Leatt Corp - Quarter Report: 2022 September (Form 10-Q)

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, 2022

[_] 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 4, 2022 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	5,826,892

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LEATT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

			2022			2021
Cash flows from operating activities
Net income		$	11,037,798		$	8,757,297
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation			829,790			744,713
Stock-based compensation			443,250			55,020
Bad debts reserve			81,305			32,423
Inventory reserve			148,901			51,840
(Gain) loss on sale of property and equipment			(23,047	)		5,767
(Increase) decrease in:
Accounts receivable			(9,925,342	)		(10,023,484	)
Inventory			(4,088,914	)		(5,060,128	)
Payments in advance			409,186			(952,067	)
Prepaid expenses and other current assets			2,845,924			(2,212,611	)
Income tax refunds receivable			-			2,964
Deposits			(6,802	)		146
Increase (decrease) in:
Accounts payable and accrued expenses			(2,136,609	)		8,412,521
Income taxes payable			2,073,221			1,271,016
Deferred compensation			60,000			60,000
Net cash provided by operating activities			1,748,661			1,145,417
Cash flows from investing activities
Capital expenditures			(865,204	)		(892,658	)
Proceeds from sale of property and equipment			43,469			-
Increase in short-term investments, net			(5	)		(4	)
Net cash used in investing activities			(821,740	)		(892,662	)
Cash flows from financing activities
Issuance of common stock			255,800			-
Repayment of note payable to bank			(58,090	)		-
Repayment of short-term loan, net			(832,089	)		(534,948	)
Net cash used in financing activities			(634,379	)		(534,948	)
Effect of exchange rates on cash and cash equivalents			(479,710	)		(98,178	)
Net decrease in cash and cash equivalents			(187,168	)		(380,371	)
Cash and cash equivalents - beginning of period			5,022,436			2,967,042
Cash and cash equivalents - end of period		$	4,835,268		$	2,586,671
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest		$	37,427		$	21,741
Cash paid for income taxes		$	1,721,864		$	1,659,698
Other noncash investing and financing activities
Common stock issued for services		$	443,250		$	55,020

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

LEATT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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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:

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

Use of Certain Defined Terms

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

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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 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.

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 and our Moto 3.5 helmet with JIS T 8133 for the Japanese Market. For the Brazilian market our Moto 7.5 and Moto 3.5 helmets comply with NBR 7471.

Our products are predominately manufactured in China in accordance with our manufacturing specifications, pursuant to outsourced manufacturing arrangements with third-party manufacturers located there, based on agreed terms. We are also building manufacturing capacity outside China, namely, in Thailand and Bangladesh. The Company utilizes outside consultants and its own employees to ensure the quality of its products through regular on-site product inspections. Products sold to our international customers are usually shipped directly from our consolidation warehouse or manufacturers' warehouses to customers or their import agents.

Leatt earns revenues through the sale of its products through approximately 55 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 dealers 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:

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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, 2022 and 2021 included herein.

Comparison of Three Months Ended September 30, 2022 and Three Months Ended September 30, 2021

The following table summarizes the results of our operations during the three-month periods ended September 30, 2022 and 2021 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

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		Three Months Ended September 30,						Increase (Decrease)			Percentage Increase (Decrease)
Item		2022			2021
REVENUES	$	23,258,752		$	22,100,827		$	1,157,925			5%
COST OF REVENUES		13,122,213			12,571,692		$	550,521			4%
GROSS PROFIT		10,136,539			9,529,135		$	607,404			6%
PRODUCT ROYALTY INCOME		74,411			58,246		$	16,165			28%
OPERATING EXPENSES
Salaries and Wages		1,274,554			975,676		$	298,878			31%
Commissions and Consulting		143,691			144,837		$	(1,146	)		-1%
Professional Fees		166,537			510,713		$	(344,176	)		-67%
Advertising and Marketing		1,166,804			633,915		$	532,889			84%
Office Lease and Expenses		145,499			99,314		$	46,185			47%
Research and Development Costs		501,604			468,922		$	32,682			7%
Bad Debt Expense		97,325			42,197		$	55,128			131%
General and Administrative		977,796			691,696		$	286,100			41%
Depreciation		264,923			265,777		$	(854	)		0%
Total Operating Expenses		4,738,733			3,833,047		$	905,686			24%
INCOME FROM OPERATIONS		5,472,217			5,754,334		$	(282,117	)		-5%
Other Income		7,784			1,413		$	6,371			451%
INCOME BEOFRE INCOME TAXES		5,480,001			5,755,747		$	(275,746	)		-5%
Income Taxes		1,391,878			1,467,936		$	(76,058	)		-5%
NET INCOME	$	4,088,123		$	4,287,811		$	(199,688	)		-5%

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 quarter ended September 30, 2022 were $23.26 million, a 5% increase, compared to $22.10 million for the quarter ended September 30, 2021. This increase in worldwide revenues is primarily attributable to a $2.04 million increase in helmet sales, a $1.8 million increase in other products, parts and accessories, that were partially offset by a $1.85 million decrease in body armor and a $0.81 million decrease in neck brace sales. Revenues generated from sales to our customers in the United States increased from $4.31 million, to $5.42 million, for the three months ended September 30, 2022 and 2021, respectively.  Revenues associated with international customers were $17.84 million and $17.79 million, or 77% and 81% of revenues, respectively, for the three months ended September 30, 2022 and 2021, respectively.

The following table sets forth our revenues by product line for the quarter ended September 30, 2022 and 2021:

		Three months ended September 30,
		2022			% of Revenues			2021			% of Revenues
Neck braces	$	1,894,839			8%		$	2,708,364			12%
Body armor		10,519,065			45%			12,365,185			56%
Helmets		4,359,829			19%			2,320,111			11%
Other products, parts and accessories		6,485,019			28%			4,707,167			21%
	$	23,258,752			100%		$	22,100,827			100%

Sales of our flagship neck brace accounted for $1.89 million and $2.71 million, or 8% and 12% of our revenues for the quarters ended September 30, 2022 and 2021, respectively. The 30% decrease in neck brace revenues is primarily attributable to a 24% decrease in the volume of neck braces sold to our customers globally, when compared to the third quarter of 2021, which was a particularly strong quarter for neck brace sales. Neck brace volumes in the third quarter of 2021 had increased by 181% over the prior year 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, knee and elbow guards, off-road motorcycle boots and mountain biking shoes. Body armor sales accounted for $10.52 million and $12.37 million, or 45% and 56% of our revenues for the quarters ended September 30, 2022 and 2021, respectively. The 15% decrease in body armor revenues during the 2022 third quarter is primarily the result of a 30% decrease in upper body armor revenues, when compared to the third quarter of 2021, which was an exceptionally strong quarter for upper body armor revenues.  Upper body armor revenues in the third quarter of 2021 had increased by 114% when compared to the prior year period.

Our helmet sales accounted for $4.36 million or 19% of our revenues for the quarter ended September 30, 2022, as compared to $2.32 million or 11% of our revenues for the three months ended September 30, 2021. The 88% increase in helmet sales during the third quarter is primarily due to exceptional global demand for our redesigned MOTO helmet line-up for off-road motorcycle use.

Our other products, parts and accessories are comprised of goggles, hydration bags and apparel items including jerseys, pants, shorts and jackets as well as aftermarket support items required primarily to replace worn or damaged parts through our global distribution network. Other products, parts and accessories sales accounted for $6.49 million and $4.71 million, or 28% and 21% of our revenues for the quarters ended September 30, 2022 and 2021, respectively.  The 38% increase in revenues from the sale of other products, parts and accessories during the 2022 third quarter is primarily due to a 51% increase in the sales volume of our MOTO and MTB technical apparel designed for off-road motorcycle and mountain biking use, respectively.

Cost of Revenues and Gross Profit - Cost of revenues for the quarters ended September 30, 2022 and 2021 were $13.12 million and $12.57 million, respectively. Gross Profit for the quarters ended September 30, 2022 and 2021 were $10.14 million and $9.53 million, respectively, or 44% and 43% of revenues, respectively. Our neck brace products continue to generate a higher gross profit margin than our other product categories. Although neck brace revenues accounted for 8% and 12% of our revenues for the quarters ended September 30, 2022 and 2021, respectively, our gross profit improved during the third quarter of 2022 due to a stabilization in global and domestic shipping and logistics costs, when compared to the three month period ended September 30, 2022.

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, 2022 and 2021 were $74,411 and $58,246, respectively. The 28% increase in product royalty income is due to an increase in the sale of licensed products by licensees during the 2022 period.

Salaries and Wages - Salaries and wages for the quarters ended September 30, 2022 and 2021 were $1,274,554 and $975,676, respectively. The 31% increase in salaries and wages during the 2022 period was primarily due to the employment of additional sales, marketing and brand management personnel in the United States and abroad as we continue to expand and build our selling activities globally in order to facilitate growth.  Additionally, share compensation costs relating to a share issuance made to key personnel contributed to the increase in salaries and wages for the 2022 period.

Commissions and Consulting Expense - During the quarters ended September 30, 2022 and 2021, commissions and consulting expenses were $143,691 and $144,837, respectively. The 1% decrease in commissions and consulting expenses is primarily the result of a decrease in commissions and incentives paid to external sales representatives in the United States, that were partially offset by an increase in commissions and incentives paid to internal, Company employed sales representatives, in line with an increase in sales growth in the region and our continued drive to build out a strong domestic employee sales force.

Professional Fees - Professional fees consist of costs incurred for audit, tax and regulatory filings, as well as patent protection and product liability litigation expenses incurred as the Company continues to expand. Professional fees for the quarters ended September 30, 2022 and 2021 were $166,537 and $510,713, respectively. The 67% decrease in professional fees is primarily due to a decrease in product liability litigation expenses incurred during the 2022 period.

Advertising and Marketing - The Company places paid advertising in various motorsport and bicycle magazines and online media and sponsors a number of events, professional teams and individuals to increase product and brand visibility globally. Advertising and marketing expenses for the quarters ended September 30, 2022 and 2021 were $1,166,804 and $633,915, respectively. The 84% increase in advertising and marketing expenditure during the 2022 period is primarily due to an increase in global coordinated marketing campaigns undertaken in conjunction with our distribution partners and a return to industry tradeshows. During the 2022 period, the Company successfully partnered with its distribution partners in a cost sharing initiative designed to create synchronized launch campaigns, and returned to trade shows that were previously not well attended due to COVID-19 related travel restrictions.

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Office Lease and Expenses - Office lease and expenses for the quarters ended September 30, 2022 and 2021 were $145,499 and $99,314, respectively.  The 47% increase in office lease and expenses during the 2022 period is primarily due to additional warehouse storage rented in the United States as the Company continues to expand its Reno, Nevada warehousing capability to accommodate storage and distribution of its expanding line up of protective gear.

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 quarter ended September 30, 2022, increased to $501,604, from $468,922 during the same 2021 quarter. The 7% increase in research and development costs during the 2022 third quarter is primarily due to the employment of professional product development, design, and quality control personnel, in order to continue the refinement of the Company's product categories and the expansion of our pipeline of innovative cutting-edge products.

Bad Debt Expense - Bad debt expense for the quarters ended September 30, 2022 and 2021 were $97,325 and $42,197, respectively. The 131% increase in bad debt expense is primarily the result of an increase in the provision for unrecoverable debts relating to the Company's international sales.

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, 2022 and 2021 were $977,796 and $691,696, respectively. The 41% increase in general and administrative expenses is primarily due to an increase in product and general liability insurance premiums paid during the 2022 period and a significant increase in staff travel activity related to product development, industry trade shows and domestic customer sales visits, in line with a relaxation of COVID-19 related travel restrictions.

Depreciation Expense - Depreciation expense for the quarters ended September 30, 2022 and 2021 were $264,923 and $265,777, respectively. The marginal decrease in depreciation during the 2022 third quarter is primarily due to a decrease in depreciation expenses relating to mold and tooling items that had been fully depreciated, and were partially offset by the addition of warehouse racking and inventory management equipment utilized at the expanded Company's Reno, Nevada warehouse and the addition of upgrades to the Company's direct to consumer website to facilitate an increase in selling activity.

Total Operating Expenses - Total operating expenses increased by $905,686, to $4.74 million, in the quarter ended September 30, 2022, or 24%, compared to $3.83 million in the 2021 period. This increase is primarily due to increases in advertising and marketing, salaries and general and administrative costs, that were partially offset by the decrease in professional fees mentioned in this report.

Net Income - The net income after income taxes for the quarter ended September 30, 2022 was $4.09 million, as opposed to a net income of $4.29 million for the quarter ended September 30, 2021. This 5% decrease in net income is primarily due to the increase in total operating costs, that were partially offset by the increase in revenues and gross profit discussed above.

Comparison of Nine Months Ended September 30, 2022 and Nine Months Ended September 30, 2021

The following table summarizes the results of our operations during the nine-month periods ended September 30, 2022 and 2021 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

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		Nine Months Ended September 30,						Increase (Decrease)			Percentage Increase (Decrease)
Item		2022			2021
REVENUES	$	65,425,170		$	49,297,861		$	16,127,309			33%
COST OF REVENUES		38,017,469			27,523,233		$	10,494,236			38%
GROSS PROFIT		27,407,701			21,774,628		$	5,633,073			26%
PRODUCT ROYALTY INCOME		200,221			141,535		$	58,686			41%
OPERATING EXPENSES
Salaries and Wages		3,897,693			2,813,024		$	1,084,669			39%
Commissions and Consulting		456,911			581,485		$	(124,574	)		-21%
Professional Fees		505,305			971,969		$	(466,664	)		-48%
Advertising and Marketing		2,526,808			1,669,648		$	857,160			51%
Office Lease and Expenses		546,398			273,887		$	272,511			99%
Research and Development Costs		1,516,147			1,319,183		$	196,964			15%
Bad Debt Expense		101,680			56,290		$	45,390			81%
General and Administrative		2,399,899			1,830,055		$	569,844			31%
Depreciation		829,790			744,713		$	85,077			11%
Total Operating Expenses		12,780,631			10,260,254		$	2,520,377			25%
INCOME FROM OPERATIONS		14,827,291			11,655,909		$	3,171,382			27%
Other Income		5,592			1,354		$	4,238			313%
INCOME BEOFRE INCOME TAXES		14,832,883			11,657,263		$	3,175,620			27%
Income Taxes		3,795,085			2,899,966		$	895,119			31%
NET INCOME	$	11,037,798		$	8,757,297		$	2,280,501			26%

Revenues - We earn revenues from the sale of our protective gear comprising of neck braces, body armor, helmets and other products, parts and accessories both in the United States and internationally. Revenues for the nine-month period ended September 30, 2022 were $65.43 million, a 33% increase, compared to revenues of $49.30 million for the period ended September 30, 2021. This increase in worldwide revenues is primarily attributable to a $7.54 million increase in helmet sales, a $5.87 million increase in other products, parts and accessory sales and a $4.2 million increase in body armor sales, that were partially offset by a $1.48 million decrease in neck brace sales. Revenues generated from sales to our customers in the United States decreased from $14.79 million to $14.57 million, for the nine months ended September 30, 2022 and 2021, respectively. Revenues associated with international customers were $50.86 million and $34.51 million, or 78% and 70% of revenues, respectively, for the nine months ended September 30, 2022 and 2021.

The following table sets forth our revenues by product line for the nine months ended September 30, 2022 and 2021:

		Nine months ended September 30,
		2022			% of Revenues			2021			% of Revenues
Neck braces	$	4,741,028			7%		$	6,224,054			13%
Body armor		32,513,336			50%			28,309,938			57%
Helmets		12,426,220			19%			4,886,324			10%
Other products, parts and accessories		15,744,586			24%			9,877,545			20%
	$	65,425,170			100%		$	49,297,861			100%

Sales of our flagship neck brace accounted for $4.74 million and $6.22 million, or 7% and 13% of our revenues for the nine-month periods ended September 30, 2022 and 2021, respectively. The 24% decrease in neck brace revenues is primarily attributable to a 25% decrease in the volume of neck braces sold globally, when compared to the nine months ended September 30, 2021, which was a particularly strong period for neck brace sales. Neck brace volumes for the first nine months of 2021 had increased by 67% over the prior year 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, knee and elbow guards, off-road motorcycle boots and mountain biking shoes.  Body armor sales accounted for $32.51 million and $28.31 million, or 50% and 57% of our revenues for the nine-month period ended September 30, 2022 and 2021, respectively. The 15% increase in body armor revenues was primarily the result of continued global shipments of the off-road motorcycle boots and mountain biking shoes comprising our footwear category.

Our Helmets accounted for $12.43 and $4.89 million, or 19% and 10% of our revenues for the nine-month periods ended September 30, 2022 and 2021, respectively. The 154% increase in helmet sales during the 2022 period is primarily due to continued strong demand for the Company's expanding and award-winning MTB helmet line up and redesigned MOTO helmet offering for off-road motorcycle use in the United States and abroad.

Our other products, parts and accessories are comprised of goggles, hydrations bags and apparel items including jerseys, pants, shorts and jackets as well as aftermarket support items required primarily to replace worn or damaged parts through our global distribution network.  Other products, parts and accessories sales accounted for $15.74 million and $9.88 million, or 24% and 20% of our revenues for the nine-month periods ended September 30, 2022 and 2021, respectively. The 59% increase in revenues from the sale of other products, parts and accessories is primarily due to strong demand for our MOTO and MTB technical apparel designed for off-road motorcycle and mountain biking use, respectively.

Cost of Revenues and Gross Profit - Cost of revenues for the nine-month periods ended September 30, 2022 and 2021 were $38.02 million and $27.52 million, respectively. Gross Profit for the nine-month periods ended September 30, 2022 and 2021 were $27.41 million and $21.77 million, respectively, or 42% and 44% of revenues respectively. Our neck brace products continue to generate a higher gross margin than our other product categories. Neck brace revenues accounted for 7% and 13% of our revenues for the nine-month periods ended September 30, 2022 and 2021, respectively.  Additionally, revenues associated with international customers were 78% and 70% of our revenues for the nine months ended September 30, 2022 and 2021, respectively, with revenues associated with international distribution customers continuing to generate a lower gross profit margin than direct dealer sales in the United States.

Product Royalty Income - Product royalty income is earned on sales to distributors that have royalty agreements in place, as well as on sales of licensed products by third parties that have licensing agreements in place. Product royalty income for the nine-month periods ended September 30, 2022 and 2021 were $200,221 and $141,535, respectively. The 41% increase in product royalty income is due to an increase in the sale of licensed products by licensees during the 2022 period.

Salaries and Wages - Salaries and wages for the nine-month periods ended September 30, 2022 and 2021 were $3,897,693 and $2,813,024, respectively. The 39% increase in salaries and wages during the 2022 period was primarily due to the employment of additional sales and warehousing personnel in the United States as we continue to expand and build our selling activities to facilitate growth.  Additionally, share compensation costs relating to a share issuance made to key personnel contributed to the increase in salaries and wages for the 2022 period.

Commissions and Consulting Expense - During the nine-month periods ended September 30, 2022 and 2021, commissions and consulting expenses were $456,911 and $581,485, respectively. This 21% decrease in commissions and consulting expenses during the 2022 period is primarily due to a decrease in commissions and incentives paid to both in-house and external sales representatives in the United States, in line with a decrease in sales growth in the region.

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, 2022 and 2021 were $505,305 and $971,969, respectively. This 48% decrease in professional fees is primarily due to a decrease in expenditure on product liability litigation during the 2022 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, 2022 and 2021 were $2,526,808 and $1,669,648, respectively. The 51% increase in advertising and marketing expenditure during the 2022 period is primarily due to the production, execution and synchronization of global marketing campaigns that incorporate high caliber athlete sponsorships, industry trade shows and event attendance activities, and other coordinated global marketing plans designed to market the Company's product offering to a wider group of riders and enthusiasts and continue building a globally recognizable and respected consumer brand.

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Office Lease and Expenses - Office lease and expenses for the nine-month periods ended September 30, 2022 and 2021 were $546,398 and $273,887, respectively. The 99% increase in office lease and expenses during the 2022 period was primarily due to additional warehouse storage rented in the United States as the Company continues to expand its Reno, Nevada warehousing facility to accommodate storage and sales of its expanding line up of protective gear categories.

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 periods ended September 30, 2022 and 2021, increased to $1,516,147, from $1,319,183, during the same 2021 period. The 15% increase in research and development costs during the 2022 period is primarily due to the employment of industry specific product development, engineering, design and quality management professionals as the Company continues to refine its widening product categories and expand a pipeline of innovative products.

Bad Debt Expense - Bad debt expense for the nine-month periods ended September 30, 2022 and 2021 were $101,680 and $56,290, respectively. This 81% increase in bad debt expense during the 2022 period is primarily the result of an increase in the provision for unrecoverable debts relating to the Company's international customers.

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, 2022 and 2021 were $2,399,899 and $1,830,055, respectively. The 31% increase in general and administrative expenses during the 2022 period is primarily as a result of an increase in expenditures on product liability, general risk and directors' and officers' insurance premiums during the 2022 period, as the Company expands its product offering and due to the increase in sales over the period.  Additionally, travel expenditures increased in line with a relaxation of COVID-19 related travel restrictions and an increase in marketing, industry tradeshow and sales travel activity.

Depreciation Expense - Depreciation Expense for the nine-month periods ended September 30, 2022 and 2021 were $829,790 and $744,713, respectively. This 11% increase in depreciation during the 2022 period is primarily due to the addition of warehouse racking and inventory management equipment utilized at the expanded Company's Reno, Nevada warehouse and upgrades to the Company's direct to consumer website in order to facilitate an increase in selling activity.

Total Operating Expenses - Total operating expenses increased by $2.52 million to $12.78 million, in the nine-month period ended September 30, 2022, compared to $10.26 million in the nine-month period ended September 30, 2021. This increase in total operating expenses during the 2022 period is primarily due to increases in salaries, advertising and marketing, general and administrative, warehouse leasing, and research and development costs, that were partially offset by the decrease in professional fees and commissions paid mentioned in this report.

Net Income - Net income after income taxes for the nine-month period ended September 30, 2022 was $11.04 million, as opposed to net income after income taxes of $8.76 million for the nine-month period ended September 30, 2021.  This increase in net income during the 2022 period is primarily due to the increase in revenue and gross profit discussed above.

Liquidity and Capital Resources

At September 30, 2022, we had cash and cash equivalents of $4.84 million and $0.06 million of short-term investments. The following table sets forth a summary of our cash flows for the periods indicated:

		September 30,
		2022			2021
Net cash provided by operating activities	$	1,748,661		$	1,145,417
Net cash used in investing activities	$	(821,740	)	$	(892,662	)
Net cash used in financing activities	$	(634,379	)	$	(534,948	)
Effect of exchange rate changes on cash and cash equivalents	$	(479,710	)	$	(98,178	)
Net decrease in cash and cash equivalents	$	(187,168	)	$	(380,371	)
Cash and cash equivalents at the beginning of period	$	5,022,436		$	2,967,042
Cash and cash equivalents at the end of period	$	4,835,268		$	2,586,671

 

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Cash decreased by $187,168 or 4%, for the nine months ended September 30, 2022, when compared to cash on hand at December 31, 2021.  The primary sources of cash for the nine months ended September 30, 2022 were net income of $11,037,798, decreased prepaid expenses of $2,845,924 and increased income taxes payable of $2,073,221. The primary uses of cash for the nine months ended September 30, 2022 were increased accounts receivable of $9,925,342, increased inventory of $4,088,914, decreased accounts payable and accrued expenses of $2,136,609, capital expenditures of $865,204 and the repayment of a short term loan amounting to $ 832,089.

The Company is currently meeting its working capital needs through cash on hand, a 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.

Obligations under Material Contracts

Pursuant to our Licensing Agreement with Xceed Holdings, a company 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.  During the quarters ended September 30, 2022 and 2021, the Company paid an aggregate of $40,062 and $58,085 in licensing fees to Xceed Holdings. 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 quarters ended September 30, 2022 and 2021, the Company paid an aggregate of $10,016 and $14,515, in licensing fees to Mr. De Villiers.

From May 15, 2015 through October 31, 2021, the Company was party to a consulting agreement, dated July 8, 2015, between the Company and Innovate Services Limited, or Innovate, a Seychelles limited company in which Dr. Leatt is an indirect beneficiary, pursuant to which, as amended, Innovate served as the Company's exclusive research, development and marketing consultant, in exchange for a monthly fee of $42,233; provided that Dr. Leatt personally performs the services to be performed by Innovate under the agreement.  Either party had the right to terminate the agreement for convenience, upon nine months' prior written notice, or by the Company immediately without notice in the event of Innovate's breach of an obligation under the contract or if Dr. Leatt could no longer perform the services. On November 8, 2021, the Company terminated the agreement with Innovate, effective October 31, 2021, in connection with the wind-up of Innovate's business operations.  The termination of the agreement with Innovate will not have an adverse effect on the Company's research and development operations as the Company simultaneously entered into a new consulting agreement with Innovation Services Limited, Jersey limited company beneficially owned by Dr. Leatt, for the same research, development and marketing  services, and on substantially the same terms and conditions as the terminated agreement. During the quarters ended September 30, 2022 and 2021, the Company recognized an aggregate of $0 and $126,699, respectively, in consulting fees to Innovate.

On November 8, 2021, the Company entered into a consulting agreement with Innovation Services Limited, a Jersey limited company in which, Dr. Christopher Leatt, the Company's founder and chairman, is an indirect beneficiary. Pursuant to the terms of the agreement, Innovation has agreed to serve as the Company's exclusive research, development and marketing consultant, in exchange for a monthly fee of $42,233; provided, however, that Dr. Leatt must remain an Innovation director and beneficiary of a majority of its ownership interests during the term of the agreement, and Dr. Leatt must remain the Company's primary point of contact responsible for the oversight, review and delivery of the services to be performed by Innovation under the agreement. Innovation may increase its monthly fees, on an annual basis, by 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 (CPI) published by the United States Department of Labor's bureau of labor statistics, plus one-half percent (0.5%).  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 November 1, 2021, and will continue unless terminated by either party in accordance with its terms. Either party has the right to terminate the consulting agreement upon nine months' prior written notice, except that the consulting agreement may be terminated by the Company immediately without notice if the services to be performed by Innovation cease to be performed by Dr. Leatt, if beneficial ownership in Innovation by Dr. Leatt's and his immediate family members decreases, or for any other material breach of the agreement. The parties have agreed to settle any dispute under the consulting agreement by submission to JAMS for final and binding arbitration pursuant to its Comprehensive Arbitration Rules and Procedures and in accordance with the Expedited Procedures in those Rules.  The Company also simultaneously entered into a side letter agreement, dated November 8, 2021, with Dr. Leatt, pursuant to which Dr. Leatt agreed, among other things: (1) not to perform services similar to the services provided under the agreement for any current or future, direct or indirect competitor of the Company or any similar company; (2) not to solicit any current or future employees of the Company for employment with Innovation or any other entity with which he may become affiliated, or to contact or solicit any current or future stockholder or investor of the Company in connection with any matter that is not directly related to the ongoing or future business operations of the Company; and (3) that he will apprise the Company of any business opportunity that he becomes aware of that could benefit the Company so that the Company, can in its sole discretion, make a determination regarding whether to pursue such opportunity in the best interest of the Company and its stockholders. Dr. Leatt further agreed to continue dedicating a majority of his time on matters related to performance of his duties as a director of the Company and to the fulfillment of his obligations to the Company's research and development efforts under the consulting agreement, and the Company will have the right to adjust the amount of the fees payable under the consulting agreement to the extent of any substantial diminution in his fulfillment of such duties and obligations. Accordingly, effective January 1, 2022, the Company's monthly fee to Innovation, increased to $43,289. During the quarters ended September 30, 2022 and 2021, the Company recognized an aggregate of $129,867 and $0, respectively, in consulting fees to Innovation.

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Pursuant to a Premium Finance Agreement, dated May 27, 2022, between the Company and Aon Premium Finance, LLC, or APF, the Company is obligated to pay APF an aggregate sum of $80,233 in eleven monthly payments on a sliding scale, as follows, $37,381, $37,381, $1,172, $ 1,172, $ 1,172 and thereafter six payments of $326, at a 6.360% annual interest rate, commencing on June 1, 2022 and ending on April 1, 2023. Any late payment during the term of the agreement would be assessed a late penalty of 5% of the payment amount due, and in the event of default APF has the right to accelerate the payment due under the agreement. As of September 30, 2022, the Company had not defaulted on its payment obligations under this agreement.

Pursuant to a Premium Finance Agreement, dated September 20, 2022, between the Company and APF, the Company is obligated to pay APF an aggregate sum of $138,470 in seven payments of $19,781, at a 6.360% annual interest rate, commencing on October 1, 2022 and ending on April 1, 2023. 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 APF has the right to accelerate the payment due under the agreement. As of September 30, 2022, the Company had not defaulted on its payment obligations under this agreement.

Pursuant to a Premium Finance Agreement, dated October 25, 2022, between the Company and APF, the Company is obligated to pay APF an aggregate sum of $1,235,372 in ten payments of $123,537, at a 8.250% annual interest rate, commencing on December 1, 2022 and ending on September 1, 2023. 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 APF 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, and any unpaid principal, interest, or other charges outstanding under the agreement were due and payable on the November 19, 2020, maturity date.  On November 5, 2020, the Company and the bank agreed to extend the line of credit facility through November 19, 2021, with retroactive effect on October 27, 2020.  The renewed line of credit also featured an index floor so that payments for any future advances will bear interest at the greater of the LIBOR Daily Floating Rate or an Index Floor of 1.25 percentage points plus 2.5 percentage points, and secured the Company's obligations with Company-owned equipment and fixtures, accounts receivable and inventory in the U.S.. On March 1, 2021, the Company and the bank agreed to an extension of the line of credit facility through February 28, 2022, with retroactive effect on February 17, 2021, and to increase the facility amount to 1,500,000. On January 21, 2022, the Company and the bank agreed to extend the line of credit facility through February 28, 2023 and to replace interest determined by LIBOR Daily Floating Rate with the Bloomberg Short-Term Bank Yield Index rate. As of September 30, 2022, no amounts were advanced to the Company from the $1,500,000 line of credit facility.

On December 29, 2021, Two Eleven entered into a Loan and Security agreement with a bank, effective December 17, 2021, to finance equipment. The Equipment Note financed under the Loan and Security Agreement has a total value of $272,519, payable in 36 consecutive monthly installments commencing February 5, 2022, and continuing to January 5, 2025. Interest shall accrue on the entire principal amount of this Equipment Note outstanding from time to time at a fixed rate of 3.5370% per annum. The principal and interest amount of each payment shall be $7,990. As of September 30, 2022, $214,429 of the Equipment Note was outstanding.

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, leases and accounting for income taxes.

Revenue and Cost Recognition - 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").

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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 standard distributor payment terms range frompre-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, however, in limited instances qualified distributors and dealers may be granted extended payment terms during selected order periods.  In performing such evaluations, we utilize historical experience, sales performance, and credit risk requirements.  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. The provision for estimated returns at September 30, 2022 and December 31, 2021 was $-0- and $-0-, 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 expenses 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.

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.

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 the expected credit losses determined utilizing 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 was $372,889 at September 30, 2022 and $291,584 at December 31, 2021.

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Impairment of Long-Lived Assets - Our long-lived assets include property and equipment. We evaluate our long-lived assets for recoverability whenever events or changes in circumstances indicate that an asset may be impaired. In evaluating an asset for recoverability, we estimate the future cash flow expected to result from the use of the asset and eventual disposition. If the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. We have determined there was no impairment charge during the quarters ended September 30, 2022 and 2021.

Operating Leases - The Company determines if an arrangement is a lease at contract inception. Operating leases are included in the right-of-use assets ("ROU''), and lease liability obligations are included in the Company's consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset of 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 3 "Leases", in the Notes to Consolidated Financial Statements for additional information.

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.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

As of September 30, 2022, 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.

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Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting during the period ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting

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 April 3, 2018, a wrongful death lawsuit was filed against the Company in Superior Court of California, Imperial County, and subsequently removed to USDC San Diego. The claims asserted included strict liability, negligence, failure to warn, and breach of implied and express warranties. After facing a vigorous defense, the plaintiffs agreed to a confidential settlement dismissing all claims against the Company. The Court granted a final dismissal order on August 18, 2022.

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, 2021.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

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

ITEM 6. EXHIBITS.

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

Exhibit No.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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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
101.INS	Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

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.

SIGNATURES

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

Date: November 9, 2022	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
101.INS	Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

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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