10-Q

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, 2016

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________to _____________

Commission File No. 000-54693

LEATT CORPORATION
(Exact name of registrant as specified in its charter)

Nevada	20-2819367
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)

50 Kiepersol Drive, Atlas Gardens, Contermanskloof Road,
Durbanville, Western Cape, South Africa, 7441
(Address of principal executive offices)

+(27) 21-557-7257
(Registrant’s telephone number, including area code)
__________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]     No [_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]     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 [_]	Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_]     No [X]

The number of shares outstanding of each of the issuer’s classes of common stock, as of May 5, 2016 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	5,297,043

LEATT CORPORATION

Quarterly Report on Form 10-Q
Three Months Ended March 31, 2016

TABLE OF CONTENTS

PART I		3
FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS.	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	11
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	18
ITEM 4.	CONTROLS AND PROCEDURES.	18
PART II		18
OTHER INFORMATION		18
ITEM 1.	LEGAL PROCEEDINGS.	18
ITEM 1A.	RISK FACTORS.	18
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	18
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	18
ITEM 4.	MINE SAFETY DISCLOSURES.	19
ITEM 5.	OTHER INFORMATION.	19
ITEM 6.	EXHIBITS.	19

- i -

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

LEATT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

	Page(s)
Financial Statements
Consolidated Balance Sheets	4
Consolidated Statements of Operations and Comprehensive Income	5
Consolidated Statement of Changes in Stockholders' Equity	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8 - 10

- 3 -

LEATT CORPORATION
CONSOLIDATED BALANCE SHEETS

ASSETS
		March 31, 2016			December 31, 2015
		Unaudited			Audited
Current Assets
Cash and cash equivalents	$	1,416,725		$	1,054,750
Short-term investments		58,180			58,172
Accounts receivable		2,426,114			2,901,699
Inventory		4,016,116			4,241,140
Payments in advance		336,465			208,030
Prepaid expenses and other current assets		867,060			1,070,774
Total current assets		9,120,660			9,534,565
Property and equipment, net		1,236,790			1,313,325
Deferred tax asset		115,000			115,000
Other Assets
Other receivables		60,000			90,000
Deposits		16,704			16,493
Intangible assets		62,749			61,273
Total other assets		139,453			167,766
Total Assets	$	10,611,903		$	11,130,656
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	2,068,117		$	2,560,980
Income taxes payable		245,800			384,950
Short term loan, net of finance charges		441,128			658,639
Total current liabilities		2,755,045			3,604,569
Deferred tax liabilities		73,000			73,000
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.001 par value, 1,120,000 shares authorized, 120,000 shares issued and outstanding		3,000			3,000
Common stock, $.001 par value, 28,000,000 shares authorized, 5,297,043 and 5,231,823 shares issued and outstanding		130,079			130,040
Additional paid - in capital		7,541,485			7,346,782
Accumulated other comprehensive loss		(686,983	)		(710,032	)
Retained earnings		796,277			683,297
Total stockholders' equity		7,783,858			7,453,087
Total Liabilities and Stockholders' Equity	$	10,611,903		$	11,130,656

See the accompanying notes to the financial statements

- 4 -

LEATT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

		Three Months Ended
		March 31
		2016			2015
		Unaudited			Unaudited
Revenues	$	4,827,492		$	4,021,455
Cost of Revenues		2,313,657			1,844,195
Gross Profit		2,513,835			2,177,260
Product Royalty Income		13,882			51,533
Operating Expenses
Salaries and wages		681,302			606,178
Commissions and consulting expenses		166,071			185,908
Professional fees		181,659			214,773
Advertising and marketing		361,593			261,442
Office rent and expenses		64,190			60,508
Research and development costs		342,815			292,717
Bad debt expense		2,827			-
General and administrative expenses		446,946			425,216
Depreciation		104,517			92,803
Total operating expenses		2,351,920			2,139,545
Income from Operations		175,797			89,248
Other Income / Expenses
Interest and other income, net		(1,941	)		442
Total other income / expenses		(1,941	)		442
Income Before Income Taxes		173,856			89,690
Income Taxes		60,876			35,585
Net Income Available to Common Shareholders	$	112,980		$	54,105
Net Income per Common Share
Basic	$	0.02		$	0.01
Diluted	$	0.02		$	0.01
Weighted Average Number of Common Shares Outstanding
Basic		5,233,272			5,200,623
Diluted		5,545,027			5,467,160
Comprehensive Income
Net Income	$	112,980		$	54,105
Other comprehensive income, net of $0 and $0 deferred income taxes in 2016 and 2015
Foreign currency translation		23,049			(46,469	)
Total Comprehensive Income	$	136,029		$	7,636

See the accompanying notes to the financial statements

- 5 -

LEATT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2016

										Accumulated
										Other
	Preferred Stock A			Common Stock				Additional		Comprensive			Retained
	Shares		Amount	Shares		Amount		Paid - In Capital		Loss			Earnings		Total
Balance, January 1, 2016	120,000	$	3,000	5,231,823	$	130,040	$	7,346,782	$	(710,032	)	$	683,297	$	7,453,087
Compensation cost recognized in connection    with stock options	-		-	-		-		155,742		-			-		155,742
Exercise of stock options	-		-	39,000		39		38,961		-			-		39,000
Options exercised on a cashless basis	-		-	26,220		-		-		-			-		-
Net income	-		-	-		-		-		-			112,980		112,980
Foreign currency translation adjustment	-		-	-		-		-		23,049			-		23,049
Balance, March 31, 2016	120,000	$	3,000	5,297,043	$	130,079	$	7,541,485	$	(686,983	)	$	796,277	$	7,783,858

See the accompanying notes to the financial statements

- 6 -

LEATT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

		2016			2015
Cash flows from operating activities
Net income	$	112,980		$	54,105
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		104,517			92,803
Deferred income taxes		-			(200	)
Stock-based compensation		155,742			1,478
Inventory reserve		8,089			26,034
(Increase) decrease in:
Accounts receivable		475,585			2,595,341
Inventory		216,935			(742,160	)
Payments in advance		(128,435	)		(48,947	)
Prepaid expenses and other current assets		242,714			275,158
Income tax refunds receivable		-			25,000
Other receivables		30,000			30,000
Deposits		(211	)		182
Increase (decrease) in:
Accounts payable and accrued expenses		(492,863	)		(1,662,512	)
Income taxes payable		(139,150	)		(135,000	)
Net cash provided by operating activities		585,903			511,282
Cash flows from investing activities
Capital expenditures		(12,037	)		(42,608	)
Increase in short-term investments, net		(8	)		(3	)
Net cash used in investing activities		(12,045	)		(42,611	)
Cash flows from financing activities
Repayments of short-term loan, net		(217,511	)		(277,126	)
Net cash used in financing activities		(217,511	)		(277,126	)
Effect of exchange rates on cash and cash equivalents		5,628			(23,087	)
Net increase in cash and cash equivalents		361,975			168,458
Cash and cash equivalents - beginning		1,054,750			724,707
Cash and cash equivalents - ending	$	1,416,725		$	893,165
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	3,483		$	3,167
Cash paid for income taxes	$	200,027		$	170,585
Other noncash investing and financing activities
Common stock issued for services	$	155,742		$	1,478
Common stock issued in exchange for a receivable	$	39,000		$	-

See the accompanying notes to the financial statements

- 7 -

LEATT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Basis of presentation

The consolidated balance sheet as of December 31, 2015 was audited and appears in the Form 10-K filed by the Company with the Securities and Exchange Commission on March 18, 2016. The consolidated balance sheet as of March 31, 2016 and the consolidated statements of operations and comprehensive income for the three months ended March 31, 2016 and 2015, changes in stockholders’ equity for the three months ended March 31, 2016, cash flows for the three months ended March 31, 2016 and 2015, and the related information contained in these notes have been prepared by management without audit. In the opinion of management, all adjustments (which include only normal recurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles as of March 31, 2016 and for all periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. While management of the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2015 as filed with the Securities and Exchange Commission in the Company’s Form 10-K.

Note 2 - Inventory

Inventory is stated at the lower of cost or market. Cost is determined using the first-in first-out (FIFO) method. Inventory consists primarily of finished goods. Shipping and handling costs are included in the cost of inventory. In assessing the inventory value, the Company must make estimates and judgments regarding reserves required for product obsolescence, aging of inventory and other issues potentially affecting the saleable condition of products. In performing such evaluations, the Company utilizes historical experience as well as current market information. The reserve for obsolescence as of the three months ended March 31, 2016 and 2015 was $168,604 and $187,627, respectively.

Note 3 - Intangible Assets

The Company’s intangible assets consist of acquired patents with an indefinite useful life and are thus not amortized. Intangible assets are carried at cost less impairment. Amortization expense for the three months ended March 31, 2016 was zero. There was no impairment of intangible assets at March 31, 2016.

Note 4 - Short-term Loan

The Company carries two product liability insurance policies; one with a U.S. insurance carrier and a second with a South African insurance carrier. The Company finances payment of its short-term insurance premiums over the period of coverage, which is generally twelve months. The U.S. short-term loan is payable in monthly installments of $71,952 over an 11 month period at an APR of 2.897% and the South African short-term loan is payable in monthly installments of $1,561 over a 10 month period at a flat interest rate of 3.90% .

The Company also carries directors and officers’ liability insurance. The Company finances payment of its short-term insurance premiums over the period of coverage, which is generally twelve months. The short-term loan is payable in eleven payments of $5,162 at a 2.897% annual interest rate.

Note 5- Income Taxes

The Company uses the asset and liability approach to account for income taxes. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The provision for income taxes included taxes currently payable, if any, plus the net change during the period in deferred tax assets and liabilities recorded by the Company.

The Company applies the provisions of FASB ASC Topic 740-10, Accounting for Uncertainty in Income Taxes (“Standard”), which provides that the tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if the position is more likely than not of being sustained upon an examination by tax authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, the standard provides guidance on derecognition, classification, interest and penalties; accounting in interim periods, disclosure and transition, and any amounts when incurred would be recorded under these provisions.

- 8 -

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of March 31, 2016 the Company has no unrecognized tax benefits.

Note 6 - Net Income Per Share of Common Stock

Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted–average number of common stock shares and dilutive potential common shares outstanding during the period. For the three months ended March 31, 2016, the Company had 636,780 potential common shares, consisting of 120,000 preferred shares and options to purchase 516,780 shares, outstanding that were dilutive and included in diluted net income per share.

Note 7 – Common Stock

During the quarter ended March 31, 2016, 323,000 stock options were granted at an exercise price of $2.60 per share, exercisable over a 5 year period. The fair value of the stock options granted was estimated at the date of grant using the Black Sholes option-pricing model. Based on the list of assumptions presented below, the fair value of the options granted during the three months ended March 31, 2016, was $1.80.

Expected term in years	5 years
Risk-free interest rate	2.20%
Expected volatility	0.88%
Expected dividend yield	0.00%

The expected volatility was determined with reference to the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that the options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant.

Stock-based compensation expense related to vested stock options granted during the quarter ended March 31, 2016 was $154,440. As of March 31, 2016, there was $426,960 of unrecognized compensation costs related to unvested stock options, which is expected to be recognized over a 3 year vesting period.

In addition, on March 10, 2016, the Company issued 26,220 shares of common stock to employees who exercised employee stock options in a cashless exercise; and on March 29, 2016 an employee exercised stock options for the Company to issue 39,000 shares for $39,000.

Note 8 – Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09, as amended, outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date". The amendments in this update defers the effective date of Update 2014-09 for all entities by one year. The ASU, as amended, is effective for the first interim period within an annual period beginning after December 15, 2017, and early adoption is not permitted. The Company is evaluating the provisions of this update and has not determined the impact that its adoption will have on the Company’s financial position or results of operations.

- 9 -

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which applies to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost or net realizable value test. The ASU is effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material effect on the consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes." This ASU requires that deferred tax assets and liabilities be classified as non-current on the balance sheet rather than being separated into current and non-current. This ASU is effective for annual and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The Company elected to retrospectively adopt this accounting standard in the beginning of the first quarter of fiscal 2016 and as a result, prior periods in the consolidated financial statements were adjusted.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU is a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases. The core principle of this ASU will require lessees to present the assets and liabilities that arise from leases on their balance sheets. The ASU is effective for public companies for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the new standard to determine the impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No 2016-09 Improvements to Employee Share-Based Payment Accounting ("ASC 2016-09"). ASC 2016-09 will change certain aspects of accounting for share-based payments to employees. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is evaluating the new standard to determine the impact on the Company’s consolidated financial statements.

The Company does not believe there are any other recent accounting pronouncements that would have a material impact on its financial position or results of operations.

Note 9 - Litigation

In the ordinary course of business, the Company is involved in various legal proceedings involving product liability and personal injury and intellectual property litigation. The Company is insured against loss for certain of these matters. The Company will record contingent liabilities resulting from asserted and unasserted claims against it when it is probable that the liability has been incurred and the amount of the loss is reasonably estimable. The Company will disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. While the outcome of currently pending litigation is not yet determinable, the ultimate exposure with respect to these matters cannot be ascertained. However, based on the information currently available to the Company, the Company does not expect that any liabilities or costs that might be incurred to resolve these matters will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.

Note 10 – Subsequent Events

The company has evaluated all subsequent events through the date the financial statements were released.

- 10 -

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward Looking Statements

This report contains forward-looking statements that are contained principally in the sections entitled “Our Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” above. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:

• our expectations regarding growth in the motor sports market;

• our expectation regarding increasing demand for protective equipment used in the motor sports market;

• our belief that we will be able to effectively compete with our competitors and increase our market share;

• our expectations with respect to increased revenue growth and our ability to achieve profitability resulting from increases in our production volumes; and

• our future business development, results of operations and financial condition.

Also, forward-looking statements represent our estimates and assumptions only as of the date of this quarterly report. You should read this quarterly report and the documents that we reference and filed as exhibits to the quarterly report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Use of Certain Defined Terms

Except as otherwise indicated by the context, references in this quarterly report to:

• “Leatt,” “we,” “us,” “our,” the “Registrant” or the “Company” are to the combined business of Leatt Corporation, a Nevada corporation, its South African branch, Leatt SA, and its direct, wholly-owned subsidiaries, Two Eleven, Leatt New Zealand and Three Eleven;

• “Leatt SA” are to the Company’s branch office known as ‘Leatt Corporation (Incorporated in the State of Nevada)’ incorporated under the laws of South Africa with registration number: 2007/032780/10;

• “Leatt USA” are to Leatt USA, LLC, a Nevada Limited Liability Company;

• “Leatt New Zealand” are to Leatt New Zealand Limited, a New Zealand Company;

• “NZD” are to the legal currency of New Zealand. For all NZD amounts reported, the dollar amount has been calculated on the basis that $1=NZD1.45 for its March 31, 2016 audited balance sheet.

• “PRC”, and “China” are to the People’s Republic of China;

• “Two Eleven” refers to Two Eleven Distribution, LLC, a California limited liability company;

• “Three Eleven” are to Three Eleven Distribution (Pty) Limited, a South African Company;

• “Securities Act” are to the Securities Act of 1933, as amended, and to “Exchange Act” are to Securities Exchange Act of 1934, as amended;

• “South Africa” are to the Republic of South Africa;

• “U.S. dollar,” “$” and “US$” are to the legal currency of the United States.

• “Xceed Holdings” refers to Xceed Holdings cc., a close corporation incorporated under the laws of South Africa, and wholly-owned by The Leatt Family Trust, of which Dr. Christopher J. Leatt, the Company’s chairman, is a Trustee and Beneficiary; and

• “ZAR” refers to the South African Rand, the legal currency of South Africa. For all ZAR amounts reported, the dollar amount has been calculated on the basis that $1 = ZAR15.036 for its March 31, 2016 balance sheet.

Overview of our Business

Leatt designs, develops, markets and distributes personal protective equipment for participants in all forms of motor sports and leisure activities, including riders of motorcycles, bicycles, snowmobiles and ATVs, as well as racing car drivers. The Company sells its products to customers worldwide through a global network of distributors and retailers. Leatt also acts as the original equipment manufacturer for neck braces sold by other international brands.

- 11 -

The Company’s flagship products are based on the Leatt-Brace® system, a patented injection molded neck protection system owned by Xceed Holdings, designed to prevent potentially devastating injuries to the cervical spine and neck. The Company has the exclusive global manufacturing, distribution, sale and use rights to the Leatt-Brace®, pursuant to a license agreement between the Company and Xceed Holdings, a company owned and controlled by the Company’s Chairman and founder, Dr. Christopher Leatt. The Company also has the right to use apparatus embodying, employing and containing the Leatt-Brace® technology and has designed, developed, marketed and distributed other personal protective equipment using this technology, as well as its own developed technology, including the Company’s expanding range of body protection and helmet products which it markets under the Leatt Protection Range brand.

The Company’s research and development efforts are conducted at its research facilities, located at its executive headquarters in Cape Town, South Africa. The Company employs 4 full-time employees who are dedicated exclusively to research, development, and testing. The Company also utilizes consultants, academic institutions and engineering companies as independent contractors or consultants, from time to time, to assist it with its research and development efforts. Leatt products have been tested and reviewed internally and by external bodies. All Leatt products are compliant with applicable European Union directives, or CE certified, where appropriate. Certain products, such as the MRX PRO Head and Neck Restraint System, have been certified by SFI Foundation (USA) and the Moto GPX was tested by BMW Motorrad (Germany) and reviewed by KTM (Austria). The Company is also in discussions with governing and racing bodies, such as the Fédération Internationale de l'Automobile (FIA), the Fédération Internationale de Motocyclisme (FIM) and the National Association for Stock Car Auto Racing (NASCAR), to have the Leatt-Brace® accredited by these bodies.

Our products are manufactured in China under outsource manufacturing arrangements with third-party manufacturers located there. The Company utilizes outside consultants and its own employees to ensure the quality of its products through regular on-site product inspections. Products purchased through international sales are usually shipped directly from our manufacturers’ warehouses or points of dispatch to customers or their import agents.

Leatt earns revenues through the sale of its products through approximately 60 distributors worldwide, who in turn sell its products to retailers. Leatt distributors are required to follow certain standard business terms and guidelines for the sale and distribution of Leatt products. Two Eleven and Leatt SA directly distribute Leatt products to retailers in the United States and South Africa, respectively.

Principal Factors Affecting Our Financial Performance

We believe that the following factors will continue to affect our financial performance:

• Global Economic Fragility – The ongoing turmoil in the global economy, especially in the U.S. and Europe, may have an impact on our business and our financial condition, and we may face challenges if economic conditions do not improve. These economic conditions impact levels of consumer spending, which have deteriorated and may remain depressed for the foreseeable future. If demand for our products fluctuates as a result of these economic conditions or otherwise, our revenue and gross margin could be harmed.

• Fuel Prices – Significant fluctuations in fuel prices could have both a positive and negative effect on our business and operations. A significant portion of our revenue is derived from international sales and significant fluctuations in world fuel prices could significantly increase the price of shipping or transporting our products which we may not be able to pass on to our customers. On the other hand, fluctuations in fuel prices lead to higher commuter costs which may encourage the increased use of motorcycles and bicycles as alternative modes of transportation and lead to an increase in the market for our protection products.

• Product Liability Litigation – We face an inherent business risk of exposure to product liability claims arising from the claimed failure of our products to help prevent the types of personal injury or death against which they are designed to help protect. Therefore we have acquired very costly product liability insurance worldwide. We have not experienced any material uninsured losses due to product liability claims, but it is possible that we could experience material losses in the future. After a two-week trial in the United States District Court for the Northern District of Ohio (Eastern) ending on April 17, 2014, a federal jury returned a defense verdict for the Company in the first Leatt- Brace® product liability lawsuit to be tried in the United States. The plaintiffs in that case had alleged that defective product design and failure to warn had caused a then fifteen year-old motocross rider, to suffer multiple mid- thoracic spine fractures, causing immediate and permanent paraplegia, when he crashed at a relatively low speed on February 13, 2011. When the accident occurred, he was wearing a helmet and other safety gear from several different companies, including the Company's acclaimed Leatt-Brace®. The Company produced evidence at trial showing that his thoracic paraplegia was an unavoidable consequence of his fall, not the result of wearing a Leatt- Brace®, and that the neck brace likely saved his life (or saved him from quadriplegia) by preventing cervical spine injury. The Company had maintained from the onset that this and a small handful of other lawsuits are without merit and that it will vigorously defend itself in each case. In this case, the plaintiffs subsequently appealed the court’s decision and the parties reached an amicable settlement. Although we carry product liability insurance, a successful claim brought against us could significantly harm our business and financial condition and have an adverse impact on our ability to renew our product liability insurance or secure new coverage.

- 12 -

• Protection of Intellectual Property – We believe that the continued success of our business is dependent on our intellectual property portfolio consisting of globally registered trademarks, design patents and utility patents related to the Leatt-Brace®. We believe that a loss of these rights would harm or cause a material disruption to our business and, our corporate strategy is to aggressively take legal action against any violators of our intellectual property rights, regardless of where they may be. From time to time, we have had to enforce our intellectual property rights through litigation and we may be required to do so in the future. Such litigation may result in substantial costs and could divert resources and management attention from the operations of our business.

Results of Operations

The following summary of our results of operations should be read in conjunction with our financial statements and the notes thereto for the three-month periods ended March 31, 2016 and 2015 included herein. The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of sales revenue and key components of our revenue for the periods indicated in dollars and percentages.

Three Months Ended March 31, 2016 compared to the Three Months Ended March 31, 2015

The following table summarizes the results of our operations during the three-month periods ended March 31, 2016 and 2015 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

		Three Months Ended March 31,							Percentage
		2016			2015		$ Increase		Increase
Item							(Decrease)		(Decrease)
REVENUES	$	4,827,492		$	4,021,455	$	806,037		20%
COST OF REVENUES		2,313,657			1,844,195	$	469,462		25%
GROSS PROFIT		2,513,835			2,177,260	$	336,575		15%
PRODUCT ROYALTY INCOME		13,882			51,533	$	(37,651	)	-73%
OPERATING EXPENSES
Salaries and Wages		681,302			606,178	$	75,124		12%
Commissions and Consulting		166,071			185,908	$	(19,837	)	-11%
Professional Fees		181,659			214,773	$	(33,114	)	-15%
Advertising and Marketing		361,593			261,442	$	100,151		38%
Office Rent and Expenses		64,190			60,508	$	3,682		6%
Research and Development Costs		342,815			292,717	$	50,098		17%
Bad Debt Expense		2,827			-	$	2,827		100%
General and Administrative		446,946			425,216	$	21,730		5%
Depreciation		104,517			92,803	$	11,714		13%
Total Operating Expenses		2,351,920			2,139,545	$	212,375		10%
INCOME FROM OPERATIONS		175,797			89,248	$	86,549		97%
Other Income / Expenses		(1,941	)		442	$	(2,383	)	-539%
INCOME BEFORE INCOME TAXES		173,856			89,690	$	84,166		94%
Income Taxes		60,876			35,585	$	25,291		71%
NET INCOME	$	112,980		$	54,105	$	58,875		109%

- 13 -

Revenues – We earn revenues from the sale of our protective gear comprising of neck braces, body armor, helmets and other products, parts and accessories both in the United States and internationally. Revenues for the three months ended March 31, 2016 were $4.8 million, a 20% increase, compared to revenues of $4.0 million for the quarter ended March 31, 2015. Revenues associated with international customers were $2.96 million and $2.48 million, or 61% and 62% of revenues, respectively, for the three months ended March 31, 2016 and 2015. This increase in revenues is primarily attributable to a $0.81 million increase in helmet sales that was partially offset by a $0.20 million decrease in neck brace sales.

The following table sets forth our revenues by product line for the three months ended March 31, 2016 and 2015:

			Three months ended March 31,
		2016	% of Revenues		2015	% of Revenues
Neck braces	$	1,593,731	33%	$	1,789,608	45%
Body armor		2,190,476	45%		2,014,973	50%
Helmets		808,555	17%		-	0%
Other Products, Parts and Accessories		234,730	5%		216,874	5%
	$	4,827,492	100%	$	4,021,455	100%

Sales of our flagship neck brace accounted for $1.59 million and $1.79 million, or 33% and 45% of our revenues for the quarters ended March 31, 2016 and 2015, respectively. The 11% decrease in neck brace revenues was due to a decrease in the volume of neck braces sold to our customers both in the United States and abroad. In the United States the decrease in neck brace revenues was primarily the result of a decrease in the sales of the MRX neck brace for motor sports which were particularly strong during the first quarter of 2015. The decrease in sales to our customers outside the United States is attributable to the significant strength of the US dollar in relation to the local trading currencies of our customers in the respective regions.

Our body armor products are comprised of chest protectors, full upper body protectors, upper body protection vests, back protectors, knee braces, gloves and knee and elbow guards. Body armor sales accounted for $2.19 million and $2.01 million, or 45% and 50% of our revenues for the quarters ended March 31, 2016 and 2015, respectively. The 9% increase in body armor revenues was primarily due to a 27% increase in the volume of upper body protectors sold globally during the period.

Our Helmets accounted for $0.81 million, or 17% of our revenues for the three months ended March 31, 2016. The 100% increase in Helmet revenues is due to the continuation of the initial shipment of our GPX 5.5 Composite and GPX 6.5 Carbon helmets that first shipped to our customers in the United States and abroad during the fourth quarter of 2015. Additionally, we shipped the preliminary DBX 6.0 Carbon helmets and DBX 5.0 Composite helmets to our international customers during the first quarter of 2016.

Our other products, parts and accessories are comprised of aftermarket support items required primarily to replace worn or damaged parts through our global distribution network, as well as clothing, outerwear and accessories that include hats, jackets, bags, hydration kits and cooling garments. Other products, parts and accessories sales accounted for $0.23 million and $0.22 million, or 5% and 5% of our revenues for the quarters ended March 31, 2016 and 2015, respectively. The increase in revenues from the sale of other products, parts and accessories is primarily due to the inclusion of helmet spares used to service the Company's line of helmets.

Cost of Revenues and Gross Profit – Cost of revenues for the quarters ended March 31, 2016 and 2015 were $2.31 million and $1.84 million, respectively. Gross Profit for the quarters ended March 31, 2016 and 2015 were $2.51 million and $2.18 million, respectively, or 52% and 54% of revenues respectively. Body armor products continue to generate a lower gross margin than our neck brace and helmet products. Neck Brace revenues accounted for 33% and 45% of our revenues for the quarters ended March 31, 2016 and 2015 respectively.

Product Royalty Income – Product royalty income is earned on sales to distributors that have royalty agreements in place, as well as on sales of licensed products by third parties that have licensing agreements in place. Product royalty income for the quarters ended March 31, 2016 and 2015 were $13,882 and $51,533, respectively. The 73% decrease in product royalty income is due to a decrease in the sale of licensed products by licensees in the 2016 period.

Salaries and Wages – Salaries and wages for the quarters ended March 31, 2016 and 2015 were $681,302 and $606,178, respectively. This 12% increase in salaries and wages during the 2016 period was primarily due to the vesting of share options issued to key personnel during the quarter ended March 31, 2016.

Commissions and Consulting Expense – During the quarters ended March 31, 2016 and 2015, commissions and consulting expenses were $166,071 and $185,908, respectively. This 11% decrease in commissions and consulting expenses is primarily the result of a restructuring of commissions paid to the Company's internal and external US sales staff.

- 14 -

Professional Fees – Professional fees consist of costs incurred for audit, tax and regulatory filings, as well as patent protection and product liability litigation expenses incurred as the Company continues to expand. Professional fees for the quarters ended March 31, 2016 and 2015 were $181,659 and $214,773, respectively. This 15% decrease in professional fees is primarily due to decreased spending on product liability litigation during the 2016 period.

Advertising and Marketing – The Company places paid advertising in various motor sport magazines and online media, and sponsors a number of events, teams and individuals to increase product and brand visibility. Advertising and marketing expenses for the quarters ended March 31, 2016 and 2015 were $361,593 and $261,442, respectively. The 38% increase in advertising and marketing expenditures during the 2016 period is primarily due to the Company’s continued implementation of sponsorship and marketing campaigns designed to promote the Company's widening product range.

Office Rent and Expenses – Office rent and expenses for the quarters ended March 31, 2016 and 2015 were $64,190 and $60,508, respectively and in line with lease escalation clauses in the leases.

Research and Development Costs – These costs consist of the salaries of personnel who are directly involved in the research and development of innovative products, as well as the direct costs associated with developing these products. Research and development costs for the quarters ended March 31, 2016 and 2015, increased to $342,815, from $292,717, during the same 2015 quarter. The 17% increase in research and development costs is a result of development costs incurred to extend the Company’s growing product range, as well as the employment of additional design and development resources.

Bad Debt Expense – Bad Debt Expense for the quarters ended March 31, 2016 and 2015 was $2,827 and $0, respectively. This 100% increase in Bad Debt Expense is primarily the result of the write off of a unrecoverable debt in the 2016 period.

General and Administrative Expenses – General and administrative expenses consist of insurance, travel, merchant fees, telephone, office and computer supplies. General and administrative expenses for the quarters ended March 31, 2016 and 2015 were $446,946 and $425,216, respectively. The 5% increase in general and administrative expenses is primarily as a result of increased travel costs incurred by the Company's product development team as a result of the Company's widening product range.

Depreciation Expense – Depreciation Expense for the quarters ended March 31, 2016 and 2015 was $104,517 and $92,803, respectively. This 13% increase in depreciation is primarily as a result of the addition of molds and tooling required for the production of the Company’s widening product range.

Total Operating Expenses – Total operating expenses increased by $212,375, to $2,351,920 in the three months ended March 31, 2016, or 10%, compared to $2,139,545 in the 2015 period. This increase is primarily due to increased advertising and marketing costs, as well as increased salaries and wages, which were partially offset by decreased professional fees as discussed above.

Net Income – The net income after income taxes for the quarter ended March 31, 2016 was $112,980 as opposed to a net income after income taxes of $54,105 for the quarter ended March 31, 2015. This 109% increase in net income is due to increased revenues that were partially offset by increased operating expenses discussed above.

Liquidity and Capital Resources

At March 31, 2016, we had cash and cash equivalents of $1.42 million and $0.58 million of short-term investments. The following table sets forth a summary of our cash flows for the periods indicated:

		March 31,
		2016			2015
Net cash provided by operating activities	$	585,903		$	511,282
Net cash used in investing activities	$	(12,045	)	$	(42,611	)
Net cash used in financing activities	$	(217,511	)	$	(277,126	)
Effect of exchange rate changes on cash and cash equivalents	$	5,628		$	(23,087	)
Net increase in cash and cash equivalents	$	361,975		$	168,458
Cash and cash equivalents at the beginning of period	$	1,054,750		$	724,707
Cash and cash equivalents at the end of period	$	1,416,725		$	893,165

- 15 -

Cash increased by $361,975, or 34%, for the three months ended March 31, 2016. The primary sources of cash for the three months ended March 31, 2016 were a net income of $112,980, decreased accounts receivables of $475,585, and decreased prepaid expenses and other current assets of $242,714. The primary uses of cash for the three months ended March 31, 2016 were decreased accounts payable and accrued expenses of $492,863 and the repayment of a short-term loan amounting to $217,511. As of March 31, 2016, we did not have any credit facilities or significant amounts owed to third party lenders.

The Company is currently meeting its working capital needs through cash on hand as well as internally generated cash from operations. Management believes that its current cash and cash equivalent balances, along with the net cash generated by operations are sufficient to meet its anticipated operating cash requirements for at least the next twelve months. There are currently no plans for any major capital expenditures in the next twelve months. Our long-term financing requirements depend on our growth strategy, which relates primarily to our desire to increase revenue both domestically as well as internationally.

Obligations under Material Contracts

Pursuant to our Licensing Agreement with Xceed Holdings, a company owned and controlled by Dr. Christopher Leatt, our founder and chairman, we pay Xceed Holdings, 4% of all neck brace sales revenue billed and received by the Company on a quarterly basis, based on sales of the previous quarter. In addition, pursuant to a separate license agreement between the Company and Mr. J. P. De Villiers, our former director, the Company is obligated to pay a royalty fee of 1% of all our billed and received neck brace sales revenue, in quarterly installments, based on sales of the previous quarter, to a trust that is beneficially owned and controlled by Mr. De Villiers.

Pursuant to a Premium Finance Agreement, dated October 19, 2015, between the Company and AFCO Acceptance Corporation “AFCO,” the Company is obligated to pay AFCO an aggregate sum of $ 852,081 in eleven payments of $71,952, at an annual interest rate of 2.897%, commencing on November 1, 2015 and ending on September 1, 2016. Any late payment during the term of the agreement will be assessed a late penalty of 5% of the payment amount due, and in the event of default AFCO has the right to accelerate the payment due under the agreement. As of March 31, 2016, the Company had not defaulted on its payment obligations under this agreement.

Pursuant to a Premium Finance Agreement, dated May 27, 2015, between the Company and AFCO, the Company is obligated to pay AFCO an aggregate sum of $55,969 in eleven payments of $5,162 at a 2.897% annual interest rate, commencing on June 1, 2015 and ending on April 1, 2016. Any late payment during the term of the agreement will be assessed a late penalty of 5% of the payment amount due, and in the event of default AFCO has the right to accelerate the payment due under the agreement. As of March 31, 2016, the Company had not defaulted on its payment obligations under this agreement.

On July 8, 2015, the Company entered into a consulting agreement with Innovate Services Limited, or Innovate, a Seychelles limited company in which, Dr. Leatt is an indirect beneficiary. Pursuant to the terms of the Consulting Agreement, Innovate has agreed to serve as the Company’s exclusive research, development and marketing consultant, in exchange for a monthly fee of $35,639; provided that Dr. Leatt personally performs the services to be performed by Innovate under the Agreement, pursuant to a separate employment agreement between Innovate and Dr. Leatt. The parties further agreed that all intellectual property generated in connection with the services provided under the Consulting Agreement will be the sole property of the Company. The Consulting Agreement was effective as of May 15, 2015, and will continue unless terminated by either party in accordance with its terms. Either party has the right to terminate the Consulting Agreement upon 6 months' prior written notice, except that the Consulting Agreement may be terminated immediately without notice if the services to be performed under the Consulting Agreement cease to be performed by Dr. Leatt, or for any other material breach of the Agreement. The parties have agreed to settle any dispute under the Consulting Agreement through arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA), and that the resulting arbitration award will be final and binding on both parties and will not be subject to any appeal. The foregoing description does not purport to be a complete statement of the parties’ rights and obligations under the Consulting Agreement and the transactions contemplated thereby or a complete explanation of the materials thereof.

Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. We have identified the following as the items that require the most significant judgment and often involve complex estimation: revenue recognition, estimating allowances for doubtful accounts receivable, inventory valuation, impairment of long-lived assets and accounting for income taxes.

Revenue and Cost Recognition - All manufacturing of Leatt-Brace products is performed by third party subcontractors in China. The Company's products are sold worldwide to a global network of distributors and dealers, and directly to consumers when there are no dealers or distributors in their geographic area (collectively the "customers"). Revenues from product sales are recognized when earned, net of applicable provisions for discounts and returns and allowances in the event of product defect. Revenue is considered to be realized or realizable and earned when all of the following criteria are met: title and risk of loss have passed to the customer, persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable and collectability is reasonably assured. Our distributor payment terms range from pre-payment in full to 60 days after shipment and subsequent sales of our products by distributors have no effect on the amount and timing of payments due to us. Furthermore, products purchased by distributors may not be returned to us in the event that any such distributor relationship is terminated.

- 16 -

Since the Company (through its wholly-owned subsidiary) serves as the distributor of Leatt products in the United States, the Company records its revenue and related cost of revenue for its product sales in the United States upon shipment of the merchandise to the dealer or to the ultimate consumer when there is no dealer in the geographic area and the sales order was received directly from, and paid by, the ultimate consumer. Since the Company (through its South African branch) serves as the distributor of Leatt products in South Africa, the Company records its revenue and related cost of revenue for its product sales in South Africa upon shipment of the merchandise from the branch to the dealer. International sales (other than in South Africa) are generally drop-shipped directly from the third party manufacturer to the international distributors.

Revenue and related cost of revenue is recognized at the time of shipment from the manufacturer's port when the shipping terms are Free On Board ("FOB") shipping point. Cost and Freight ("CFR") or Cost and Insurance to named place ("CIP") as legal title and risk of loss to the product pass to the distributor. Sales to all customers (distributors, dealers and consumers) are generally final; however, in limited instances, product may be returned due to product quality issues. Historically, returns due to product quality issues have not been material and there have been no distributor terminations that resulted in product returns. Cost of revenues also includes royalty fees associated with sales of Leatt-Brace products. Product royalty income is recorded as the underlying product sales occur, in accordance with the related licensing arrangements.

Allowance for Doubtful Accounts Receivable - Accounts receivable consist of amounts due to the Company from normal business activities. Credit is granted to substantially all distributors on an unsecured basis. We continuously monitor collections and payments from customers and maintain an allowance for doubtful accounts receivable based upon historical experience and any specific customer collection issues that have been identified. In determining the amount of the allowance, we are required to make certain estimates and assumptions. Accounts receivable balances that are still outstanding after we have used reasonable collection efforts are written off as uncollectible. While such credit losses have historically been minimal, within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectability of our accounts receivable and our future operating results.

Inventory Valuation – Inventory is stated at the lower of cost or market. Cost is determined using the first-in first-out (FIFO) method. Inventory consists primarily of finished goods. Shipping and handling costs are included in the cost of inventory. In assessing the inventory value, we make estimates and judgments regarding reserves required for product obsolescence, aging of inventory and other issues potentially affecting the saleable condition of products. In performing such evaluations, we utilize historical experience as well as current market information. The reserve for obsolescence as of the quarters ended March 31, 2016 and 2015 was $168,804 and $187,627, respectively.

Impairment of Long-Lived Assets – Our long-lived assets include property and equipment. We evaluate our long-lived assets for recoverability whenever events or changes in circumstances indicate that an asset may be impaired. In evaluating an asset for recoverability, we estimate the future cash flow expected to result from the use of the asset and eventual disposition. If the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. We have determined there was no impairment charge during the quarters ended March 31, 2016 and 2015.

Income Taxes - As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax provision (benefit) in each of the jurisdictions in which we operate. This process involves estimating our current income tax provision (benefit) together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. We regularly evaluate our ability to recover the reported amount of our deferred income taxes considering several factors, including our estimate of the likelihood of the Company generating sufficient taxable income in future years during the period over which the temporary differences reverse.

- 17 -

Recent Accounting Pronouncements

See Note 8, “Recent Accounting Pronouncements” in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the respective dates of adoption, or expected adoption and effects on our consolidated financial position, results of operations and cash flows.

Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

As of March 31, 2016, the Company’s management, under the direction of its Chief Executive Officer and the Chief Financial Officer, Mr. Sean Macdonald, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer determined that the Company’s disclosure controls and procedures were deemed to be effective.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial reporting during the period ended March 31, 2016, that 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 in the ordinary course of our business. Other than as set forth below, we are currently not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse affect on our business, financial condition or operating results.

• On February 25, 2015, a lawsuit was filed against the Company on behalf of a motorcycle rider in the Northern District Court of Indiana, Lafayette Division for strict liability, breach of warranty, negligence, punitive damages and deceptive and misleading advertising and marketing. The litigation is at an early stage and the Company is in the process of investigating the claim. The Company believes that the lawsuit is without merit and intends to vigorously defend itself.

ITEM 1A. RISK FACTORS.

There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our annual report on Form 10-K for the period ended December 31, 2015.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

- 18 -

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

Exhibit	Description
No.
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	Interactive data files pursuant to Rule 405 of Regulation S-T

___________________

* Filed with this Form 10-Q for Leatt Corporation. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.

- 19 -

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 13, 2016	LEATT CORPORATION
	By: /s/ Sean Macdonald
	Sean Macdonald
	Chief Executive Officer and Chief Financial Officer
	(Principal Executive, Financial and Accounting Officer)

- 20 -

EXHIBIT INDEX

Exhibit	Description
No.
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	Interactive data files pursuant to Rule 405 of Regulation S-T

___________________

* Filed with this Form 10-Q for Leatt Corporation. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.

- 21 -

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Sean Macdonald, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Leatt Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2016

/s/ Sean Macdonald

Sean Macdonald

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Sean Macdonald, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Leatt Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 13, 2016

/s/ Sean Macdonald

Sean Macdonald

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Sean Macdonald, the Chief Executive Officer of LEATT CORPORATION (the “Company”), DOES HEREBY CERTIFY that:

1.     The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2016 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 13th day of May, 2016.

/s/ Sean Macdonald

Sean Macdonald

Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Leatt Corporation and will be retained by Leatt Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Sean Macdonald, the Chief Financial Officer of LEATT CORPORATION (the “Company”), DOES HEREBY CERTIFY that:

1.     The Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2016 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 13th day of May, 2016.

/s/ Sean Macdonald

Sean Macdonald

Chief Financial Officer

(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Leatt Corporation and will be retained by Leatt Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 05, 2016
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2016
Trading Symbol	leatpk
Entity Registrant Name	Leatt Corp
Entity Central Index Key	0001456189
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		5,297,043
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well Known Seasoned Issuer	No
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Current Assets
Cash and cash equivalents	$ 1,416,725	$ 1,054,750
Short-term investments	58,180	58,172
Accounts receivable	2,426,114	2,901,699
Inventory	4,016,116	4,241,140
Payments in advance	336,465	208,030
Prepaid expenses and other current assets	867,060	1,070,774
Total current assets	9,120,660	9,534,565
Property and equipment, net	1,236,790	1,313,325
Deferred tax asset	115,000	115,000
Other Assets
Other receivables	60,000	90,000
Deposits	16,704	16,493
Intangible assets	62,749	61,273
Total other assets	139,453	167,766
Total Assets	10,611,903	11,130,656
Current Liabilities
Accounts payable and accrued expenses	2,068,117	2,560,980
Income taxes payable	245,800	384,950
Short term loan, net of finance charges	441,128	658,639
Total current liabilities	2,755,045	3,604,569
Deferred tax liabilities	73,000	73,000
Commitments and contingencies	0	0
Stockholders' Equity
Preferred stock, $.001 par value, 1,120,000 shares authorized, 120,000 shares issued and outstanding	3,000	3,000
Common stock, $.001 par value, 28,000,000 shares authorized, 5,297,043 and 5,231,823 shares issued and outstanding	130,079	130,040
Additional paid - in capital	7,541,485	7,346,782
Accumulated other comprehensive loss	(686,983)	(710,032)
Retained earnings	796,277	683,297
Total stockholders' equity	7,783,858	7,453,087
Total Liabilities and Stockholders' Equity	$ 10,611,903	$ 11,130,656

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2016	Dec. 31, 2015
Preferred Stock, Par Value Per Share	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized	1,120,000	1,120,000
Preferred Stock, Shares Issued	120,000	120,000
Preferred Stock, Shares Outstanding	120,000	120,000
Common Stock, Par Value Per Share	$ 0.001	$ 0.001
Common Stock, Shares Authorized	28,000,000	28,000,000
Common Stock, Shares, Issued	5,297,043	5,231,823
Common Stock, Shares, Outstanding	5,297,043	5,231,823

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Revenues	$ 4,827,492	$ 4,021,455
Cost of Revenues	2,313,657	1,844,195
Gross Profit	2,513,835	2,177,260
Product Royalty Income	13,882	51,533
Operating Expenses
Salaries and wages	681,302	606,178
Commissions and consulting expenses	166,071	185,908
Professional fees	181,659	214,773
Advertising and marketing	361,593	261,442
Office rent and expenses	64,190	60,508
Research and development costs	342,815	292,717
Bad debt expense	2,827	0
General and administrative expenses	446,946	425,216
Depreciation	104,517	92,803
Total operating expenses	2,351,920	2,139,545
Income from Operations	175,797	89,248
Other Income / Expenses
Interest and other income, net	(1,941)	442
Total other income / expenses	(1,941)	442
Income Before Income Taxes	173,856	89,690
Income Taxes	60,876	35,585
Net Income Available to Common Shareholders	$ 112,980	$ 54,105
Net Income per Common Share
Basic	$ 0.02	$ 0.01
Diluted	$ 0.02	$ 0.01
Weighted Average Number of Common Shares Outstanding
Basic	5,233,272	5,200,623
Diluted	5,545,027	5,467,160
Comprehensive Income
Net Income	$ 112,980	$ 54,105
Other comprehensive income, net of $0 and $0 deferred income taxes in 2016 and 2015
Foreign currency translation	23,049	(46,469)
Total Comprehensive Income	$ 136,029	$ 7,636

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Parenthetical) - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Deferred Income Taxes	$ 0	$ 0

XML

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - 3 months ended Mar. 31, 2016 - USD ($)	Preferred Stock A [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Other Comprehensive Loss [Member]	Retained Earnings [Member]	Total
Beginning Balance at Dec. 31, 2015	$ 3,000	$ 130,040	$ 7,346,782	$ (710,032)	$ 683,297	$ 7,453,087
Beginning Balance (Shares) at Dec. 31, 2015	120,000	5,231,823
Compensation cost recognized in connection with stock options			155,742			155,742
Exercise of stock options		$ 39	38,961			39,000
Exercise of stock options (Shares)		39,000
Options exercised on a cashless basis (Shares)		26,220
Net income					112,980	112,980
Foreign currency translation adjustment				23,049		23,049
Ending Balance at Mar. 31, 2016	$ 3,000	$ 130,079	$ 7,541,485	$ (686,983)	$ 796,277	$ 7,783,858
Ending Balance (Shares) at Mar. 31, 2016	120,000	5,297,043

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows from operating activities
Net income	$ 112,980	$ 54,105
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	104,517	92,803
Deferred income taxes	0	(200)
Stock-based compensation	155,742	1,478
Inventory reserve	8,089	26,034
(Increase) decrease in:
Accounts receivable	475,585	2,595,341
Inventory	216,935	(742,160)
Payments in advance	(128,435)	(48,947)
Prepaid expenses and other current assets	242,714	275,158
Income tax refunds receivable	0	25,000
Other receivables	30,000	30,000
Deposits	(211)	182
Increase (decrease) in:
Accounts payable and accrued expenses	(492,863)	(1,662,512)
Income taxes payable	(139,150)	(135,000)
Net cash provided by operating activities	585,903	511,282
Cash flows from investing activities
Capital expenditures	(12,037)	(42,608)
Increase in short-term investments, net	(8)	(3)
Net cash used in investing activities	(12,045)	(42,611)
Cash flows from financing activities
Repayments of short-term loan, net	(217,511)	(277,126)
Net cash used in financing activities	(217,511)	(277,126)
Effect of exchange rates on cash and cash equivalents	5,628	(23,087)
Net increase in cash and cash equivalents	361,975	168,458
Cash and cash equivalents - beginning	1,054,750	724,707
Cash and cash equivalents - ending	1,416,725	893,165
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	3,483	3,167
Cash paid for income taxes	200,027	170,585
Other noncash investing and financing activities
Common stock issued for services	155,742	1,478
Common stock issued in exchange for a receivable	$ 39,000	$ 0

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2016

Basis of Presentation [Text Block]

Note 1 - Basis of presentation

The consolidated balance sheet as of December 31, 2015 was audited and appears in the Form 10-K filed by the Company with the Securities and Exchange Commission on March 18, 2016. The consolidated balance sheet as of March 31, 2016 and the consolidated statements of operations and comprehensive income for the three months ended March 31, 2016 and 2015, changes in stockholders’ equity for the three months ended March 31, 2016, cash flows for the three months ended March 31, 2016 and 2015, and the related information contained in these notes have been prepared by management without audit. In the opinion of management, all adjustments (which include only normal recurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles as of March 31, 2016 and for all periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. While management of the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2015 as filed with the Securities and Exchange Commission in the Company’s Form 10-K.

XML

Inventory

3 Months Ended

Mar. 31, 2016

Inventory [Text Block]

Note 2 - Inventory

Inventory is stated at the lower of cost or market. Cost is determined using the first-in first-out (FIFO) method. Inventory consists primarily of finished goods. Shipping and handling costs are included in the cost of inventory. In assessing the inventory value, the Company must make estimates and judgments regarding reserves required for product obsolescence, aging of inventory and other issues potentially affecting the saleable condition of products. In performing such evaluations, the Company utilizes historical experience as well as current market information. The reserve for obsolescence as of the three months ended March 31, 2016 and 2015 was $168,604 and $187,627, respectively.

XML

Intangible Assets

3 Months Ended

Mar. 31, 2016

Intangible Assets [Text Block]

Note 3 - Intangible Assets

The Company’s intangible assets consist of acquired patents with an indefinite useful life and are thus not amortized. Intangible assets are carried at cost less impairment. Amortization expense for the three months ended March 31, 2016 was zero. There was no impairment of intangible assets at March 31, 2016.

XML

Short-term Loan

3 Months Ended

Mar. 31, 2016

Short-term Loan [Text Block]

Note 4 - Short-term Loan

The Company carries two product liability insurance policies; one with a U.S. insurance carrier and a second with a South African insurance carrier. The Company finances payment of its short-term insurance premiums over the period of coverage, which is generally twelve months. The U.S. short-term loan is payable in monthly installments of $71,952 over an 11 month period at an APR of 2.897% and the South African short-term loan is payable in monthly installments of $1,561 over a 10 month period at a flat interest rate of 3.90% .

The Company also carries directors and officers’ liability insurance. The Company finances payment of its short-term insurance premiums over the period of coverage, which is generally twelve months. The short-term loan is payable in eleven payments of $5,162 at a 2.897% annual interest rate.

XML

Income Taxes

3 Months Ended

Mar. 31, 2016

Income Taxes [Text Block]

Note 5- Income Taxes

The Company uses the asset and liability approach to account for income taxes. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The provision for income taxes included taxes currently payable, if any, plus the net change during the period in deferred tax assets and liabilities recorded by the Company.

The Company applies the provisions of FASB ASC Topic 740-10, Accounting for Uncertainty in Income Taxes (“Standard”), which provides that the tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if the position is more likely than not of being sustained upon an examination by tax authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, the standard provides guidance on derecognition, classification, interest and penalties; accounting in interim periods, disclosure and transition, and any amounts when incurred would be recorded under these provisions.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of March 31, 2016 the Company has no unrecognized tax benefits.

XML

Net Income Per Share of Common Stock

3 Months Ended

Mar. 31, 2016

Net Income Per Share of Common Stock [Text Block]

Note 6 - Net Income Per Share of Common Stock

Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted–average number of common stock shares and dilutive potential common shares outstanding during the period. For the three months ended March 31, 2016, the Company had 636,780 potential common shares, consisting of 120,000 preferred shares and options to purchase 516,780 shares, outstanding that were dilutive and included in diluted net income per share.

XML

Common Stock

3 Months Ended

Mar. 31, 2016

Common Stock [Text Block]

Note 7 – Common Stock

During the quarter ended March 31, 2016, 323,000 stock options were granted at an exercise price of $2.60 per share, exercisable over a 5 year period. The fair value of the stock options granted was estimated at the date of grant using the Black Sholes option-pricing model. Based on the list of assumptions presented below, the fair value of the options granted during the three months ended March 31, 2016, was $1.80.

Expected term in years	5 years
Risk-free interest rate	2.20%
Expected volatility	0.88%
Expected dividend yield	0.00%

The expected volatility was determined with reference to the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that the options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant.

Stock-based compensation expense related to vested stock options granted during the quarter ended March 31, 2016 was $154,440. As of March 31, 2016, there was $426,960 of unrecognized compensation costs related to unvested stock options, which is expected to be recognized over a 3 year vesting period.

In addition, on March 10, 2016, the Company issued 26,220 shares of common stock to employees who exercised employee stock options in a cashless exercise; and on March 29, 2016 an employee exercised stock options for the Company to issue 39,000 shares for $39,000.

XML

Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2016

Recent Accounting Pronouncements [Text Block]

Note 8 – Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09, as amended, outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date". The amendments in this update defers the effective date of Update 2014-09 for all entities by one year. The ASU, as amended, is effective for the first interim period within an annual period beginning after December 15, 2017, and early adoption is not permitted. The Company is evaluating the provisions of this update and has not determined the impact that its adoption will have on the Company’s financial position or results of operations.

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which applies to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost or net realizable value test. The ASU is effective for annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material effect on the consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes." This ASU requires that deferred tax assets and liabilities be classified as non-current on the balance sheet rather than being separated into current and non-current. This ASU is effective for annual and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted. The Company elected to retrospectively adopt this accounting standard in the beginning of the first quarter of fiscal 2016 and as a result, prior periods in the consolidated financial statements were adjusted.

In February 2016, the FASB issued ASU No. 2016-02, “ Leases (Topic 842).” This ASU is a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases. The core principle of this ASU will require lessees to present the assets and liabilities that arise from leases on their balance sheets. The ASU is effective for public companies for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the new standard to determine the impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No 2016-09 Improvements to Employee Share-Based Payment Accounting ("ASC 2016-09"). ASC 2016-09 will change certain aspects of accounting for share-based payments to employees. The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is evaluating the new standard to determine the impact on the Company’s consolidated financial statements.

The Company does not believe there are any other recent accounting pronouncements that would have a material impact on its financial position or results of operations.

XML

Litigation

3 Months Ended

Mar. 31, 2016

Litigation [Text Block]

Note 9 - Litigation

In the ordinary course of business, the Company is involved in various legal proceedings involving product liability and personal injury and intellectual property litigation. The Company is insured against loss for certain of these matters. The Company will record contingent liabilities resulting from asserted and unasserted claims against it when it is probable that the liability has been incurred and the amount of the loss is reasonably estimable. The Company will disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. While the outcome of currently pending litigation is not yet determinable, the ultimate exposure with respect to these matters cannot be ascertained. However, based on the information currently available to the Company, the Company does not expect that any liabilities or costs that might be incurred to resolve these matters will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.

XML

Subsequent Events

3 Months Ended

Mar. 31, 2016

Subsequent Events [Text Block]

Note 10 – Subsequent Events

The company has evaluated all subsequent events through the date the financial statements were released.

XML

Common Stock (Tables)

3 Months Ended

Mar. 31, 2016

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

Expected term in years	5 years
Risk-free interest rate	2.20%
Expected volatility	0.88%
Expected dividend yield	0.00%

XML

Inventory (Narrative) (Details)	3 Months Ended
	Mar. 31, 2016 USD ($)
Inventory 1	$ 168,604
Inventory 2	$ 187,627

XML

Short-term Loan (Narrative) (Details)	3 Months Ended
	Mar. 31, 2016 USD ($) mo
Short-term Loan 1	$ 71,952
Short-term Loan 2 | mo	11
Short-term Loan 3	2.897%
Short-term Loan 4	$ 1,561
Short-term Loan 5 | mo	10
Short-term Loan 6	3.90%
Short-term Loan 7	$ 5,162
Short-term Loan 8	2.897%

XML

Income Taxes (Narrative) (Details)	3 Months Ended
	Mar. 31, 2016
Income Taxes 1	50.00%

XML

Net Income Per Share of Common Stock (Narrative) (Details)	3 Months Ended
	Mar. 31, 2016 shares
Net Income Per Share Of Common Stock 1	636,780
Net Income Per Share Of Common Stock 2	120,000
Net Income Per Share Of Common Stock 3	516,780

XML

Common Stock (Narrative) (Details)	3 Months Ended
	Mar. 31, 2016 USD ($) yr $ / shares shares
Common Stock 1 | shares	323,000
Common Stock 2 | $ / shares	$ 2.60
Common Stock 3 | yr	5
Common Stock 4	$ 1.80
Common Stock 5	154,440
Common Stock 6	$ 426,960
Common Stock 7 | yr	3
Common Stock 8 | shares	26,220
Common Stock 9 | shares	39,000
Common Stock 10	$ 39,000

XML

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions (Details)	3 Months Ended
	Mar. 31, 2016 yr
Common Stock Schedule Of Share-based Payment Award, Stock Options, Valuation Assumptions 1	5
Common Stock Schedule Of Share-based Payment Award, Stock Options, Valuation Assumptions 2	2.20%
Common Stock Schedule Of Share-based Payment Award, Stock Options, Valuation Assumptions 3	0.88%
Common Stock Schedule Of Share-based Payment Award, Stock Options, Valuation Assumptions 4	0.00%