Leo Motors, Inc. - FORM 10-Q

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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

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


For the transition period from	to

Commission file number 000-53525

Leo Motors, Inc.

(Exact name of registrant as specified in its charter)

Nevada		95-3909667
(State or other jurisdiction of incorporation or organization)		(I. R. S. Employer Identification No.)

291-1, Hasangok-dong, Hanam City, Gyeonggi-do, Republic of Korea		465-250
(Address of principal executive offices)		(Zip Code)

+83 31 796 8870

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).	Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares of the registrant’s common stock outstanding as of April 30, 2014 was 80,383,662 shares.

QUARTERLY REPORT ON FORM 10-Q

for the Quarter ended March 31, 2014

TABLE OF CONTENTS

Leo Motors, Inc.

INDEX TO FORM 10-Q

		Page
PART I.	FINANCIAL INFORMATION	F-1

Item 1.	Condensed Consolidated Financial Statements:	F-1

	Condensed Consolidated Balance Sheets at March 30, 2014 (unaudited), and December 31, 2013 (audited)	F-1

	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 30, 2014, (unaudited) and March 30, 2013 (unaudited)	F-2

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 30, 2014 (unaudited) and March 30, 2013 (unaudited)	F-3

	Notes to Condensed Consolidated Financial Statements	F-5

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4

Item 4.	Controls and Procedures	5

PART II.	OTHER INFORMATION	7

Item 1.	Legal Proceedings	7

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7

Item 3.	Defaults Upon Senior Securities	7

Item 4.	Mine Safety Disclosures	7

Item 5.	Other Information	8

Item 6.	Exhibits	8

SIGNATURES		9

Table of Contents

LEO MOTORS, INC.

CONSOLIDATED BALANCE SHEETS

(AMOUNTS EXPRESSED IN US DOLLAR)


	Balance at
	3/31/2014				12/31/2013
	(Unaudited)				(Audited)
Assets
Current Assets
Cash and cash equivalents		$	851			$	1,774
Inventories			22,951				0
Prepayment to suppliers			197,973				197,973
Short term advances			4,900				4,900
Other current assets			1,023				563
Total Current Assets			227,698				205,210
Fixed assets, net			31,489				35,996
Deposit			76,321				76,321
Other non-current assets			48,432				63,831
Investments			762,000				762,000
Total Assets		$	1,145,940			$	1,143,358
Liabilities and Equity(Deficit)
Current Liabilities:
Accounts payable and accrued expenses		$	805,721			$	702,983
Short term borrowings			219,334				167,373
Advance from customers			435,439				435,439
Due to related parties			150,637				150,637
Taxes payable			146,569				143,210
Total Current Liabilities			1,757,700				1,599,642
Accrued retirement benefits			44,622				62,036
Total Liabilities			1,802,322				1,661,678
Commitments (Note 8)			-				-
Leo Motors, Inc.("LEOM") Equity(Deficit):
Common stock ($0.001 par value; 100,000,000 shares authorized); 80,383,662 and 67,833,662 shares issued and outstanding at March 31, 2014 and December 31, 2013			80,384				67,834
Additional paid-in capital			14,407,031				13,290,081
Accumulated other comprehensive income			467,236				468,330
Accumulated loss			(18,016,109	)			(16,871,850	)
Total Equity(Deficit) Leo Motors, Inc.			(3,061,458	)			(3,045,605	)
Non-controlling interest			2,405,076				2,527,285
Total Equity(Deficit)			(656,382	)			(518,320	)
Total Liabilities and Equity(Deficit)		$	1,145,940			$	1,143,358

"See accompanying notes to consolidated financial statements"

F-1

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LEO MOTORS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(AMOUNTS EXPRESSED IN US DOLLAR)

	For the Three Months Ended March 31,
	2014			2013
	(Unaudited)			(Unaudited)
Revenues	$	0		$	0

Cost of Revenues		0			0
Gross Profit		0			0

Operating Expenses		1,237,447			111,806
Income(loss) from Continuing Operations		(1,237,447	)		(111,806	)

Other Income (Expenses)
Interest expense		(29,028	)		(63,057	)
Non-Operating (expense) income		7			(6,024	)
Total Other Income (Expenses)		(29,021	)		(69,081	)

Income(loss) from Continuing Operations Before Income Taxes		(1,266,468	)		(180,887	)

Income Tax Expense		0			25,283
Net Income(Loss)	$	(1,266,468	)	$	(206,170	)

Income(loss) attributable to non-controlling interest	$	(122,209	)	$	(56,664	)

Net Income(Loss) Attributable To Leo Motors, Inc.		(1,144,259	)		(149,506	)

Other Comprehensive Income:
Net Income(loss)	$	(1,144,259	)	$	(650,736	)
Unrealized foreign currency translation gain		(1,094	)		(1,001	)

Comprehensive Income(loss) Attributable to Leo Motors, Inc.	$	(1,145,353	)	$	(651,737	)
Net Loss per Common Share:
Basic	$	(0.02	)	$	(0.00	)
Diluted	$	(0.02	)	$	(0.00	)
Weighted Average Common Shares Outstanding:
Basic		72,000,239			57,069,734
Diluted		73,599,946			57,736,401

"See accompanying notes to consolidated financial statements"

F-2

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LEO MOTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS EXPRESSED IN US DOLLAR)


	For the Three Months Ended March 31,
	2014			2013
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,266,468	)	$	(206,170	)
Adjustments to reconcile net loss to net cash
used in operating activities:

Depreciation and amortization		4,507			7,996
Amortization debt discount		26,872			0
Foreign currency translation		(1,094	)		(1,001	)
Stock-based compensation		1,129,500			0

Changes in assets and liabilities:
Inventories		(22,951	)		(69,062	)
Prepayment to suppliers		15,399			34,371
Other current assets		(460	)		(4,751	)
Accounts payable, other payables and accrued expenses		102,738			(58,381	)
Accrued retirement benefits		(17,414	)		(24,254	)
Advances from customers		0			8,037
Taxes payable		3,359			11,443
Net cash used in operating activities:		(26,012	)		(301,772	)

Cash flows from investing activities:
Investment in equipment		0			(15,000	)
Net cash provided(used) in investing activities:		0			(15,000	)

Cash flows from financing activities:
Common stock issuance		0			102,257
Payments on notes		0			(212,535	)
Proceeds from loans		25,089			0
Net cash provided(used) by financing activities:		25,089			(110,278	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(923	)		(427,050	)

Cash and cash equivalents - beginning of year		1,774			430,307

Cash and cash equivalents - end of year	$	851		$	3,257

"See accompanying notes to consolidated financial statements"

F-3

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LEO MOTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS EXPRESSED IN US DOLLAR)

(CONTINUED)

Supplemental disclosure of cash flow activities:
Cash paid for:
Interest	$	0	$	0
Income taxes	$	0	$	0
Supplemental disclosures of non cash activities:
Cash paid for:
Common stock issued for services	$	1,129,500	$	0
Debt forgiveness included as income	$	0	$	0
Conversion of debt for common stock	$	0	$	0

"See accompanying notes to consolidated financial statements"

F-4

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LEO MOTORS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMANTS

AS OF MARCH 31, 2014 AND 2013

(UNAUDITED)

NOTE 1 - COMPANY BACKGROUND

Company Business

Company is currently in development, assembly and sales of the energy storage devices and electric vehicle components.

Background

Leo Motors, Inc, (the “Company”) was originally incorporated as Classic Auto Accessories, a California Corporation on July 2, 1986. The Company then underwent several name changes from FCR Automotive Group, Inc. to Shini Precision Machinery, Inc. to Simco America Inc. and then to Leo Motors. The Company had been dormant since 1989, and effectuated a reverse merger on November 12, 2007 with Leozone Inc., a South Korean Company, which is the maker of electrical transportation devices. The merger essentially exchanges shares in Leo Motors, Inc. for shares in Leozone. As this is a reverse merger the accounting treatment of such is that of a combination of the two entities with the activity of Leozone, Inc. the surviving entity, going forward. The financial statements reflect the activity for all periods presented as if the merger had occurred January 1, 2007. Leozone has continued to operate as a separate subsidiary Leo Motors Co. Ltd. of Korea since that time.

On February 11, 2010, the Company acquired 50% of Leo B&T Corp.,(“B&T”) a Korean Corporation, from two shareholders of B&T in exchange for 7,000,000 shares of the Company’s common stock. This percentage was reduced to 30% in 2011. Additionally, this investment was written down through an impairment expense during 2011 and the remaining investment was exchanged in 2012 for a return of Leo Motors stock.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant account policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and the notes are the representation of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to U.S. generally accepted accounting principles (“USGAAP”) and have been consistently applied in the preparation of the financial statements.

Basis of Presentation and Consolidation

These financial statements and related notes are expressed in US dollars. The Company’s fiscal year-end is December 31. The consolidated financial statements include the financial statements of the Leo Motors Co. Ltd. Korea where the Parent Company has significant control with a shareholders ownership percentage of 47.63 % at the end of December 31, 2012 and an ownership percentage of 51.42% at the end of 2011, respectively. All inter-company transactions and balances have been eliminated upon consolidation.

F-5

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Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable inventory and prepaid expenses, accounts payable and deferred revenues, the carrying amounts approximate fair value due to their short maturities.

Revenue Recognition

The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company.

The Company generates revenue from the delivery of goods and records revenues when the sales are completed, already collected or collectability is reasonably assured, there is no future obligation and there is remote chance of future claim or refund to the customers.

Revenue is recognized when risk of ownership and title pass to the buyer, generally upon the delivery of professional services. Pricing is fixed and determinable according to the Company’s published brochures and price lists.

Accounts Receivables

Accounts receivables of the Company are reviewed to determine if their carrying value has become impaired.

The Company considers the assets to be impaired if the balances are greater than one-year old. Management regularly reviews accounts receivable and will establish an allowance for potentially uncollectible amounts when appropriate. When accounts are written off, they will be charged against the allowance.

Receivables are not collateralized and do not bear interest.

Cash Equivalents

For purposes of reporting cash flows, the Company considers all short-term investments with an original maturity of three months or less to be cash equivalent.

F-6

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Fixed Assets

Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which is generally 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).

The Company will periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. We use an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Intangible and Long Lived Assets

The Company follows ASC 360-10, “Property, Plant, and Equipment,” which established a “primary asset” approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Through December 31, 2011, the Company had not experienced impairment losses on its long-lived assets.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC 740-10, “Accounting for Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year; and, (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken or expected to be taken on a tax return. Under ASC 740-10, a tax benefit from an uncertain tax position taken or expected to be taken may be recognized only if it is “more likely than not” that the position is sustainable upon examination, based on its technical merits. The tax benefit of a qualifying position under ASC 740-10 would equal the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority having full knowledge of all the relevant information. A liability (including interest and penalties, if applicable) is established to the extent a current benefit has been recognized on a tax return for matters that are considered contingent upon the outcome of an uncertain tax position. Related interest and penalties, if any, are included as components of income tax expense and income taxes payable.

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Loss per Share

Basic earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of both common and preferred stock outstanding for the period.

Stock-Based Compensation

SFAS No. 123, “Accounting for Stock-Based Compensation,” establishes and encourages the use of the fair value based method of accounting for stock-based compensation arrangements under which compensation cost is determined using the fair value of stock-based compensation determined as of the date of grant and is recognized over the periods in which the related services are rendered. For stock based compensation the Company recognizes an expense in accordance with SFAS No. 123 and values the equity securities based on the fair value of the security on the date of grant. Stock option awards are valued using the Black-Scholes option-pricing model.

Foreign Currency Translation And Comprehensive Income

The reporting currency of the Company is the US$. The functional currency of the parent company is the US$ and the functional currency of the Company’s operating subsidiary is Korean Won (“KRW”). The subsidiary’s results of operations and cash flows are translated at average exchange rates during the year, assets and liabilities are translated at the unified exchange rate at the end of the year, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the functional currency financial statements into US$ are included in determining comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2010-06, Improving Disclosures about Fair Value Measurements (“ASU No. 2010-06”). The new standard addresses, among other things, guidance regarding activity in Level 3 fair value measurements. Portions of ASU No. 2010-06 that relate to the Level 3 activity disclosures became effective for the annual reporting period beginning after December 15, 2010. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

On March 5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815 “Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the guidance within the derivative literature that exempts certain credit related features from analysis as potential embedded derivatives requiring separate accounting. The ASU specifies that an embedded credit derivative feature related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another is not subject to bifurcation from a host contract under ASC 815-15-25, “ Derivatives and Hedging — Embedded Derivatives — Recognition. ” All other embedded credit derivative features should be analyzed to determine whether their economic characteristics and risks are “clearly and closely related” to the economic characteristics and risks of the host contract and whether bifurcation is required. The ASU became effective for the Company on July 1, 2010. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements.

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In May 2011, the FASB issued ASU 2011-04 which was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This guidance is effective for the Company beginning on January 1, 2012. The adoption of ASU 2011-04 is not expected to significantly impact the Company’s consolidated financial statements.

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Presentation of Comprehensive Income . ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in Accounting Standards Codification (ASC) 220, Comprehensive Income , and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. In December 2011, the FASB issued ASU 2011-12 which defers the requirement in ASU 2011-05 that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. ASU 2011-05 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011, with early adoption permitted. The adoption of ASU 2011-05, as amended by ASU 2011-12, is not expected to significantly impact the Company’s consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for the Company for its annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 is not expected to significantly impact the Company’s consolidated financial statements.

NOTE 3 - EARNINGS PER SHARE

The Company reports basic and diluted earnings per share (EPS) according to the provisions of ASC Topic 260, which requires the presentation of basic EPS and, for companies with complex capital structures, diluted EPS. Basic EPS excludes dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) available to common stockholders, adjusted by other changes in income or loss that would result from the assumed conversion of those potential common shares, by the weighted number of common shares and common share equivalents (unless their effect is antidilutive) outstanding. Common stock equivalents are not included in the computation of diluted earnings per share when the Company reports a loss because to do so would be antidilutive. Thus, these equivalents are not included in the calculation of diluted loss per share, resulting in basic and diluted loss per share being equal. The following is a reconciliation of the computation for basic and diluted EPS for the quarters ended March 31, 2014 and March 31, 2013:

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	For the three months ended
	3/31/2014			3/31/2013

Net Income (Loss)	$	(1,266,468	)	$	206,170


Weighted-average common stock Outstanding - basic		72,000,329			53,065,337
Equivalents
Stock options		-			0
Warrants		-			0
Convertible Notes		1,599,617			1,180,440
Weighted-average common shares
outstanding- Diluted		73,599,946			54,245,777

NOTE 4 - DUE TO RELATED PARTY

The company is indebted to its officer for advances. Repayment is on demand without interest. The balance was $150,637 at March 31, 2014 and December 31, 2013.

NOTE 5 - PAYMENTS RECEIVED IN ADVANCE

The Company during the periods received payments from potential customers, or deposits, on future orders. The Company’s policy is to record these payments as a liability until the product is completed and shipped to the customer at which the Company recognizes revenue. As of March 31, 2014 and December 31, 2013, the balance of payments received in advance was $197,973 and $ 197,973, respectively.

NOTE 6 - SUBSEQUENT EVENTS

There are no reportable subsequent events.

NOTE 7 - GOING CONCERN

As reported in the consolidated financial statements, the Company has accumulated deficits of $18,016,109 as of March 31, 2014. The Company's stockholders' deficit at March 31, 2014 was $3,061,458 and its current liabilities exceeded its current assets by $1,530,002 on March 31, 2014. These negative trends have been consistent over the last few years except for asset sales.

These factors create uncertainty about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable and to create operations that contribute capital from normal operations. If the Company is unable to obtain adequate capital it could be forced to cease operations.

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In order to continue as a going concern, develop and generate revenues and achieve a profitable level of operations, the Company will need, among other things, additional capital resources. Management's plans to obtain such resources for the Company include (1) raising additional capital through sales of common stock, (2) converting promissory notes into common stock and (3) entering into acquisition agreements with profitable entities with significant operations. In addition, management is continually seeking to streamline its operations and expand the business through a variety of industries, including real estate and financial management.

However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

(a) Lease Commitments

The Company leases its office space in Ha-Nam City in Korea which expires on December 31, 2016. The minimum obligations under such commitments for the years ending December 31, 2014 through December 31, 2017 are listed on the table below.

For the Year	Amount
Ending

2014		30,000
2015		40,000
2016		40,000
2017		40,000

Total Commitment	$	150,000

(b) Strategic Investment

On November 10, 2012 the Company and PDI C&D/RDC SPRL Inc. ("PDI"), an affiliate of PDI Global LLC, a major architectural design company in the U.S., have signed a contract to supply an independent solar power system grafted with Leo Motors' E-Box power storage device for a housing project in the Democratic Republic of the Congo ("DRC"). The Company has a commitment to raise $1,000,000 to fulfill its part of the contract for strategic investment. As of March 31, 2013 the company has invested $270,000 recorded as an investment using the cost method of accounting for their 10% interest in the project.

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NOTE 9. INVENTORIES

Inventories at March 31, 2014 and December 31, 2013 consist of the following:


	31-Mar-14		31-Dec-13
	US$		US$
Raw material	$	0	$	0
Work in process		22,951		0
Finished goods		0		0
	$	22,951	$	0

Inventory was written down to $0 at December 31, 2013 due to obsolescence and a small fire destroying what was remaining as inventory.

NOTE 10 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2014 and December 31, 2013:

	31-Mar-14			31-Dec-13
Vehicles	$	7,581		$	7,581
Tools		12,906			12,906
Office		79,963			79,963
Facility equipment		110,132			110,132

Total property and equipment		210,582			210,582

Accumulated depreciation		(180,093	)		(175,586	)
Property and equipment, net	$	30,489		$	34,996

Depreciation expense for the quarters ended March 31, 2014 and 2013 amounted to $4,507 and $7,996, respectively.

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NOTE 11 - INVESTMENTS

During 2013 the Company continued to fund our housing project in the republic of Congo. Our investment at March 31, 2014 was 720,000. On December 13, 2013, the Company has invested $492,000 and acquired 2.84% of LGM Co., Ltd. in Korea. (617,764 shares of common stock.) LGM is a company developing electric boats.

During 2012 the Company started its investment in a housing project in the Republic of the Congo which will use our E-Box power storage device. To date as of March 31, 2013, $270,000 had been invested with additional amounts to be added as described in note 8. This 10% interest has been recorded using the cost investment of accounting for investments.

NOTE 12 - SHORT TERM BORROWINGS

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

In the first quarter of 2014 the Company borrowed $22,500 in short term convertible notes. The terms of the note was for nine months with an 8% interest rate payable at any time during the note term. Additional funds have been advanced to their Korean Subsidiary from various local parties. These advances are demand short term advances in nature no interest rate and no collateral.

NOTE 13. SEGMENT INFORMATION

ASC Topic 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. During the quarters ended March 31, 2014 and 2013, the Company operated in one reportable business segment: the sale and manufacture of specialized electric vehicle. The Company's reportable segment is a strategic business unit that offers its product.

F-13

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. These forward-looking statements include, without limitation, statements containing the words “believes,”“anticipates,”“expects,”“intends,”“projects,”“will,” and other words of similar import or the negative of those terms or expressions. Forward-looking statements in this report include, but are not limited to, expectations of future levels of research and development spending, general and administrative spending, levels of capital expenditures and operating results, sufficiency of our capital resources, our intention to pursue and consummate strategic opportunities available to us, including sales of certain of our assets. Forward-looking statements subject to certain known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to those described in “Risk Factors” of the reports filed with the Securities and Exchange Commission.

SPECIAL NOTICE ABOUT GOING CONCERN AUDIT OPINION

OUR AUDITOR HAS ISSUED AN OPINION EXPRESSING DOUBT AS TO OUR ABILITY TO CONTINUE IN BUSINESS AS A GOING CONCERN. YOU SHOULD READ THIS 10-Q REGISTRATION WITH THE “GOING CONCERN” ISSUES IN MIND.

This Management’s Discussion and Analysis should be read in conjunction with the financial statements included in this Quarterly Report on Form 10-Q (the “Financial Statements”). The financial statements have been prepared in accordance with generally accepted accounting policies in the United States (“GAAP”). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.

Overview

Leo Motors, Inc. is a Nevada Corporation incorporated on September 8, 2004. The Company established a wholly-owned operating subsidiary in Korea named Leo Motors, Co. Ltd. on July 1, 2006. Through Leozone the Company is engaged in the research and development (“R&D”) of multiple products, prototypes and conceptualizations based on proprietary, patented and patent pending electric power generation, drive train and storage technologies. Leozone operates through four unincorporated divisions: new product research & development (“R&D”), post R&D development such as product testing; production; and sales.

The Company’s products (i) E-Box electric energy storage system for solar and wind power generation devices; (ii) EV components that integrate electric batteries with electric motors such as EV Controllers that use a mini-computer to control torque drive.

Leo Motors, Inc. (the "Company") was previously actively engaged in the process of development and production of Electric Power Train Systems (“EPTS”) encompassing electric scooters, electric sedans/SUVs/sports cars, and electric buses/trucks as well as several models of Electric Vehicle ("EV"). Our EPTS can replace internal combustion engines (“ICEs”). Company began sales of EPTS to auto makers and agricultural machinery manufacturers.

The Company has developed eight EPTS of increasing power rating: 3kW, 5kW, 7.5kW, 15kW, 30kW, 60kW, 120kW, and 240kW systems. Each EPTS consists of a motor, a controller, and a battery power pack with a battery management system (“BMS”).

The Company has successfully converted existing models of small cars (ICEs under 2,000cc), and also a 24 seat bus. The Company has begun marketing its 60kW power train kits (for compact passenger cars and small trucks) and its 120kW kits (for ICE passenger cars, buses, and trucks under 5,000cc). The Company has developed a 240kW kit (for up to 10,000cc buses and trucks) as well, and is attempting to locate a strategic partner to fund the testing and production.

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

●	Focus on the capitalization of the Company;

●	Focus on the sale of the e-Box;

●	Complete the build out of the manufacturing plant for the e-Box;

●	Continue with R&D of our EV’s and related products as capital permits.

The E-Box can be used as an energy supplying device in an emergency situations or as a energy storage device for use by the military; municipal and industry; corporate; solar/wind power storage; electric coolers and heaters; yachts or small ships. The E-Box is offered in three power classes: 1kw, 3kw and 5kw. E-Boxes for 10kw and 550kw will be developed in the future. The E-Box is environmentally friendly with high energy density due to the use of lithium-polymer battery. The E-Box uses a multiple cell voltage balancing system via a battery management system (“BMS”).

Recent Business Developments

In the last year the Company has focused its marketing and sales efforts on the E-Box. The E-Box is a electric power storage box ranging from 3kW to 50kW for use in homes. This project took on additional importance to the Company because of the unprecedented natural disaster in Japan. Leo is marketing the device in the US and Japan. A recent sales order from a company in the USA in the third quarter of 2011 requires us to demonstrate “proof of concept”.

In 2012, the Company had agreed to a contract to provide solar module e-Box systems to sustainable housing projects in the Democratic Republic of Congo..The solar module system would be independent of the grid, solely relying on renewable solar energy as a source of electric power. Although the product has completed required testing, the delivery of the product has been delayed due to slow development in the project construction. Due to political/regional instability in the DRC, the execution of this contract is not guaranteed.

The Company has also recently signed a sales agreement for the distribution of e-Box units in the North Americas. The development is anticipated to meet the rising demand for back-up electric energy solutions worldwide, and potentially generate sales leads.

Liquidity and Capital Resources

Our liquidity and capital resources are limited. Accordingly, our ability to initiate our plan of operations and continue as a going concern is currently dependent on our ability to either generate significant new revenues or raise external capital.

Results of Operations - For the Quarter Ended March 30, 2014

Revenues

Sales for the quarter ended March 31, 2014 were $0 compared to $0 for the quarter ended March 31, 2013, reflecting no change. The Company is currently devoting the majority of its resources into the E-Box .

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Cost of Sales

Costs of sales were $0 for the quarter ended March 31, 2014 compared to $0 for the quarter ending March 31, 2013, reflecting no change as well as there were no sales in either period.

Gross Profit

Gross profit was $0 in the quarter ended March 31, 2014 compared to $0 for the quarter ending March 31, 2010. This was also a reflection of our lack of sales for either period.

General and Administrative Expenses

Expenses for the period quarter consisted of the following:

	For the Three Months Ended
	March 31,			March 31,
Total General and Administrative Expenses:	2014			2013

Salaries and Benefits		$	1,129,500		$	63,227
Consulting and Service Fees			71,905			28,979
Selling, General and Administrative			36,042			10,929
Total		$	1,237,447		$	103,135

Salaries and Benefits consist of total of common stock issued to our executive officers as compensation for their services as officers of the Company and cash compensation paid to our employees during the year and the cost of all benefits provided to our employees.

Consulting and Service Fees consist of consist of accounting, legal, and professional fees.

Selling, General and Administrative consists of travel expenses, entertainment expenses, communication expenses, utilities, taxes & dues, depreciation expenses, rent, repairs, vehicle maintenance, ordinary development expenses, shipping, education & training, printing, storage, advertising, insurance, office supplies and expense, payroll expenses, investor referral fees and other miscellaneous expenses.

Other Income (Expenses)

During the quarter ended March 31, 2014, we incurred $29,021 in net other expenses, compared to $69,081 in the period ended March 31, 2013 a decrease of $40,060. There were conversions of loans payable during 2013 reducing our debt for the 2014 quarter. This debt reduction reduced our interest expense from $63,057 in 2013 to $29,028 in 2014. Interest expense was the major item in other income and expenses.

Net Income (Loss)

The net loss for the quarter ending March 31, 2014 increased to $1,266,468 from $206,170 for the three months ending March 31, 2013, an increase of $1,060,298. As outlined above the Company has had zero sales as it rebuild its product lines. Our major expense in 2014 was stock issued as wages which caused the majority of our increases in net losses period over period.

Off-Balance Sheet Arrangements

None.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

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ITEM 4.CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “ SEC”), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, management concluded that our disclosure controls and procedures are ineffective as of March 31, 2014 to cause the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by SEC, and that such information is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Evaluation of and Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of March 31, 2014 based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that, as of March 31, 2014, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework. This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management's report in this annual report.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting identified in connection with the requisite evaluation that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations

Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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The Company has resolved a number of prior material deficiencies recorded in prior years. During the course of our audit we noted the following significant deficiencies.

Because of the Company's small number of people and its inherent limitations, internal control over financial reporting still may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

The Company does not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is the management’s view that to have an audit committee, comprised of independent board members, and an independent audit committee financial expert is an important entity-level control over the Company’s financial statements.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting A material weakness is a deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) auditing standard 5) or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has determined that a material weakness exists due to the items stated above, resulting from the Company’s limited resources and personnel.

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PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

None.

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

On January 28, 2014 we issued 800,000 shares for services to Jung Young Lee. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.

On January 28, 2014 we issued 3,600,000 shares for services to Jeong Youl Choi. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.

On January 28, 2014 we issued 4,600,000 shares for services to Jun Hen Park. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.

On January 28, 2014 we issued 200,000 shares for services to Sang Hyun Sim. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.

On January 28, 2014 we issued 500,000 shares for services to Sang Youn Lee. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.

On January 28, 2014 we issued 400,000 shares for services to Hyeong Koo Kim. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.

On January 28, 2014 we issued 1,500,000 shares for services yo Thomas Cheong. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.

On January 28, 2014 we issued 700,000 shares for services to Shi Chul Kang. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.

On January 28, 2014 we issued 250,000 shares for services to Man Ho Kang. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLSOURES

Not Applicable.

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ITEM 5 - OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

The following exhibits are filed as part of this quarterly report on Form 10-Q:


No.		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated May 15, 2014
		Leo Motors, Inc.
		(Registrant)

	By:	/s/ Jun Heng Park
		Jun Heng Park
		Chief Executive Officer

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