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: September 30, 2017

[_] 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)

12 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]	Accelerated filer [_]	Non-accelerated filer [_]	Smaller reporting company [X]
Emerging growth company [X]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. [X]

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

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 2, 2017 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	5,366,382

LEATT CORPORATION

Quarterly Report on Form 10-Q
Three Months and Nine Months Ended September 30, 2017

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	1
ITEM 1.	FINANCIAL STATEMENTS.	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	9
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	19
ITEM 4.	CONTROLS AND PROCEDURES.	19
PART II	OTHER INFORMATION	20
ITEM 1.	LEGAL PROCEEDINGS.	20
ITEM 1A.	RISK FACTORS.	20
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	20
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	20
ITEM 4.	MINE SAFETY DISCLOSURES.	20
ITEM 5.	OTHER INFORMATION.	20
ITEM 6.	EXHIBITS.	20

- i -

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

LEATT CORPORATION
CONSOLIDATED BALANCE SHEETS

ASSETS
		September 30, 2017			December 31, 2016
		Unaudited			Audited
Current Assets
Cash and cash equivalents	$	1,234,872		$	1,103,003
Short-term investments		58,213			58,196
Accounts receivable		2,953,495			2,217,840
Inventory		6,234,692			4,578,125
Payments in advance		415,181			569,498
Income tax refunds receivable		159,730			83,567
Prepaid expenses and other current assets		330,137			847,032
Total current assets		11,386,320			9,457,261
Property and equipment, net		2,031,355			1,190,688
Deferred tax asset		108,300			108,300
Other Assets
Deposits		25,172			24,892
Intangible assets		69,807			69,133
Total other assets		94,979			94,025
Total Assets	$	13,620,954		$	10,850,274
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	5,606,448		$	3,021,618
Income tax payable		140,980			-
Short term loan, net of finance charges		58,759			542,532
Total current liabilities		5,806,187			3,564,150
Deferred tax liabilities		65,400			65,400
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,        5,366,382 and 5,362,992 shares issued and outstanding		130,053			130,053
Additional paid - in capital		7,646,807			7,469,694
Accumulated other comprehensive loss		(602,739	)		(610,083	)
Retained earnings		572,246			228,060
Total stockholders' equity		7,749,367			7,220,724
Total Liabilities and Stockholders' Equity	$	13,620,954		$	10,850,274

The accompanying notes are an integral part of these consolidated financial statements.

1

LEATT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

		Three Months Ended						Nine Months Ended
		September 30						September 30
		2017			2016			2017			2016
		Unaudited			Unaudited			Unaudited			Unaudited
Revenues	$	5,455,088		$	4,631,557		$	14,783,154		$	13,152,964
Cost of Revenues		2,914,008			2,183,072			7,566,816			6,206,741
Gross Profit		2,541,080			2,448,485			7,216,338			6,946,223
Product Royalty Income		39,396			16,224			90,313			69,755
Operating Expenses
Salaries and wages		562,803			548,829			1,877,560			1,754,043
Commissions and consulting expenses		109,217			144,480			388,538			444,472
Professional fees		88,901			110,700			519,673			363,018
Advertising and marketing		449,176			502,522			1,258,511			1,216,916
Office rent and expenses		68,423			66,593			201,101			193,745
Research and development costs		321,443			402,924			966,841			1,083,983
Bad debt expense (recovery)		7,956			16,216			8,606			(6,341	)
General and administrative expenses		419,052			505,194			1,254,542			1,466,992
Depreciation		131,374			103,586			322,829			314,584
Total operating expenses		2,158,345			2,401,044			6,798,201			6,831,412
Income from Operations		422,131			63,665			508,450			184,566
Other Income (Expenses)
Interest and other income (expenses), net		(95	)		(3,270	)		(5,650	)		65,539
Total other income (expenses)		(95	)		(3,270	)		(5,650	)		65,539
Income Before Income Taxes		422,036			60,395			502,800			250,105
Income Taxes		128,747			21,139			158,614			109,325
Net Income Available to Common Shareholders	$	293,289		$	39,256		$	344,186		$	140,780
Net Income per Common Share
Basic	$	0.05		$	0.01		$	0.06		$	0.03
Diluted	$	0.05		$	0.01		$	0.06		$	0.03
Weighted Average Number of Common Shares Outstanding
Basic		5,366,382			5,345,312			5,364,718			5,283,059
Diluted		5,547,683			5,483,774			5,546,019			5,421,520
Comprehensive Income
Net Income	$	293,289		$	39,256		$	344,186		$	140,780
Other comprehensive income, net of $0 and $0 deferred        income taxes in 2017 and 2016
Foreign currency translation		(49,044	)		78,818			7,344			110,737
Total Comprehensive Income	$	244,245		$	118,074		$	351,530		$	251,517

The accompanying notes are an integral part of these consolidated financial statements.

2

LEATT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

										Accumulated
								Additional		Other
	Preferred Stock A			Common Stock				Paid - In		Comprensive			Retained
	Shares		Amount	Shares		Amount		Capital		Loss			Earnings		Total
Balance, January 1, 2017	120,000	$	3,000	5,362,992	$	130,053	$	7,469,694	$	(610,083	)	$	228,060	$	7,220,724
Compensation cost recognized in connection with stock options	-		-	-		-		177,113		-			-		177,113
Options exercised on a cashless basis	-		-	3,390		-		-		-			-		-
Net income	-		-	-		-		-		-			344,186		344,186
Foreign currency translation adjustment	-		-	-		-		-		7,344			-		7,344
Balance, September 30, 2017	120,000	$	3,000	5,366,382	$	130,053	$	7,646,807	$	(602,739	)	$	572,246	$	7,749,367

The accompanying notes are an integral part of these consolidated financial statements.

3

LEATT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

		2017			2016
Cash flows from operating activities
Net income	$	344,186		$	140,780
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		322,829			314,584
Stock-based compensation		177,113			155,742
Other income		-			(73,533	)
Bad debts		5,737			(13,369	)
Inventory reserve		116,769			26,385
Gain on sale of property and equipment		(3,061	)		-
(Increase) decrease in:
Accounts receivable		(741,392	)		(343,125	)
Inventory		(1,773,336	)		230,302
Payments in advance		154,317			(323,623	)
Prepaid expenses and other current assets		516,895			578,386
Income tax refunds receivable		(76,163	)		-
Other receivables		-			90,000
Deposits		(280	)		(8,361	)
(Increase) Decrease in:
Accounts payable and accrued expenses		2,584,830			(89,935	)
Income taxes payable		140,980			(162,413	)
Net cash provided by operating activities		1,769,424			521,820
Cash flows from investing activities
Capital expenditures		(1,158,507	)		(93,763	)
Proceeds from sale of property and equipment		3,125			-
Increase in short-term investments, net		(17	)		(18	)
Net cash used in investing activities		(1,155,399	)		(93,781	)
Cash flows from financing activities
Proceeds from exercise of stock options		-			39,000
Repayments of short-term loan, net		(483,773	)		(620,003	)
Net cash used in financing activities		(483,773	)		(581,003	)
Effect of exchange rates on cash and cash equivalents		1,617			51,632
Net increase (decrease) in cash and cash equivalents		131,869			(101,332	)
Cash and cash equivalents - beginning		1,103,003			1,054,750
Cash and cash equivalents - ending	$	1,234,872		$	953,418
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	10,597		$	10,467
Cash paid for income taxes	$	87,207		$	271,737
Other noncash investing and financing activities
Common stock issued for services	$	177,113		$	155,742
Cancellation of common shares as settlement of a legal matter	$	-		$	(73,533	)

The accompanying notes are an integral part of these consolidated financial statements.

4

LEATT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Basis of presentation

The consolidated balance sheet as of December 31, 2016 was audited and appears in the Form 10-K filed by the Company with the Securities and Exchange Commission on March 29, 2017. The consolidated balance sheet as of September 30, 2017 and the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2017 and 2016, changes in stockholders’ equity for the nine months ended September 30, 2017, cash flows for the nine months ended September 30, 2017 and 2016, 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 September 30, 2017 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, 2016 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 nine months ended September 30, 2017 and 2016 was $282,876 and $186,899 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 nine months ended September 30, 2017 was zero. There was no impairment of intangible assets at September 30, 2017.

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 $58,921 over an eleven-month period at an APR of 3.397% and the South African short-term loan is payable in monthly installments of $1,740 over a ten-month period at a flat interest rate of 4.10% .. The Company repaid the U.S. short-term loan in full on September 1, 2017.

The Company also carries directors’ and officers’ liability insurance and several other insurance policies. 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 $8,315 at a 3.900% annual interest rate.

In addition, the Company carries Network Security/Privacy insurance. The Company finances payment of its short-term insurance premiums over the period of coverage over six months. The short-term loan is payable in five payments of $1,453 at a 3.397% annual interest rate. The Company repaid the U.S. short-term loan in full on September 1, 2017

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.

5

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of September 30, 2017, 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. As of September 30, 2017, the Company had 636,000 potential common shares, consisting of 120,000 preferred shares and options to purchase 193,000 shares, outstanding that were dilutive, and options to purchase 323,000 shares that were anti-dilutive and therefore not included in diluted net income per share.

Note 7 – Common Stock

During the nine months ended September 30, 2017, 169,000 stock options were granted at an exercise price of $1.60 per share, exercisable over a 10-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 nine months ended September 30, 2017, was $0.60.

Expected term in years	10 years
Risk-free interest rate	2.78%
Expected volatility	21.73%
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 during the nine months ended September 30, 2017 was $177,113. As of September 30, 2017, there was $357,293 of unrecognized compensation costs related to unvested stock options, which is expected to be recognized over a 3-year vesting period.

On May 22, 2017, the Company issued 3,390 shares of common stock to employees who exercised employee stock options in a cashless exercise.

Note 8 – Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In July 2015, the FASB issued Accounting Standards Update (“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 adopted the new standard on January 1, 2017. The adoption of this ASU did not have a material impact on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09").” ASU 2016-09 amends the guidance on several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification on the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the new standard on January 1, 2017. The Company elected to apply the amendments related to the classification of excess tax benefits on the statement of cash flows on a prospective basis, and prior periods were not adjusted. The adoption of this ASU did not have a material impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification. This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company does not expect this standard to have a material impact on its financial statements.

6

In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business,” which further clarifies the definition of a business in an effort to assist entities in evaluating whether a set of transferred assets constitutes a business. Under this new guidance, if substantially all of the fair value of gross assets acquired is concentrated in a single asset or similar asset group, the set of transferred assets would not meet the definition of a business and no further evaluation is necessary. If this threshold is not met, the entity would then evaluate whether the set of transferred assets and activities meets the requirement that a business include, at a minimum, an input and a process that together have the ability to create an output. This guidance is effective for annual and quarterly periods beginning after December 15, 2017, with early adoption permitted. The Company expects to adopt the ASU beginning January 1, 2018.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating the requirement to calculate the implied fair value of goodwill. Rather, the goodwill impairment is calculated by comparing the fair value of a reporting unit to its carrying value, and an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value, limited to the total goodwill allocated to the reporting unit. All reporting units apply the same impairment test under the new standard. The Company is required to adopt this ASU for its annual and any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.

In May 2014, the FASB issued ASU 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 new guidance allows for two methods of adoption: (a) “full retrospective” adoption, meaning that the standard is applied to all periods presented, or (b) “modified retrospective” adoption, meaning that the cumulative effect of applying the new guidance is recognized as an adjustment to the opening retained earnings balance for the year of implementation. The Company plans to adopt the new revenue standard effective January 1, 2018, on a modified retrospective method with the cumulative effect of the change reflected in retained earnings as of January 1, 2018, and not restate prior periods. The Company continues to monitor FASB activity to assess certain interpretative issues and the associated implementation of the new standard. The Company has performed an initial review of its revenue arrangements, which include product sales and royalty payments, and based upon that initial review, and the interpretive guidance that has been issued and examined, the adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

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 October 2016, the FASB issued ASU No. 2016-16, “Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory” ("ASU 2016-16"). The ASU clarifies the accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The ASU is effective for the Company in the first quarter of 2018, with early adoption permitted, and is to be applied using a modified retrospective approach. The Company is evaluating the new standard to determine the impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” The ASU requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents are to be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statement of cash flows. The ASU is effective for the Company for annual reporting periods beginning after December 15, 2017 and is required to be adopted using a retrospective approach, if applicable, with early adoption permitted. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

7

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.

The Company entered into a Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated October 16, 2017, to finance its U.S. short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $593,400 in eleven payments of $55,071, at an annual interest rate of $4.15% commencing on November 1, 2017 and ending on September 1, 2018. 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.

8

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” in our latest annual report on Form 10-K filed with the SEC. 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 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;
• “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 = ZAR13.5156 for its September 30, 2017 balance sheet.

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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. 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.

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 new body protection 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 Moto GPX was tested by BMW Motorrad (Germany) and reviewed by KTM (Austria).

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. Additionally, Two Eleven sells products directly to customers via Leatt’s online store.

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 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 would 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.

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• 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.
  
  
• Fluctuations in Foreign Currencies – We are exposed to foreign exchange risk as our revenues and consolidated results of operations may be affected by fluctuations in foreign currency as we translate these currencies into U.S. dollars when we consolidate our financial results. While our reporting currency is the U.S. Dollar, a portion of our consolidated revenues are denominated in South African Rand, or ZAR, certain of our assets are denominated in ZAR, and our research and marketing operations in South Africa utilize South African labor sources. A decrease in the value of the U.S. dollar in relation to the ZAR could increase our cost of doing business in South Africa. If the ZAR depreciates against the U.S. Dollar, the value of our ZAR revenues, earnings and assets as expressed in our U.S. Dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. Furthermore since 64% of our sales is derived outside the U.S. where the U.S. dollar is not the primary currency, significant fluctuations in exchange rates such as the strengthening of the dollar versus our customers’ local currency can adversely affect our ability to remain competitive in those areas.

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- and nine-month periods ended September 30, 2017 and 2016 included herein.

Three Months Ended September 30, 2017 compared to the Three Months Ended September 30, 2016

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The following table summarizes the results of our operations during the three-month periods ended September 30, 2017 and 2016 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

		Three Months Ended September 30,								Percentage
		2017			2016			$ Increase		Increase
Item								(Decrease)		(Decrease)
REVENUES	$	5,455,088		$	4,631,557		$	823,531		18%
COST OF REVENUES		2,914,008			2,183,072		$	730,936		33%
GROSS PROFIT		2,541,080			2,448,485		$	92,595		4%
PRODUCT ROYALTY INCOME		39,396			16,224		$	23,172		143%
OPERATING EXPENSES
Salaries and Wages		562,803			548,829		$	13,974		3%
Commissions and Consulting		109,217			144,480		$	(35,263	)	-24%
Professional Fees		88,901			110,700		$	(21,799	)	-20%
Advertising and Marketing		449,176			502,522		$	(53,346	)	-11%
Office Rent and Expenses		68,423			66,593		$	1,830		3%
Research and Development Costs		321,443			402,924		$	(81,481	)	-20%
Bad Debt Expense		7,956			16,216		$	(8,260	)	-51%
General and Administrative		419,052			505,194		$	(86,142	)	-17%
Depreciation		131,374			103,586		$	27,788		27%
Total Operating Expenses		2,158,345			2,401,044		$	(242,699	)	-10%
INCOME FROM OPERATIONS		422,131			63,665		$	358,466		563%
Other Expenses		(95	)		(3,270	)	$	(3,365	)	-103%
INCOME BEFORE INCOME TAXES		422,036			60,395		$	361,641		599%
Income Taxes		128,747			21,139		$	107,608		509%
NET INCOME	$	293,289		$	39,256		$	254,033		647%

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 abroad. Revenues for the three months ended September 30, 2017 were $5.46 million, an 18% increase, compared to revenues of $4.63 million for the quarter ended September 30, 2016. Revenues associated with international customers were $3.87 million and $2.70 million, or 71% and 58% of revenues, respectively, for the three months ended September 30, 2017 and 2016. This increase in worldwide revenues is primarily attributable to a $0.57 million increase in helmet sales, a $0.45 million increase in body armor sales and a $0.58 million increase in sales of other products, parts and accessories that were partially offset by a $0.78 million decrease in neck brace sales.

The following table sets forth our revenues by product line for the three months ended September 30, 2017 and 2016:

		Three months ended September 30
			% of			% of
		2017	Revenues		2016	Revenues
Neck braces	$	1,091,601	20%	$	1,875,724	40%
Body armor		2,680,405	49%		2,228,104	48%
Helmets		648,313	12%		74,879	2%
Other Products, Parts and Accessories		1,034,769	19%		452,850	10%
	$	5,455,088	100%	$	4,631,557	100%

Sales of our flagship neck brace accounted for $1.09 million and $1.88 million, or 20% and 40% of our revenues for the quarters ended September 30, 2017 and 2016, respectively. The 42% decrease in neck brace revenues is primarily attributable to a 39% decrease in the volume of neck braces sold to our customers worldwide.

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Our body armor products are comprised of chest protectors, full upper body protectors, upper body protection vests, back protectors, knee braces and knee and elbow guards. Body armor sales accounted for $2.68 million and $2.22 million, or 49% and 48% of our revenues for the quarters ended September 30, 2017 and 2016, respectively. The 20% increase in body armor revenues was primarily the result of an increase in sales of the Company’s C-Frame knee brace line due to continued demand for the C-Frame Pro knee brace both in the United States and abroad.

Our helmets accounted for $0.65 million or 12% of our revenues for the three months ended September 30, 2017 as compared to $0.07 million or 2% of our revenues for the same 2016 period. The $0.57 million increase in helmet sales is primarily the result of the initial shipment of our highly anticipated DBX 3.0 Enduro helmet for bicycle use.

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 $1.03 million and 0.45 million, or 19% and 10% of our revenues for the quarters ended September 30, 2017 and 2016, respectively. The 129% increase in revenues from the sale of other products, parts and accessories is primarily due to increased sales volume of our GPX and DBX apparel designed for off-road motorcycle and bicycle use respectively.

Cost of Revenues and Gross Profit – Cost of revenues for the quarters ended September 30, 2017 and 2016 were $2.91 million and $2.18 million, respectively. Gross Profit for the quarters ended September 30, 2017 and 2016 were $2.54 million and $2.45 million, respectively, or 47% and 53% of revenues, respectively. Our neck brace products continue to generate a higher gross profit margin than our other product categories. Neck brace revenues accounted for 20% and 40% of our revenues for the quarters ended September 30, 2017 and 2016 respectively. Additionally, while revenues associated with international customers were 71% and 58% of our revenues for the three months ended September 30, 2017 and 2016 respectively, revenue associated with international customers continue to generate a lower gross profit margin than dealer direct sales in the United States.

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 September 30, 2017 and 2016 were $39,396 and $16,224, respectively. The 143% increase in product royalty income is due to an increase in the sale of licensed products by licensees in the 2017 period.

Salaries and Wages – Salaries and wages for the quarters ended September 30, 2017 and 2016 were $562,803 and $548,829, respectively. This 3% increase in salaries and wages during the 2017 period was primarily due to the employment of additional sales and marketing personnel in the United States.

Commissions and Consulting Expense – During the quarters ended September 30, 2017 and 2016, commissions and consulting expenses were $109,217 and $144,480, respectively. This 24% decrease in commissions and consulting expenses is primarily due to the restructuring of commissions paid to the Company’s US sales representatives.

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 September 30, 2017 and 2016 were $88,901 and $110,700, respectively. This 20% decrease in professional fees is primarily due to decreased spending on corporate legal expenditures during the 2017 period.

Advertising and Marketing – The Company places paid advertising in various motorsport 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 September 30, 2017 and 2016 were $449,176 and $502,522, respectively. The 11% decrease in advertising and marketing expenditures during the 2017 period is primarily due to earlier timing of the production and implementation of global marketing campaigns designed to support and promote the Company’s widening product range and target market reach during the 2017 period.

Office Rent and Expenses – Office rent and expenses for the quarters ended September 30, 2017 and 2016 were $68,423 and $66,593, respectively. This 3% increase in office rent and expenses during the 2017 period is in line with lease escalation clauses for the Company’s worldwide facilities.

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 September 30, 2017 and 2016, decreased to $321,443, from $402,924, during the same 2016 quarter. The 20% decrease in research and development costs is primarily due to a restructuring of the salaries paid to personnel in the research and development department.

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Bad Debt Expense – Bad Debt Expense for the quarters ended September 30, 2017 and 2016 were $7,956 and $16,216, respectively. This decrease in Bad Debt Expense is the result of the write off of higher value unrecoverable debts owing to the Company during 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 September 30, 2017 and 2016 were $419,052 and $505,194, respectively. The 17% decrease in general and administrative expenses is primarily due to a decrease in product liability insurance premiums.

Depreciation Expense – Depreciation Expense for the quarters ended September 30, 2017 and 2016 were $131,374 and $103,586, respectively. This 27% increase in depreciation is primarily due to the addition of moulds and tooling utilized in the production of the Company’s widening product range.

Total Operating Expenses – Total operating expenses decreased by $242,699, to $2.16 million in the three months ended September 30, 2017, or 10%, compared to $2.40 million in the 2016 period. This decrease is primarily due to decreased general and administrative costs, research and development costs and advertising and marketing costs discussed above.

Net Income – The net income after income taxes for the quarter ended September 30, 2017 was $293,289 as opposed to a net income of $39,256 for the quarter ended September 30, 2016. This increase in net income is primarily due to the increase in revenues and decrease in operating costs discussed above.

Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016

The following table summarizes the results of our operations during the nine-month periods ended September 30, 2017 and 2016 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

		Nine Months Ended September 30,								Percentage
		2017			2016			$Increase		Increase
Item								(Decrease)		(Decrease)
REVENUES	$	14,783,154		$	13,152,964		$	1,630,190		12%
COST OF REVENUES		7,566,816			6,206,741		$	1,360,075		22%
GROSS PROFIT		7,216,338			6,946,223		$	270,115		4%
PRODUCT ROYALTY INCOME		90,313			69,755		$	20,558		29%
OPERATING EXPENSES
Salaries and Wages		1,877,560			1,754,043		$	123,517		7%
Commissions and Consulting		388,538			444,472		$	(55,934	)	-13%
Professional Fees		519,673			363,018		$	156,655		43%
Advertising and Marketing		1,258,511			1,216,916		$	41,595		3%
Office Rent and Expenses		201,101			193,745		$	7,356		4%
Research and Development Costs		966,841			1,083,983		$	(117,142	)	-11%
Bad Debt Expense (Recovery)		8,606			(6,341	)	$	14,947		236%
General and Administrative		1,254,542			1,466,992		$	(212,450	)	-14%
Depreciation		322,829			314,584		$	8,245		3%
Total Operating Expenses		6,798,201			6,831,412		$	(33,211	)	0%
INCOME FROM OPERATIONS		508,450			184,566		$	323,884		175%
Other Income (Expenses)		(5,650	)		65,539		$	(71,189	)	-109%
INCOME BEFORE INCOME TAXES		502,800			250,105		$	252,695		101%
Income Taxes		158,614			109,325		$	49,289		45%
NET INCOME	$	344,186		$	140,780		$	203,406		144%

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Revenues – Revenues of the nine-month period ended September 30, 2017 were $14.78 million, a 12% increase, compared to revenues of $13.16 million for the period ended September 30, 2016. Revenues associated with international customers were $9.48 million and $7.50 million, or 64% and 57% of revenues, respectively, for the nine months ended September 30, 2017 and 2016. The increase in worldwide revenues is attributable to a $1 million increase in body armor sales, a $0.84 million increase in other products, parts and accessory sales and a $0.28 million increase in helmet sales, which was partially offset by a $0.57 million decrease in neck brace sales.

The following table sets forth our revenues by product line for the nine months ended September 30, 2017 and 2016:

		Nine months ended September 30
			% of			% of
		2017	Revenues		2016	Revenues
Neck braces	$	4,197,565	28%	$	4,769,506	36%
Body armor		7,287,339	49%		6,209,004	47%
Helmets		1,540,803	11%		1,258,093	10%
Other Products, Parts and Accessories		1,757,447	12%		916,361	7%
	$	14,783,154	100%	$	13,152,964	100%

Sales of our flagship neck brace accounted for $4.20 million and $4.77 million, or 28% and 36% of our revenues for the nine-month periods ended September 30, 2017 and 2016, respectively. A 14% decrease in neck brace sales volumes to our customers in the United States during the 2017 period was the primary reason for the overall 12% decrease in neck brace revenues during the nine months ended September 30, 2017.

Body armor sales accounted for $7.29 million and $6.21 million, or 49% and 47% of our revenues for the nine-month period ended September 30, 2017 and 2016, respectively. The 17% increase in body armor revenues was primarily the result of an increase in sales of the Company’s C-Frame knee brace line due to continued worldwide demand for the C-Frame Pro knee brace.

Our helmets accounted for $1.54 million, or 11% of our revenues for the nine months ended September 30, 2017, as compared to $1.26 million, or 10% of our revenues for the nine months ended September 30, 2016. The 22% increase in helmet revenues is primarily due to initial shipments of our DBX 3.0 All Mountain and DBX 3.0 Enduro helmets for bicycle use during the first nine months of 2017.

Our other products, parts and accessories are comprised of apparel, aftermarket support items required primarily to replace worn or damaged parts through our global distribution network, as well as clothing, outerwear and accessories including hats, jackets, bags, hydration kits and cooling garments. Other products, parts and accessories sales accounted for $1.76 million and $0.92 million, or 12% and 7% of our revenues for the nine months ended September 30, 2017 and 2016, respectively. The 92% increase in revenues from the sale of other products, parts and accessories is primarily due to the successful market acceptance and resultant increased sales volume of our GPX and DBX apparel designed for off-road motorcycle and bicycle use, respectively.

Cost of Revenues and Gross Profit – Cost of revenues for the nine-month periods ended September 30, 2017 and 2016 were $7.57 million and $6.21 million, respectively. Gross Profit for the nine-month periods ended September 30, 2917 and 2016 were $7.22 and $6.95 million, respectively, or 49% and 53% of revenues respectively. Our neck brace products continue to generate a higher gross margin than our other product categories. Neck brace revenues accounted for 28% and 36% of our revenues for the nine months ended September 30, 2017 and 2016, respectively. Additionally, while revenues associated with international customers were 64% and 57% of our revenues for the nine months ended September 30, 2017 and 2016, respectively, revenue associated with international customers continue to generate a lower gross margin than dealer direct sales in the United States.

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 nine-month periods ended September 30, 2017 and 2016 were $90,313 and $69,755, respectively. The 29% increase in product royalty income is due to an increase in the sale of licensed products by licensees in the 2017 period.

Salaries and Wages – Salaries and wages for the nine-month period ended September 30, 2017 and 2016 were $1,877,560 and $1,754,043, respectively. This 7% increase in salaries and wages during the 2017 period was due the employment of additional sales and marketing personnel in the United States.

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Commissions and Consulting Expense – During the nine-month periods ended September 30, 2017 and 2016, commissions and consulting expenses were $388,538 and $444,472, respectively. This 13% decrease in commission and consulting expenditure is primarily the result of the restructuring of the Company’s US sales representative structure.

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 nine-month periods ended September 30, 2017 and 2016 were $519,673 and $363,018, respectively. This 43% increase in professional fees is primarily due to increased spending on product liability litigation during the 2017 period.

Advertising and Marketing – The Company places paid advertising in various motorsport 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 nine-month periods ended September 30, 2017 and 2016 were $1,258,511 and $1,216,916, respectively. The 3% increase in advertising and marketing expenditures during the 2017 period is primarily due to the production and implementation of marketing campaigns designed to globally support and promote the Company’s widening product range, target market reach and brand awareness.

Office Rent and Expenses – Office rent and expenses for the nine-month periods ended September 30, 2017 and 2016 were $201,101 and $193,745, respectively. The 4% increase in office rent and expenses during the 2017 period is in line with lease escalation clauses for the Company’s worldwide facilities.

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 nine-month period ended September 30, 2017 decreased to $966,841, from $1,083,983, during the same 2016 period. The 11% decrease in research and development costs is primarily due to a restructuring of the salaries paid to personnel in the research and development department.

Bad Debt Expense (Recovery) – Bad Debt Expense (Recovery) for the nine-month periods ended September 30, 2017 and 2016 were $8,606 and ($6,341), respectively. This increase in Bad Debt Expense (Recovery) is primarily the result of the recovery of previously unrecoverable debts during 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 nine-month periods ended September 30, 2017 and 2016 were $1,254,542 and $1,466,992, respectively. The 14% decrease in general and administrative expenses is primarily as a result of a decrease in product liability insurance premiums.

Depreciation Expense – Depreciation Expense for the nine-month periods ended September 30, 2017 and 2016 were $322,829 and $314,584, respectively. This 3% increase in depreciation is primarily due to the addition of moulds and tooling utilized in the production of the Company’s widening product range. This additional depreciation was partially offset by certain assets that were fully depreciated during the period as they had reached the end of their economic lives.

Total Operating Expenses – Total operating expenses decreased by $33,211, to $6.80 million in the nine months ended September 30, 2017, or 0.5%, compared to $6.83 million in the 2016 period. This decrease is primarily due to decreased general and administrative and research and development costs that were partially offset by increased professional fees and salaries and wages discussed above.

Net income – Net income after income taxes for the nine-month period ended September 30, 2017 was $344,186 as opposed to a net income after income taxes of $140,780 for the nine-month period ended September 30, 2016. This increase in net income is primarily due to the increased revenues and decreased operating expenses discussed above.

Liquidity and Capital Resources

At September 30, 2017, we had cash and cash equivalents of $1.23 million and $0.58 million of short-term investments. The following table sets forth a summary of our cash flows for the periods indicated:

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		September 30,
		2017			2016
Net cash provided by operating activities	$	1,769,424		$	521,820
Net cash used in investing activities	$	(1,155,399	)	$	(93,781	)
Net cash used in financing activities	$	(483,773	)	$	(581,003	)
Effect of exchange rate changes on cash and cash equivalents	$	1,617		$	51,632
Net increase (decrease) in cash and cash equivalents	$	131,869		$	(101,332	)
Cash and cash equivalents at the beginning of period	$	1,103,003		$	1,054,750
Cash and cash equivalents at the end of period	$	1,234,872		$	953,418

Cash increased by $131,869, or 12%, for the nine months ended September 30, 2017. The primary uses of cash for the nine months ended September 30, 2017 were increased inventory of $1.77 million, increased accounts receivables of $741,392, capital expenditures of $1.16 million and the repayment of the short-term loan amount of $483,773. The primary sources of cash for the nine months ended September 30, 2017 were increased accounts payable and accrued expenses of $2.58 million, and increased prepaid expenses and other current assets of $516,895. As of September 30, 2017, 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 in the U.S. and abroad.

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.

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.

On October 13, 2016, the Company entered into a Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” to finance its U.S. short-term insurance over the period of coverage. The Company was obligated to pay AFCO an aggregate sum of $637,260 in eleven payments of $58,921, at an annual interest rate of 3.397%, commencing on November 1, 2016 and ending on September 1, 2017. Any late payment during the term of the agreement was to be assessed a late penalty of 5% of the payment amount due, and in the event of default AFCO had the right to accelerate the payment due under the agreement. This agreement was paid in full on September 1, 2017. On October 16, 2017, the Company entered into a new Premium Finance Agreement with AFCO to finance its U.S. short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $593,400 in eleven payments of $55,071, at an annual interest rate of $4.15%, commencing on November 1, 2017 and ending on September 1, 2018. 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.

17

Pursuant to a Premium Finance Agreement, dated March 30, 2017, between the Company and AFCO, the Company is obligated to pay AFCO an aggregate sum of $7,195 in five payments of $1,453 at a 3.397% annual interest rate, commencing on May 1, 2017 and ending on September 1, 2017. 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 September 30, 2017, the Company had not defaulted on its payment obligations under this agreement. This agreement was paid in full on September 1, 2017.

Pursuant to a Premium Finance Agreement, dated May 22, 2017, between the Company and AFCO, the Company is obligated to pay AFCO an aggregate sum of $89,708 in eleven payments of $8,315 at a 3.900% annual interest rate, commencing on June 1, 2017 and ending on April 1, 2018. 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 September 30, 2017, the Company had not defaulted on its payment obligations under this agreement.

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.

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.

18

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 nine-month periods ended September 30, 2017 and 2016 was $282,876 and $186,899, 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 nine months ended September 30, 2017 and 2016.

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.

Recent Accounting Pronouncements

See Note 8, “Summary of Significant Accounting Policies” 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 of 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 September 30, 2017, 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 September 30, 2017, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

19

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings 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 effect 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. On September 14, 2017 the Court awarded summary judgement in favor of the Company and the plaintiff has appealed this decision by the Court.

On August 7, 2017, a lawsuit was filed against the Company on behalf of a motorcycle rider in the Southern District Court of Iowa for strict liability, breach of warranty, negligence, gross negligence and consumer fraud. The litigation is in the initial stage and no hearing date has yet been set. 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, 2016.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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.

20

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: November 9, 2017	LEATT CORPORATION
	By: /s/ Sean Macdonald
	Sean Macdonald
	Chief Executive Officer and Chief Financial Officer
	(Principal Executive, Financial and Accounting Officer)

21

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.

22

EX-31.1

Exhibit 31.1

CERTIFICATIONS

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: November 9, 2017

/s/ Sean Macdonald
Sean Macdonald
Chief Executive Officer
(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

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: November 9, 2017

/s/ Sean Macdonald
Sean Macdonald
Chief Financial Officer
(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS 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 quarter ended September 30, 2017 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

            2.      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 9th day of November, 2017.

/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

CERTIFICATIONS 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 quarter ended September 30, 2017 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

            2.      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 9th day of November, 2017.

/s/ Sean Macdonald

Sean Macdonald

Chief Financial Officer

(Principal Financial and Accounting 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	9 Months Ended
	Sep. 30, 2017	Nov. 02, 2017
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2017
Trading Symbol	leat
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		5,366,382
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well Known Seasoned Issuer	No
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Current Assets
Cash and cash equivalents	$ 1,234,872	$ 1,103,003
Short-term investments	58,213	58,196
Accounts receivable	2,953,495	2,217,840
Inventory	6,234,692	4,578,125
Payments in advance	415,181	569,498
Income tax refunds receivable	159,730	83,567
Prepaid expenses and other current assets	330,137	847,032
Total current assets	11,386,320	9,457,261
Property and equipment, net	2,031,355	1,190,688
Deferred tax asset	108,300	108,300
Other Assets
Deposits	25,172	24,892
Intangible assets	69,807	69,133
Total other assets	94,979	94,025
Total Assets	13,620,954	10,850,274
Current Liabilities
Accounts payable and accrued expenses	5,606,448	3,021,618
Income tax payable	140,980	0
Short term loan, net of finance charges	58,759	542,532
Total current liabilities	5,806,187	3,564,150
Deferred tax liabilities	65,400	65,400
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, 5,366,382 and 5,362,992 shares issued and outstanding	130,053	130,053
Additional paid - in capital	7,646,807	7,469,694
Accumulated other comprehensive loss	(602,739)	(610,083)
Retained earnings	572,246	228,060
Total stockholders' equity	7,749,367	7,220,724
Total Liabilities and Stockholders' Equity	$ 13,620,954	$ 10,850,274

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2017	Dec. 31, 2016
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	5,366,382	5,362,992
Common Stock, Shares, Outstanding	5,366,382	5,362,992

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Revenues	$ 5,455,088	$ 4,631,557	$ 14,783,154	$ 13,152,964
Cost of Revenues	2,914,008	2,183,072	7,566,816	6,206,741
Gross Profit	2,541,080	2,448,485	7,216,338	6,946,223
Product Royalty Income	39,396	16,224	90,313	69,755
Operating Expenses
Salaries and wages	562,803	548,829	1,877,560	1,754,043
Commissions and consulting expenses	109,217	144,480	388,538	444,472
Professional fees	88,901	110,700	519,673	363,018
Advertising and marketing	449,176	502,522	1,258,511	1,216,916
Office rent and expenses	68,423	66,593	201,101	193,745
Research and development costs	321,443	402,924	966,841	1,083,983
Bad debt expense (recovery)	7,956	16,216	8,606	(6,341)
General and administrative expenses	419,052	505,194	1,254,542	1,466,992
Depreciation	131,374	103,586	322,829	314,584
Total operating expenses	2,158,345	2,401,044	6,798,201	6,831,412
Income from Operations	422,131	63,665	508,450	184,566
Other Income (Expenses)
Interest and other income (expenses), net	(95)	(3,270)	(5,650)	65,539
Total other income (expenses)	(95)	(3,270)	(5,650)	65,539
Income Before Income Taxes	422,036	60,395	502,800	250,105
Income Taxes	128,747	21,139	158,614	109,325
Net Income Available to Common Shareholders	$ 293,289	$ 39,256	$ 344,186	$ 140,780
Net Income per Common Share
Basic	$ 0.05	$ 0.01	$ 0.06	$ 0.03
Diluted	$ 0.05	$ 0.01	$ 0.06	$ 0.03
Weighted Average Number of Common Shares Outstanding
Basic	5,366,382	5,345,312	5,364,718	5,283,059
Diluted	5,547,683	5,483,774	5,546,019	5,421,520
Comprehensive Income
Net Income	$ 293,289	$ 39,256	$ 344,186	$ 140,780
Other comprehensive income, net of $0 and $0 deferred income taxes in 2017 and 2016
Foreign currency translation	(49,044)	78,818	7,344	110,737
Total Comprehensive Income	$ 244,245	$ 118,074	$ 351,530	$ 251,517

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Parenthetical) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Deferred Income Taxes	$ 0	$ 0	$ 0	$ 0

XML

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 2017 - 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, 2016	$ 3,000	$ 130,053	$ 7,469,694	$ (610,083)	$ 228,060	$ 7,220,724
Beginning Balance (Shares) at Dec. 31, 2016	120,000	5,362,992
Compensation cost recognized in connection with stock options			177,113			177,113
Options exercised on a cashless basis (Shares)		3,390
Net income					344,186	344,186
Foreign currency translation adjustment				7,344		7,344
Ending Balance at Sep. 30, 2017	$ 3,000	$ 130,053	$ 7,646,807	$ (602,739)	$ 572,246	$ 7,749,367
Ending Balance (Shares) at Sep. 30, 2017	120,000	5,366,382

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities
Net income	$ 344,186	$ 140,780
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	322,829	314,584
Stock-based compensation	177,113	155,742
Other Income	0	(73,533)
Bad debts	5,737	(13,369)
Inventory reserve	116,769	26,385
Gain on sale of property and equipment	(3,061)	0
(Increase) decrease in:
Accounts receivable	(741,392)	(343,125)
Inventory	(1,773,336)	230,302
Payments in advance	154,317	(323,623)
Prepaid expenses and other current assets	516,895	578,386
Income tax refunds receivable	(76,163)	0
Other receivables	0	90,000
Deposits	(280)	(8,361)
(Increase) Decrease in:
Accounts payable and accrued expenses	2,584,830	(89,935)
Income taxes payable	140,980	(162,413)
Net cash provided by operating activities	1,769,424	521,820
Cash flows from investing activities
Capital expenditures	(1,158,507)	(93,763)
Proceeds from sale of property and equipment	3,125	0
Increase in short-term investments, net	(17)	(18)
Net cash used in investing activities	(1,155,399)	(93,781)
Cash flows from financing activities
Proceeds from exercise of stock options	0	39,000
Repayments of short-term loan, net	(483,773)	(620,003)
Net cash used in financing activities	(483,773)	(581,003)
Effect of exchange rates on cash and cash equivalents	1,617	51,632
Net increase (decrease) in cash and cash equivalents	131,869	(101,332)
Cash and cash equivalents - beginning	1,103,003	1,054,750
Cash and cash equivalents - ending	1,234,872	953,418
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	10,597	10,467
Cash paid for income taxes	87,207	271,737
Other noncash investing and financing activities
Common stock issued for services	177,113	155,742
Cancellation of common shares as settlement of a legal matter	$ 0	$ (73,533)

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Basis of Presentation

9 Months Ended

Sep. 30, 2017

Basis of Presentation [Text Block]

Note 1 - Basis of presentation

The consolidated balance sheet as of December 31, 2016 was audited and appears in the Form 10-K filed by the Company with the Securities and Exchange Commission on March 29, 2017. The consolidated balance sheet as of September 30, 2017 and the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2017 and 2016, changes in stockholders’ equity for the nine months ended September 30, 2017, cash flows for the nine months ended September 30, 2017 and 2016, 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 September 30, 2017 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, 2016 as filed with the Securities and Exchange Commission in the Company’s Form 10-K.

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Inventory

9 Months Ended

Sep. 30, 2017

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 nine months ended September 30, 2017 and 2016 was $282,876 and $186,899 respectively.

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Intangible Assets

9 Months Ended

Sep. 30, 2017

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 nine months ended September 30, 2017 was zero. There was no impairment of intangible assets at September 30, 2017.

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Short-term Loan

9 Months Ended

Sep. 30, 2017

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 $58,921 over an eleven-month period at an APR of 3.397% and the South African short-term loan is payable in monthly installments of $1,740 over a ten-month period at a flat interest rate of 4.10% . The Company repaid the U.S. short-term loan in full on September 1, 2017.

The Company also carries directors’ and officers’ liability insurance and several other insurance policies. 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 $8,315 at a 3.900% annual interest rate.

In addition, the Company carries Network Security/Privacy insurance. The Company finances payment of its short-term insurance premiums over the period of coverage over six months. The short-term loan is payable in five payments of $1,453 at a 3.397% annual interest rate. The Company repaid the U.S. short-term loan in full on September 1, 2017

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Income Taxes

9 Months Ended

Sep. 30, 2017

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 September 30, 2017, the Company has no unrecognized tax benefits.

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Net Income Per Share of Common Stock

9 Months Ended

Sep. 30, 2017

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. As of September 30, 2017, the Company had 636,000 potential common shares, consisting of 120,000 preferred shares and options to purchase 193,000 shares, outstanding that were dilutive, and options to purchase 323,000 shares that were anti-dilutive and therefore not included in diluted net income per share.

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Common Stock

9 Months Ended

Sep. 30, 2017

Common Stock [Text Block]

Note 7 – Common Stock

During the nine months ended September 30, 2017, 169,000 stock options were granted at an exercise price of $1.60 per share, exercisable over a 10 -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 nine months ended September 30, 2017, was $0.60.

Expected term in years	10 years
Risk-free interest rate	2.78%
Expected volatility	21.73%
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 during the nine months ended September 30, 2017 was $177,113. As of September 30, 2017, there was $357,293 of unrecognized compensation costs related to unvested stock options, which is expected to be recognized over a 3 -year vesting period.

On May 22, 2017, the Company issued 3,390 shares of common stock to employees who exercised employee stock options in a cashless exercise.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2017

Recent Accounting Pronouncements [Text Block]

Note 8 – Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In July 2015, the FASB issued Accounting Standards Update (“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 adopted the new standard on January 1, 2017. The adoption of this ASU did not have a material impact on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09").” ASU 2016-09 amends the guidance on several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification on the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the new standard on January 1, 2017. The Company elected to apply the amendments related to the classification of excess tax benefits on the statement of cash flows on a prospective basis, and prior periods were not adjusted. The adoption of this ASU did not have a material impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies that no new measurement date will be required if there is no change to the fair value, vesting conditions, and classification. This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company does not expect this standard to have a material impact on its financial statements.

In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business,” which further clarifies the definition of a business in an effort to assist entities in evaluating whether a set of transferred assets constitutes a business. Under this new guidance, if substantially all of the fair value of gross assets acquired is concentrated in a single asset or similar asset group, the set of transferred assets would not meet the definition of a business and no further evaluation is necessary. If this threshold is not met, the entity would then evaluate whether the set of transferred assets and activities meets the requirement that a business include, at a minimum, an input and a process that together have the ability to create an output. This guidance is effective for annual and quarterly periods beginning after December 15, 2017, with early adoption permitted. The Company expects to adopt the ASU beginning January 1, 2018.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating the requirement to calculate the implied fair value of goodwill. Rather, the goodwill impairment is calculated by comparing the fair value of a reporting unit to its carrying value, and an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value, limited to the total goodwill allocated to the reporting unit. All reporting units apply the same impairment test under the new standard. The Company is required to adopt this ASU for its annual and any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.

In May 2014, the FASB issued ASU 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 new guidance allows for two methods of adoption: (a) “full retrospective” adoption, meaning that the standard is applied to all periods presented, or (b) “modified retrospective” adoption, meaning that the cumulative effect of applying the new guidance is recognized as an adjustment to the opening retained earnings balance for the year of implementation. The Company plans to adopt the new revenue standard effective January 1, 2018, on a modified retrospective method with the cumulative effect of the change reflected in retained earnings as of January 1, 2018, and not restate prior periods. The Company continues to monitor FASB activity to assess certain interpretative issues and the associated implementation of the new standard. The Company has performed an initial review of its revenue arrangements, which include product sales and royalty payments, and based upon that initial review, and the interpretive guidance that has been issued and examined, the adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

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 October 2016, the FASB issued ASU No. 2016-16, “Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory” ("ASU 2016-16"). The ASU clarifies the accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The ASU is effective for the Company in the first quarter of 2018, with early adoption permitted, and is to be applied using a modified retrospective approach. The Company is evaluating the new standard to determine the impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).” The ASU requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents are to be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statement of cash flows. The ASU is effective for the Company for annual reporting periods beginning after December 15, 2017 and is required to be adopted using a retrospective approach, if applicable, with early adoption permitted. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

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Litigation

9 Months Ended

Sep. 30, 2017

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.

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Subsequent Events

9 Months Ended

Sep. 30, 2017

Subsequent Events [Text Block]

Note 10 – Subsequent Events

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

The Company entered into a Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated October 16, 2017, to finance its U.S. short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $593,400 in eleven payments of $55,071, at an annual interest rate of $4.15% commencing on November 1, 2017 and ending on September 1, 2018. 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.

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Common Stock (Tables)

9 Months Ended

Sep. 30, 2017

Schedule of fair value of the options granted, valuation assumptions [Table Text Block]

Expected term in years	10 years
Risk-free interest rate	2.78%
Expected volatility	21.73%
Expected dividend yield	0.00%

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Inventory (Narrative) (Details)	9 Months Ended
	Sep. 30, 2017 USD ($)
Inventory 1	$ 282,876
Inventory 2	$ 186,899

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Short-term Loan (Narrative) (Details)	9 Months Ended
	Sep. 30, 2017 USD ($)
Short-term Loan 1	$ 58,921
Short-term Loan 2	3.397%
Short-term Loan 3	$ 1,740
Short-term Loan 4	4.10%
Short-term Loan 5	$ 8,315
Short-term Loan 6	3.90%
Short-term Loan 7	$ 1,453
Short-term Loan 8	3.397%

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Income Taxes (Narrative) (Details)	9 Months Ended
	Sep. 30, 2017
Income Taxes 1	50.00%

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Net Income Per Share of Common Stock (Narrative) (Details)	9 Months Ended
	Sep. 30, 2017 shares
Net Income Per Share Of Common Stock 1	636,000
Net Income Per Share Of Common Stock 2	120,000
Net Income Per Share Of Common Stock 3	193,000
Net Income Per Share Of Common Stock 4	323,000

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Common Stock (Narrative) (Details)	9 Months Ended
	Sep. 30, 2017 USD ($) $ / shares shares
Common Stock 1 | shares	169,000
Common Stock 2 | $ / shares	$ 1.60
Common Stock 3	10
Common Stock 4	$ 0.60
Common Stock 5	177,113
Common Stock 6	$ 357,293
Common Stock 7	3
Common Stock 8 | shares	3,390

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Subsequent Events (Narrative) (Details)	9 Months Ended
	Sep. 30, 2017 USD ($)
Subsequent Events 1	$ 593,400
Subsequent Events 2	55,071
Subsequent Events 3	$ 4.15
Subsequent Events 4	5.00%

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Schedule of fair value of the options granted, valuation assumptions (Details)	9 Months Ended
	Sep. 30, 2017 yr
Common Stock Schedule Of Fair Value Of The Options Granted, Valuation Assumptions 1	10
Common Stock Schedule Of Fair Value Of The Options Granted, Valuation Assumptions 2	2.78%
Common Stock Schedule Of Fair Value Of The Options Granted, Valuation Assumptions 3	21.73%
Common Stock Schedule Of Fair Value Of The Options Granted, Valuation Assumptions 4	0.00%