Executive Officer)
 
 
 
 
 
November 14, 2016
By:
/s/ Shi Chul Kang
 
 
 
Shi Chul Kang
 
 
 
Co-Chief Executive Officer (Principal Executive Officer)
 
 
 
 
 
November 14, 2016
By:
/s/ Jeong Youl Choi
 
 
 
Jeong Youl Choi
 
 
 
Chief Financial Officer (Principal Financial and Accounting Officer)