Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

LEATTCORPORATION

Quarterly Report on Form 10-Q
Nine Months Ended September 30, 2024

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3
ITEM 1.	FINANCIAL STATEMENTS.	3
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	27
ITEM 4.	CONTROLS AND PROCEDURES.	27
PART II	OTHER INFORMATION	27
ITEM 1.	LEGAL PROCEEDINGS.	27
ITEM 1A.	RISK FACTORS.	27
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	27
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	27
ITEM 4.	MINE SAFETY DISCLOSURES.	28
ITEM 5.	OTHER INFORMATION.	28
ITEM 6.	EXHIBITS.	28

- i -

PART I

FINANCIAL INFORMATION

LEATT CORPORATION
CONSOLIDATED BALANCE SHEETS

ASSETS
		September 30, 2024			December 31, 2023
		Unaudited			Audited
Current Assets
Cash and cash equivalents	$	12,470,005		$	11,347,420
Accounts receivable, net		7,862,982			6,970,322
Inventory, net		15,772,146			20,391,873
Payments in advance		977,703			664,754
Deferred asset, net		-			9,601
Income tax refunds receivable		523,888			623,081
Prepaid expenses and other current assets		2,846,213			2,297,934
Total current assets		40,452,937			42,304,985
Property and equipment, net		4,055,879			4,026,821
Operating lease right-of-use assets, net		626,949			845,209
Accounts receivable, net		146,477			309,947
Deferred tax asset, net		84,200			84,200
Other Assets
Deposits		37,960			36,210
Total Assets	$	45,404,402		$	47,607,372
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	5,889,080		$	5,202,368
Notes payable, current		52,078			112,858
Operating lease liabilities, current		276,062			299,432
Short term loans, net of finance charges		5,795			1,135,761
Total current liabilities		6,223,015			6,750,419
Notes payable, net of current portion		7,147			30,652
Operating lease liabilities, net of current portion		350,887			545,777
Commitments and contingencies
Preferred stock, $.001 par value, 1,120,000 shares authorized, 120,000 shares issued and outstanding		3,000			3,000
Common stock, $.001 par value, 28,000,000 shares authorized, 6,215,440 and 6,215,440 shares issued and outstanding		130,553			130,553
Additional paid - in capital		10,749,136			10,745,384
Accumulated other comprehensive loss		(1,100,976	)		(1,398,258	)
Retained earnings		29,041,640			30,799,845
Total stockholders' equity		38,823,353			40,280,524
Total Liabilities and Stockholders' Equity	$	45,404,402		$	47,607,372

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

LEATT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2 - Inventory

Inventory is stated at the lower of cost or net realizable value. Cost is determined using the first-in first-out (FIFO) method. Inventory consists primarily of finished goods. Shipping and handling costs are included in the cost of inventory. In assessing the inventory value, the Company must make estimates and judgments regarding reserves required for product obsolescence, aging of inventory and other issues potentially affecting the saleable condition of products. In performing such evaluations, the Company utilizes historical experience as well as current market information. The reserve for obsolescence was $355,624 at September 30, 2024 and $227,528 at December 31, 2023.

Note 3 - Operating Leases - Right-of-Use Assets and Lease Liability Obligations

The Company has three non-cancelable operating leases, for office and warehousing space, that expires in February 2025, February 2025 and January 2027, respectively. 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, 2024 and December 31, 2023:

During the nine months ended September 30, 2024 and 2023 the Company recognized $218,802 and $217,942, respectively, in operating lease expenses, which are included in office lease and expenses in the Company's consolidated statements of operations and comprehensive income (loss). Generally, the Company's lease agreements do not specify an implicit rate. Therefore, the Company estimates the incremental borrowing rate, which is defined as the interest rate the Company 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, 2024, and December 31, 2023 the following disclosures for the remaining lease terms and incremental borrowing rates were applicable:

Maturities of lease liabilities as of September 30, 2024 were as follows:

Supplemental cash flow information for the nine months ended September 30, 2024 and 2023 are as follows:

Note 4 - Revolving line of Credit facility

On November 19, 2018, the Company entered into a $1,000,000 revolving line of credit agreement with a bank. 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. On March 1, 2021, the Company executed an amendment to the line of credit. The amendment took retroactive effect to February 17, 2021 and extended the line of credit facility through February 28, 2022 and increased the revolving line of credit to $1,500,000. Effective January 21, 2022, the Company executed an amendment agreement for the line of credit to extend the line of credit facility through February 28, 2023, and to replace interest determined by LIBOR Daily Floating Rate with the Bloomberg Short-Term Bank Yield Index rate. The Company and Two Eleven signed amended documents to secure the loan by equipment and fixtures, accounts receivable and inventory of Two Eleven. Effective January 20, 2023, the Company executed an amendment to the line of credit to extend the line of credit facility through February 29, 2024, which has subsequently been extended to March 1, 2025. The Company and Two Eleven signed updated documents to secure the loan by equipment and fixtures, accounts receivable and inventory of Two Eleven. As of September 30, 2024, and December 31, 2023, respectively there were no advances of the line of credit leaving $1,500,000 and $1,500,000 available for advances.

Note 5 - Short-term Loans

The Company carries product liability insurance policies with a U.S. and South African-based insurance carrier. The Company finances payment of both of its product liability insurance premiums over the period of coverage, which is generally twelve months. The U.S. short-term loan is payable in monthly installments of $132,515 over eleven months including interest at 9.880%. The loan was paid in full on August 30, 2024. The South African short-term loan is payable in monthly installments of $6,041 over a ten-month period at a flat interest rate of 4.25%.

Note 6 - Notes payable

Two Eleven entered into a Note Payable with a bank effective December 17, 2021 in the principal amount of $272,519, secured by equipment. The Note is payable in 36 consecutive monthly installments of $7,990, including interest at a fixed rate of 3.5370%, commencing February 5, 2022, and continuing to January 5, 2025. As of September 30, 2024 and December 31, 2023, $31,724 and $101,755, was outstanding, respectively.

Two Eleven entered into a Note Payable with a bank effective December 1, 2022 in the principal amount of $58,075, secured by equipment. The Note is payable in 36 consecutive monthly installments of $1,816, including interest at a fixed rate of 7.8581%, commencing February 5, 2023, and continuing to January 5, 2026. As of September 30, 2024 and December 31, 2023, $27,501 and $41,755, was outstanding, respectively.

Principal maturities of notes payable as of September 30, 2024 were as follows:

Note 8 - Income Taxes

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

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

The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of September 30, 2024, the Company has no unrecognized tax benefits.

Note 9 - Net Income Per Share of Common Stock

Basic net income per common share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common stock shares and dilutive potential common shares outstanding during the period. For the six months ended September 30, 2024, the Company had 341,000 potential common shares, consisting of 120,000 preferred shares, and options to purchase 221,000 shares, outstanding that were dilutive.

Note 10 - Common Stock

Stock-based compensation expense related to vested restricted stock awards during the nine months ended September 30, 2024 was $3,752. As of September 30, 2024, there was $2,185,775 of unrecognized compensation cost related to unvested restricted stock.

Note 11 - Recent Accounting Pronouncements

Note 12 - Litigation

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

Note 13 - Risks and Uncertainties

The COVID-19 pandemic had an adverse impact on global shipping and supply chains which caused a disruption in our customers' ordering patterns and ultimately inflated certain industry wide stock levels. This was further compounded by the global economic slowdown experienced worldwide due to a high inflationary environment and geo-political instability. Although global conditions continue to improve, elevated industry wide inventory levels and adverse economic conditions compounded by resultant foreign exchange rate volatility may continue to impact levels of dealer and distributor ordering and ultimately consumer spending in the foreseeable future, which may affect the Company's profitability, and could have a negative impact on the Company's results of operations for the coming periods and beyond.

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

Special Note Regarding Forward Looking Statements

This report contains forward-looking statements that are contained principally in the sections entitled "Our Business," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned "Risk Factors" in our latest annual report on Form 10-K filed with the SEC. In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "would" and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:

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

Use of Certain Defined Terms

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

Overview of Our Business

We were incorporated in the State of Nevada on March 11, 2005, under the name Treadzone, Inc. We were a shell company with little or no operations until March 1, 2006, when we acquired the exclusive global manufacturing, distribution, sale and use rights to the Leatt-Brace®, pursuant to a license agreement between the Company and Xceed Holdings, a company controlled by the Company's Chairman and founder, Dr. Christopher Leatt. On May 25, 2005, we changed our name to Leatt Corporation in connection with our anticipated acquisition of the Leatt-Brace® rights. Leatt designs, develops, markets and distributes personal protective equipment for participants in all forms of motor sports and leisure activities, including riders of motorcycles, bicycles, snowmobiles and ATVs. The Company sells its products to customers worldwide through a global network of distributors and retailers. Leatt also acts as the original equipment manufacturer for personal protective equipment sold by other international brands.

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

The Company's research and development efforts are conducted at its research facilities, located at its executive headquarters in Cape Town, South Africa. The Company employs 4 full-time employees who are dedicated exclusively to research, development, and testing. The Company also utilizes consultants, academic institutions and engineering companies as independent contractors or consultants, from time to time, to assist it with its research and development efforts. Leatt products have been tested and reviewed internally and by external bodies. All Leatt products are compliant with applicable European Union directives, or CE certified, where appropriate. Depending on the market we have other certifications outside of CE. Specifically, all our motorcycle helmets comply with Economic Commission for Europe (ECE) UN Regulation No. 22 r06, and our bicycle helmet complies with the European Committee for Standardization (CEN) EN-1078 standard. For the US market, our motorcycle helmets comply with the US Department of Transportation (DOT) FMVSS 218 helmet safety standard and our bicycle helmet complies with the US Consumer Product Safety Commission (CPSC) 1203 standard for helmet safety. Our downhill specific bicycle helmets also comply with the American Society for Testing and Materials (ASTM) F1952 standard for downhill racing safety. For the Australian market, our bicycle helmet complies with Australian/New Zealand Standard (AS/NZS) 2063, for the UK market, substantially all of our motorcycle helmets comply with the Auto Cycle Union (ACU) gold standard, for the Japanese market, our Moto 3.5 helmet with the Japanese Standard Association (JSA) JIS T 8133 standard for protective helmets, and for the Brazilian market our Moto 7.5, Moto 3.5, Moto 2.5, ADV 9.5 and ADV 8.5 helmets comply with The Brazilian Association of Technical Standards (ABNT) NBR 7471 safety standard. Our Enduro 4.0 helmet and All-Mountain 4.0 helmet have acquired NTA8776 certification, a new e-bike helmet certification required in the Dutch Technical Agreement (NTA) 8776.

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

Leatt earns revenues through the sale of its products through approximately 49 distributors worldwide, who in turn sell its products to retailers. Leatt distributors are required to follow certain standard business terms and guidelines for the sale and distribution of Leatt products. Two Eleven and Leatt SA directly distribute Leatt products to dealers and direct to end consumers through digital channels in the United States and South Africa, respectively.

Principal Factors Affecting Our Financial Performance

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

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, 2024 and 2023 included herein.

Comparison of Three Months Ended September 30, 2024 and Three Months Ended September 30, 2023

The following table summarizes the results of our operations during the three-month periods ended September 30, 2024 and 2023 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

Revenues - We earn revenues from the sale of our protective gear comprising of neck braces, body armor, helmets and other products, parts and accessories both in the United States and abroad. Revenues for the quarter ended September 30, 2024 were $12.14 million, a 1% increase, compared to $12.01 million for the quarter ended September 30, 2023. This increase in worldwide revenues is primarily attributable to a $0.27 million increase in body armor sales, a $0.14 million increase in helmet sales, a $0.04 million increase in neck brace sales, that were partially offset by a $0.32 million decrease in other products, part and accessory sales. Revenues associated with international customers were $8.58 million and $8.16 million, or 71% and 68% of revenues for the three months ended September 30, 2024 and 2023, respectively.Revenues generated from sales to our customers in the United States decreased from $3.85 million, to $3.55 million, for the three months ended September 30, 2024 and 2023, respectively. Although, consumer direct sales increased by 12% and sales to our global distributors increased by 5%, when compared to the third quarter of 2023, dealer direct sales decreased by 9% for the third quarter of 2024, as our MOTO dealers in the United States continue to conservatively manage specific category ordering as inventory continues to clear.

The following table sets forth our revenues by product line for the quarter ended September 30, 2024 and 2023:

Sales of our flagship neck brace accounted for $0.75 million and $0.71 million, or 6% and 6% of our revenues for the quarters ended September 30, 2024 and 2023, respectively. The 6% increase in neck brace revenues is primarily attributable to a 109% increase in the volume of our premium 6.5 neck brace, that was partially offset by a 37% decrease in the volume of 3.5 neck braces sold during the third quarter of 2024, when compared to the prior year three month period.

Our body armor products are comprised of chest protectors, full upper body protectors, upper body protection vests, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes. Body armor sales accounted for $5.73 million and $5.46 million, or 47% and 45% of our revenues for the quarters ended September 30, 2024 and 2023, respectively. The 5% increase in body armor revenues was primarily the result of a 25% increase in revenues generated on the sale of upper body and limb protection during the third quarter of 2024, that was partially offset by a 55% decrease in the volume of footwear, comprising of motorcycle boots and mountain biking shoes, sold during the 2024 period, as our distribution partners continued to digest inventory.

Our helmet sales accounted for $3.01 million or 25% of our revenues for the quarter ended September 30, 2024, as compared to $2.87 million or 24% of our revenues for the three months ended September 30, 2023. The 5% increase in helmet sales is primarily due to a 98% increase in revenues generated on the sale of MOTO helmets during the third quarter of 2024 that was partially offset by a 23% decrease in the volume of MTB helmets sold during the same period.

Our other products, parts and accessories are comprised of goggles, hydration bags and apparel items including jerseys, pants, shorts and jackets as well as aftermarket support items required primarily to replace worn or damaged parts through our global distribution network. Other products, parts and accessories sales accounted for $2.65 million and $2.97 million, or 22% and 25% of our revenues for the quarters ended September 30, 2024 and 2023, respectively. The 11% decrease in revenues from the sale of other products, parts and accessories during the 2024 third quarter is primarily due to a 37% decrease in the volume of MTB apparel sold during the third quarter of 2024, as our MTB distribution partners continue to manage ordering as a result of stocking dynamics.

Cost of Revenues and Gross Profit - Cost of revenues for the quarters ended September 30, 2024 and 2023 were $6.97 million and $6.89 million, respectively. Gross Profit for the quarters ended September 30, 2024 and 2023 were $5.17 million and $5.12 million, respectively, or 43% and 43% of revenues, respectively. Ourneck braceproducts continue to generate a higher gross profit margin than our other product categories. Neck brace revenues were 6% and 6% of our revenues for the period ended September 30, 2024 and 2023, 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, 2024 and 2023 were $123,706 and $1,767, respectively. The 6901% increase in product royalty income is due to an increase in the sale of licensed products to licensees during the 2024 period.

Salaries and Wages - Salaries and wages for the quarters ended September 30, 2024 and 2023 were $1,676,828 and $1,267,455, respectively. The 32% increase in salaries and wages during the 2024 period was primarily due to to the employment of professional sales, marketing and brand management personnel in the United States and abroad, as the Company continues to build and invest in global multi-channel distribution.

Commissions and Consulting Expense - During the quarters ended September 30, 2024 and 2023, commissions and consulting expenses were $138,124 and $168,299, respectively. The 18% decrease in commissions and consulting expenses is primarily the result of a decrease in commissions paid in the United States in line with the Company's employment of in-house sales representatives that are focused on selling the Company's growing range of product categories.

Professional Fees - Professional fees consist of costs incurred for audit, tax and regulatory filings, as well as patent protection and product liability litigation expenses incurred as the Company continues to expand. Professional fees for the quarters ended September 30, 2024 and 2023 were $108,627 and $156,868, respectively. The 31% decrease in professional fees is primarily due to a decrease in expenditure on patent litigation and maintenance expenditure during the 2024 period.

Advertising and Marketing - The Company places paid advertising in various motorsport and bicycle magazines and online media and sponsors a number of events, professional teams and individuals to increase product and brand visibility globally. Advertising and marketing expenses for the quarters ended September 30, 2024 and 2023 were $1,304,215 and $974,488, respectively. The 34% increase in advertising and marketing expenditure during the 2024 period is primarily due to continued strong investment in the production and implementation of marketing campaigns that included athlete and event sponsorships, and activations designed to promote the Company's expanding product categories to a wider rider audience, that now includes adventure riders, globally. Additionally, the Company invested in high level strategic creative direction and brand building activities.

Office Lease and Expenses - Office lease and expenses for the quarters ended September 30, 2024 and 2023 were $141,420 and $145,863, respectively. The 3% decrease in office lease and expenses during the 2024 period is primarily attributable to a decrease in office lease rental expenditures due to the purchase of the Company's head office facility in Cape Town, South Africa.

Research and Development Costs - These costs consist of the salaries of personnel who are directly involved in the research and development of innovative products, as well as the direct costs associated with developing these products. Research and development costs for the quarter ended September 30, 2024, increased to $620,019, from $610,589 during the same 2023 quarter. The 2% increase in research and development costs during the 2024 third quarter is primarily due an increase in certification costs incurred as the Company continues to develop and refine its product categories.

Bad Debt Expense (Recovery) - Bad debt expense (recovery) for the quarters ended September 30, 2024 and 2023 were $(30,788) and $46,113, respectively. The 167% decrease in bad debt expense (recovery) is primarily the result of a decrease in accounts receivable balances that were considered to be unrecoverable during the 2024 period when compared to the quarter ended September 30, 2023.

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, 2024 and 2023 were $993,031 and $830,145, respectively. The 20% increase in general and administrative expenses is primarily due to an increase in travel expenditure relating to product development and domestic selling activities and an increase in merchant fees associated with an increase in consumer direct sales, as the Company continues to intensify its online presence.

Depreciation Expense - Depreciation expense for the quarters ended September 30, 2024 and 2023 were $316,404 and $299,554, respectively. The 6% increase in depreciation during the 2024 third quarter is primarily due to software enhancements utilized to improve consumer engagement and buying activity across the Company's web-based selling platforms.

Total Operating Expenses - Total operating expenses increased by $768,506, to $5.27 million, in the quarter ended September 30, 2024, or 17%, compared to $4.50 million in the 2023 period. This increase in total operating expenses during the 2024 period is primarily due to increases in salaries, general and administrative, and advertising and marketing costs that were partially offset by decreases in bad debts and professional fees during the 2024 period.

Net Income - The net income after income taxes for the quarter ended September 30, 2024 was $115,837, as opposed to a net income of $460,474 for the quarter ended September 30, 2023. This 75% decrease in net income is primarily due to the increase in total operating expenses discussed above.

Comparison of Nine Months Ended September 30, 2024 and Nine Months Ended September 30, 2023

The following table summarizes the results of our operations during the nine-month periods ended September 30, 2024 and 2023 and provides information regarding the dollar and percentage increase or (decrease) in such periods:

Revenues - We earn revenues from the sale of our protective gear comprising of neck braces, body armor, helmets and other products, parts and accessories both in the United States and internationally. Revenues for the nine-month period ended September 30, 2024 were $32.83 million, a 12% decrease, compared to revenues of $37.44 million for the period ended September 30, 2023. This decrease in worldwide revenue is primarily attributable to a $3.38 million decrease in helmet sales, a $0.86 million decrease in body armor sales, a $0.24 million decrease in other products, part and accessory sales and a $0.13 million decrease in neck brace sales. Revenues generated from sales to our customers in the United States remained consistent at $11.17 million and $11.17 million for the nine months ended September 30, 2024 and 2023, respectively. Revenues associated with international customers were $21.65 million and $26.27 million, or 66% and 70% of revenues, respectively, for the nine months ended September 30, 2024 and 2023. Although, consumer direct sales increased by 16% and dealer direct sales increased by 4% for the first nine months of 2024, sales to our global distributors decreased by 21% when compared to the first nine months of 2023 as our distributors continued to order conservatively in the context of industry-wide inventory dynamics.

The following table sets forth our revenues by product line for the nine months ended September 30, 2024 and 2023:

Sales of our flagship neck brace accounted for $1.90 million and $2.03 million, or 6% and 5% of our revenues for the nine-month periods ended September 30, 2024 and 2023, respectively. The 6% decrease in neck brace revenues is primarily attributable to a 2% decrease in the volume of neck braces sold during the first nine months of 2024 when compared to the prior year period.

Our body armor products are comprised of chest protectors, full upper body protectors, upper body protection vests, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes. Body armor sales accounted for $16.34 million and $17.20 million, or 50% and 46% of our revenues for the nine-month periods ended September 30, 2024 and 2023, respectively. Although revenues generated on the sale of upper body and limb protection increased by 19% during the first nine months of 2024, the 5% decrease in body armor revenues was primarily the result of a 63% decrease in revenues generated from the sale of footwear, comprising of motorcycle boots and mountain biking shoes, sold during the 2024 period. Footwear has been a particularly constrained category due to post-Covid stocking dynamics on an industry-wide basis.

Our Helmets accounted for $6.14 million and $9.52 million, or 19% and 26% of our revenues for the nine-month periods ended September 30, 2024 and 2023, respectively. The 35% decrease in helmet sales during the 2024 period is primarily attributable to a 45% decrease in the volume of MOTO and MTB helmets sold to our international customers during the 2024 period, when compared to the nine month period ended September 30, 2023, as our distributors continue to manage elevated inventory levels in the context of post-Covid stocking dynamics.

Our other products, parts and accessories are comprised of goggles, hydrations bags and apparel items including jerseys, pants, shorts and jackets as well as aftermarket support items required primarily to replace worn or damaged parts through our global distribution network. Other products, parts and accessories sales accounted for $8.45 million and $8.69 million, or 26% and 23% of our revenues for the nine-month periods ended September 30, 2024 and 2023, respectively. The 3% decrease in revenues from the sale of other products, parts and accessories is primarily due to a 29% decrease in the sales volume of our MOTO and MTB technical apparel lines, designed for motorcycle and mountain biking use that was partially offset by strong shipments of ADV technical apparel, designed for adventure motorcycle riding during the first nine months of 2024.

Cost of Revenues and Gross Profit - Cost of revenues for the nine-month periods ended September 30, 2024 and 2023 were $19.73 million and $21.20 million, respectively. Gross Profit for the nine-month periods ended September 30, 2024 and 2023 were $13.10 million and $16.23 million, respectively, or 40% and 43% of revenues respectively. The 3% decrease in gross profit as a percentage of revenues for the nine months ended September 30, 2024, was primarily due to specific dealer and consumer direct promotional selling opportunities that were pursued on particularly affected product categories in the United States and South Africa as the Company continues to manage industry-wide stocking and promotional dynamics at the dealer and distributor level. Although demand for our products and participation remains strong, the Company continues to seek opportunities to turn over less current, slower moving inventory categories at pricing levels that are market-related as we move closer to sustainable inventory levels.

Product Royalty Income - Product royalty income is earned on sales to distributors that have royalty agreements in place, as well as on sales of licensed products by third parties that have licensing agreements in place. Product royalty income for the nine-month periods ended September 30, 2024 and 2023 were $255,789 and $25,151, respectively. The 917% increase in product royalty income is due to an increase in the sale of licensed products to licensees during the 2024 period.

Salaries and Wages - Salaries and wages for the nine-month periods ended September 30, 2024 and 2023 were $4,853,471 and $3,737,382, respectively. The 30% increase in salaries and wages during the 2024 period was primarily due to the employment of professional sales, marketing, brand and account management professionals in the United States and abroad as the Company continues to invest strongly in building and expanding a diversified and focused multi-channel selling operation globally.

Commissions and Consulting Expense - During the nine-month periods ended September 30, 2024 and 2023, commissions and consulting expenses were $427,941 and $375,548, respectively. This 14% increase in commissions and consulting expenses during the 2024 period is primarily due to an increase in consulting expenditure incurred as the Company continues to streamline domestic and international sales taxation and operating processes.

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, 2024 and 2023 were $528,215 and $605,896, respectively. This 13% decrease in professional fees is primarily due to a decrease in expenditure on patent litigation and maintenance expenditure during the 2024 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, 2024 and 2023 were $3,379,914 and $2,678,960, respectively. The 26% increase in advertising and marketing expenditure during the 2024 period is primarily due to continued strong investment in the production and implementation of marketing campaigns designed to promote brand recognition and the Company's expanding product categories to a wider rider audience, that now includes adventure riders, globally. Additionally, strategic branding activities and direct expenditures on incentives designed to increase customer sales increased, when compared to the prior year period.

Office Lease and Expenses - Office lease and expenses for the nine-month periods ended September 30, 2024 and 2023 were $456,164 and $457,675, respectively. The decrease in office lease and expenses during the 2024 period is primarily attributable to a decrease in office lease rental expenditures due to the purchase of the Company's head office facility in Cape Town, South Africa.

Research and Development Costs - These costs consist of the salaries of personnel who are directly involved in the research and development of innovative products, as well as the direct costs associated with developing these products. Research and development costs for the nine-month periods ended September 30, 2024 and 2023, decreased to $1,804,590, from $1,828,548, during the same 2023 period. The 1% decrease in research and development costs during the 2024 period is primarily due to a decrease in external product development and certification costs incurred, that were partially offset by an increase in staff costs relating to the employment of design and development staff during the 2024 period, as the Company continues to invest in building a strong pipeline of innovative products.

Bad Debt Recovery - Bad debt recovery for the nine-month periods ended September 30, 2024 and 2023 were ($20,510) and ($135,108), respectively. This 85% decrease in bad debt recovery during the 2024 period is primarily the result of a decrease in bad debts that were recovered during the 2024 period, when compared to the prior year comparative 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, 2024 and 2023 were $2,913,079 and $2,516,919, respectively. The 16% increase in general and administrative expenses during the 2024 period is primarily due to an increase in domestic property insurance and merchant fees associated with an increase in consumer direct sales, as the Company continues to intensify its online selling activities. Additionally, travel costs increased as the Company intensified its global product development travel, and selling activities in the United States.

Depreciation Expense - Depreciation Expense for the nine-month periods ended September 30, 2024 and 2023 were $907,788 and $871,738, respectively. This 4% increase in depreciation during the 2024 period is primarily due to software enhancements utilized to improve consumer engagement and buying activity across the Company's web-based selling platforms.

Total Operating Expenses - Total operating expenses increased by $2.31 million to $15.25 million, in the nine-month period ended September 30, 2024, compared to $12.94 million in the nine-month period ended September 30, 2023. This increase in total operating expenses during the 2024 period is primarily due to increases in salaries, general and administrative and advertising and marketing costs that were partially offset by a decrease in professional fees during the 2024 period.

Net Income (Loss) - Net loss after income taxes for the nine-month period ended September 30, 2024 was $1.76 million, as opposed to net income after income taxes of $2.26 million for the nine-month period ended September 30, 2023. This decrease in net income during the 2024 period is primarily due to the decrease in revenues and gross profit and the increase in total operating expenditures discussed above.

Liquidity and Capital Resources

At September 30, 2024, we had cash and cash equivalents of $12.47 million. The following table sets forth a summary of our cash flows for the periods indicated:

		September 30
		2024			2023
Net cash provided by operating activities	$	2,976,400		$	6,585,988
Net cash used in investing activities	$	(861,567	)	$	(1,409,765	)
Net cash used in financing activities	$	(1,214,251	)	$	(1,104,302	)
Effect of exchange rate changes on cash and cash equivalents	$	222,003		$	(391,114	)
Net increase in cash and cash equivalents	$	1,122,585		$	3,680,807
Cash and cash equivalents at the beginning of period	$	11,347,420		$	7,102,945
Cash and cash equivalents at the end of period	$	12,470,005		$	10,783,752

Cash increased by $1.12 million or 10%, for the nine months ended September 30, 2024, when compared to cash on hand at December 31, 2023. The primary sources of cash for the nine months ended September 30, 2024 were decreased inventory of $4,491,631, increased accounts payable and accrued expenses of $686,712 and increased long term accounts receivable of $163,470. The primary uses of cash for the nine months ended September 30, 2024 were a net loss of $1,758,205, the repayment of a short term loan amounting to $1,129,966, increased accounts receivable of $861,413, increased prepaid expenses of $548,279, increased payments in advance of $312,249 and capital expenditures of $861,567.

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

Obligations under Material Contracts

Pursuant to our Licensing Agreement with Xceed Holdings, a company controlled by Dr. Christopher Leatt, our founder, chairman and head of research and development, we pay Xceed Holdings 4% of all neck brace sales revenue billed and received by the Company on a quarterly basis based on sales of the previous quarter. During the quarters ended September 30, 2024 and 2023, the Company paid an aggregate of $20,301 and $20,816, in licensing fees to Xceed Holdings. In addition, pursuant to a separate license agreement between the Company and Mr. J. P. De Villiers, our former director, the Company is obligated to pay a royalty fee of 1% of all our billed and received neck brace sales revenue, in quarterly installments, based on sales of the previous quarter, to a trust that is beneficially owned and controlled by Mr. De Villiers. During the quarters ended September 30, 2024 and 2023, the Company paid an aggregate of $5,092 and $5,204, in licensing fees to Mr. De Villiers.

Dr. Christopher Leatt is compensated in his capacity as our Research and Development consultant, pursuant to our Consulting Agreement, dated November 8, 2021, with Innovation Services Limited, or Innovation, a Jersey limited company in which, Dr. Leatt is an indirect beneficiary. Pursuant to the terms of the agreement, Innovation has agreed to serve as the Company's exclusive research, development and marketing consultant, in exchange for a monthly fee; provided, however, that Dr. Leatt must remain an Innovation director and beneficiary of a majority of its ownership interests during the term of the agreement, and Dr. Leatt must remain the Company's primary point of contact responsible for the oversight, review and delivery of the services to be performed by Innovation under the agreement. From July 1, 2023 through June 30, 2024, the monthly fee payable by the Company to Innovation was $45,463, and commencing July 1, 2024, the fee payable by the Company increased to $47,072. Innovation may increase its monthly fees, on an annual basis on written notice to the Company, by no greater than the lesser of: (a) five percent (5%) of the prior year's annualized fee; or (b) a percentage equal to then-applicable annual percentage increase in the Consumer Price Index (CPI) published by the United States Department of Labor's bureau of labor statistics, plus one-half percent (0.5%). The parties further agreed that all intellectual property generated in connection with the services provided under the consulting agreement will be the sole property of the Company. The term of the Consulting Agreement will continue unless terminated by either party in accordance with its terms. Either party may terminate the Consulting Agreement upon 6 months' prior written notice, except that the Company may immediately terminate it without notice if the services to be performed by Innovation cease to be performed by Dr. Leatt, if beneficial ownership in Innovation by Dr. Leatt's and his immediate family members decreases, or for any other material breach of the agreement. The parties have agreed to settle any dispute under the Consulting Agreement by submission to JAMS for final and binding arbitration pursuant to its Comprehensive Arbitration Rules and Procedures and in accordance with the Expedited Procedures in those Rules. The Company also simultaneously entered into a side letter agreement, dated November 8, 2021, with Dr. Leatt, pursuant to which Dr. Leatt agreed, among other things: (1) not to perform services similar to the services provided under the agreement for any current or future, direct or indirect competitor of the Company or any similar company; (2) not to solicit any current or future employees of the Company for employment with Innovation or any other entity with which he may become affiliated, or to contact or solicit any current or future stockholder or investor of the Company in connection with any matter that is not directly related to the ongoing or future business operations of the Company; and (3) that he will apprise the Company of any business opportunity that he becomes aware of that could benefit the Company so that the Company, can in its sole discretion, make a determination regarding whether to pursue such opportunity in the best interest of the Company and its stockholders. Dr. Leatt further agreed to continue dedicating a majority of his time on matters related to performance of his duties as a director of the Company and to the fulfillment of his obligations to the Company's research and development efforts under the consulting agreement, and the Company will have the right to adjust the amount of the fees payable under the consulting agreement to the extent of any substantial diminution in his fulfillment of such duties and obligations. The foregoing agreements replaced prior agreements in force from June 2018 to November 2021, among the Company, Dr. Leatt and Innovate Services Limited, a Seychelles company, beneficially owned by Dr. Leatt, that wound up operations. The foregoing description of the Consulting Agreement and Side Letter Agreement is qualified in its entirety by reference to the Consulting Agreement and the Side Letter Agreement, copies of which are filed as Exhibits 10.1 and 10.2, respectively, to the Form 10-K for the year ended December 31, 2023, and are incorporated by reference in this report. During the quarters ended September 30, 2024 and 2023, the Company recognized an aggregate of $141,217 and $135,332, respectively, in consulting fees to Innovation.

Pursuant to a Premium Finance Agreement, dated October 26, 2023, between the Company and Aon Premium Finance, the Company is obligated to pay APF an aggregate sum of $1,520,667 in eleven payments of $132,515 at a 9.880% annual interest rate, commencing on November 1, 2023, and ending on September 1, 2024. Any late payment during the term of the agreement will be assessed a late penalty of 5% on the payment amount due, and in the event of default APF has the right to accelerate the payment due under the agreement. This loan was paid in full on August 30, 2024.

On November 19, 2018, the Company entered into a $1,000,000 revolving line of credit agreement with a bank. 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. On March 1, 2021, we executed a second amendment to the line of credit. The amendment took retroactive effect to February 17, 2021, extended the line of credit facility through February 28, 2022, and increased the revolving line of credit to $1,500,000. Effective January 21, 2022, the Company executed an amendment to the line of credit to extend the line of credit facility through February 29, 2023, and to replace interest determined by LIBOR Daily Floating Rate with the Bloomberg Short-Term Bank Yield Index rate. Effective January 20, 2023, the Company executed an amendment to the line of credit to extend the line of credit facility through February 29, 2024, which has subsequently been extended to March 1, 2025. As of September 30, 2024, there were no advances of the line of credit leaving $1,500,000 of the line of credit available for advance.

On December 29, 2021, Two Eleven entered into a Loan and Security agreement with a bank, effective December 17, 2021, to finance equipment. The Equipment Note financed under the Loan and Security Agreement has a total value of $272,519, payable in 36 consecutive monthly installments commencing February 5, 2022, and continuing to January 5, 2025. Interest shall accrue on the entire principal amount of this Equipment Note outstanding from time to time at a fixed rate of 3.5370% per annum.The principal and interest amount of each payment shall be $7,990. As of September 30, 2024 and December 31, 2023, respectively, $31,724 and $101,755 of the Equipment Note was outstanding.

On December 20, 2022, Two Eleven entered into a Loan and Security Agreement with a bank, effective December 1, 2022, to finance certain equipment owned by Two Eleven. The note issued under the agreement, the Equipment Note, has a total value of $58,075, payable by Two Eleven in 36 consecutive monthly installments, commencing on February 5, 2023, and continuing through to January 5, 2026. Interest will accrue on the entire principal amount of the Equipment Note outstanding from time to time at a fixed rate of 7.8581% per annum, and the principal and interest amount of each installment payment will be $1,816. As of September 30, 2024 and December 31, 2023, respectively, $27,501 and $41,755 of the Equipment Note was outstanding.

Critical Accounting Policies

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

Revenue and Cost Recognition - The Company recognizes revenue in accordance with ASC 606 "Revenues from Contracts with Customers". 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 products is performed by third party subcontractors that are predominately based 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 standard distributor payment terms range from pre-payment in full to sixty (60) days after shipment and subsequent sales of our products by distributors have no effect on the amount and timing of payments due to us, however, in limited instances, qualified distributors and dealers may be granted extended payment terms during selected order periods. In performing such evaluations, the Company utilizes historical experience, sales performance, and credit risk requirements. Furthermore, products purchased by distributors may not be returned to the Company 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.

Sales totaling $0 and $31,671 were deferred as all the requirements to have a contract with the customer in accordance with ASC 606 had not been met as of September 30, 2024 and December 31, 2023, respectively. The shipped goods associated with these deferred sales are included in the caption deferred asset, net of an allowance for potential loss of $0 and $6,400 for September 30, 2024 and December 31, 2023, respectively.

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

The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company estimates the expected returns and claims based on historical rates as well as events and circumstances that indicate changes to historical rates of product returns and claims. Historically, returns due to product quality issues have not been material and there have been no distributor terminations that resulted in product returns. The provision for estimated returns at September 30, 2024 and December 31, 2023 was $-0- and $-0-, respectively.

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

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

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

Allowance for Doubtful Accounts Receivable - Accounts receivable consist of amounts due to the Company from normal business activities. Credit is granted to substantially all distributors on an unsecured basis. We continuously monitor collections and payments from customers and maintain an allowance for doubtful accounts receivable based upon the expected credit losses determined utilizing historical experience and any specific customer collection issues that have been identified. In determining the amount of the allowance, we are required to make certain estimates and assumptions. Accounts receivable balances that are still outstanding after we have used reasonable collection efforts are written off as uncollectible. While such credit losses have historically been minimal, within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectability of our accounts receivable and our future operating results. The allowance for short-term doubtful accounts was $645,618 at September 30, 2024 and $662,612 at December 31, 2023, respectively. Additionally, an allowance for long-term doubtful accounts will be included for accounts receivables that are anticipated to be collected over a period that is greater than 12 months. The allowance for long-term doubtful accounts at September 30, 2024 and December 31, 2023 was $12,676 and $26,929, respectively.

Inventory Valuation - Inventory is stated at the lower of cost or market. Cost is determined using the first-in first-out (FIFO) method. Inventory consists primarily of finished goods. Shipping and handling costs are included in the cost of inventory. In assessing the inventory value, we make estimates and judgments regarding reserves required for product obsolescence, aging of inventory and other issues potentially affecting the saleable condition of products. In performing such evaluations, we utilize historical experience as well as current market information. The reserve for obsolescence at September 30, 2024 and December 31, 2023 was $355,624 and $227,528, respectively

Impairment of Long-Lived Assets- Our long-lived assets include property and equipment. We evaluate our long-lived assets for recoverability whenever events or changes in circumstances indicate that an asset may be impaired. In evaluating an asset for recoverability, we estimate the future cash flow expected to result from the use of the asset and eventual disposition. If the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. We have determined there were no impairment charges during the quarters ended September 30, 2024 and 2023.

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

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

Recent Accounting Pronouncements

See Note 2, "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the respective dates of adoption, or expected adoption and effects on our consolidated financial position, results of operations and cash flows.

Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

As of September 30, 2024, 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, 2024, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings in the ordinary course of our business. 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.

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, 2023.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

ITEM 5. OTHER INFORMATION.

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

ITEM 6. EXHIBITS.

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

Exhibit No.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	Interactive data files pursuant to Rule 405 of Regulation S-T
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

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

SIGNATURES

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

Date: October 29, 2024

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

EXHIBIT INDEX

ExhibitNo.	Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	Interactive data files pursuant to Rule 405 of Regulation S-T
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

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