0001062993-19-004281.txt : 20191112 0001062993-19-004281.hdr.sgml : 20191112 20191112080058 ACCESSION NUMBER: 0001062993-19-004281 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 53 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191112 DATE AS OF CHANGE: 20191112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Leatt Corp CENTRAL INDEX KEY: 0001456189 STANDARD INDUSTRIAL CLASSIFICATION: MOTORCYCLES, BICYCLES & PARTS [3751] IRS NUMBER: 202819367 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54693 FILM NUMBER: 191206216 BUSINESS ADDRESS: STREET 1: 50 KIEPERSOL DRIVE, ATLAS GARDENS STREET 2: CONTERMANSKLOOF ROAD CITY: DURBANVILLE, WESTERN CAPE STATE: T3 ZIP: 7441 BUSINESS PHONE: (27)21-556-5409 MAIL ADDRESS: STREET 1: SUITE 109, PRIVATE BAG X3 CITY: BLOUBERGRANT, WESTERN CAPE STATE: T3 ZIP: 7443 10-Q 1 form10q.htm FORM 10-Q Leatt Corp.: Form 10-Q - Filed by newsfilecorp.com

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, 2019

[_] 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 organization) (I.R.S. Employer Identification No.)

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 5, 2019 is as follows:

Class of Securities Shares Outstanding
Common Stock, $0.001 par value 5,386,723



LEATT CORPORATION

Quarterly Report on Form 10-Q
Three Months and Nine Months Ended September 30, 2019

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION 3
     
ITEM 1. FINANCIAL STATEMENTS. 3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 26
ITEM 4. CONTROLS AND PROCEDURES. 26
PART II OTHER INFORMATION 26
     
ITEM 1. LEGAL PROCEEDINGS. 26
ITEM 1A. RISK FACTORS. 26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 27
ITEM 4. MINE SAFETY DISCLOSURES. 27
ITEM 5. OTHER INFORMATION. 27
ITEM 6. EXHIBITS. 27

PART I
FINANCIAL INFORMATION

     LEATT CORPORATION
CONSOLIDATED BALANCE SHEETS

ASSETS   
    September 30, 2019     December 31, 2018  
    Unaudited     Audited  
Current Assets            
 Cash and cash equivalents $  1,906,612   $  1,709,900  
 Short-term investments   58,236     58,232  
 Accounts receivable   5,828,054     2,049,331  
 Inventory   6,967,980     4,815,215  
 Payments in advance   473,380     473,286  
 Prepaid expenses and other current assets   1,025,954     1,247,233  
   Total current assets   16,260,216     10,353,197  
             
Property and equipment, net   2,338,426     2,317,490  
Operating lease right-of-use assets, net   369,608     -  
             
Other Assets            
 Deposits   26,167     25,380  
 Intangible assets   38,642     40,466  
 Total other assets   64,809     65,846  
             
Total Assets $  19,033,059   $  12,736,533  
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current Liabilities            
 Note Payable to Bank $  350,000   $  -  
 Accounts payable and accrued expenses   6,930,930     2,779,182  
 Operating lease liability, current   169,478     -  
 Income tax payable   429,072     70,258  
 Short term loan, net of finance charges   73,109     582,128  
     Total current liabilities   7,952,589     3,431,568  
             
Deferred tax liabilities, net   170,900     170,900  
Deferred Compensation   140,000     80,000  
Operating lease liability, net of current portion   200,130     -  
             
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, 5,386,723 and 5,370,028 shares issued and outstanding   130,068     130,053  
 Additional paid - in capital   8,049,354     7,868,119  
 Accumulated other comprehensive loss   (678,894 )   (609,303 )
 Retained earnings   3,065,912     1,662,196  
     Total stockholders' equity   10,569,440     9,054,065  
             
Total Liabilities and Stockholders' Equity $  19,033,059   $  12,736,533  

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

3

LEATT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

    Three Months Ended     Nine Months Ended  
    September 30     September 30  
    2019     2018     2019     2018  
    Unaudited     Unaudited     Unaudited     Unaudited  
Revenues $  9,649,335   $  8,579,507   $  21,017,329   $  18,877,912  
                         
Cost of Revenues   5,152,688     4,574,205     11,027,944     9,760,962  
                         
Gross Profit   4,496,647     4,005,302     9,989,385     9,116,950  
                         
Product Royalty Income   17,360     8,094     33,056     28,205  
                         
Operating Expenses                        
 Salaries and wages   739,366     588,242     2,330,006     1,983,557  
 Commissions and consulting expenses   104,608     124,501     263,168     383,415  
 Professional fees   133,480     163,687     518,017     461,145  
 Advertising and marketing   520,633     534,817     1,556,515     1,497,429  
 Office lease and expenses   71,725     69,400     210,263     211,159  
 Research and development costs   357,258     357,177     1,063,573     1,059,369  
 Bad debt expense   148,685     635     158,184     21,107  
 General and administrative expenses   485,054     521,052     1,473,708     1,410,768  
 Depreciation   191,712     174,490     569,707     502,265  
     Total operating expenses   2,752,521     2,534,001     8,143,141     7,530,214  
                         
Income from Operations   1,761,486     1,479,395     1,879,300     1,614,941  
                         
Other Expenses                        
 Interest and other expenses, net   (449 )   (2,393 )   (4,042 )   (8,320 )
   Total other expenses   (449 )   (2,393 )   (4,042 )   (8,320 )
                         
Income Before Income Taxes   1,761,037     1,477,002     1,875,258     1,606,621  
                         
Income Taxes   440,259     370,658     471,542     408,913  
                         
Net Income Available to Common Shareholders $  1,320,778   $  1,106,344   $  1,403,716   $  1,197,708  
                         
Net Income per Common Share                        
 Basic $  0.25   $  0.21   $  0.26   $  0.22  
 Diluted $  0.24   $  0.20   $  0.25   $  0.22  
                         
Weighted Average Number of Common Shares Outstanding                        
 Basic   5,386,723     5,366,382     5,384,753     5,366,382  
 Diluted   5,532,275     5,504,664     5,530,304     5,504,664  
                         
Comprehensive Income                        
 Net Income $  1,320,778   $  1,106,344   $  1,403,716   $  1,197,708  
 Other comprehensive income, net of $0 and $0 deferred                        
     income taxes in 2019 and 2018                        
     Foreign currency translation   (102,756 )   (6,018 )   (69,591 )   (122,328 )
                         
     Total Comprehensive Income $  1,218,022   $  1,100,326   $  1,334,125   $  1,075,380  


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

4

LEATT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019

                                  Accumulated              
                                  Other              
    Preferred Stock A     Common Stock     Additional     Comprensive     Retained        
    Shares     Amount     Shares     Amount     Paid - In Capital     Loss     Earnings     Total  
Balance, January 1, 2019   120,000   $  3,000     5,370,028   $  130,053   $  7,868,119   $  (609,303 ) $  1,662,196   $  9,054,065  
Compensation cost recognized in connection  with stock options   -     -     -     -     166,250     -     -     166,250  
Exercise of stock options   -     -     15,000     15     14,985     -     -     15,000  
Options exercised on a cashless basis   -     -     1,695     -     -     -     -     -  
Net income   -     -     -     -     -     -     1,403,716     1,403,716  
Foreign currency translation adjustment   -     -     -     -     -     (69,591 )   -     (69,591 )
Balance, September 30, 2019   120,000   $  3,000     5,386,723   $  130,068   $  8,049,354   $  (678,894 ) $  3,065,912   $  10,569,440  


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

5

LEATT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

    2019     2018  
Cash flows from operating activities            
 Net income $  1,403,716   $  1,197,708  
 Adjustments to reconcile net income to net cash provided by            
     operating activities:            
     Depreciation   569,707     502,265  
     Stock-based compensation   166,250     150,332  
     Bad debts   137,787     10,921  
     Inventory reserve   35,248     92,898  
     (Gain) on sale of property and equipment   (1,500 )   (1,260 )
   (Increase) decrease in:            
       Accounts receivable   (3,916,510 )   (1,731,877 )
       Inventory   (2,188,013 )   (1,738,669 )
       Payments in advance   (94 )   81,592  
       Prepaid expenses and other current assets   221,279     97,197  
       Income tax refunds receivable   -     130,171  
       Deposits   (787 )   807  
   Increase (decrease) in:            
       Accounts payable and accrued expenses   4,151,748     2,171,945  
       Income taxes payable   358,814     271,484  
       Deferred compensation   60,000     -  
           Net cash provided by operating activities   997,645     1,235,514  
             
Cash flows from investing activities            
   Capital expenditures   (616,278 )   (575,909 )
   Proceeds from sale of property and equipment   10,000     1,308  
   Increase in short-term investments, net   (4 )   (9 )
         Net cash used in investing activities   (606,282 )   (574,610 )
             
Cash flows from financing activities            
   Issuance of common stock   15,000     -  
   Proceeds from note payable to bank, net   350,000     -  
   Repayments of short-term loan, net   (509,019 )   (453,822 )
          Net cash used in financing activities   (144,019 )   (453,822 )
             
Effect of exchange rates on cash and cash equivalents   (50,632 )   (42,842 )
             
Net increase in cash and cash equivalents   196,712     164,240  
             
Cash and cash equivalents - beginning of period   1,709,900     1,518,157  
             
Cash and cash equivalents - end of period $  1,906,612   $  1,682,397  
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:            
 Cash paid for interest $  16,509   $  12,321  
 Cash paid for income taxes $  111,600   $  7,121  
             
 Other non-cash investing and financing activities            
   Common stock issued for services $  166,250   $  150,332  


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

6

LEATT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Basis of presentation

The consolidated balance sheet as of December 31, 2018 was audited and appears in the Form 10-K filed by the Company with the Securities and Exchange Commission on March 27, 2019. The consolidated balance sheet as of September 30, 2019 and the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2019 and 2018, changes in stockholders’ equity for the nine months ended September 30, 2019, cash flows for the nine months ended September 30, 2019 and 2018, 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, 2019 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, 2018 as filed with the Securities and Exchange Commission in the Company’s Form 10-K.

Significant Accounting Policies

There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K, except for the policies described below in relation to the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), discussed in Note 11 “Recent Accounting Pronouncements”

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets (“ROU”), and lease liability obligations are included in the Company’s balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 4 for additional information.

Note 2 - Inventory

Inventory is stated at the lower of cost or net realizable value. 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 was $117,252 at September 30, 2019 and $83,004 at December 31, 2018.

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, 2019 was zero. There was no impairment loss recognized for the nine months ended September 30, 2019 and 2018, respectively.

Note 4 – Operating Leases – Right-of-Use Assets and Lease Liability Obligations

The Company has three non-cancelable operating leases, two for office space and one for office machinery, that expire in December 2020, March 2022 and April 2022. Rent expense for these operating leases is recognized over the term of the lease on a straight-line basis. Below is a summary of the Company’s Operating Right-of-Use Assets and Operating Lease liabilities as of September 30, 2019:

7


Assets      
Operating lease ROU assets $  369,608  
       
Liabilities      
Operating lease liability, current   169,478  
Operating lease liability, net of current portion   200,130  
   Total operating lease liabilities $
 369,608
 

During the nine months ended September 30, 2019, the Company recognized $128,713 in operating lease expenses, which are included in office lease and expenses in the Company’s consolidated statements of operations and comprehensive income.

Supplemental cash flow information for the nine months ended September 30, 2019 is as follows:

    Nine Months Ended  
    September 30, 2019  
Cash paid for amounts included in the measurement of lease liabilities $  137,442  
Right-of-use assets obtained in exchange for lease obligations $  500,956  

Generally, our lease agreements do not specify an implicit rate. Therefore, we estimate our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering such factors as length of lease term and the risks of the economic environment in which the leased asset operates. As of September 30, 2019, the following disclosures for remaining lease term and incremental borrowing rates were applicable:

                                       Supplemental disclosure   September 30, 2019
Weighted average remaining lease term   3 years
Weighted average discount rate   5.02%

Maturities of lease liabilities as of September 30, 2019 were as follows:

                     Year ended December 31,   Amounts under Operating Leases  
Remaining 2019 $  45,793  
2020   184,831  
2021   136,949  
2022   46,070  
Total lease payments   413,643  
Less: Imputed interest   (44,035 )
Total $  369,608  

Note 5 – Note Payable to Bank

On November 19, 2018, the Company entered into a $1,000,000 revolving line of credit agreement with a bank. Payments for the advances under the line bear interest at the LIBOR Daily Floating Rate plus 2.5 percentage points commencing January 1, 2019. The line of credit that matures on November 19, 2019, has been extended to November 19, 2020, at which time the unpaid principal, interest, or other charges outstanding under the agreement are due and payable. Obligations under the line of credit are secured by equipment and fixtures in the United States of America, accounts receivable and inventory of Leatt Corporation and Two-Eleven Distribution, LLC. As of September 30, 2019, the line of credit in the amount of $350,000 was used, interest of $442 was accrued for the quarter and the balance of $650,000 was available. The revolving line of credit was fully repaid on October 17, 2019 and the balance of $1,000,000 is available.

Note 6 - Short-term Loan

The Company carries product liability insurance policies with a U.S. and South African-based insurance carrier. The Company finances payment of both of its product liability insurance premiums over the period of coverage which is generally twelve months. The U.S. short-term loan is payable in monthly instalments of $62,225 over eleven months including interest at 4.990% and the South African short-term loan is payable in monthly instalments of $1,556 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 11, 2019.

8

The Company carries various short-term insurance policies in the U.S. 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 $10,540 at 5.990% annual interest rate.

Note 7 - Revenue and Cost Recognition

The Company recognizes revenue in accordance with ASC 606. As such, the Company has and will continue to review its performance obligations in terms of material customer contractual arrangements in order to verify that revenue is recognized when performance obligations are satisfied on a periodic basis.

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 or where consumers choose to purchase directly via the Company’s e-commerce website (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 where no exchange of product is possible. Revenues are recognized when our performance obligations are satisfied as evidenced by transfer of control of promised goods to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Product royalty income, representing less than 1% of total revenues, is recorded as the underlying product sales occur, in accordance with the related licensing arrangements.

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 or the consumer chooses to purchase directly from the Company’s e-commerce website 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.

The Company's standard terms and conditions of sale for non-consumer direct or web-based sales do not allow for product returns other than under warranty.

International sales (other than in the United States and 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 and exchanged 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.

In the following table, revenue is disaggregated by the source of revenue:

  Nine months ended September 30,
    2019     % of Revenues     2018     % of Revenues  
Consumer and athlete direct revenues $  980,552     5%   $  808,335     4%  
Dealer direct revenues   6,913,057     33%     6,307,993     34%  
International distributor revenues   13,123,720     62%     11,761,584     62%  
  $  21,017,329     100%   $  18,877,912     100%  

The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company estimates the expected returns and claims based on historical rates as well as events and circumstances that indicate changes to historical rates of product returns and claims. Historically, returns due to product quality issues have not been material and there have been no distributor terminations that resulted in product returns. The provision for estimated returns at September 30, 2019 and December 31, 2018 was $0, and $0, respectively.

9

Accounts receivable consist of amounts due to the Company from normal business activities. Credit is granted to substantially all distributors on an unsecured basis. The Company continuously monitors collections and payments from customers and maintains an allowance for doubtful accounts receivable based upon historical experience and any specific customer collection issues that have been identified. The allowance of doubtful accounts was $228,186 at September 30, 2019 and $83,399 at December 31, 2018.

Sales commissions are expensed when incurred, which is generally at the time of sale, because the amortization period would have been one year or less. These costs are recorded in commissions and consulting expenses within operating expense in the accompanying consolidated statements of operations and comprehensive income.

Shipping and handling activities associated with outbound freight, after control over a product has transferred to a customer, are accounted for as a fulfillment cost and are included in revenues and cost of revenues in the accompanying consolidated statements of operations and comprehensive income.

Revenue recognized from contracts with customers is recorded net of sales taxes, value added taxes, or similar taxes that are collected on behalf of local taxing authorities.

For the nine months ended September 30, 2019, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future period related to remaining performance obligations is not material. As of September 30, 2019, contract liabilities, if any, were not material.

Note 8 - 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, 2019, the Company has no unrecognized tax benefits.

Note 9 - Net Income Per Share of Common Stock

Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common stock shares and dilutive potential common shares outstanding during the period. For the nine months ended September 30, 2019, the Company had 862,000 potential common shares, consisting of 120,000 preferred shares, options to purchase 169,000 shares, outstanding that were dilutive, and options to purchase 573,000 shares that were anti-dilutive and therefore, not included in diluted net income per share.

Note 10 – Common Stock

In February 2019, options to purchase 250,000 of the Company’s common stock were granted to key employees, consultants and directors under the Plan at an exercise price of $2.30 per share, exercisable over a 10-year period. On February 25, 2019, 30% of the shares underlying these options vested with a compensation expense of $82,530. The remaining 70% of the shares were unvested with unrecognized compensation value of $192,570. The fair value of the stock options granted was estimated to be $1.1004 at the date of the grant using the Black Sholes option-pricing model. The option value was calculated assuming a year’s risk-free interest rate of 2.84%, expected volatility of 32.35% and an expected dividend yield of 0.00% .

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In addition, in February 2019, the Company issued 1,695 shares of common stock to an employee who exercised stock options in a cashless exercise and a Director exercised stock options for the issuance of 15,000 shares for $15,000.

Stock-based compensation expense related to vested stock options during the nine months ended September 30, 2019 was $166,250. As of September 30, 2019, there was $239,370 of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a 3-year vesting period.

Note 11 – Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. The new standard is effective for fiscal years beginning after December 15, 2018 and has been adopted using a modified retrospective transition approach effective January 1, 2019. The adoption of the new standard has had a material impact on the Company’s consolidated balance sheets, but not on its consolidated statements of operations, as all long-term leases have been capitalized on the consolidated balance sheets. The Company has identified the population of leases and lease assets and is tracking all its lease agreements to assist in the reporting and disclosures required by the new standard. The Company has implemented processes and tools to assist in the ongoing lease data collection and analysis and has updated accounting policies and internal controls as a result of adopting this standard.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840. The Company adopted this standard using the modified retrospective approach on January 1, 2019 as described above, coinciding with the standard’s effective date.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation”, which aligns the measurement and classification guidance for share-based payments to non-employees with the guidance for share-based payments to employees. Under the new guidance, the measurement period for equity-classified non-employee awards will be fixed at the grant date. This update is effective for annual periods beginning after December 15, 2018, and interim periods within those periods and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which provides for an election to reclassify stranded tax effects within accumulated other comprehensive income/(loss) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurements”, which eliminates, adds or modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year, with early adoption permitted to adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.

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. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU 2018-19, which amended the standard. The standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This standard is effective for the Company on January 1, 2020. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently assessing the impact, but does not expect it will have a material impact on the consolidated financial statements.

Note 12 - 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 13 – Subsequent Events

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

The revolving line of credit with a bank was fully repaid on October 17, 2019 and the balance of $1,000,000 is available.

The Company entered into a Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated October 10, 2019, to finance its U.S short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $753,360 in eleven payments of $70,468, at an annual interest rate of 5.740% commencing on November 1, 2019 and ending on September 1, 2020. Any late payment during the term of the agreement will be assessed by 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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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, performance 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 annual report. You should read this annual report and the documents that we reference and filed as exhibits to the annual 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 annual 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 = ZAR 15.0919 for its September 30, 2019 balance sheet.

Overview of our Business

We were incorporated in the State of Nevada on March 11, 2005 under the name Treadzone, Inc. We were a shell company with little or no operations until March 1, 2006, when we acquired 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. On May 25, 2005, we changed our name to Leatt Corporation in connection with our anticipated acquisition of the Leatt-Brace® rights. 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.

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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 3 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. Depending on the market we have other certifications outside of CE. For the US market our motorcycle helmets comply with the DOT (FMVSS 218) helmet safety standard and our bicycle helmet complies with EN1078, as well as CPSC 1203. Our downhill specific bicycle helmets also comply with ASTM F1952. For our Australian Market our bicycle helmet complies with AS/NZS 2063. For the UK market our motorcycle helmets comply with ACU Gold. We are also in the process of certifying our GPX 3.5 helmet with JIS T 8133 for the Japanese Market.

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

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

Principal Factors Affecting Our Financial Performance

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

  • Global Economic Fragility – The ongoing turmoil in the global economy, especially in the U.S., Asia 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.
     
  • Trade Restrictions – We engage in international manufacturing and sales which exposes us to trade restrictions and disruptions that could harm our business and competitive position. Most of our products are manufactured in China, and the US administration has announced tariffs on certain product imported into the United States with China as the country of origin. While these tariffs have not had a significant impact on the shipment of our products to international markets as at September 30, 2019, we believe that the future imposition of, or significant increases in, the level of tariffs, custom duties, export quotas and other barriers and restrictions by the US on China or other countries could disrupt our supply chain, increase the cost of our raw materials and therefore our pricing, and impose the burdens of compliance with foreign trade laws, any of which could potentially affect our bottom line and sales. While we are in continuous discussions with our manufacturers to ensure there are contingencies in place, we cannot assure you that we will not be adversely affected by changes in the trade laws of foreign jurisdictions where we sell and seek to sell our products.
     
  • 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.

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  • 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.
     
  • 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 66% 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 th ose 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, 2019 and 2018 included herein.

Three Months Ended September 30, 2019 compared to the Three Months Ended September 30, 2018

The following table summarizes the results of our operations during the three-month periods ended September 30, 2019 and 2018 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

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    Three Months Ended September 30,           Percentage  
    2019     2018   $  Increase     Increase  
Item               (Decrease)     (Decrease)  
                         
REVENUES $  9,649,335   $  8,579,507   $ 1,069,828     12%  
COST OF REVENUES   5,152,688     4,574,205   $  578,483     13%  
GROSS PROFIT   4,496,647     4,005,302   $  491,345     12%  
PRODUCT ROYALTY INCOME   17,360     8,094   $  9,266     114%  
OPERATING EXPENSES                        
   Salaries and Wages   739,366     588,242   $  151,124     26%  
   Commissions and Consulting   104,608     124,501   $  (19,893 )   -16%  
   Professional Fees   133,480     163,687   $  (30,207 )   -18%  
   Advertising and Marketing   520,633     534,817   $  (14,184 )   -3%  
   Office Lease and Expenses   71,725     69,400   $  2,325     3%  
   Research and Development Costs   357,258     357,177   $  81     0%  
   Bad Debt Expense   148,685     635   $  148,050     23315%  
   General and Administrative   485,054     521,052   $  (35,998 )   -7%  
   Depreciation   191,712     174,490   $  17,222     10%  
   Total Operating Expenses   2,752,521     2,534,001   $  218,520     9%  
INCOME FROM OPERATIONS   1,761,486     1,479,395   $  282,091     19%  
Other Expenses   (449 )   (2,393 ) $  1,944     81%  
INCOME BEFORE INCOME TAXES   1,761,037     1,477,002   $  284,035     19%  
Income Taxes   440,259     370,658   $  69,601     19%  
NET INCOME $  1,320,778   $  1,106,344   $  214,434     19%  

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, 2019 were $9.65 million, a 12% increase, compared to revenues of $8.58 million for the quarter ended September 30, 2018. Revenues associated with international customers were $6.74 million and $6.43 million, or 70% and 75% of revenues, respectively, for the three months ended September 30, 2019 and 2018. This increase in worldwide revenues during the 2019 period is primarily attributable to a $0.19 million increase in neck brace sales, a $0.21 million increase in body armor sales, a $0.46 million increase in helmet sales and a $0.21 million increase in sales of other products, parts and accessories during the period.

The following table sets forth our revenues by product line for the three months ended September 30, 2019 and 2018:

    Three months ended September 30,  
    2019     % of Revenues     2018     % of Revenues  
Neck braces $  1,943,871     20%   $  1,756,867     21%  
Body armor   4,624,167     48%     4,410,653     51%  
Helmets   1,268,452     13%     811,151     9%  
Other Products, Parts and Accessories   1,812,845     19%     1,600,836     19%  
  $  9,649,335     100%   $  8,579,507     100%  

Sales of our flagship neck brace accounted for $1.94 million and $1.76 million, or 20% and 21% of our revenues for the quarters ended September 30, 2019 and 2018, respectively. The 11% increase in neck brace revenues is primarily attributable to a 15% increase in the volume of neck braces sold to our customers worldwide during the 2019 period.

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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 $4.62 million and $4.41 million, or 48% and 51% of our revenues for the quarters ended September 30, 2019 and 2018, respectively. The 5% increase in body armor revenues was primarily the result of an increase in the sales volumes of the Company’s growing knee brace and upper body protection product lines due to continued demand both in the United States and abroad.

Our helmets accounted for $1.27 million or 13% of our revenues for the three months ended September 30, 2019, as compared to $0.81 million or 9% of our revenues for the same 2018 period. The 56% increase in helmet sales is primarily the result of an increase in the sales volume of the Company’s innovative convertible DBX 3.0 and DBX 4.0 helmets for bicycle use during the 2019 period.

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, jerseys, pants, shorts, jackets, bags, hydration kits, cooling garments and goggles. Other products, parts and accessories sales accounted for $1.81 million and $1.60 million, or 19% and 19% of our revenues for the quarters ended September 30, 2019 and 2018, respectively. The 13% increase in revenues from the sale of other products, parts and accessories is primarily due to increased sales volume of the Company’s DBX apparel line designed for bicycle use.

Cost of Revenues and Gross Profit – Cost of revenues for the quarters ended September 30, 2019 and 2018 were $5.15 million and $4.57 million, respectively. Gross Profit for the quarters ended September 30, 2019 and 2018 were $4.50 million and $4.01 million, respectively, or 47% and 47% 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 21% of our revenues for the quarters ended September 30, 2019 and 2018 respectively. However, revenues associated with direct dealer sales in the United States continue to generate a higher gross profit margin than sales associated with our international customers. Revenues in the United States were 30% and 25% of our revenues for the three months ended September 30, 2019 and 2018, respectively.

Product Royalty Income – Product royalty income is earned on sales to distributors that have royalty agreements in place, as well as on sales of licensed products by third parties that have licensing agreements in place. Product royalty income for the quarters ended September 30, 2019 and 2018 were $17,360 and $8,094, respectively. The 114% increase in product royalty income is due to an increase in the sale of licensed products by licensees in the 2019 period.

Salaries and Wages – Salaries and wages for the quarters ended September 30, 2019 and 2018 were $739,366 and $588,242, respectively. This 26% increase in salaries and wages during the 2019 period was primarily due to the employment of additional in-house sales personnel in the United States and International e-commerce sales personnel abroad.

Commissions and Consulting Expense – During the quarters ended September 30, 2019 and 2018, commissions and consulting expenses were $104,608 and $124,501, respectively. This 16% decrease in commissions and consulting expenses is primarily due to a decrease in sales commissions paid to sales personnel in Europe in line with the Company’s restructuring of sales remuneration associated with international revenues.

Professional Fees – Professional fees consist of costs incurred for audit, tax and regulatory filings, as well as patent maintenance, protection and product liability litigation expenses incurred as the Company continues to expand. Professional fees for the quarters ended September 30, 2019 and 2018 were $133,480 and $163,687, respectively. This 18% decrease in professional fees is primarily due to decreased spending on patent maintenance costs. The Company incurred significant initial trademark expansion costs in various key geographical areas during the quarter ended September 30, 2018 that were not incurred during the comparative 2019 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, 2019 and 2018 were $520,633 and $534,817, respectively. The 3% decrease in advertising and marketing expenditures during the 2019 period is primarily due to a decrease in international trade show expenditure as the Company continues to optimize its trade show presence.

Office Lease and Expenses – Office lease and expenses for the quarters ended September 30, 2019 and 2018 were $71,725 and $69,400, respectively. This 3% increase in office lease and expenses during the 2019 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, 2019 and 2018, increased to $357,258, from $357,177, during the same 2018 quarter. The Company continues to expand its product offering in multiple global markets through innovative, cost effective research and development activities.

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Bad Debt Expense – Bad Debt Expense for the quarters ended September 30, 2019 and 2018 were $148,685 and $635, respectively. This increase in Bad Debt Expense is the result of an increase in the provision for the write off of unrecoverable debts owing to the Company during the 2019 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, 2019 and 2018 were $485,054 and $521,052, respectively. The 7% 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, 2019 and 2018 were $191,712 and $174,490, respectively. This 10% increase in depreciation is primarily due to the addition of molds and tooling utilized in the production of the Company’s widening product range.

Total Operating Expenses – Total operating expenses increased by $218,520, to $2.75 million in the three months ended September 30, 2019, or 9%, compared to $2.53 million in the 2018 period. This increase is primarily due to increased salaries and wages and bad debt expenses discussed above.

Net Income – Net income after income taxes for the quarter ended September 30, 2019 was $1.32 million, as compared to a net income of $1.11 million for the quarter ended September 30, 2018. This increase in net income is primarily due to the increase in revenues discussed above.

Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018

The following table summarizes the results of our operations during the nine-month periods ended September 30, 2019 and 2018 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

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    Nine Months Ended September 30,           Percentage  
    2019     2018   $  Increase     Increase  
Item               (Decrease)     (Decrease)  
                         
REVENUES $  21,017,329   $  18,877,912   $ 2,139,417     11%  
COST OF REVENUES   11,027,944     9,760,962   $ 1,266,982     13%  
GROSS PROFIT   9,989,385     9,116,950   $  872,435     10%  
PRODUCT ROYALTY INCOME   33,056     28,205   $  4,851     17%  
OPERATING EXPENSES                        
   Salaries and Wages   2,330,006     1,983,557   $  346,449     17%  
   Commissions and Consulting   263,168     383,415   $  (120,247 )   -31%  
   Professional Fees   518,017     461,145   $  56,872     12%  
   Advertising and Marketing   1,556,515     1,497,429   $  59,086     4%  
   Office Lease and Expenses   210,263     211,159   $  (896 )   0%  
   Research and Development Costs   1,063,573     1,059,369   $  4,204     0%  
   Bad Debt Expense   158,184     21,107   $  137,077     649%  
   General and Administrative   1,473,708     1,410,768   $  62,940     4%  
   Depreciation   569,707     502,265   $  67,442     13%  
   Total Operating Expenses   8,143,141     7,530,214   $  612,927     8%  
INCOME FROM OPERATIONS   1,879,300     1,614,941   $  264,359     16%  
Other Expenses   (4,042 )   (8,320 ) $  4,278     51%  
INCOME BEFORE INCOME TAXES   1,875,258     1,606,621   $  268,637     17%  
Income Taxes   471,542     408,913   $  62,629     15%  
NET INCOME $  1,403,716   $  1,197,708   $  206,008     17%  

Revenues – Revenues of the nine-month period ended September 30, 2019 were $21.02 million, a 11% increase, compared to revenues of $18.88 million for the period ended September 30, 2018. Revenues associated with international customers were $13.71 million and $12.42 million, or 65% and 66% of revenues, respectively, for the nine months ended September 30, 2019 and 2018. The increase in worldwide revenues is attributable to a $0.89 million increase in body armor sales, a $0.10 million increase in helmet sales and a $1.20 million increase in other products, parts and accessory sales that were partially offset by a $0.05 million decrease in neck brace sales.

The following table sets forth our revenues by product line for the nine months ended September 30, 2019 and 2018:

  Nine months ended September 30,
    2019     % of Revenues     2018     % of Revenues  
Neck braces $  4,624,952     22%   $  4,677,982     25%  
Body armor   9,855,908     47%     8,965,611     47%  
Helmets   2,700,791     13%     2,596,591     14%  
Other Products, Parts and Accessories   3,835,678     18%     2,637,728     14%  
  $  21,017,329     100%   $  18,877,912     100%  

Sales of our flagship neck brace accounted for $4.62 million and $4.68 million, or 22% and 25% of our revenues for the nine-month periods ended September 30, 2019 and 2018, respectively. Although sales volumes of our flagship neck brace to our customer in the United States and Europe increased during the nine months ended September 30, 2019, the 1% decrease in neck brace revenues is primarily attributable to a decrease in the volume of neck braces sold to our customers in South Africa.

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Body armor sales accounted for $9.86 million and $8.97 million, or 47% and 47% of our revenues for the nine-month period ended September 30, 2019 and 2018, respectively. The 10% increase in body armour revenues was primarily the result of a 58% increase in the volume of knee braces sold during the nine months ended September 30, 2019 due to increased customer demand in the United States and abroad.

Our helmets accounted for $2.70 million, or 13% of our revenues for the nine months ended September 30, 2019, as compared to $2.60 million, or 14% of our revenues for the nine months ended September 30, 2018. The 4% increase in helmet revenues is primarily due to an increase in the sales volume of the Company’s convertible DBX 3.0 and DBX 4.0 helmets for bicycle use during the nine months ended September 30, 2019.

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, jerseys, pants, shorts, jackets, bags, hydration kits, cooling garments and goggles. Other products, parts and accessories sales accounted for $3.84 million and $2.64 million, or 18% and 14% of our revenues for the nine months ended September 30, 2019 and 2018, respectively. The 45% increase in revenues from the sale of other products, parts and accessories is primarily due to the continued shipment of our Velocity 6.5 line of goggles to our customers as demand grows in the United States and abroad.

Cost of Revenues and Gross Profit – Cost of revenues for the nine-month periods ended September 30, 2019 and 2018 were $11.03 million and $9.76 million, respectively. Gross Profit for the nine-month periods ended September 30, 2019 and 2018 were $9.99 million and $9.12 million, respectively, or 48% and 48% of revenues respectively. Our neck brace products continue to generate a higher gross margin than our other product categories. Although Neck brace revenues accounted for 22% and 25% of our revenues for the nine-month period ended September 30, 2019 and 2018, respectively, a decrease in the inventory obsolescence provision required for the nine-month period ended September 30, 2019, offset the effect of the decrease in neck brace sales contribution on the gross profit margin.

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 period ended September 30, 2019 and 2018 were $33,056 and $28,205, respectively. The 17% increase in product royalty income is due to an increase in the sale of licensed products by licensees in the 2019 period.

Salaries and Wages – Salaries and wages for the nine-month period ended September 30, 2019 and 2018 were $2,330,006 and $1,983,557, respectively. This 17% increase in salaries and wages during the 2019 period was primarily due to the employment of additional in-house professional sales personnel in the United States and Europe.

Commissions and Consulting Expense – During the nine-month periods ended September 30, 2019 and 2018, commissions and consulting expenses were $263,168 and $383,415, respectively. This 31% decrease in commission and consulting expenditure is primarily the result decreased sales commissions paid to sales representatives in the United States and abroad as the Company continues to restructure its International sales commission structure and employ in-house professional sales personnel in the United States.

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, 2019 and 2018 were $518,017 and $461,145, respectively. This 12% increase in professional fees is primarily due to increased spending on product liability and patent litigation during the 2019 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, 2019 and 2018 were $1,556,515 and $1,497,429, respectively. The 4% increase in advertising and marketing expenditure during the 2019 period is primarily due to the production and implementation of global marketing campaigns that incorporate web and print based advertising, social media engagement and athlete sponsorships that are designed to promote the Company’s growing product range and consumer brand on a global basis.

Office Lease and Expenses – Office lease and expenses for the nine-month periods ended September 30, 2019 and 2018 were $210,263 and $211,159, respectively. The marginal decrease in office lease and expenses during the 2019 period is due to decreased utility expenditure incurred in the United States during the 2019 period.

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, 2019 increased to $1,063,573, from $1,059,369, during the same 2018 period. The increase in research and development costs is primarily due to development costs incurred as the Company continues to grow its range of exceptional products and build a pipeline of innovative gear for wider consumer groups.

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Bad Debt Expense – Bad Debt Expense for the nine-month periods ended September 30, 2019 and 2018 were $158,184 and $21,107, respectively. This increase in Bad Debt Expense is the result of an increase in the provision for the write-off of unrecoverable debts owing to the Company during the 2019 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, 2019 and 2018 were $1,473,708 and $1,410,768, respectively. The 4% increase in general and administrative expenses is primarily as a result of increased expenditure on sales dealer visits in the United States that were partially set-off by a decrease in product liability insurance premiums.

Depreciation Expense – Depreciation Expense for the nine-month periods ended September 30, 2019 and 2018 were $569,707 and $502,265, respectively. This 13% increase in depreciation is primarily due to the addition of molds and tooling utilized in the production of the Company’s widening product range.

Total Operating Expenses – Total operating expenses increased by $612,927, to $8.14 million in the nine months ended September 30, 2019, or 8%, compared to $7.53 million in the 2018 period. This increase is primarily due to increased salaries and wages and bad debt expenses that were partially offset by decreased commission and consulting expenditure discussed above.

Net income – Net income after income taxes for the nine-month period ended September 30, 2019 was $1.40 million as opposed to a net income after income taxes of $1.20 million for the nine-month period ended September 30, 2018. This increase in net income is primarily due to the increased revenues discussed above.

Liquidity and Capital Resources

At September 30, 2019, we had cash and cash equivalents of $1.91 million and $0.58 million of short-term investments. The following table sets forth a summary of our cash flows for the periods indicated:

       
    September 30,  
    2019     2018  
Net cash provided by operating activities $  997,645   $  1,235,514  
Net cash used in investing activities $  (606,282 ) $  (574,610 )
Net cash used in financing activities $  (144,019 ) $  (453,822 )
Effect of exchange rate changes on cash and cash equivalents $  (50,632 ) $  (42,842 )
Net increase in cash and cash equivalents $  196,712   $  164,240  
Cash and cash equivalents at the beginning of period $  1,709,900   $  1,518,157  
Cash and cash equivalents at the end of period $  1,906,612   $  1,682,397  

Cash increased by $196,712, or 12%, for the nine months ended September 30, 2019. The primary sources of cash for the nine months ended September 30, 2019 were a net income of $1.40 million and increased accounts payable and accrued expenses of $4.15 million. The primary uses of cash for the nine months ended September 30, 2019 were increased accounts receivables of $3.92 million, increased inventory of $2.19 million, increased capital expenditures of $616,278 and the repayment of a short-term loan amounting to $509,019.

The Company is currently meeting its working capital needs through cash on hand, revolving line of credit with a bank 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.

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Obligations under Material Contracts

Pursuant to our Licensing Agreement with Xceed Holdings, a company owned and controlled by Dr. Christopher Leatt, our founder, chairman and head of research and development, 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. During the quarter ended September 30, 2019 and 2018, the Company paid an aggregate of $12,174 and $14,174 in licensing fees to 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, as amended, Innovate has agreed to serve as the Company’s exclusive research, development and marketing consultant, in exchange for a monthly fee of $38,062; 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. Effective January 1, 2019, the Company and Innovate amended the Consulting Agreement to increase Innovate’s consulting duties and to increase the monthly fee payable under the agreement to $40,435. In addition, the parties agreed that Innovate may increase its monthly fees under the Consulting Agreement provided that the fee is no greater than the lesser of: (a) two and one-half percent (2.5%) of the prior year’s annualized fee; or (b) a percentage equal to then-applicable annual percentage increase in the Consumer Price Index published by the United States Department of Labor’s bureau of labor statistics, plus one-half percent (0.5%) . The foregoing description is qualified in its entirety by reference to the Consulting Agreement filed as Exhibit 10.14 to the Company’s report on Form 10-K for the year ended December 31, 2018. During the quarter ended September 30, 2019 and 2018, the Company paid an aggregate of $121,305 and $121,305 in consulting fees to Innovate.

The Company entered into a new Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated October 10, 2018, to finance its U.S. short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $667,704 in eleven payments of $62,225, at an annual interest rate of 4.990% commencing on November 1, 2018 and ending on September 1, 2019. 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. This agreement was paid in full on September 11, 2019.

Pursuant to a Premium Finance Agreement, dated May 29, 2019, between the Company and AFCO, the Company is obligated to pay AFCO an aggregate sum of $112,538 in eleven payments of $10,540 at a 5.990% annual interest rate, commencing on June 1, 2019 and ending on April 1, 2020. 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, 2019, the Company had not defaulted on its payment obligations under this agreement.

The Company entered into a new Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated October 10, 2019, to finance its U.S. short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $753,360 in eleven payments of $70,468, at an annual interest rate of 5.740% commencing on November 1, 2019 and ending on September 1, 2020. Any late payment during the term of the agreement will be assessed by 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.

On November 19, 2018, the Company entered into a $1,000,000 revolving line of credit agreement with a bank. Payments for the advances under the line bear interest at the LIBOR Daily Floating Rate plus 2.5 percentage points commencing January 1, 2019. The line of credit that matures on November 19, 2019, has been extended to November 19, 2020, at which time the unpaid principal, interest, or other charges outstanding under the agreement are due and payable. Obligations under the line of credit are secured by equipment and fixtures in the United States of America, accounts receivable and inventory of Leatt Corporation and Two-Eleven Distribution, LLC. As of September 30, 2019, the line of credit in the amount of $350,000 was used, interest of $442 was accrued for the quarter. The revolving line of credit with a bank was fully repaid on October 17, 2019 and the balance of $1,000,000 is available.

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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 – The Company recognizes revenue in accordance with ASC 606. As such, the Company has and will continue to review its performance obligations in terms of material customer contractual arrangements in order to verify that revenue is recognized when performance obligations are satisfied on a periodic basis.

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 or where consumers choose to purchase directly via the Company’s e-commerce website (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 where no exchange of product is possible. Revenues are recognized when our performance obligations are satisfied as evidenced by transfer of control of promised goods to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Product royalty income, representing less than 1% of total revenues, is recorded as the underlying product sales occur, in accordance with the related licensing arrangements.

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 or the consumer chooses to purchase directly from the Company’s e-commerce website 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.

The Company's standard terms and conditions of sale for non-consumer direct or web-based sales do not allow for product returns other than under warranty.

International sales (other than in the United States and 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 and exchanged 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.

The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company estimates the expected returns and claims based on historical rates as well as events and circumstances that indicate changes to historical rates of product returns and claims. Historically, returns due to product quality issues have not been material and there have been no distributor terminations that resulted in product returns. No provision was made for estimated returns at September 30, 2019 and 2018, respectively.

Sales commissions are expensed when incurred, which is generally at the time of sale or cash received from customers, because the amortization period would have been one year or less. These costs are recorded in commissions and consulting expenses within operating expense in the accompanying consolidated statements of operations and comprehensive income.

Shipping and handling activities associated with outbound freight, after control over a product has transferred to a customer, are accounted for as a fulfilment cost and are included in revenues and cost of revenues in the accompanying consolidated statements of operations and comprehensive income.

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Revenue recognized from contracts with customers is recorded net of sales taxes, value added taxes, or similar taxes that are collected on behalf of local taxing authorities.

For both the quarters ended September 30, 2019 and 2018, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future period related to remaining performance obligations is not material. As of September 30, 2019, contract liabilities, if any, were not material.

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. The allowance for doubtful accounts at September 30, 2019 was $228,186, and $83,399 at December 31, 2018.

Inventory Valuation – Inventory is stated at the lower of cost or net realizable value. 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 at September 30, 2019 was $117,252, and $83,004 at December 31, 2018.

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, 2019 and 2018, respectively.

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 both the nine months ended September 30, 2019 and 2018 was zero. There was no impairment loss recognized for the nine months ended September 30, 2019 and 2018, respectively.

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

Off-Balance Sheet Arrangements

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

As of September 30, 2019, 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, 2019, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings in the ordinary course of our business. Other than as set forth below, we are currently not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse effect on our business, financial condition or operating results.

• On August 7, 2017, a lawsuit was filed against the Company and one other defendant 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. On May 3, 2018 the Federal Court dismissed the Plaintiff’s entire complaint against Leatt Corporation and the other defendant in this matter. On October 4, 2018, the Plaintiff filed an appeal against the dismissal of the complaints against both parties, this appeal is still pending.
   
• On April 3, 2018, a wrongful death lawsuit was filed against the Company and other defendants in Superior Court of California, County of Imperial. The claims being asserted against the defendants is strict liability, negligence, failure to warn, and breach of implied and express warranties. The litigation is in the discovery 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, 2018.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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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 No.             Description

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.

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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 12, 2019 LEATT CORPORATION
   
   
  By: /s/ Sean Macdonald
  Sean Macdonald
  Chief Executive Officer and Chief Financial Officer
  (Principal Executive, Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit No.           Description

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.

EX-31.1 2 exhibit31-1.htm EXHIBIT 31.1 Leatt Corp.: Exhibit 31.1 - Filed by newsfilecorp.com

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 financia l 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 12, 2019


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

EX-31.2 3 exhibit31-2.htm EXHIBIT 31.2 Leatt Corp.: Exhibit 31.2 - Filed by newsfilecorp.com

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 contro l 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 12, 2019


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

 EX-32.1 4 exhibit32-1.htm EXHIBIT 32.1 Leatt Corp.: Exhibit 32.1 - Filed by newsfilecorp.com

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, 2019 (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 12th day of November, 2019.

/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 5 exhibit32-2.htm EXHIBIT 32.2 Leatt Corp.: Exhibit 32.2 - Filed by newsfilecorp.com

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, 2019 (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 12th day of November, 2019.

/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.
 

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The consolidated balance sheet as of September 30, 2019 and the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2019 and 2018, changes in stockholders’ equity for the nine months ended September 30, 2019, cash flows for the nine months ended September 30, 2019 and 2018, 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, 2019 and for all periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">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, 2018 as filed with the Securities and Exchange Commission in the Company’s Form 10-K.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><i><span style="text-decoration:underline">Significant Accounting Policies</span></i></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K, except for the policies described below in relation to the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), discussed in Note 11 “Recent Accounting Pronouncements”</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets (“ROU”), and lease liability obligations are included in the Company’s balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asso includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 4 for additional information.</span></span></p> <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Note 2 - Inventory </strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Inventory is stated at the lower of cost or net realizable value. 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 was $117,252 at September 30, 2019 and $83,004 at December 31, 2018.</span></span></p> 117252 83004 <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Note 3 - Intangible Assets</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">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, 2019 was zero. There was no impairment loss recognized for the nine months ended September 30, 2019 and 2018, respectively.</span></span></p> <p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Note 4 – Operating Leases – Right-of-Use Assets and Lease Liability Obligations</strong></span></span></p><p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">The Company has three non-cancelable operating leases, two for office space and one for office machinery, that expire in December 2020, March 2022 and April 2022. Rent expense for these operating leases is recognized over the term of the lease on a straight-line basis. Below is a summary of the Company’s Operating Right-of-Use Assets and Operating Lease liabilities as of September 30, 2019:</span></span></p><p> </p><div style="text-align:center"><table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:#000000;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse;margin:auto" width="50%"><tbody><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><i>Assets</i></span></span></td><td style="text-align:left;width:1%"> </td><td style="text-align:left;width:22%"> </td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Operating lease ROU assets</span></span></td><td style="bordercolor:#000000;border-bottom-style:double;border-bottom-width:3;text-align:left;width:1%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="bordercolor:#000000;border-bottom-style:double;border-bottom-width:3;text-align:right;width:22%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 369,608</span></span></td><td style="bordercolor:#000000;border-bottom-style:double;border-bottom-width:3;text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr><td> </td><td style="width:1%"> </td><td style="width:22%"> </td><td style="width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><i>Liabilities</i></span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:left;width:22%;background-color:#e6efff"> </td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Operating lease liability, current</span></span></td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:22%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">169,478</span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Operating lease liability, net of current portion</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%;background-color:#e6efff"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:right;width:22%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">200,130</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">   Total operating lease liabilities</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:left;width:1%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:right;width:22%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 369,608</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:left;width:2%"> </td></tr></tbody></table><p> </p></div><p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">During the nine months ended September 30, 2019, the Company recognized $128,713 in operating lease expenses, which are included in office lease and expenses in the Company’s consolidated statements of operations and comprehensive income.</span></span></p><p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Supplemental cash flow information for the nine months ended September 30, 2019 is as follows:</span></span></p><table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:#000000;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse" width="100%"><tbody><tr valign="top"><td style="text-align:left"> </td><td style="text-align:left;width:1%"> </td><td style="text-align:center;width:12%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Nine Months Ended</strong></span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center;width:12%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>September 30, 2019</strong></span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Cash paid for amounts included in the measurement of lease liabilities</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="text-align:right;width:12%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 137,442</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Right-of-use assets obtained in exchange for lease obligations</span></span></td><td style="text-align:left;width:1%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="text-align:right;width:12%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 500,956</span></span></td><td style="text-align:left;width:2%"> </td></tr></tbody></table><p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Generally, our lease agreements do not specify an implicit rate. Therefore, we estimate our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering such factors as length of lease term and the risks of the economic environment in which the leased asset operates. As of September 30, 2019, the following disclosures for remaining lease term and incremental borrowing rates were applicable:</span></span></p><div style="text-align:center"><table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:#000000;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse;margin:auto" width="80%"><tbody><tr valign="top"><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Supplemental disclosure</strong></span></span></td><td style="text-align:center;width:6%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center;width:46%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>September 30, 2019</strong></span></span></td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Weighted average remaining lease term</span></span></td><td style="text-align:center;width:6%;background-color:#e6efff"> </td><td style="text-align:center;width:46%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">3 years</span></span></td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Weighted average discount rate</span></span></td><td style="text-align:center;width:6%"> </td><td style="text-align:center;width:46%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">5.02%</span></span></td></tr></tbody></table></div><p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Maturities of lease liabilities as of September 30, 2019 were as follows:</span></span></p><div style="text-align:center"><table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:#000000;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse;margin:auto" width="80%"><tbody><tr valign="top"><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Year ended December 31,</strong></span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center;width:37%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Amounts under Operating Leases</strong></span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Remaining 2019</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="text-align:right;width:37%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 45,793</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">2020</span></span></td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:37%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">184,831</span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">2021</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:37%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">136,949</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">2022</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:right;width:37%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">46,070</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Total lease payments</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:37%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">413,643</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Less: Imputed interest</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:right;width:37%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">(44,035</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">)</span></span></td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Total</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:left;width:1%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:right;width:37%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">  369,608</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:left;width:2%;background-color:#e6efff"> </td></tr></tbody></table></div> <table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:#000000;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse;margin:auto" width="50%"><tbody><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><i>Assets</i></span></span></td><td style="text-align:left;width:1%"> </td><td style="text-align:left;width:22%"> </td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Operating lease ROU assets</span></span></td><td style="bordercolor:#000000;border-bottom-style:double;border-bottom-width:3;text-align:left;width:1%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="bordercolor:#000000;border-bottom-style:double;border-bottom-width:3;text-align:right;width:22%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 369,608</span></span></td><td style="bordercolor:#000000;border-bottom-style:double;border-bottom-width:3;text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr><td> </td><td style="width:1%"> </td><td style="width:22%"> </td><td style="width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><i>Liabilities</i></span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:left;width:22%;background-color:#e6efff"> </td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Operating lease liability, current</span></span></td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:22%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">169,478</span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Operating lease liability, net of current portion</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%;background-color:#e6efff"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:right;width:22%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">200,130</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">   Total operating lease liabilities</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:left;width:1%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:right;width:22%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 369,608</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:left;width:2%"> </td></tr></tbody></table> 369608 128713 <table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:#000000;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse" width="100%"><tbody><tr valign="top"><td style="text-align:left"> </td><td style="text-align:left;width:1%"> </td><td style="text-align:center;width:12%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Nine Months Ended</strong></span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center;width:12%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>September 30, 2019</strong></span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Cash paid for amounts included in the measurement of lease liabilities</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="text-align:right;width:12%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 137,442</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Right-of-use assets obtained in exchange for lease obligations</span></span></td><td style="text-align:left;width:1%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="text-align:right;width:12%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 500,956</span></span></td><td style="text-align:left;width:2%"> </td></tr></tbody></table> 137442 500956 <table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:#000000;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse;margin:auto" width="80%"><tbody><tr valign="top"><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Supplemental disclosure</strong></span></span></td><td style="text-align:center;width:6%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center;width:46%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>September 30, 2019</strong></span></span></td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Weighted average remaining lease term</span></span></td><td style="text-align:center;width:6%;background-color:#e6efff"> </td><td style="text-align:center;width:46%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">3 years</span></span></td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Weighted average discount rate</span></span></td><td style="text-align:center;width:6%"> </td><td style="text-align:center;width:46%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">5.02%</span></span></td></tr></tbody></table> P3Y 0.0502 <table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:#000000;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse;margin:auto" width="80%"><tbody><tr valign="top"><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Year ended December 31,</strong></span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:center;width:37%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Amounts under Operating Leases</strong></span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Remaining 2019</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="text-align:right;width:37%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"> 45,793</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">2020</span></span></td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:37%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">184,831</span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">2021</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:37%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">136,949</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">2022</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:right;width:37%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">46,070</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Total lease payments</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:37%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">413,643</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Less: Imputed interest</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:right;width:37%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">(44,035</span></span></td><td style="BORDER-BOTTOM:#000000 1px solid;text-align:left;width:2%"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">)</span></span></td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">Total</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:left;width:1%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">$</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:right;width:37%;background-color:#e6efff"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">  369,608</span></span></td><td style="BORDER-BOTTOM:#000000 3px double;text-align:left;width:2%;background-color:#e6efff"> </td></tr></tbody></table> 45793 184831 136949 46070 413643 44035 <p style="font-size:10pt;font-family:Times New Roman, Times, serif;margin-top:0pt;margin-bottom:0pt;text-align:justify"><strong>Note 5 </strong><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>- </strong></span></span><strong>Note Payable to Bank</strong></p><p style="font-size:10pt;font-family:Times New Roman, Times, serif;margin-top:0pt;margin-bottom:0pt;text-align:justify"> </p><p style="font-size:10pt;font-family:Times New Roman, Times, serif;margin-top:0pt;margin-bottom:0pt;text-align:justify">On November 19, 2018, the Company entered into a $1,000,000 revolving line of credit agreement with a bank. Payments for the advances under the line bear interest at the LIBOR Daily Floating Rate plus 2.5 percentage points commencing January 1, 2019. The line of credit that matures on November 19, 2019, has been extended to November 19, 2020, at which time the unpaid principal, interest, or other charges outstanding under the agreement are due and payable. Obligations under the line of credit are secured by equipment and fixtures in the United States of America, accounts receivable and inventory of Leatt Corporation and Two-Eleven Distribution, LLC. As of September 30, 2019, the line of credit in the amount of $350,000 was used, interest of $442 was accrued for the quarter and the balance of $650,000 was available.<strong> </strong>The revolving line of credit was fully repaid on October 17, 2019 and the balance of $1,000,000 is available.</p> 1000000 1000000 0.025 442 650000 <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Note 6 - Short-term Loan</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">The Company carries product liability insurance policies with a U.S. and South African-based insurance carrier. The Company finances payment of both of its product liability insurance premiums over the period of coverage which is generally twelve months. The U.S. short-term loan is payable in monthly instalments of $62,225 over eleven months including interest at 4.990% and the South African short-term loan is payable in monthly instalments of $1,556 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 11, 2019.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">The Company carries various short-term insurance policies in the U.S. 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 $10,540 at 5.990% annual interest rate.</span></span><a id="page_6"/></p> 62225 1556 10540 0.04990 0.0410 0.05990 <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Note 7 - Revenue and Cost Recognition</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">The Company recognizes revenue in accordance with ASC 606. As such, the Company has and will continue to review its performance obligations in terms of material customer contractual arrangements in order to verify that revenue is recognized when performance obligations are satisfied on a periodic basis.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">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 or where consumers choose to purchase directly via the Company’s e-commerce website (collectively the "customers").</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Revenues from product sales are recognized when earned, net of applicable provisions for discounts and returns and allowances in the event of product defect where no exchange of product is possible. Revenues are recognized when our performance obligations are satisfied as evidenced by transfer of control of promised goods to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Product royalty income, representing less than 1% of total revenues, is recorded as the underlying product sales occur, in accordance with the related licensing arrangements.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">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.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">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 or the consumer chooses to purchase directly from the Company’s e-commerce website 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.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">The Company's standard terms and conditions of sale for non-consumer direct or web-based sales do not allow for product returns other than under warranty.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">International sales (other than in the United States and 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 and exchanged 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.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In the following table, revenue is disaggregated by the source of revenue:</span></span></p><div style="text-align:center"><table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:black;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse" width="90%"><tbody><tr valign="top"><td style="text-align:left"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:1%"> </td><td colspan="10" style="BORDER-BOTTOM:#000000 2px solid;text-align:center"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Nine months ended September 30,</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left"> </td><td style="text-align:left;width:1%"> </td><td style="text-align:center;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">2019</span></span></td><td style="text-align:center;width:2%"> </td><td style="text-align:center;width:1%"> </td><td style="text-align:center;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">% of Revenues</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;text-align:center;width:2%"> </td><td style="text-align:center;width:1%"> </td><td style="text-align:center;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">2018</span></span></td><td style="text-align:center;width:2%"> </td><td style="text-align:center;width:1%"> </td><td style="text-align:center;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">% of Revenues</span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Consumer and athlete direct revenues</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">$</span></span></td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"> 980,552</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">5%</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:right;width:1%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">$</span></span></td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"> 808,335</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">4%</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Dealer direct revenues</span></span></td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">6,913,057</span></span></td><td style="text-align:left;width:2%"> </td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">33%</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;text-align:left;width:2%"> </td><td style="text-align:right;width:1%"> </td><td style="text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">6,307,993</span></span></td><td style="text-align:left;width:2%"> </td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">34%</span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">International distributor revenues</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">13,123,720</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">62%</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:right;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">11,761,584</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">62%</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="border:1pt none;text-align:left"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:1%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">$</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"> 21,017,329</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">100%</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:1%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">$</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"> 18,877,912</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">100%</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td></tr></tbody></table></div><p style="text-align:justify"><br/><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company estimates the expected returns and claims based on historical rates as well as events and circumstances that indicate changes to historical rates of product returns and claims. Historically, returns due to product quality issues have not been material and there have been no distributor terminations that resulted in product returns. The provision for estimated returns at September 30, 2019 and December 31, 2018 was $0, and $0, respectively.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Accounts receivable consist of amounts due to the Company from normal business activities. Credit is granted to substantially all distributors on an unsecured basis. The Company continuously monitors collections and payments from customers and maintains an allowance for doubtful accounts receivable based upon historical experience and any specific customer collection issues that have been identified. The allowance of doubtful accounts was $228,186 at September 30, 2019 and $83,399 at December 31, 2018.</span></span></p><p style="text-align:justify"><br/><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Sales commissions are expensed when incurred, which is generally at the time of sale, because the amortization period would have been one year or less. These costs are recorded in commissions and consulting expenses within operating expense in the accompanying consolidated statements of operations and comprehensive income (loss).</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Shipping and handling activities associated with outbound freight, after control over a product has transferred to a customer, are accounted for as a fulfillment cost and are included in revenues and cost of revenues in the accompanying consolidated statements of operations and comprehensive income (loss).</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Revenue recognized from contracts with customers is recorded net of sales taxes, value added taxes, or similar taxes that are collected on behalf of local taxing authorities.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">For the nine months ended September 30, 2019, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future period related to remaining performance obligations is not material. As of September 30, 2019, contract liabilities, if any, were not material.</span></span></p> 0.01 <table border="0" cellpadding="0" cellspacing="0" style="BORDER-COLOR:black;FONT-SIZE:10pt;BORDER-COLLAPSE:collapse" width="90%"><tbody><tr valign="top"><td style="text-align:left"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:1%"> </td><td colspan="10" style="BORDER-BOTTOM:#000000 2px solid;text-align:center"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Nine months ended September 30,</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left"> </td><td style="text-align:left;width:1%"> </td><td style="text-align:center;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">2019</span></span></td><td style="text-align:center;width:2%"> </td><td style="text-align:center;width:1%"> </td><td style="text-align:center;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">% of Revenues</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;text-align:center;width:2%"> </td><td style="text-align:center;width:1%"> </td><td style="text-align:center;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">2018</span></span></td><td style="text-align:center;width:2%"> </td><td style="text-align:center;width:1%"> </td><td style="text-align:center;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">% of Revenues</span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Consumer and athlete direct revenues</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">$</span></span></td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"> 980,552</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">5%</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:right;width:1%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">$</span></span></td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"> 808,335</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">4%</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="text-align:left"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Dealer direct revenues</span></span></td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">6,913,057</span></span></td><td style="text-align:left;width:2%"> </td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">33%</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;text-align:left;width:2%"> </td><td style="text-align:right;width:1%"> </td><td style="text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">6,307,993</span></span></td><td style="text-align:left;width:2%"> </td><td style="text-align:left;width:1%"> </td><td style="text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">34%</span></span></td><td style="text-align:left;width:2%"> </td></tr><tr valign="top"><td style="text-align:left;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">International distributor revenues</span></span></td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">13,123,720</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">62%</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:right;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">11,761,584</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td><td style="text-align:left;width:1%;background-color:#e6efff"> </td><td style="text-align:right;width:15%;background-color:#e6efff"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">62%</span></span></td><td style="text-align:left;width:2%;background-color:#e6efff"> </td></tr><tr valign="top"><td style="border:1pt none;text-align:left"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:1%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">$</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"> 21,017,329</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">100%</span></span></td><td style="BORDER-RIGHT:#000000 2px solid;BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:1%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">$</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"> 18,877,912</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:1%"> </td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:right;width:15%"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">100%</span></span></td><td style="BORDER-BOTTOM:#000000 2px solid;text-align:left;width:2%"> </td></tr></tbody></table> 0.05 0.04 0.33 0.34 0.62 0.62 1 1 0 0 228186 83399 <p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif"><strong>Note 8 - Income Taxes</strong></span></span></p><p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">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.</span></span></p><p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">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.</span></span></p><p style="text-align:justify"><span style="font-size:10pt"><span style="font-family:Times New Roman,Times,serif">The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of September 30, 2019, the Company has no unrecognized tax benefits.</span></span></p> 0.50 <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Note 9 - Net Income Per Share of Common Stock</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common stock shares and dilutive potential common shares outstanding during the period. For the nine months ended September 30, 2019, the Company had 862,000 potential common shares, consisting of 120,000 preferred shares, options to purchase 169,000 shares, outstanding that were dilutive, and options to purchase 573,000 shares that were anti-dilutive and therefore, not included in diluted net income per share.</span></span></p> 862000 120000 169000 573000 <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Note 10 – Common Stock</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In February 2019, options to purchase 250,000 of the Company’s common stock were granted to key employees, consultants and directors under the Plan at an exercise price of $2.30 per share, exercisable over a 10-year period. On February 25, 2019, 30% of the shares underlying these options vested with a compensation expense of $82,530. The remaining 70% of the shares were unvested with unrecognized compensation value of $192,570. The fair value of the stock options granted was estimated to be $1.1004 at the date of the grant using the Black Sholes option-pricing model. The option value was calculated assuming a year’s risk-free interest rate of 2.84%, expected volatility of 32.35% and an expected dividend yield of 0.00% .</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In addition, in February 2019, the Company issued 1,695 shares of common stock to an employee who exercised stock options in a cashless exercise and a Director exercised stock options for the issuance of 15,000 shares for $15,000.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">Stock-based compensation expense related to vested stock options during the nine months ended September 30, 2019 was $166,250. As of September 30, 2019, there was $239,370 of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a 3-year vesting period.</span></span></p> 250000 2.30 P10Y 0.30 82530 0.70 192570 1.1004 0.0284 0.3235 0.0000 239370 P3Y <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Note 11 – Recent Accounting Pronouncements</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Recently Adopted Accounting Pronouncements</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In February 2016, the FASB issued ASU 2016-02, <i>Leases</i>. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. The new standard is effective for fiscal years beginning after December 15, 2018 and has been adopted using a modified retrospective transition approach effective January 1, 2019. The adoption of the new standard has had a material impact on the Company’s consolidated balance sheets, but not on its consolidated statements of operations, as all long-term leases have been capitalized on the consolidated balance sheets. The Company has identified the population of leases and lease assets and is tracking all its lease agreements to assist in the reporting and disclosures required by the new standard. The Company has implemented processes and tools to assist in the ongoing lease data collection and analysis and has updated accounting policies and internal controls as a result of adopting this standard.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In July 2018, the FASB issued ASU No. 2018-10, <i>Codification Improvements to Topic 842, Leases </i>and ASU No. 2018-11, <i>Leases (Topic 842): Targeted Improvements</i>, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840. The Company adopted this standard using the modified retrospective approach on January 1, 2019 as described above, coinciding with the standard’s effective date.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation”, which aligns the measurement and classification guidance for share-based payments to non-employees with the guidance for share-based payments to employees. Under the new guidance, the measurement period for equity-classified non-employee awards will be fixed at the grant date. This update is effective for annual periods beginning after December 15, 2018, and interim periods within those periods and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on its consolidated financial statements.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which provides for an election to reclassify stranded tax effects within accumulated other comprehensive income/(loss) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on the consolidated financial statements.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Accounting Pronouncements Not Yet Adopted</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurements”, which eliminates, adds or modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year, with early adoption permitted to adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">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. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU 2018-19, which amended the standard. The standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This standard is effective for the Company on January 1, 2020. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently assessing the impact, but does not expect it will have a material impact on the consolidated financial statements.</span></span></p> <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Recently Adopted Accounting Pronouncements</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In February 2016, the FASB issued ASU 2016-02, <i>Leases</i>. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. The new standard is effective for fiscal years beginning after December 15, 2018 and has been adopted using a modified retrospective transition approach effective January 1, 2019. The adoption of the new standard has had a material impact on the Company’s consolidated balance sheets, but not on its consolidated statements of operations, as all long-term leases have been capitalized on the consolidated balance sheets. The Company has identified the population of leases and lease assets and is tracking all its lease agreements to assist in the reporting and disclosures required by the new standard. The Company has implemented processes and tools to assist in the ongoing lease data collection and analysis and has updated accounting policies and internal controls as a result of adopting this standard.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In July 2018, the FASB issued ASU No. 2018-10, <i>Codification Improvements to Topic 842, Leases </i>and ASU No. 2018-11, <i>Leases (Topic 842): Targeted Improvements</i>, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840. The Company adopted this standard using the modified retrospective approach on January 1, 2019 as described above, coinciding with the standard’s effective date.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation”, which aligns the measurement and classification guidance for share-based payments to non-employees with the guidance for share-based payments to employees. Under the new guidance, the measurement period for equity-classified non-employee awards will be fixed at the grant date. This update is effective for annual periods beginning after December 15, 2018, and interim periods within those periods and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on its consolidated financial statements.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which provides for an election to reclassify stranded tax effects within accumulated other comprehensive income/(loss) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on the consolidated financial statements.</span></span></p> <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Accounting Pronouncements Not Yet Adopted</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurements”, which eliminates, adds or modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year, with early adoption permitted to adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">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. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.</span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU 2018-19, which amended the standard. The standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This standard is effective for the Company on January 1, 2020. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently assessing the impact, but does not expect it will have a material impact on the consolidated financial statements.</span></span></p> <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Note 12 - Litigation</strong></span></span></p><p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">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.</span></span></p> <p style="text-align:justify"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt"><strong>Note 13 – Subsequent Events</strong></span></span></p><p style="font-size:10pt;font-family:Times New Roman, Times, serif;margin-top:0pt;margin-bottom:0pt"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">The Company has evaluated all subsequent events through the date the financial statements were released.</span></span></p><p style="font-size:10pt;font-family:Times New Roman, Times, serif;margin-top:0pt;margin-bottom:0pt"> </p><p style="font-size:10pt;font-family:Times New Roman, Times, serif;margin-top:0pt;margin-bottom:0pt"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">The revolving line of credit with a bank was fully repaid on October 17, 2019 and the balance of $1,000,000 is available.</span></span></p><p style="font-size:10pt;font-family:Times New Roman, Times, serif;margin-top:0pt;margin-bottom:0pt"> </p><p style="font-size:10pt;font-family:Times New Roman, Times, serif;margin-top:0pt;margin-bottom:0pt"><span style="font-family:Times New Roman,Times,serif"><span style="font-size:10pt">The Company entered into a Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated October 10, 2019, to finance its U.S short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $753,360 in eleven payments of $70,468, at an annual interest rate of 5.740% commencing on November 1, 2019 and ending on September 1, 2020. Any late payment during the term of the agreement will be assessed by late penalty of 5% of the payment amount due, and in the event of default AFCO has the right to accelerate the payment due under the agreement.</span></span></p> 753360 11 70468 0.05740 0.05 EX-101.SCH 7 leat-20190930.xsd XBRL SCHEMA FILE 0001 - Document - Document and Entity Information link:presentationLink link:definitionLink link:calculationLink 0002 - Statement - CONSOLIDATED BALANCE SHEETS link:presentationLink link:definitionLink link:calculationLink 0003 - Statement - CONSOLIDATED BALANCE SHEETS (Parenthetical) link:presentationLink link:definitionLink link:calculationLink 0004 - Statement - CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) link:presentationLink link:definitionLink link:calculationLink 0005 - Statement - CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Parenthetical) link:presentationLink link:definitionLink link:calculationLink 0006 - Statement - CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY link:presentationLink link:definitionLink link:calculationLink 0007 - 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Operating Leases Right-of-Use Assets and Lease Liability Obligations (Narrative) (Details)
 9 Months Ended
Sep. 30, 2019
USD ($)
Lessee Disclosure [Abstract]  
Operating lease expense $ 128,713

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Recent Accounting Pronouncements (Policies)
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Recently Adopted Accounting Pronouncements [Policy Text Block]

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. The new standard is effective for fiscal years beginning after December 15, 2018 and has been adopted using a modified retrospective transition approach effective January 1, 2019. The adoption of the new standard has had a material impact on the Company’s consolidated balance sheets, but not on its consolidated statements of operations, as all long-term leases have been capitalized on the consolidated balance sheets. The Company has identified the population of leases and lease assets and is tracking all its lease agreements to assist in the reporting and disclosures required by the new standard. The Company has implemented processes and tools to assist in the ongoing lease data collection and analysis and has updated accounting policies and internal controls as a result of adopting this standard.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840. The Company adopted this standard using the modified retrospective approach on January 1, 2019 as described above, coinciding with the standard’s effective date.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation”, which aligns the measurement and classification guidance for share-based payments to non-employees with the guidance for share-based payments to employees. Under the new guidance, the measurement period for equity-classified non-employee awards will be fixed at the grant date. This update is effective for annual periods beginning after December 15, 2018, and interim periods within those periods and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which provides for an election to reclassify stranded tax effects within accumulated other comprehensive income/(loss) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on the consolidated financial statements.
Accounting Pronouncements Not Yet Adopted [Policy Text Block]

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurements”, which eliminates, adds or modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year, with early adoption permitted to adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.

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. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU 2018-19, which amended the standard. The standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This standard is effective for the Company on January 1, 2020. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently assessing the impact, but does not expect it will have a material impact on the consolidated financial statements.
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Income Taxes (Narrative) (Details)
Sep. 30, 2019
Maximum likelihood of being sustained 50.00%
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Inventory
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Inventory [Text Block]

Note 2 - Inventory

Inventory is stated at the lower of cost or net realizable value. 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 was $117,252 at September 30, 2019 and $83,004 at December 31, 2018.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Parenthetical) - USD ($)
 3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Deferred income taxes $ 0 $ 0 $ 0 $ 0
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Document and Entity Information - shares
 9 Months Ended
Sep. 30, 2019
Nov. 05, 2019
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2019  
Entity Registrant Name Leatt Corp  
Entity Central Index Key 0001456189  
Current Fiscal Year End Date --12-31  
Entity Filer Category Non-accelerated Filer  
Entity Common Stock, Shares Outstanding   5,386,723
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Entity Small Business true  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
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Net Income Per Share of Common Stock (Narrative) (Details)
 9 Months Ended
Sep. 30, 2019
shares
Weighted average number diluted shares outstanding adjustment 862,000
Incremental common shares attributable to dilutive effect of conversion of preferred stock 120,000
Incremental common shares attributable to dilutive effect of call options and warrants 169,000
Antidilutive securities excluded from computation of earnings per share, amount 573,000
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Schedule of Supplemental cash flow information of Operating Leases (Details)
 9 Months Ended
Sep. 30, 2019
USD ($)
Lessee Disclosure [Abstract]  
Cash paid for amounts included in the measurement of lease liabilities $ 137,442
Right-of-use assets obtained in exchange for lease obligations $ 500,956
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Common Stock
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Common Stock [Text Block]

Note 10 – Common Stock

In February 2019, options to purchase 250,000 of the Company’s common stock were granted to key employees, consultants and directors under the Plan at an exercise price of $2.30 per share, exercisable over a 10-year period. On February 25, 2019, 30% of the shares underlying these options vested with a compensation expense of $82,530. The remaining 70% of the shares were unvested with unrecognized compensation value of $192,570. The fair value of the stock options granted was estimated to be $1.1004 at the date of the grant using the Black Sholes option-pricing model. The option value was calculated assuming a year’s risk-free interest rate of 2.84%, expected volatility of 32.35% and an expected dividend yield of 0.00% .

In addition, in February 2019, the Company issued 1,695 shares of common stock to an employee who exercised stock options in a cashless exercise and a Director exercised stock options for the issuance of 15,000 shares for $15,000.

Stock-based compensation expense related to vested stock options during the nine months ended September 30, 2019 was $166,250. As of September 30, 2019, there was $239,370 of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a 3-year vesting period.
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Short-term Loan
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Short-term Loan [Text Block]

Note 6 - Short-term Loan

The Company carries product liability insurance policies with a U.S. and South African-based insurance carrier. The Company finances payment of both of its product liability insurance premiums over the period of coverage which is generally twelve months. The U.S. short-term loan is payable in monthly instalments of $62,225 over eleven months including interest at 4.990% and the South African short-term loan is payable in monthly instalments of $1,556 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 11, 2019.

The Company carries various short-term insurance policies in the U.S. 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 $10,540 at 5.990% annual interest rate.
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Common Stock (Narrative) (Details) - USD ($)
 1 Months Ended 9 Months Ended
Feb. 28, 2019
Feb. 25, 2019
Sep. 30, 2019
Sep. 30, 2018
Common stock granted to key employees, consultants and directors under the plan 250,000      
Common stock granted to key employees, consultants and directors, exercise price $ 2.30      
Common stock granted to key employees, consultants and directors, exercisable term 10 years      
Percentage of options vested   30.00%    
Compensation expense of options vested   $ 82,530    
Percentage of options unvested 70.00%      
Unrecognized compensation expense of options unvested $ 192,570      
Estimated fair value of the stock options granted $ 1.1004      
Year's risk-free interest rate 2.84%      
Expected volatility 32.35%      
Expected dividend yield 0.00%      
Exercise of stock options (Shares) 1,695      
Exercise of stock options     $ 15,000  
Stock-based compensation expense related to vested stock options     166,250 $ 150,332
Unrecognized compensation cost related to unvested stock options     $ 239,370  
Vesting period of unrecognized compensation cost related to unvested stock options     3 years  
Director [Member]        
Exercise of stock options (Shares) 15,000      
Exercise of stock options $ 15,000      
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Schedule of Remaining lease term and incremental borrowing rates of Operating leases (Details)
Sep. 30, 2019
Lessee Disclosure [Abstract]  
Weighted average remaining lease term 3 years
Weighted average discount rate 5.02%
XML 25 R16.htm IDEA: XBRL DOCUMENT v3.19.3
Net Income Per Share of Common Stock
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Net Income Per Share of Common Stock [Text Block]

Note 9 - Net Income Per Share of Common Stock

Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common stock shares and dilutive potential common shares outstanding during the period. For the nine months ended September 30, 2019, the Company had 862,000 potential common shares, consisting of 120,000 preferred shares, options to purchase 169,000 shares, outstanding that were dilutive, and options to purchase 573,000 shares that were anti-dilutive and therefore, not included in diluted net income per share.
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Note Payable to Bank
 9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Note Payable to Bank [Text Block]

Note 5 - Note Payable to Bank

 

On November 19, 2018, the Company entered into a $1,000,000 revolving line of credit agreement with a bank. Payments for the advances under the line bear interest at the LIBOR Daily Floating Rate plus 2.5 percentage points commencing January 1, 2019. The line of credit that matures on November 19, 2019, has been extended to November 19, 2020, at which time the unpaid principal, interest, or other charges outstanding under the agreement are due and payable. Obligations under the line of credit are secured by equipment and fixtures in the United States of America, accounts receivable and inventory of Leatt Corporation and Two-Eleven Distribution, LLC. As of September 30, 2019, the line of credit in the amount of $350,000 was used, interest of $442 was accrued for the quarter and the balance of $650,000 was available. The revolving line of credit was fully repaid on October 17, 2019 and the balance of $1,000,000 is available.
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Revenue and Cost Recognition (Narrative) (Details) - USD ($)
 9 Months Ended 12 Months Ended
Sep. 30, 2019
Dec. 31, 2018
Product royalty income, revenue percentage 1.00%  
Provision for estimated returns $ 0 $ 0
Allowance for doubtful accounts $ 228,186 $ 83,399
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Inventory (Narrative) (Details) - USD ($)
Sep. 30, 2019
Dec. 31, 2018
Notes to Financial Statements [Abstract]    
Inventory reserve for obsolescence $ 117,252 $ 83,004
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Subsequent Events
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Subsequent Events [Text Block]

Note 13 – Subsequent Events

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

 

The revolving line of credit with a bank was fully repaid on October 17, 2019 and the balance of $1,000,000 is available.

 

The Company entered into a Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated October 10, 2019, to finance its U.S short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $753,360 in eleven payments of $70,468, at an annual interest rate of 5.740% commencing on November 1, 2019 and ending on September 1, 2020. Any late payment during the term of the agreement will be assessed by late penalty of 5% of the payment amount due, and in the event of default AFCO has the right to accelerate the payment due under the agreement.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($)
 3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Revenues $ 9,649,335 $ 8,579,507 $ 21,017,329 $ 18,877,912
Cost of Revenues 5,152,688 4,574,205 11,027,944 9,760,962
Gross Profit 4,496,647 4,005,302 9,989,385 9,116,950
Product Royalty Income 17,360 8,094 33,056 28,205
Operating Expenses        
Salaries and wages 739,366 588,242 2,330,006 1,983,557
Commissions and consulting expenses 104,608 124,501 263,168 383,415
Professional fees 133,480 163,687 518,017 461,145
Advertising and marketing 520,633 534,817 1,556,515 1,497,429
Office lease and expenses 71,725 69,400 210,263 211,159
Research and development costs 357,258 357,177 1,063,573 1,059,369
Bad debt expense 148,685 635 158,184 21,107
General and administrative expenses 485,054 521,052 1,473,708 1,410,768
Depreciation 191,712 174,490 569,707 502,265
Total operating expenses 2,752,521 2,534,001 8,143,141 7,530,214
Income from Operations 1,761,486 1,479,395 1,879,300 1,614,941
Other Expenses        
Interest and other expenses, net (449) (2,393) (4,042) (8,320)
Total other expenses (449) (2,393) (4,042) (8,320)
Income Before Income Taxes 1,761,037 1,477,002 1,875,258 1,606,621
Income Taxes 440,259 370,658 471,542 408,913
Net Income Available to Common Shareholders $ 1,320,778 $ 1,106,344 $ 1,403,716 $ 1,197,708
Net Income per Common Share        
Basic $ 0.25 $ 0.21 $ 0.26 $ 0.22
Diluted $ 0.24 $ 0.20 $ 0.25 $ 0.22
Weighted Average Number of Common Shares Outstanding        
Basic 5,386,723 5,366,382 5,384,753 5,366,382
Diluted 5,532,275 5,504,664 5,530,304 5,504,664
Comprehensive Income        
Net Income $ 1,320,778 $ 1,106,344 $ 1,403,716 $ 1,197,708
Other comprehensive income, net of $0 and $0 deferred income taxes in 2019 and 2018        
Foreign currency translation (102,756) (6,018) (69,591) (122,328)
Total Comprehensive Income $ 1,218,022 $ 1,100,326 $ 1,334,125 $ 1,075,380
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Basis of Presentation
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Basis of Presentation [Text Block]

Note 1 - Basis of presentation

The consolidated balance sheet as of December 31, 2018 was audited and appears in the Form 10-K filed by the Company with the Securities and Exchange Commission on March 27, 2019. The consolidated balance sheet as of September 30, 2019 and the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2019 and 2018, changes in stockholders’ equity for the nine months ended September 30, 2019, cash flows for the nine months ended September 30, 2019 and 2018, 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, 2019 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, 2018 as filed with the Securities and Exchange Commission in the Company’s Form 10-K.

Significant Accounting Policies

There have been no significant changes in the Company’s accounting policies from those disclosed in its Annual Report on Form 10-K, except for the policies described below in relation to the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), discussed in Note 11 “Recent Accounting Pronouncements”

The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets (“ROU”), and lease liability obligations are included in the Company’s balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asso includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 4 for additional information.
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XML 36 R10.htm IDEA: XBRL DOCUMENT v3.19.3
Intangible Assets
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
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, 2019 was zero. There was no impairment loss recognized for the nine months ended September 30, 2019 and 2018, respectively.
XML 37 R18.htm IDEA: XBRL DOCUMENT v3.19.3
Recent Accounting Pronouncements
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Recent Accounting Pronouncements [Text Block]

Note 11 – Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. The new standard is effective for fiscal years beginning after December 15, 2018 and has been adopted using a modified retrospective transition approach effective January 1, 2019. The adoption of the new standard has had a material impact on the Company’s consolidated balance sheets, but not on its consolidated statements of operations, as all long-term leases have been capitalized on the consolidated balance sheets. The Company has identified the population of leases and lease assets and is tracking all its lease agreements to assist in the reporting and disclosures required by the new standard. The Company has implemented processes and tools to assist in the ongoing lease data collection and analysis and has updated accounting policies and internal controls as a result of adopting this standard.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which make improvements to Accounting Standards Codification (“ASC”) 842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the comparative periods under ASC 840. The Company adopted this standard using the modified retrospective approach on January 1, 2019 as described above, coinciding with the standard’s effective date.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation”, which aligns the measurement and classification guidance for share-based payments to non-employees with the guidance for share-based payments to employees. Under the new guidance, the measurement period for equity-classified non-employee awards will be fixed at the grant date. This update is effective for annual periods beginning after December 15, 2018, and interim periods within those periods and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which provides for an election to reclassify stranded tax effects within accumulated other comprehensive income/(loss) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard is effective for interim and annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The Company adopted the new standard effective January 1, 2019 and it did not have a material impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurements”, which eliminates, adds or modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year, with early adoption permitted to adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.

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. The Company does not expect this new guidance will have a material impact on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU 2018-19, which amended the standard. The standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This standard is effective for the Company on January 1, 2020. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently assessing the impact, but does not expect it will have a material impact on the consolidated financial statements.
XML 38 R33.htm IDEA: XBRL DOCUMENT v3.19.3
Schedule of Right-of-Use Assets and Lease Liability Obligations (Details)
Sep. 30, 2019
USD ($)
Assets  
Operating lease ROU assets $ 369,608
Liabilities  
Operating lease liability, current 169,478
Operating lease liability, net of current portion 200,130
Total operating lease liabilities $ 369,608
XML 39 R37.htm IDEA: XBRL DOCUMENT v3.19.3
Schedule of revenue by major customers by reporting segments (Details) - USD ($)
 3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Revenues $ 9,649,335 $ 8,579,507 $ 21,017,329 $ 18,877,912
% of Revenues     100.00% 100.00%
Consumer and athlete direct revenues [Member]        
Revenues     $ 980,552 $ 808,335
% of Revenues     5.00% 4.00%
Dealer direct revenues [Member]        
Revenues     $ 6,913,057 $ 6,307,993
% of Revenues     33.00% 34.00%
International distributor revenues [Member]        
Revenues     $ 13,123,720 $ 11,761,584
% of Revenues     62.00% 62.00%
XML 40 R26.htm IDEA: XBRL DOCUMENT v3.19.3
Note Payable to Bank (Narrative) (Details) - USD ($)
 9 Months Ended
Sep. 30, 2019
Oct. 17, 2019
Dec. 31, 2018
Nov. 19, 2018
Line of Credit Facility [Line Items]        
Note payable to bank $ 350,000   $ 0  
Revolving line of credit [Member]        
Line of Credit Facility [Line Items]        
Maximum borrowing capacity       $ 1,000,000
Line bear interest at the LIBOR daily floating rate       2.50%
Note payable to bank 350,000      
Value of interest 442      
Line of credit balance $ 650,000      
Subsequent event [Member] | Revolving line of credit [Member]        
Line of Credit Facility [Line Items]        
Maximum borrowing capacity   $ 1,000,000    
XML 41 R22.htm IDEA: XBRL DOCUMENT v3.19.3
Operating Leases Right-of-Use Assets and Lease Liability Obligations (Tables)
 9 Months Ended
Sep. 30, 2019
Lessee Disclosure [Abstract]  
Schedule of operating right-of-use assets and operating lease liabilities [Table Text Block]
Assets   
Operating lease ROU assets$ 369,608 
    
Liabilities   
Operating lease liability, current 169,478 
Operating lease liability, net of current portion 200,130 
   Total operating lease liabilities$ 369,608 
Schedule of supplemental cash flow information of operating leases [Table Text Block]
  Nine Months Ended 
  September 30, 2019 
Cash paid for amounts included in the measurement of lease liabilities$ 137,442 
Right-of-use assets obtained in exchange for lease obligations$ 500,956 
Schedule of remaining lease term and incremental borrowing rates [Table Text Block]
Supplemental disclosure September 30, 2019
Weighted average remaining lease term 3 years
Weighted average discount rate 5.02%
Schedule of maturities of lease liabilities [Table Text Block]
Year ended December 31, Amounts under Operating Leases 
Remaining 2019$ 45,793 
2020 184,831 
2021 136,949 
2022 46,070 
Total lease payments 413,643 
Less: Imputed interest (44,035)
Total$  369,608 
XML 42 R6.htm IDEA: XBRL DOCUMENT v3.19.3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 2019 - 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, 2018 $ 3,000 $ 130,053 $ 7,868,119 $ (609,303) $ 1,662,196 $ 9,054,065
Beginning Balance (Shares) at Dec. 31, 2018 120,000 5,370,028        
Compensation cost recognized in connection with stock options     166,250     166,250
Exercise of stock options   $ 15 14,985     15,000
Exercise of stock options (Shares)   15,000        
Options exercised on a cashless basis (Shares)   1,695        
Net income         1,403,716 1,403,716
Foreign currency translation adjustment       (69,591)   (69,591)
Ending Balance at Sep. 30, 2019 $ 3,000 $ 130,068 $ 8,049,354 $ (678,894) $ 3,065,912 $ 10,569,440
Ending Balance (Shares) at Sep. 30, 2019 120,000 5,386,723        
XML 43 R2.htm IDEA: XBRL DOCUMENT v3.19.3
CONSOLIDATED BALANCE SHEETS - USD ($)
Sep. 30, 2019
Dec. 31, 2018
Current Assets    
Cash and cash equivalents $ 1,906,612 $ 1,709,900
Short-term investments 58,236 58,232
Accounts receivable 5,828,054 2,049,331
Inventory 6,967,980 4,815,215
Payments in advance 473,380 473,286
Prepaid expenses and other current assets 1,025,954 1,247,233
Total current assets 16,260,216 10,353,197
Property and equipment, net 2,338,426 2,317,490
Operating lease right-of-use assets, net 369,608  
Other Assets    
Deposits 26,167 25,380
Intangible assets 38,642 40,466
Total other assets 64,809 65,846
Total Assets 19,033,059 12,736,533
Current Liabilities    
Note payable to bank 350,000 0
Accounts payable and accrued expenses 6,930,930 2,779,182
Operating lease liability, current 169,478  
Income tax payable 429,072 70,258
Short term loan, net of finance charges 73,109 582,128
Total current liabilities 7,952,589 3,431,568
Deferred tax liabilities, net 170,900 170,900
Deferred Compensation 140,000 80,000
Operating lease liability, net of current portion 200,130  
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, 5,386,723 and 5,370,028 shares issued and outstanding 130,068 130,053
Additional paid - in capital 8,049,354 7,868,119
Accumulated other comprehensive loss (678,894) (609,303)
Retained earnings 3,065,912 1,662,196
Total stockholders' equity 10,569,440 9,054,065
Total Liabilities and Stockholders' Equity $ 19,033,059 $ 12,736,533
XML 44 R27.htm IDEA: XBRL DOCUMENT v3.19.3
Short-term Loan (Narrative) (Details)
Sep. 30, 2019
USD ($)
Current U.S. short-term loan [Member]  
Short-term loan, monthly payment $ 62,225
Debt instrument, interest rate, stated percentage 4.99%
Current South African short-term loan [Member]  
Short-term loan, monthly payment $ 1,556
Debt instrument, interest rate, stated percentage 4.10%
Various short-term insurance policies in the U.S. [Member]  
Short-term loan, monthly payment $ 10,540
Debt instrument, interest rate, stated percentage 5.99%
XML 45 R23.htm IDEA: XBRL DOCUMENT v3.19.3
Revenue and Cost Recognition (Tables)
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Schedule of revenue by major customers by reporting segments [Table Text Block]
  Nine months ended September 30, 
  2019  % of Revenues  2018  % of Revenues 
Consumer and athlete direct revenues$ 980,552  5% $ 808,335  4% 
Dealer direct revenues 6,913,057  33%  6,307,993  34% 
International distributor revenues 13,123,720  62%  11,761,584  62% 
 $ 21,017,329  100% $ 18,877,912  100% 
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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash flows from operating activities    
Net income $ 1,403,716 $ 1,197,708
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 569,707 502,265
Stock-based compensation 166,250 150,332
Bad debts 137,787 10,921
Inventory reserve 35,248 92,898
(Gain) on sale of property and equipment (1,500) (1,260)
(Increase) decrease in:    
Accounts receivable (3,916,510) (1,731,877)
Inventory (2,188,013) (1,738,669)
Payments in advance (94) 81,592
Prepaid expenses and other current assets 221,279 97,197
Income tax refunds receivable   130,171
Deposits (787) 807
Increase (decrease) in:    
Accounts payable and accrued expenses 4,151,748 2,171,945
Income taxes payable 358,814 271,484
Deferred compensation 60,000  
Net cash provided by operating activities 997,645 1,235,514
Cash flows from investing activities    
Capital expenditures (616,278) (575,909)
Proceeds from sale of property and equipment 10,000 1,308
Increase in short-term investments, net (4) (9)
Net cash used in investing activities (606,282) (574,610)
Cash flows from financing activities    
Issuance of common stock 15,000  
Proceeds from note payable to bank, net 350,000 0
Repayments of short-term loan, net (509,019) (453,822)
Net cash used in financing activities (144,019) (453,822)
Effect of exchange rates on cash and cash equivalents (50,632) (42,842)
Net increase in cash and cash equivalents 196,712 164,240
Cash and cash equivalents - beginning of period 1,709,900 1,518,157
Cash and cash equivalents - end of period 1,906,612 1,682,397
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Cash paid for interest 16,509 12,321
Cash paid for income taxes 111,600 7,121
Other non-cash investing and financing activities    
Common stock issued for services $ 166,250 $ 150,332
XML 48 R3.htm IDEA: XBRL DOCUMENT v3.19.3
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
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 5,386,723 5,370,028
Common Stock, Shares, Outstanding 5,386,723 5,370,028
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Litigation
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Litigation [Text Block]

Note 12 - Litigation

In the ordinary course of business, the Company is involved in various legal proceedings involving product liability and personal injury and intellectual property litigation. The Company is insured against loss for certain of these matters. The Company will record contingent liabilities resulting from asserted and unasserted claims against it when it is probable that the liability has been incurred and the amount of the loss is reasonably estimable. The Company will disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. While the outcome of currently pending litigation is not yet determinable, the ultimate exposure with respect to these matters cannot be ascertained. However, based on the information currently available to the Company, the Company does not expect that any liabilities or costs that might be incurred to resolve these matters will have a material adverse effect on the financial condition, results of operations, liquidity or cash flows of the Company.
XML 51 R15.htm IDEA: XBRL DOCUMENT v3.19.3
Income Taxes
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Income Taxes [Text Block]

Note 8 - 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, 2019, the Company has no unrecognized tax benefits.
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Operating Leases - Right-of-Use Assets and Lease Liability Obligations
 9 Months Ended
Sep. 30, 2019
Lessee Disclosure [Abstract]  
Operating Leases - Right-of-Use Assets and Lease Liability Obligations [Text Block]

Note 4 – Operating Leases – Right-of-Use Assets and Lease Liability Obligations

The Company has three non-cancelable operating leases, two for office space and one for office machinery, that expire in December 2020, March 2022 and April 2022. Rent expense for these operating leases is recognized over the term of the lease on a straight-line basis. Below is a summary of the Company’s Operating Right-of-Use Assets and Operating Lease liabilities as of September 30, 2019:

 

Assets   
Operating lease ROU assets$ 369,608 
    
Liabilities   
Operating lease liability, current 169,478 
Operating lease liability, net of current portion 200,130 
   Total operating lease liabilities$ 369,608 

 

During the nine months ended September 30, 2019, the Company recognized $128,713 in operating lease expenses, which are included in office lease and expenses in the Company’s consolidated statements of operations and comprehensive income.

Supplemental cash flow information for the nine months ended September 30, 2019 is as follows:

  Nine Months Ended 
  September 30, 2019 
Cash paid for amounts included in the measurement of lease liabilities$ 137,442 
Right-of-use assets obtained in exchange for lease obligations$ 500,956 

Generally, our lease agreements do not specify an implicit rate. Therefore, we estimate our incremental borrowing rate, which is defined as the interest rate we would pay to borrow on a collateralized basis, considering such factors as length of lease term and the risks of the economic environment in which the leased asset operates. As of September 30, 2019, the following disclosures for remaining lease term and incremental borrowing rates were applicable:

Supplemental disclosure September 30, 2019
Weighted average remaining lease term 3 years
Weighted average discount rate 5.02%

Maturities of lease liabilities as of September 30, 2019 were as follows:

Year ended December 31, Amounts under Operating Leases 
Remaining 2019$ 45,793 
2020 184,831 
2021 136,949 
2022 46,070 
Total lease payments 413,643 
Less: Imputed interest (44,035)
Total$  369,608 
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Subsequent Events (Narrative) (Details)
Oct. 10, 2019
USD ($)
payment
Oct. 17, 2019
USD ($)
Nov. 19, 2018
USD ($)
Revolving line of credit [Member]      
Subsequent Event [Line Items]      
Maximum borrowing capacity     $ 1,000,000
Subsequent event [Member] | Premium finance agreement [Member] | AFCO Acceptance Corporation "AFCO" [Member]      
Subsequent Event [Line Items]      
Aggregate payment amount $ 753,360    
Periodic payment $ 70,468    
Number of payments | payment 11    
Annual interest rate 5.74%    
Late penalty, percentage rate 5.00%    
Subsequent event [Member] | Revolving line of credit [Member]      
Subsequent Event [Line Items]      
Maximum borrowing capacity   $ 1,000,000  
XML 54 R36.htm IDEA: XBRL DOCUMENT v3.19.3
Schedule of Maturities of lease liabilities (Details)
Sep. 30, 2019
USD ($)
Lessee Disclosure [Abstract]  
Remaining 2019 $ 45,793
2020 184,831
2021 136,949
2022 46,070
Total lease payments 413,643
Less: Imputed interest (44,035)
Total $ 369,608

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Revenue and Cost Recognition
 9 Months Ended
Sep. 30, 2019
Notes to Financial Statements [Abstract]  
Revenue and Cost Recognition [Text Block]

Note 7 - Revenue and Cost Recognition

The Company recognizes revenue in accordance with ASC 606. As such, the Company has and will continue to review its performance obligations in terms of material customer contractual arrangements in order to verify that revenue is recognized when performance obligations are satisfied on a periodic basis.

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 or where consumers choose to purchase directly via the Company’s e-commerce website (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 where no exchange of product is possible. Revenues are recognized when our performance obligations are satisfied as evidenced by transfer of control of promised goods to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Product royalty income, representing less than 1% of total revenues, is recorded as the underlying product sales occur, in accordance with the related licensing arrangements.

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 or the consumer chooses to purchase directly from the Company’s e-commerce website 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.

The Company's standard terms and conditions of sale for non-consumer direct or web-based sales do not allow for product returns other than under warranty.

International sales (other than in the United States and 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 and exchanged 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.

In the following table, revenue is disaggregated by the source of revenue:

  Nine months ended September 30, 
  2019  % of Revenues  2018  % of Revenues 
Consumer and athlete direct revenues$ 980,552  5% $ 808,335  4% 
Dealer direct revenues 6,913,057  33%  6,307,993  34% 
International distributor revenues 13,123,720  62%  11,761,584  62% 
 $ 21,017,329  100% $ 18,877,912  100% 


The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company estimates the expected returns and claims based on historical rates as well as events and circumstances that indicate changes to historical rates of product returns and claims. Historically, returns due to product quality issues have not been material and there have been no distributor terminations that resulted in product returns. The provision for estimated returns at September 30, 2019 and December 31, 2018 was $0, and $0, respectively.

Accounts receivable consist of amounts due to the Company from normal business activities. Credit is granted to substantially all distributors on an unsecured basis. The Company continuously monitors collections and payments from customers and maintains an allowance for doubtful accounts receivable based upon historical experience and any specific customer collection issues that have been identified. The allowance of doubtful accounts was $228,186 at September 30, 2019 and $83,399 at December 31, 2018.


Sales commissions are expensed when incurred, which is generally at the time of sale, because the amortization period would have been one year or less. These costs are recorded in commissions and consulting expenses within operating expense in the accompanying consolidated statements of operations and comprehensive income (loss).

Shipping and handling activities associated with outbound freight, after control over a product has transferred to a customer, are accounted for as a fulfillment cost and are included in revenues and cost of revenues in the accompanying consolidated statements of operations and comprehensive income (loss).

Revenue recognized from contracts with customers is recorded net of sales taxes, value added taxes, or similar taxes that are collected on behalf of local taxing authorities.

For the nine months ended September 30, 2019, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future period related to remaining performance obligations is not material. As of September 30, 2019, contract liabilities, if any, were not material.