UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended:September 30, 20172019

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

For the transition period from _____________ to_____________to _____________

Commission File No.000-54693

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

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.

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

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

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 2, 20175, 2019 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.001 par value	5,366,3825,386,723

LEATTCORPORATION

Quarterly Report on Form 10-Q
Three Months and Nine Months Ended September 30, 20172019

TABLE OF CONTENTS

-i -

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

LEATT CORPORATION
CONSOLIDATED BALANCE SHEETS

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

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LEATT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

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

24

LEATT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 20172019

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

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LEATT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 20172019 AND 20162018

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

46

LEATT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Basis of presentation

The consolidated balance sheet as of December 31, 20162018 was audited and appears in the Form 10-K filed by the Company with the Securities and Exchange Commission on March 29, 2017.27, 2019. The consolidated balance sheet as of September 30, 20172019 and the consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 20172019 and 2016,2018, changes in stockholders’ equity for the nine months ended September 30, 2017,2019, cash flows for the nine months ended September 30, 20172019 and 2016,2018, and the related information contained in these notes have been prepared by management without audit. In the opinion of management, all adjustments (which include only normal recurring items) necessary to present fairly the financial position, results of operations and cash flows in conformity with generally accepted accounting principles as of September 30, 20172019 and for all periods presented have been made. Interim operating results are not necessarily indicative of operating results for a full year.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. While management of the Company believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 20162018 as filed with the Securities and Exchange Commission in the Company’s Form 10-K.

Significant Accounting Policies

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

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

Note 2 - Inventory

Inventory is stated at the lower of cost or market.net realizable value. Cost is determined using the first-in first-out (FIFO) method. Inventory consists primarily of finished goods. Shipping and handling costs are included in the cost of inventory. In assessing the inventory value, the Company must make estimates and judgments regarding reserves required for product obsolescence, aging of inventory and other issues potentially affecting the saleable condition of products. In performing such evaluations, the Company utilizes historical experience as well as current market information. The reserve for obsolescence as of the nine months endedwas $117,252 at September 30, 20172019 and 2016 was $282,876 and $186,899 respectively.$83,004 at December 31, 2018.

Note 3 - Intangible Assets

The Company’s intangible assets consist of acquired patents with an indefinite useful life and are thus not amortized. Intangible assets are carried at cost less impairment. Amortization expense for the nine months ended September 30, 20172019 was zero. There was no impairment of intangible assets atloss recognized for the nine months ended September 30, 2017.2019 and 2018, respectively.

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

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

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

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

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

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

Note 5– Note Payable to Bank

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

Note 46 - Short-term Loan

The Company carries two product liability insurance policies; onepolicies with a U.S. insurance carrier and a second with a South AfricanAfrican-based insurance carrier. The Company finances payment of both of its short-termproduct liability insurance premiums over the period of coverage which is generally twelve months. The U.S. short-term loan is payable in monthly installmentsinstalments of $58,921$62,225 over an eleven-month periodeleven months including interest at an APR of 3.397%4.990% and the South African short-term loan is payable in monthly installmentsinstalments of $1,740$1,556 over a ten-month period at a flat interest rate of 4.10% ... The Company repaid the U.S. short-term loan in full on September 1, 2017.11, 2019.

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The Company also carries directors’ and officers’ liabilityvarious short-term insurance and several other insurance policies.policies in the U.S. The Company finances payment of its short-term insurance premiums over the period of coverage, which is generally twelve months. The short-term loan is payable in eleven payments of $8,315$10,540 at a 3.900%5.990% annual interest rate.

In addition,Note 7 - Revenue and Cost Recognition

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

All manufacturing of Leatt-Brace products is performed by third party subcontractors in China. The Company's products are sold worldwide to a global network of distributors and dealers, and directly to consumers when there are no dealers or distributors in their geographic area or where consumers choose to purchase directly via the Company’s e-commerce website (collectively the "customers").

Revenues from product sales are recognized when earned, net of applicable provisions for discounts and returns and allowances in the event of product defect where no exchange of product is possible. Revenues are recognized when our performance obligations are satisfied as evidenced by transfer of control of promised goods to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Product royalty income, representing less than 1% of total revenues, is recorded as the underlying product sales occur, in accordance with the related licensing arrangements.

Our distributor payment terms range from pre-payment in full to 60 days after shipment and subsequent sales of our products by distributors have no effect on the amount and timing of payments due to us. Furthermore, products purchased by distributors may not be returned to us in the event that any such distributor relationship is terminated.

Since the Company (through its wholly-owned subsidiary) serves as the distributor of Leatt products in the United States, the Company records its revenue and related cost of revenue for its product sales in the United States upon shipment of the merchandise to the dealer or to the ultimate consumer when there is no dealer in the geographic area or the consumer chooses to purchase directly from the Company’s e-commerce website and the sales order was received directly from, and paid by, the ultimate consumer. Since the Company (through its South African branch) serves as the distributor of Leatt products in South Africa, the Company records its revenue and related cost of revenue for its product sales in South Africa upon shipment of the merchandise from the branch to the dealer.

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

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

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

The Company finances paymentreviews 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 its short-term insurance premiums overproduct returns and claims. Historically, returns due to product quality issues have not been material and there have been no distributor terminations that resulted in product returns. The provision for estimated returns at September 30, 2019 and December 31, 2018 was $0, and $0, respectively.

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Accounts receivable consist of amounts due to the period of coverage over six months. The short-term loanCompany from normal business activities. Credit is payable in five payments of $1,453 at a 3.397% annual interest rate.granted to substantially all distributors on an unsecured basis. The Company repaidcontinuously monitors collections and payments from customers and maintains an allowance for doubtful accounts receivable based upon historical experience and any specific customer collection issues that have been identified. The allowance of doubtful accounts was $228,186 at September 30, 2019 and $83,399 at December 31, 2018.

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

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

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

For the nine months ended September 1, 201730, 2019, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future period related to remaining performance obligations is not material. As of September 30, 2019, contract liabilities, if any, were not material.

Note 58 - Income Taxes

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

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

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The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of September 30, 2017,2019, the Company has no unrecognized tax benefits.

Note 69 - Net Income Per Share of Common Stock

Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted–averageweighted-average number of common stock shares and dilutive potential common shares outstanding during the period. As ofFor the nine months ended September 30, 2017,2019, the Company had 636,000862,000 potential common shares, consisting of 120,000 preferred shares, and options to purchase 193,000169,000 shares, outstanding that were dilutive, and options to purchase 323,000573,000 shares that were anti-dilutive and therefore, not included in diluted net income per share.

Note 7 10– Common Stock

DuringIn February 2019, options to purchase 250,000 of the nine months ended September 30, 2017, 169,000Company’s common stock options were granted to key employees, consultants and directors under the Plan at an exercise price of $1.60$2.30 per share, exercisable over a 10-year period. On February 25, 2019, 30% of the shares underlying these options vested with a compensation expense of $82,530. The remaining 70% of the shares were unvested with unrecognized compensation value of $192,570. The fair value of the stock options granted was estimated to be $1.1004 at the date of the grant using the Black Sholes option-pricing model. Based on the list of assumptions presented below, the fairThe option value of the options granted during the nine months ended September 30, 2017, was $0.60.

The expected volatility was determined with reference to the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that the options granted are expected to be outstanding. Thecalculated assuming a year’s risk-free interest rate of 2.84%, expected volatility of 32.35% and an expected dividend yield of 0.00% .

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In addition, in February 2019, the Company issued 1,695 shares of common stock to an employee who exercised stock options in a cashless exercise and a Director exercised stock options for periods within the contractual lifeissuance of the option is based on the U.S. Treasury rate in effect at the time of grant.15,000 shares for $15,000.

Stock-based compensation expense related to vested stock options during the nine months ended September 30, 20172019 was $177,113.$166,250. As of September 30, 2017,2019, there was $357,293$239,370 of unrecognized compensation costscost related to unvested stock options, which is expected to be recognized over a 3-year vesting period.

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

Note 8 11– Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In July 2015,February 2016, the FASB issued ASU 2016-02,Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. The new standard is effective for fiscal years beginning after December 15, 2018 and has been adopted using a modified retrospective transition approach effective January 1, 2019. The adoption of the new standard has had a material impact on the Company’s consolidated balance sheets, but not on its consolidated statements of operations, as all long-term leases have been capitalized on the consolidated balance sheets. The Company has identified the population of leases and lease assets and is tracking all its lease agreements to assist in the reporting and disclosures required by the new standard. The Company has implemented processes and tools to assist in the ongoing lease data collection and analysis and has updated accounting policies and internal controls as a result of adopting this standard.

In July 2018, the FASB issued ASU No. 2018-10,Codification Improvements to Topic 842, Leasesand ASU No. 2018-11,Leases (Topic 842): Targeted Improvements, which make improvements to Accounting Standards UpdateCodification (“ASU”ASC”) 2015-11, “Inventory (Topic 330): Simplifying842 and allow entities to not restate comparative periods in transition to ASC 842 and instead report the Measurement of Inventory,”comparative periods under ASC 840. The Company adopted this standard using the modified retrospective approach on January 1, 2019 as described above, coinciding with the standard’s effective date.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation”, which appliesaligns the measurement and classification guidance for share-based payments to inventory that is measured using first-in, first-out (FIFO) or average cost.non-employees with the guidance for share-based payments to employees. Under the new guidance, the measurement period for equity-classified non-employee awards will be fixed at the grant date. This ASU simplifies the subsequent measurement of inventories by replacing the lower of cost or market test with a lower of cost or net realizable value test. The ASUupdate is effective for annual periods beginning after December 15, 2016. Early2018, and interim periods within those periods and early adoption is permitted. The Company adopted the new standard oneffective January 1, 2017. The adoption of this ASU2019 and it did not have a material impact on theits consolidated financial statements.

In March 2016,February 2018, the FASB issued ASU 2016-09 “Improvements2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which provides for an election to Employee Share-Based Payment Accounting ("ASU 2016-09").” ASU 2016-09 amendsreclassify stranded tax effects within accumulated other comprehensive income/(loss) to retained earnings due to the guidance on several aspects of accounting for share-based payment transactions, includingU.S. federal corporate income tax consequences, classificationrate change in the Tax Cuts and Jobs Act of awards as either equity or liabilities, accounting for forfeitures, and classification on the statement of cash flows. The ASU2017. This standard is effective for interim and annual reporting periods beginning after December 15, 2016,2018, and interim periods within those annual periods.early adoption is permitted. The Company adopted the new standard oneffective January 1, 2017. The Company elected to apply the amendments related to the classification of excess tax benefits on the statement of cash flows on a prospective basis,2019 and prior periods were not adjusted. The adoption of this ASUit did not have a material impact on the consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In May 2017,August 2018, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”2018-13, “Fair Value Measurements”, which clarifies wheneliminates, adds or modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to accountdisclose the amount of and reasons for a change to the terms or conditionstransfers between Level 1 and Level 2 of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. If an award is not probable of vesting at the time a change is made, the new guidance clarifies that no new measurement datehierarchy, but will be required if there is no change to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value vesting conditions, and classification.measurements. This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and2019, including interim periods within those years,that fiscal year, with early adoption permitted.permitted to adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company does not expect this standard tonew guidance will have a material impact on itsthe consolidated financial statements.

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

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

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” (“ASU 2014-09”). ASU 2014-09, as amended, outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date". The amendments in this update defers the effective date of Update 2014-09 for all entities by one year. The ASU, as amended, is effective for the first interim period within an annual period beginning after December 15, 2017, and early adoption is not permitted. The new guidance allows for two methods of adoption: (a) “full retrospective” adoption, meaning that the standard is applied to all periods presented, or (b) “modified retrospective” adoption, meaning that the cumulative effect of applying the new guidance is recognized as an adjustment to the opening retained earnings balance for the year of implementation. The Company plans to adopt the new revenue standard effective January 1, 2018, on a modified retrospective method with the cumulative effect of the change reflected in retained earnings as of January 1, 2018, and not restate prior periods. The Company continues to monitor FASB activity to assess certain interpretative issues and the associated implementation of the new standard. The Company has performed an initial review of its revenue arrangements, which include product sales and royalty payments, and based upon that initial review, and the interpretive guidance that has been issued and examined, the adoption of this guidance is not expected to have a material impact on our consolidated financial statements.11

In FebruaryJune 2016, the FASB issued ASU No. 2016-02, “Leases2016-13, Financial Instruments - Credit Losses (Topic 842).” This ASU is a comprehensive new lease standard that amends various aspects326): Measurement of existing accounting guidance for leases. The core principle of this ASU will require lessees to present the assetsCredit Losses on Financial Instruments and liabilities that arise from leases on their balance sheets. The ASU is effective for public companies for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the new standard to determine the impact on the Company’s consolidated financial statements.

In October 2016, the FASBin November 2018 issued ASU No. 2016-16, “Income Taxes - Intra-Entity Transfers2018-19, which amended the standard. The standard introduces an approach, based on expected losses, to estimate credit losses on certain types of Assets Other Than Inventory” ("ASU 2016-16").financial instruments and modifies the impairment model for available-for-sale debt securities. The ASU clarifies the accounting fornew approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and deferred income taxes for an intra-entity transfer of an assetcertain other than inventory. The ASUinstruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures. This standard is effective for the Company inon January 1, 2020. Entities are required to apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first quarter of 2018, with early adoption permitted, andreporting period in which the guidance is to be applied using a modified retrospective approach.adopted. The Company is evaluating the new standard to determinecurrently assessing the impact, on the Company’s consolidated financial statements.

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

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Note 912 - Litigation

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

Note 10 13– Subsequent Events

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

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

The Company entered into a Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated October 16, 2017,10, 2019, to finance its U.S.U.S short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $593,400$753,360 in eleven payments of $55,071,$70,468, at an annual interest rate of $4.15%5.740% commencing on November 1, 20172019 and ending on September 1, 2018.2020. Any late payment during the term of the agreement will be assessed aby late penalty of 5% of the payment amount due, and in the event of default AFCO has the right to accelerate the payment due under the agreement.

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

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, performancesperformance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” in our latest annual report on Form 10-K filed with the SEC. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:

• our expectations regarding growth in the motor sports market;
• our expectation regarding increasing demand for protective equipment used in the motor sports market;
• our belief that we will be able to effectively compete with our competitors and increase our market share;
• our expectations with respect to increased revenue growth and our ability to achieve profitability resulting from increases in our production volumes; and
• our future business development, results of operations and financial condition.

Also, forward-looking statements represent our estimates and assumptions only as of the date of this quarterlyannual report. You should read this quarterlyannual report and the documents that we reference and filed as exhibits to the quarterlyannual 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 quarterlyannual report to:

• “Leatt,” “we,” “us,” “our,” the “Registrant” or the “Company” are to the combined business of Leatt Corporation, a Nevada corporation, its South African branch, Leatt SA, and its direct, wholly-owned subsidiaries, Two Eleven and Three Eleven;
• “Leatt SA” are to the Company’s branch office known as ‘Leatt Corporation (Incorporated in the State of Nevada)’ incorporated under the laws of South Africa with registration number: 2007/032780/10;
• “Leatt USA” are to Leatt USA, LLC, a Nevada Limited Liability Company;
• “PRC”, and “China” are to the People’s Republic of China;
• “Two Eleven” refers to Two Eleven Distribution, LLC, a California limited liability company;
• “Three Eleven” are to Three Eleven Distribution (Pty) Limited, a South African Company;
• “Securities Act” are to the Securities Act of 1933, as amended, and to “Exchange Act” are to Securities Exchange Act of 1934, as amended;
• “South Africa” are to the Republic of South Africa;
• “U.S. dollar,” “$” and “US$” are to the legal currency of the United States.
• “Xceed Holdings” refers to Xceed Holdings CC., a close corporation incorporated under the laws of South Africa, and wholly-ownedwholly- owned by The Leatt Family Trust, of which Dr. Christopher J. Leatt, the Company’s chairman, is a Trustee and Beneficiary; and
• “ZAR” refers to the South African Rand, the legal currency of South Africa. For all ZAR amounts reported, the dollar amount has been calculated on the basis that $1 = ZAR13.5156ZAR 15.0919 for its September 30, 20172019 balance sheet.

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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 owned and controlled by the Company’s Chairman and founder, Dr. Christopher Leatt. On May 25, 2005, we changed our name to Leatt Corporation in connection with our anticipated acquisition of the Leatt-Brace® rights. Leatt designs, develops, markets and distributes personal protective equipment for participants in all forms of motor sports and leisure activities, including riders of motorcycles, bicycles, snowmobiles and ATVs. The Company sells its products to customers worldwide through a global network of distributors and retailers. Leatt also acts as the original equipment manufacturer for neck braces sold by other international brands.

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

The Company’s research and development efforts are conducted at its research facilities, located at its executive headquarters in Cape Town, South Africa. The Company employs 43 full-time employees who are dedicated exclusively to research, development, and testing. The Company also utilizes consultants, academic institutions and engineering companies as independent contractors or consultants, from time to time, to assist it with its research and development efforts. Leatt products have been tested and reviewed internally and by external bodies. All Leatt products are compliant with applicable European Union directives, or CE certified, where appropriate. Certain products, suchDepending 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 MotoUK market our motorcycle helmets comply with ACU Gold. We are also in the process of certifying our GPX was tested by BMW Motorrad (Germany) and reviewed by KTM (Austria).3.5 helmet with JIS T 8133 for the Japanese Market.

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

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

Principal Factors Affecting Our Financial Performance

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

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

  
  

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

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

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

  
  

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• Protection of Intellectual Property– We believe that the continued success of our business is dependent on our intellectual property portfolio consisting of globally registered trademarks, design patents and utility patents related to the Leatt-Brace®Leatt -Brace®. We believe that a loss of these rights would harm or cause a material disruption to our business and, our corporate strategy is to aggressively take legal action against any violators of our intellectual property rights, regardless of where they may be. From time to time, we have had to enforce our intellectual property rights through litigation, and we may be required to do so in the future. Such litigation may result in substantial costs and could divert resources and management attention from the operations of our business.
  
  
• Fluctuations in Foreign Currencies–We are exposed to foreign exchange risk as our revenues and consolidated results of operations may be affected by fluctuations in foreign currency as we translate these currencies into U.S. dollars when we consolidate our financial results. While our reporting currency is the U.S. Dollar, a portion of our consolidated revenues are denominated in South African Rand, or ZAR, certain of our assets are denominated in ZAR, and our research and marketing operations in South Africa utilize South African labor sources. A decrease in the value of the U.S. dollar in relation to the ZAR could increase our cost of doing business in South Africa. If the ZAR depreciates against the U.S. Dollar, the value of our ZAR revenues, earnings and assets as expressed in our U.S. Dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. Furthermore, since 64%66% of our sales is derived outside the U.S., where the U.S. dollar is not the primary currency, significant fluctuations in exchange rates such as the strengthening of the dollar versus our customers’ local currency can adversely affect our ability to remain competitive in thoseth ose areas.

Results of Operations

The following summary of our results of operations should be read in conjunction with our financial statements and the notes thereto for the three- and nine-month periods ended September 30, 20172019 and 20162018 included herein.

Three Months Ended September 30, 20172019 compared to the Three Months Ended September 30, 20162018

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The following table summarizes the results of our operations during the three-month periods ended September 30, 20172019 and 20162018 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

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Revenues– We earn revenues from the sale of our protective gear comprising of neck braces, body armor, helmets and other products, parts and accessories both in the United States and abroad. Revenues for the three months ended September 30, 20172019 were $5.46$9.65 million, an 18%a 12% increase, compared to revenues of $4.63$8.58 million for the quarter ended September 30, 2016.2018. Revenues associated with international customers were $3.87$6.74 million and $2.70$6.43 million, or 71%70% and 58%75% of revenues, respectively, for the three months ended September 30, 20172019 and 2016.2018. This increase in worldwide revenues during the 2019 period is primarily attributable to a $0.57$0.19 million increase in helmetneck brace sales, a $0.45$0.21 million increase in body armor sales, a $0.46 million increase in helmet sales and a $0.58$0.21 million increase in sales of other products, parts and accessories that were partially offset by a $0.78 million decrease in neck brace sales.during the period.

The following table sets forth our revenues by product line for the three months ended September 30, 20172019 and 2016:2018:

Sales of our flagship neck brace accounted for $1.09$1.94 million and $1.88$1.76 million, or 20% and 40%21% of our revenues for the quarters ended September 30, 20172019 and 2016,2018, respectively. The 42% decrease11% increase in neck brace revenues is primarily attributable to a 39% decrease15% increase in the volume of neck braces sold to our customers worldwide.worldwide during the 2019 period.

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Our body armor products are comprised of chest protectors, full upper body protectors, upper body protection vests, back protectors, knee braces and knee and elbow guards. Body armor sales accounted for $2.68$4.62 million and $2.22$4.41 million, or 49%48% and 48%51% of our revenues for the quarters ended September 30, 20172019 and 2016,2018, respectively. The 20%5% increase in body armor revenues was primarily the result of an increase in the sales volumes of the Company’s C-Framegrowing knee brace lineand upper body protection product lines due to continued demand for the C-Frame Pro knee brace both in the United States and abroad.

Our helmets accounted for $0.65$1.27 million or 12%13% of our revenues for the three months ended September 30, 20172019, as compared to $0.07$0.81 million or 2%9% of our revenues for the same 20162018 period. The $0.57 million56% increase in helmet sales is primarily the result of an increase in the initial shipmentsales volume of our highly anticipatedthe Company’s innovative convertible DBX 3.0 Enduro helmetand DBX 4.0 helmets for bicycle use.use during the 2019 period.

Our other products, parts and accessories are comprised of aftermarket support items required primarily to replace worn or damaged parts through our global distribution network, as well as clothing, outerwear and accessories that include hats, jerseys, pants, shorts, jackets, bags, hydration kits, cooling garments and cooling garments.goggles. Other products, parts and accessories sales accounted for $1.03$1.81 million and 0.45$1.60 million, or 19% and 10%19% of our revenues for the quarters ended September 30, 20172019 and 2016,2018, respectively. The 129%13% increase in revenues from the sale of other products, parts and accessories is primarily due to increased sales volume of our GPX andthe Company’s DBX apparel line designed for off-road motorcycle and bicycle use respectively.use.

Cost of Revenues and Gross Profit – Cost of revenues for the quarters ended September 30, 20172019 and 20162018 were $2.91$5.15 million and $2.18$4.57 million, respectively. Gross Profit for the quarters ended September 30, 20172019 and 20162018 were $2.54$4.50 million and $2.45$4.01 million, respectively, or 47% and 53%47% of revenues, respectively. Ourneck braceproducts continue to generate a higher gross profit margin than our other product categories. Neck brace revenues accounted for 20% and 40%21% of our revenues for the quarters ended September 30, 20172019 and 20162018 respectively. Additionally, whileHowever, revenues associated with direct dealer sales in the United States continue to generate a higher gross profit margin than sales associated with our international customerscustomers. Revenues in the United States were 71%30% and 58%25% of our revenues for the three months ended September 30, 20172019 and 2016 respectively, revenue associated with international customers continue to generate a lower gross profit margin than dealer direct sales in the United States.2018, respectively.

Product Royalty Income – Product royalty income is earned on sales to distributors that have royalty agreements in place, as well as on sales of licensed products by third parties that have licensing agreements in place. Product royalty income for the quarters ended September 30, 20172019 and 20162018 were $39,396$17,360 and $16,224,$8,094, respectively. The 143%114% increase in product royalty income is due to an increase in the sale of licensed products by licensees in the 20172019 period.

Salaries and Wages – Salaries and wages for the quarters ended September 30, 20172019 and 20162018 were $562,803$739,366 and $548,829,$588,242, respectively. This 3%26% increase in salaries and wages during the 20172019 period was primarily due to the employment of additional in-house sales and marketing personnel in the United States.States and International e-commerce sales personnel abroad.

Commissions and Consulting Expense – During the quarters ended September 30, 20172019 and 2016,2018, commissions and consulting expenses were $109,217$104,608 and $144,480,$124,501, respectively. This 24%16% decrease in commissions and consulting expenses is primarily due to the restructuring ofa decrease in sales commissions paid to sales personnel in Europe in line with the Company’s USrestructuring of sales representatives.remuneration associated with international revenues.

Professional Fees – Professional fees consist of costs incurred for audit, tax and regulatory filings, as well as patent maintenance, protection and product liability litigation expenses incurred as the Company continues to expand. Professional fees for the quarters ended September 30, 20172019 and 20162018 were $88,901$133,480 and $110,700,$163,687, respectively. This 20%18% decrease in professional fees is primarily due to decreased spending on corporate legal expenditurespatent maintenance costs. The Company incurred significant initial trademark expansion costs in various key geographical areas during the 2017quarter ended September 30, 2018 that were not incurred during the comparative 2019 period.

Advertising and Marketing – The Company places paid advertising in various motorsport magazines and online media, and sponsors a number of events, teams and individuals to increase product and brand visibility. Advertising and marketing expenses for the quarters ended September 30, 20172019 and 20162018 were $449,176$520,633 and $502,522,$534,817, respectively. The 11%3% decrease in advertising and marketing expenditures during the 20172019 period is primarily due to earlier timing ofa decrease in international trade show expenditure as the production and implementation of global marketing campaigns designedCompany continues to support and promote the Company’s widening product range and target market reach during the 2017 period.optimize its trade show presence.

Office RentLease and Expenses– Office rentlease and expenses for the quarters ended September 30, 20172019 and 20162018 were $68,423$71,725 and $66,593,$69,400, respectively. This 3% increase in office rentlease and expenses during the 20172019 period is in line with lease escalation clauses for the Company’s worldwide facilities.

Research and Development Costs – These costs consist of the salaries of personnel who are directly involved in the research and development of innovative products, as well as the direct costs associated with developing these products. Research and development costs for the quarters ended September 30, 20172019 and 2016, decreased2018, increased to $321,443,$357,258, from $402,924,$357,177, during the same 20162018 quarter. The 20% decreaseCompany continues to expand its product offering in multiple global markets through innovative, cost effective research and development costs is primarily due to a restructuring of the salaries paid to personnel in the research and development department.activities.

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Bad Debt Expense–Bad Debt Expense for the quarters ended September 30, 20172019 and 20162018 were $7,956$148,685 and $16,216,$635, respectively. This decreaseincrease in Bad Debt Expense is the result of an increase in the provision for the write off of higher value unrecoverable debts owing to the Company during the 20162019 period.

General and Administrative Expenses – General and administrative expenses consist of insurance, travel, merchant fees, telephone, office and computer supplies. General and administrative expenses for the quarters ended September 30, 20172019 and 20162018 were $419,052$485,054 and $505,194,$521,052, respectively. The 17%7% decrease in general and administrative expenses is primarily due to a decrease in product liability insurance premiums.

Depreciation Expense–Depreciation Expense for the quarters ended September 30, 20172019 and 20162018 were $131,374$191,712 and $103,586,$174,490, respectively. This 27%10% increase in depreciation is primarily due to the addition of mouldsmolds and tooling utilized in the production of the Company’s widening product range.

Total Operating Expenses – Total operating expenses decreasedincreased by $242,699,$218,520, to $2.16$2.75 million in the three months ended September 30, 2017,2019, or 10%9%, compared to $2.40$2.53 million in the 20162018 period. This decreaseincrease is primarily due to decreased generalincreased salaries and administrative costs, researchwages and development costs and advertising and marketing costsbad debt expenses discussed above.

Net Income – The netNet income after income taxes for the quarter ended September 30, 20172019 was $293,289$1.32 million, as opposedcompared to a net income of $39,256$1.11 million for the quarter ended September 30, 2016.2018. This increase in net income is primarily due to the increase in revenues and decrease in operating costs discussed above.

Nine Months Ended September 30, 20172019 Compared to the Nine Months Ended September 30, 20162018

The following table summarizes the results of our operations during the nine-month periods ended September 30, 20172019 and 20162018 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

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Revenues– Revenues of the nine-month period ended September 30, 20172019 were $14.78$21.02 million, a 12%11% increase, compared to revenues of $13.16$18.88 million for the period ended September 30, 2016.2018. Revenues associated with international customers were $9.48$13.71 million and $7.50$12.42 million, or 64%65% and 57%66% of revenues, respectively, for the nine months ended September 30, 20172019 and 2016.2018. The increase in worldwide revenues is attributable to a $1$0.89 million increase in body armor sales, a $0.84$0.10 million increase in helmet sales and a $1.20 million increase in other products, parts and accessory sales and a $0.28 million increase in helmet sales, which wasthat were partially offset by a $0.57$0.05 million decrease in neck brace sales.

The following table sets forth our revenues by product line for the nine months ended September 30, 20172019 and 2016:2018:

Sales of our flagship neck brace accounted for $4.20$4.62 million and $4.77$4.68 million, or 28%22% and 36%25% of our revenues for the nine-month periods ended September 30, 20172019 and 2016,2018, respectively. A 14% decrease inAlthough sales volumes of our flagship neck brace sales volumes to our customerscustomer in the United States during the 2017 period was the primary reason for the overall 12% decrease in neck brace revenuesand Europe increased during the nine months ended September 30, 2017.2019, the 1% decrease in neck brace revenues is primarily attributable to a decrease in the volume of neck braces sold to our customers in South Africa.

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Body armor sales accounted for $7.29million$9.86 million and $6.21$8.97 million, or 49%47% and 47% of our revenues for the nine-month period ended September 30, 20172019 and 2016,2018, respectively. The 17%10% increase in body armorarmour revenues was primarily the result of ana 58% increase in salesthe volume of knee braces sold during the Company’s C-Frame knee brace linenine months ended September 30, 2019 due to continued worldwideincreased customer demand forin the C-Frame Pro knee brace.United States and abroad.

Our helmets accounted for $1.54million,$2.70 million, or 11%13% of our revenues for the nine months ended September 30, 2017,2019, as compared to $1.26$2.60 million, or 10%14% of our revenues for the nine months ended September 30, 2016.2018. The 22%4% increase in helmet revenues is primarily due to initial shipmentsan increase in the sales volume of ourthe Company’s convertible DBX 3.0 All Mountain and DBX 3.0 Enduro4.0 helmets for bicycle use during the first nine months of 2017.ended September 30, 2019.

Our other products, parts and accessories are comprised of apparel, aftermarket support items required primarily to replace worn or damaged parts through our global distribution network, as well as clothing, outerwear and accessories includingthat include hats, jerseys, pants, shorts, jackets, bags, hydration kits, cooling garments and cooling garments.goggles. Other products, parts and accessories sales accounted for $1.76$3.84 million and $0.92$2.64 million, or 12%18% and 7%14% of our revenues for the nine months ended September 30, 20172019 and 2016,2018, respectively. The 92%45% increase in revenues from the sale of other products, parts and accessories is primarily due to the successful market acceptance and resultant increased sales volumecontinued shipment of our GPXVelocity 6.5 line of goggles to our customers as demand grows in the United States and DBX apparel designed for off-road motorcycle and bicycle use, respectively.abroad.

Cost of Revenues and Gross Profit – Cost of revenues for the nine-month periods ended September 30, 20172019 and 20162018 were $7.57million and$6.21$11.03 million and $9.76million, respectively. Gross Profit for the nine-month periods ended September 30, 29172019 and 20162018 were $7.22and $6.95$9.99 million and $9.12 million, respectively, or 49% and53%48% and48% of revenues respectively. Our neck brace products continue to generate a higher gross margin than our other product categories. Although Neck brace revenues accounted for 28%22% and 36%25% of our revenues for the nine monthsnine-month period ended September 30, 20172019 and 2016, respectively. Additionally, while revenues associated with international customers were 64% and 57% of our revenues2018, respectively, a decrease in the inventory obsolescence provision required for the nine monthsnine-month period ended September 30, 2017 and 2016, respectively, revenue associated with international customers continue to generate a lower2019, offset the effect of the decrease in neck brace sales contribution on the gross margin than dealer direct sales in the United States.profit margin.

Product Royalty Income – Product royalty income is earned on sales to distributors that have royalty agreements in place, as well as on sales of licensed products by third parties that have licensing agreements in place. Product royalty income for the nine-month periodsperiod ended September 30, 20172019 and 20162018 were $90,313and $69,755,$33,056 and $28,205, respectively. The 29%17% increase in product royalty income is due to an increase in the sale of licensed products by licensees in the 20172019 period.

Salaries and Wages – Salaries and wages for the nine-month period ended September 30, 20172019 and 20162018 were $1,877,560$2,330,006 and $1,754,043,$1,983,557, respectively. This 7%17% increase in salaries and wages during the 20172019 period was primarily due to the employment of additional in-house professional sales and marketing personnel in the United States.States and Europe.

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Commissions and Consulting Expense – During the nine-month periods ended September 30, 20172019 and 2016,2018, commissions and consulting expenses were $388,538$263,168 and $444,472,$383,415, respectively. This 13%31% decrease in commission and consulting expenditure is primarily the result ofdecreased sales commissions paid to sales representatives in the restructuring ofUnited States and abroad as the Company’s USCompany continues to restructure its International sales representative structure.commission structure and employ in-house professional sales personnel in the United States.

Professional Fees – Professional fees consist of costs incurred for audit, tax and regulatory filings, as well as patent protection and product liability litigation expenses incurred as the Company continues to expand. Professional fees for the nine-month periods ended September 30, 20172019 and 20162018 were $519,673and $363,018,$518,017 and $461,145, respectively. This 43%12% increase in professional fees is primarily due to increased spending on product liability and patent litigation during the 20172019 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, 20172019 and 20162018 were $1,258,511and $1,216,916,$1,556,515 and $1,497,429, respectively. The 3%4% increase in advertising and marketing expendituresexpenditure during the 20172019 period is primarily due to the production and implementation of global marketing campaigns that incorporate web and print based advertising, social media engagement and athlete sponsorships that are designed to globally support and promote the Company’s wideninggrowing product range target market reach and consumer brand awareness.on a global basis.

Office RentLease and Expenses – Office rentlease and expenses for the nine-month periods ended September 30, 20172019 and 20162018 were $201,101and $193,745,$210,263 and $211,159, respectively. The 4% increasemarginal decrease in office rentlease and expenses during the 20172019 period is due to decreased utility expenditure incurred in line with lease escalation clauses for the Company’s worldwide facilities.United States during the 2019 period.

Research and Development Costs – These costs consist of the salaries of personnel who are directly involved in the research and development of innovative products, as well as the direct costs associated with developing these products. Research and development costs for the nine-month period ended September 30, 2017 decreased2019 increased to $966,841,$1,063,573, from $1,083,983,$1,059,369, during the same 20162018 period. The 11% decreaseincrease in research and development costs is primarily due to development costs incurred as the Company continues to grow its range of exceptional products and build a restructuringpipeline of the salaries paid to personnel in the research and development department.innovative gear for wider consumer groups.

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Bad Debt Expense (Recovery) – Bad Debt Expense (Recovery) for the nine-month periods ended September 30, 20172019 and 20162018 were $8,606$158,184 and ($6,341),$21,107, respectively. This increase in Bad Debt Expense (Recovery) is primarily the result of an increase in the recoveryprovision for the write-off of previously unrecoverable debts owing to the Company during the 20162019 period.

General and Administrative Expenses – General and administrative expenses consist of insurance, travel, merchant fees, telephone, office and computer supplies. General and administrative expenses for the nine-month periods ended September 30, 20172019 and 20162018 were $1,254,542and $1,466,992,$1,473,708 and $1,410,768, respectively. The 14% decrease4% increase in general and administrative expenses is primarily as a result of increased expenditure on sales dealer visits in the United States that were partially set-off by a decrease in product liability insurance premiums.

Depreciation Expense – Depreciation Expense for the nine-month periods ended September 30, 20172019 and 20162018 were $322,829and $314,584,$569,707 and $502,265, respectively. This 3%13% increase in depreciation is primarily due to the addition of mouldsmolds and tooling utilized in the production of the Company’s widening product range. This additional depreciation was partially offset by certain assets that were fully depreciated during the period as they had reached the end of their economic lives.

Total Operating Expenses – Total operating expenses decreasedincreased by $33,211,$612,927, to $6.80$8.14 millionin the nine months ended September 30, 2017,2019, or 0.5%8%, compared to $6.83$7.53 million in the 20162018 period. This decreaseincrease is primarily due to decreased generalincreased salaries and administrativewages and research and development costsbad debt expenses that were partially offset by increased professional feesdecreased commission and salaries and wagesconsulting expenditure discussed above.

Net income – Net income after income taxes for the nine-month period ended September 30, 20172019 was $344,186as$1.40 million as opposed to a net income after income taxes of $140,780$1.20 million for the nine-month period ended September 30, 2016.2018. This increase in net income is primarily due to the increased revenues and decreased operating expenses discussed above.

Liquidity and Capital Resources

At September 30, 2017,2019, we had cash and cash equivalents of $1.23$1.91 million and $0.58 million of short-term investments. The following table sets forth a summary of our cash flows for the periods indicated:

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Cash increased by $131,869,$196,712, or 12%, for the nine months ended September 30, 2017.2019. The primary sources of cash for the nine months ended September 30, 2019 were a net income of $1.40 million and increased accounts payable and accrued expenses of $4.15 million. The primary uses of cash for the nine months ended September 30, 20172019 were increased inventory of $1.77 million, increased accounts receivables of $741,392,$3.92 million, increased inventory of $2.19 million, increased capital expenditures of $1.16 million$616,278 and the repayment of thea short-term loan amount of $483,773. The primary sources of cash for the nine months ended September 30, 2017 were increased accounts payable and accrued expenses of $2.58 million, and increased prepaid expenses and other current assets of $516,895. As of September 30, 2017, we did not have any credit facilities or significant amounts owedamounting to third party lenders.$509,019.

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

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Obligations under Material Contracts

Pursuant to our Licensing Agreement with Xceed Holdings, a company owned and controlled by Dr. Christopher Leatt, our founder, chairman and chairman,head of research and development, we pay Xceed Holdings 4% of all neck brace sales revenue billed and received by the Company on a quarterly basis based on sales of the previous quarter. In addition, pursuant to a separate license agreement between the Company and Mr. J. P. De Villiers, our former director, the Company is obligated to pay a royalty fee of 1% of all our billed and received neck brace sales revenue, in quarterly installments, based on sales of the previous quarter, to a trust that is beneficially owned and controlled by Mr. De Villiers. During the quarter ended September 30, 2019 and 2018, the Company paid an aggregate of $12,174 and $14,174 in licensing fees to Mr. De Villiers.

On July 8, 2015, the Company entered into a consulting agreement with Innovate Services Limited, or Innovate, a Seychelles limited company in which, Dr. Leatt is an indirect beneficiary. Pursuant to the terms of the Consulting Agreement, as amended, Innovate has agreed to serve as the Company’s exclusive research, development and marketing consultant, in exchange for a monthly fee of $35,639;$38,062; provided that Dr. Leatt personally performs the services to be performed by Innovate under the Agreement, pursuant to a separate employment agreement between Innovate and Dr. Leatt. The parties further agreed that all intellectual property generated in connection with the services provided under the Consulting Agreement will be the sole property of the Company. The Consulting Agreement was effective as of May 15, 2015 and will continue unless terminated by either party in accordance with its terms. Either party has the right to terminate the Consulting Agreement upon 6 months' prior written notice, except that the Consulting Agreement may be terminated immediately without notice if the services to be performed under the Consulting Agreement cease to be performed by Dr. Leatt, or for any other material breach of the Agreement. The parties have agreed to settle any dispute under the Consulting Agreement through arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA), and that the resulting arbitration award will be final and binding on both parties and will not be subject to any appeal. The foregoing description does not purportEffective January 1, 2019, the Company and Innovate amended the Consulting Agreement to be a complete statement ofincrease Innovate’s consulting duties and to increase the parties’ rights and obligationsmonthly fee payable under the agreement to $40,435. In addition, the parties agreed that Innovate may increase its monthly fees under the Consulting Agreement provided that the fee is no greater than the lesser of: (a) two and the transactions contemplated thereby or a complete explanationone-half percent (2.5%) of the materials thereof.

On October 13, 2016,prior year’s annualized fee; or (b) a percentage equal to then-applicable annual percentage increase in the Consumer Price Index published by the United States Department of Labor’s bureau of labor statistics, plus one-half percent (0.5%) . The foregoing description is qualified in its entirety by reference to the Consulting Agreement filed as Exhibit 10.14 to the Company’s report on Form 10-K for the year ended December 31, 2018. During the quarter ended September 30, 2019 and 2018, the Company entered into a Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” to finance its U.S. short-term insurance over the period of coverage. The Company was obligated to pay AFCOpaid an aggregate sum of $637,260$121,305 and $121,305 in eleven payments of $58,921, at an annual interest rate of 3.397%, commencing on November 1, 2016 and ending on September 1, 2017. Any late payment during the term of the agreement wasconsulting fees to be assessed a late penalty of 5% of the payment amount due, and in the event of default AFCO had the right to accelerate the payment due under the agreement. This agreement was paid in full on September 1, 2017. On October 16, 2017, theInnovate.

The Company entered into a new Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated October 10, 2018, to finance its U.S. short-term insurance over the period of coverage. The Company is obligated to pay AFCO an aggregate sum of $593,400$667,704 in eleven payments of $55,071,$62,225, at an annual interest rate of $4.15%,4.990% commencing on November 1, 20172018 and ending on September 1, 2018.2019. Any late payment during the term of the agreement will be assessed a late penalty of 5% of the payment amount due, and in the event of default AFCO has the right to accelerate the payment due under the agreement. This agreement was paid in full on September 11, 2019.

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Pursuant to a Premium Finance Agreement, dated March 30, 2017,May 29, 2019, between the Company and AFCO, the Company is obligated to pay AFCO an aggregate sum of $7,195$112,538 in fiveeleven payments of $1,453$10,540 at a 3.397%5.990% annual interest rate, commencing on MayJune 1, 20172019 and ending on SeptemberApril 1, 2017.2020. Any late payment during the term of the agreement will be assessed a late penalty of 5% of the payment amount due, and in the event of default AFCO has the right to accelerate the payment due under the agreement. As of September 30, 2017,2019, the Company had not defaulted on its payment obligations under this agreement. This agreement was paid in full on September 1, 2017.

Pursuant toThe Company entered into a new Premium Finance Agreement with AFCO Acceptance Corporation “AFCO” dated May 22, 2017, betweenOctober 10, 2019, to finance its U.S. short-term insurance over the Company and AFCO, theperiod of coverage. The Company is obligated to pay AFCO an aggregate sum of $89,708$753,360 in eleven payments of $8,315$70,468, at a 3.900%an annual interest rate of 5.740% commencing on JuneNovember 1, 20172019 and ending on AprilSeptember 1, 2018.2020. Any late payment during the term of the agreement will be assessed aby late penalty of 5% of the payment amount due, and in the event of default AFCO has the right to accelerate the payment due under the agreement.

On November 19, 2018, the Company entered into a $1,000,000 revolving line of credit agreement with a bank. Payments for the advances under the line bear interest at the LIBOR Daily Floating Rate plus 2.5 percentage points commencing January 1, 2019. The line of credit that matures on November 19, 2019, has been extended to November 19, 2020, at which time the unpaid principal, interest, or other charges outstanding under the agreement are due and payable. Obligations under the line of credit are secured by equipment and fixtures in the United States of America, accounts receivable and inventory of Leatt Corporation and Two-Eleven Distribution, LLC. As of September 30, 2017,2019, the Company had not defaultedline of credit in the amount of $350,000 was used, interest of $442 was accrued for the quarter. The revolving line of credit with a bank was fully repaid on its payment obligations under this agreement.October 17, 2019 and the balance of $1,000,000 is available.

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Critical Accounting Policies

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

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

All manufacturing of Leatt-Brace products is performed by third party subcontractors in China. The Company's products are sold worldwide to a global network of distributors and dealers, and directly to consumers when there are no dealers or distributors in their geographic area or where consumers choose to purchase directly via the Company’s e-commerce website (collectively the "customers").

Revenues from product sales are recognized when earned, net of applicable provisions for discounts and returns and allowances in the event of product defect. Revenuedefect where no exchange of product is consideredpossible. 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 realizedentitled to in exchange for those goods or realizable and earned when allservices. Product royalty income, representing less than 1% of total revenues, is recorded as the following criteria are met: title and risk of loss have passed tounderlying product sales occur, in accordance with the customer, persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable and collectability is reasonably assured. related licensing arrangements.

Our distributor payment terms range from pre-payment in full to 60 days after shipment and subsequent sales of our products by distributors have no effect on the amount and timing of payments due to us. Furthermore, products purchased by distributors may not be returned to us in the event that any such distributor relationship is terminated.

Since the Company (through its wholly-owned subsidiary) serves as the distributor of Leatt products in the United States, the Company records its revenue and related cost of revenue for its product sales in the United States upon shipment of the merchandise to the dealer or to the ultimate consumer when there is no dealer in the geographic area or the consumer chooses to purchase directly from the Company’s e-commerce website and the sales order was received directly from, and paid by, the ultimate consumer. Since the Company (through its South African branch) serves as the distributor of Leatt products in South Africa, the Company records its revenue and related cost of revenue for its product sales in South Africa upon shipment of the merchandise from the branch to the dealer.

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

International sales (other than in the United States and South Africa) are generally drop-shipped directly from the third-party manufacturer to the international distributors.

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

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

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

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

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

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

Allowance for Doubtful Accounts Receivable -Accounts receivable consist of amounts due to the Company from normal business activities. Credit is granted to substantially all distributors on an unsecured basis. We continuously monitor collections and payments from customers and maintain an allowance for doubtful accounts receivable based upon historical experience and any specific customer collection issues that have been identified. In determining the amount of the allowance, we are required to make certain estimates and assumptions. Accounts receivable balances that are still outstanding after we have used reasonable collection efforts are written off as uncollectible. While such credit losses have historically been minimal, within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectability of our accounts receivable and our future operating results. The allowance for doubtful accounts at September 30, 2019 was $228,186, and $83,399 at December 31, 2018.

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Inventory Valuation – Inventory is stated at the lower of cost or market.net realizable value. Cost is determined using the first-in first-out (FIFO) method. Inventory consists primarily of finished goods. Shipping and handling costs are included in the cost of inventory. In assessing the inventory value, we make estimates and judgments regarding reserves required for product obsolescence, aging of inventory and other issues potentially affecting the saleable condition of products. In performing such evaluations, we utilize historical experience as well as current market information. The reserve for obsolescence as of the nine-month periods endedat September 30, 20172019 was $117,252, and 2016 was $282,876 and $186,899, respectively.$83,004 at December 31, 2018.

Impairment of Long-Lived Assets– Our long-lived assets include property and equipment. We evaluate our long-lived assets for recoverability whenever events or changes in circumstances indicate that an asset may be impaired. In evaluating an asset for recoverability, we estimate the future cash flow expected to result from the use of the asset and eventual disposition. If the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. We have determined there was no impairment charge during the nine months ended September 30, 20172019 and 2016.2018, respectively.

Intangible Assets - The Company’s intangible assets consist of acquired patents with an indefinite useful life and are thus not amortized. Intangible assets are carried at cost less impairment. Amortization expense for both the nine months ended September 30, 2019 and 2018 was zero. There was no impairment loss recognized for the nine months ended September 30, 2019 and 2018, respectively.

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

Recent Accounting Pronouncements

See Note 8, “Summary of Significant11, “Recent Accounting Policies”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 ofon our consolidated financial position, results of operations and cash flows.

Off-Balance Sheet Arrangements

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

As of September 30, 2017,2019, the Company’s management, under the direction of its Chief Executive Officer and the Chief Financial Officer, Mr. Sean Macdonald, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer determined that the Company’s disclosure controls and procedures were deemed to be effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting during the period ended September 30, 2017,2019, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

On February 25, 2015, a lawsuit was filed against the Company on behalf of a motorcycle rider in the Northern District Court of Indiana, Lafayette Division for strict liability, breach of warranty, negligence, punitive damages and deceptive and misleading advertising and marketing. On September 14, 2017 the Court awarded summary judgement in favor of the Company and the plaintiff has appealed this decision by the Court.

On August 7, 2017, a lawsuit was filed against the Company on behalf of a motorcycle rider in the Southern District Court of Iowa for strict liability, breach of warranty, negligence, gross negligence and consumer fraud. The litigation is in the initial stage and no hearing date has yet been set. The Company believes that the lawsuit is without merit and intends to vigorously defend itself.

ITEM 1A. RISK FACTORS.

There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our annual report on Form 10-K for the period ended December 31, 2016.2018.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

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

ITEM 6. EXHIBITS.

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

ExhibitNo.Description

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

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SIGNATURES

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

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EXHIBIT INDEX

ExhibitNo.Description

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SIGNATURES

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