ITEM 1. BUSINESS
Business Overview
Leatt designs, develops, markets and distributes personal protective equipment for participants in all forms of motor sports and leisure activities, including riders of motorcycles, bicycles, snowmobiles and ATVs. The Company sells its products to customers worldwide through a global network of distributors and retailers. Leatt also acts as the original equipment manufacturer for neck braces sold by other international brands.
The Company's flagship products are based on the Leatt-Brace® system, a patented injection molded neck protection system owned by Xceed Holdings, designed to prevent potentially devastating injuries to the cervical spine and neck. The Company has the exclusive global manufacturing, distribution, sale and use rights to the Leatt-Brace®, pursuant to a license agreement between the Company and Xceed Holdings, a company owned and controlled by the Company's Chairman and founder, Dr. Christopher Leatt. The Company also has the right to use apparatus embodying, employing and containing the Leatt-Brace® technology and has designed, developed, marketed and distributed other personal protective equipment using this technology, as well as its own developed technology, including the Company's new body protection products which it markets under the Leatt Protection Range brand.
The Company's research and development efforts are conducted at its research facilities, located at its executive headquarters in Cape Town, South Africa. The Company employs 3 full-time employees who are dedicated exclusively to research, development, and testing. The Company also utilizes consultants, academic institutions and engineering companies as independent contractors or consultants, from time to time, to assist it with its research and development efforts. Leatt products have been tested and reviewed internally and by external bodies. All Leatt products are compliant with applicable European Union directives, or CE certified, where appropriate. Depending on the market we have other certifications outside of CE. For the US market our motorcycle helmets comply with the DOT (FMVSS 218) helmet safety standard and our bicycle helmet complies with EN1078, as well as CPSC 1203. Our downhill specific bicycle helmets also comply with ASTM F1952. For our Australian Market our bicycle helmet complies with AS/NZS 2063. For the UK market our motorcycle helmets comply with ACU Gold and our Moto 3.5 helmets comply with JIS T 8133 for the Japanese Market. We are currently in the process of applying to certify our Moto 3.5 helmet and latest helmet model Moto 7.5 to the CCC standard in China and NBR 7471 in Brazil.
Our products are predominately manufactured in China under outsource manufacturing arrangements with third-party manufacturers located there subject to agreed standard terms. The Company utilizes outside consultants and its own employees to ensure the quality of its products through regular on-site product inspections. Products sold to our international customers are usually shipped directly from our consolidation warehouse or manufacturers' warehouses to customers or their import agents.
Leatt earns revenues through the sale of its products through approximately 55 distributors worldwide, who in turn sell its products to retailers. Leatt distributors are required to follow certain standard business terms and guidelines for the sale and distribution of Leatt products. Two Eleven and Leatt SA directly distribute Leatt products to dealers in the United States and South Africa, respectively.
Our Corporate History and Structure
We were incorporated in the State of Nevada on March 11, 2005 under the name Treadzone, Inc. Until March 2006, we were a shell company with little or no operations. Effective as of March 1, 2006, 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 South Africa
The Company conducts business in South Africa as a foreign registered branch known as 'Leatt Corporation (Incorporated in the State of Nevada)' registered under the laws of South Africa with registration number: 2007/032780/10. Based in Cape Town, South Africa, Leatt SA was formed on November 14, 2007, for conducting the Company's business and operations in South Africa. Our corporate headquarters and our research and development efforts are based at Leatt SA.
Establishment of Two Eleven, Three Eleven and Leatt USA
On August 17, 2007, the Company established Two Eleven Distribution, a California limited liability company, as its wholly-owned subsidiary. Located in Santa Clarita, California, Two Eleven was formed to serve as the Company's executive offices in the United States, as well as the exclusive distributor of Leatt® products in the United States. On March 8, 2021, the Company's Board of Directors approved the redomicile of Two-Eleven Distribution to the State of Nevada, pursuant to a Plan of Conversion, that will be effective as of the date of filing Articles of Conversion and Articles of Organization with the Nevada Secretary of State.
Southern Palace Investments 409 (Proprietary) Limited, a South African company, was established on October 12, 2007, by the Company, to engage in the manufacturing and distribution of sporting goods and protective gear. The company was inactive until March 2009, when it acquired all intellectual property rights related to an invention entitled the Helmet® from Xceed Holdings, for an aggregate purchase price of ZAR 943,480 (approximately, $90,000) pursuant to a patent assignment agreement, effective as of January 1, 2009, between Xceed Holdings and Southern Palace, doing business as Three Eleven Distribution. On February 10, 2010, Southern Palace formally changed its name to Three Eleven Distribution to reflect its business purpose. The patent was subsequently impaired in 2018 and written off entirely in 2019.
On June 26, 2010, the Company established Leatt USA, LLC, a Nevada Limited Liability Company, as our wholly-owned subsidiary and for the purpose of holding our California subsidiary, Two Eleven Distribution. However, as of the date of this annual report the Company had not moved forward with its original plan and Leatt USA remains dormant.
Settlement Agreement
As consideration for their founding of the Company's operations in South Africa, we agreed to issue 20,000,000 shares of our common stock, and 19,200,000 shares of our preferred stock to Dr. Leatt, 5,000,000 shares of our common stock and 4,800,000 shares of our preferred stock to Jean-Pierre De Villiers, and 50,000 shares of our common stock to Ervian Jarrett. We issued the common stock to Dr. Leatt, Mr. De Villiers and Ms. Jarrett in accordance with the agreement, but we did not issue any preferred shares to Dr. Leatt or Mr. De Villiers. On September 25, 2008, in settlement of our obligation to issue Dr. Leatt and Mr. De Villiers shares of preferred stock, we entered into a Settlement Agreement with them, pursuant to which they agreed to release us from any and all liability arising out of or related to our failure to satisfy our prior obligation to them, and we issued 16,800,000 shares of our common stock and 2,400,000 shares of our Series A Preferred Stock to Dr. Leatt, and 4,200,000 shares of our common stock and 600,000 shares of our Series A Preferred Stock to Mr. De Villiers. The Series A Preferred Stock entitles Dr. Leatt and Mr. De Villiers to one hundred votes for each share of Series A Preferred Stock held (voting with the common stock as a single class). The Series A Preferred Stock converts into common stock, on a one-for-one basis, has a liquidation preference equal to $0.001 par value per share and is redeemable by us at $0.001 par value per share upon the occurrence of specified events, but it is subject to transfer limitations and it does not entitle Dr. Leatt and Mr. De Villiers to dividends. On September 20, 2012, we effected a 1-for-25 reverse stock split which reduces the foregoing issuances on a 1:25 ratio.
Our Corporate Structure
The following chart reflects our organizational structure as of the date of this annual report.
Our corporate headquarters are located at 12 Kiepersol Drive, Atlas Gardens, Contermanskloof Road, Durbanville, Western Cape, South Africa, 7550. Our telephone number is +(27) 21-557-7257. We maintain a website at www.leatt.com that contains information about our Company, but that information is not incorporated into, or otherwise considered a part of, this annual report.
Our Industry and Market Trends
Off-Road Motorcycle Market
Our products have their roots in the off-road motorcycle market. Our revolutionary neck brace was invented by Dr. Leatt to protect from catastrophic neck injuries after he witnessed the death of a fellow off-road motorcycle rider the weekend after his son's riding debut. As a result, our original products target participants in off-road cycling activities such as BMX racing and downhill racing.
We believe that we have gained our market share largely due to the innovation and quality of our products, the growth of the market, our increased marketing efforts, and our steps to secure our international patents and protect our patents from infringement.
Downhill and Cycling Market
We design and sell neck braces, helmets and protective gear for the downhill and cycling market. We entered this market focusing on downhill cycling, which requires a full-face helmet. We have since expanded our protective gear range to address the needs of mountain biking and BMX riders. The downhill and cycling market is now our second largest market.
Other Recreational Markets
We also design and sell neck braces for use by participants in other recreational sports such as ATV, go-kart, snowmobile users and participants in other sports where a full-face helmet should be worn. As a result, our overall performance in the market is also affected by the performance of these industries, especially in jurisdictions where the use of helmets is compulsory.
Our Products
The Company designs, develops, distributes and markets protective gear, parts and accessories. The Company currently markets its products under the two main categories addressing the two main markets, namely bicycle and powersports. The Company began the process of changing its naming convention of its motorcycle range of products from GPX to Moto and the bicycle range of products from DBX to MTB during 2020.
Neck braces
The Leatt-Brace® is a prophylactic neck bracing system composed of various combinations of carbon fiber, glass fiber, polycarbonate or Glass Filled Nylon, which was designed to help prevent potentially devastating sports injuries to the cervical spine (neck). The first Leatt-Brace® was designed for motorcycle, high speed motor vehicle and ATV use, where there is little means of protecting the neck in the event of an accident, but the Leatt-Brace® has been designed in such a way as to offer neck protection to all who utilize a crash helmet as a form of protection, including soldiers, law enforcement officers and other professionals whose activities could result in cervical spine injury.
The Moto/GPX models, designed for the powersports market, includes the GPX 5.5, which is fully adjustable, the GPX 5.5 Junior, which is fully adjustable and designed for junior riders, the GPX 4.5, which is less adjustable, the GPX 6.5, which is a full carbon brace, the award-winning GPX 3.5 neck brace, which is competitively priced, and the GPX 3.5 Junior neck brace, designed for junior athletes at a very competitive price. The range of STX neck braces are designed for street commuters and includes the STX RR and STX Road neck braces.
Furthermore, there is a range of SNX models under the powersports category. These neck braces are designed for snow mobile riders, which includes the SNX 5.5. These neck braces feature the AFC - Arctic Fusion Compound-designed for extreme temperatures.
The Fusion is a unique invention that combines neck, chest, back, flank and shoulder protection in one piece of body armor for powersports enthusiasts. This product combines Leatt-Brace® technology together with CE certified back, shoulder and chest impact protection. The Fusion models include the Fusion 3.0, which incorporates hard shell and 3DF AirFit ventilated soft impact foam to protect riders, the Fusion 3.0 SNX, which is designed specifically for snowmobile riders and is made from a special blend referred to as Arctic Fusion Compound (AFC™), this material is designed to withstand extremely cold conditions, and the Fusion 2.0 Junior which is designed for junior athletes.
Our MTB/DBX models, designed for the bicycle market, includes the DBX 5.5, which is fully adjustable, the DBX 5.5 Junior, which is fully adjustable and designed for junior riders, the DBX 6.5 which is a full carbon brace, the award-winning DBX 3.5 neck brace, which is competitively priced, and the DBX 3.5 Junior neck brace designed for junior athletes at a very competitive price.
Another product found under the neck brace category is the Neck Brace Kart, specifically designed for go-kart riders. This neck brace features a special Kart angle for improved function and fit. It features bio foam lycra padding and has fully adjustable front and rear tables.
The Company offers various versions, sizes and colors of these products to appeal to different clients and to address different price points. All these neck braces are CE certified as Personal Protective Equipment 89/686/EEC. To view a detailed listing of these products please see our website; www.leatt.com .
Helmets
In 2015 the Company launched its helmet range and commenced shipment with a limited helmet range. The Company expanded its off-road helmet range in 2016 to include two junior helmets and its award-winning MTB range for downhill and BMX bicycle use. The Company currently sells various models of helmet products which the Company believes redefines head and brain protection with its groundbreaking 360-degree Turbine technology for concussion and brain rotation safety. These helmets offer superior head and brain protection in a shell that is smaller, very lightweight, and super-ventilated, even at low speeds.
The Moto helmet range, designed for off-road motorcycle riders, consists of the Moto 9.5 Carbon Helmet, which is the latest premium carbon shell helmet in the range, Moto 8.5 Helmet which is a race-ready, composite shell, lightweight and super-ventilated helmet, and Moto 7.5 Helmet which has a lightweight, super-ventilated injected polymer compound shell. All these latest helmets meet DOT and new 2021 ECE 22.06 standards. Lastly, the Moto 3.5 Helmet is a polymer helmet with 360-degree turbine technology at a competitive price point, and the Moto 3.5 Junior Helmet, which is a polymer helmet designed for young riders at a competitive price point.
The MTB helmet range consists of the premium MTB 8.0 Composite Helmet, which is a well ventilated composite helmet made specifically to suit downhill and BMX riders' requirements, the MTB 4.0 Helmet, which is a super-ventilated injected polymer compound shell full-face helmet, the MTB 3.0 Helmet DH, which is a lightweight helmet that is ASTM DH certified, the MTB 1.0 Helmet DH which is polymer helmet with 360-degree turbine technology at a competitive price point, and the MTB 1.0 Helmet DH Junior which is a helmet with downhill certified ASTM junior shell designed for young riders at a competitive price point.
The MTB helmet range also has helmets designed for Enduro rider's requirements: the MTB 4.0 Helmet Enduro, which has a DH certified lightweight Polymer shell with removable chin bar with easy-fit stainless attachment system, and the MTB 3.0 Helmet Enduro, which is a convertible helmet with removable chin bar.
The Company also has a range of half shell helmets for off-road cyclists which incorporates the 360-degree Turbine technology for concussion and brain rotation safety. The MTB 4.0 All-Mountain Helmet, which is the premium lightweight polymer compound half shell helmet, the MTB 3.0 All-Mountain Helmet, which is a half shell polymer compound helmet for cyclists, the award-winning MTB 2.0 Helmet, which is a compound helmet designed for cyclists at a competitive price point, and the MTB 1.0 All Mountain, which is the most competitively priced helmet in this range which offers great head coverage for ultimate protection. The Company has also introduced the MTB 1.0 Helmet Urban designed for riding on the busy streets which incorporates 360-degree Turbine technology for concussion and brain rotation safety.
The Company offers various versions, sizes and colors of these products to appeal to different clients in different disciplines and to address different price points. All our helmets have achieved CE certification when necessary. Depending on the market we have other certifications outside of CE. For the US market our motorcycle helmets comply with the DOT (FMVSS 218) helmet safety standard and our bicycle helmet complies with EN1078, as well as CPSC 1203. Our downhill specific bicycle helmets also comply with ASTM F1952. For our Australian Market our bicycle helmet complies with AS/NZS 2063, for the UK market our motorcycle helmets comply with ACU Gold and for the Japanese market our Moto 3.5 helmet complies with JIS T 8133. To view a detailed listing of these products please see our website: www.leatt.com.
Body Armor
In 2010, we launched the Leatt body armor range with our introduction of the Leatt Adventure Chest Protector, a hard-shell chest protector. The following year we introduced junior protectors, body vests and full body protectors. Since then, we have further extended our range to include more body protectors and vests, back protectors, elbow guards, knee guards, impact shorts and cooling vests. These products come in a variety of soft- and hard-shell options for both adult and junior riders. Our expanded body armor product range has also gained us entry into new markets.
In 2014, we expanded into shoulder and knee-brace markets with the addition of our new shoulder brace and C-Frame knee brace to our range of body protection products. In the 2015 first quarter our Knee Brace was accepted for registration by both the United States Food and Drug Administration (FDA) and the UK's Medicine and Healthcare Regulatory Products Agency (MHRA), and our Shoulder Brace was accepted by the FDA, as Class 1 Medical Devices. FDA and MHRA registration allows us to take these products directly to market as medical devices for patients (not just athletes) recuperating from injuries, surgery, muscle tears or strains, dislocations, breaks or fractures. The Company has expanded its knee brace range to include the Knee Brace C-Frame Pro Carbon, which is the premium knee protection in the range, the Knee Brace X-Frame, which is injected carbon cage-type knee protection, the latest addition X-Frame Hybrid knee brace which includes a sleeve with Airflex impact gel knee cup with hard shell for ultimate knee brace comfort and the Knee Brace Z-Frame, which is a glass-filled nylon knee protection product at a competitive price point. The Company has expanded the junior knee-brace range to include the Knee Brace C-Frame Junior and Knee Brace Z-Frame Junior which is designed for younger athletes.
In 2019, we launched our new innovative 5.5 FlexLock Boot range, consisting of the 5.5 Flexlock Boot and the 5.5 Flexlock Enduro Boot. These Boots are designed to be an essential part of any rider's motocross riding kit. Our Boots feature the SlideLock system for an outstanding first-class fit, a low-profile toe box for easy gear shifting, and an incredible FlexLock system that is proven to reduce ankle forces by up to 37% and knee forces by up to 35% upon impact, when compared to an industry leading competitor boot. The latest additions to the range are the 4.5 Boot and the 4.5 Enduro Boot, both of which include a SlideLock system, auto-locking one way sliding closure for great seal at top of boot, extended foot peg riding zone for arch and on the toes riding style, and a reinforced steel shank. All boot ranges are CE tested and certified and are available in a range of colors.
In 2020, we launched the latest new product category, our MTB shoes. The range includes two shoes with the Company's ClipGrip technology, the premium 5.0 Shoes Clip, with 3-layer waterproof breathable fabric and concealed speed lace compression system, and the 4.0 Shoes Clip, both incorporating a ClipGrip SPD channel for all-pedal compatibility. The range includes two MTB shoes with the FlatGrip technology, namely, the premium 3.0 Shoes Flat and the 2.0 Shoes Flat, both of which are designed to satisfy any rider's needs, and incorporating FlatGrip sole technology with optimized grip pattern and mudflow channels. The last style in this range is the 1.0 Shoes Flat which is a comfortable sneaker sole with great pedal compatibility at a competitive price.
Our team is committed to consistently updating and refining these products based on consumer feedback and demand on an annual basis. The Company offers various versions, sizes and colors of these products to appeal to different clients in different disciplines and to address different price points. All our products have achieved CE certification when necessary. To view a detailed listing of these products please see our website: www.leatt.com .
Other Products, Parts and Accessories
Goggles
In 2019, we launched our Leatt Goggle range, developed with WideVision anti-glare, anti-fog technology and bullet-proof tested to military ballistic standards for durability. The goggles also feature a detachable nose piece for multi-purpose use, easy clip-in / clip-out and self-draining frames, and nine anti-fog lenses that provide the same fit for the entire line-up, ranging from 20-83% Visible Light Transmission (VLT). Our full range of goggles consists of three types of goggles in a variety of colors that are designed to function in all conditions.
Leatt Apparel Range
The Leatt Apparel Range is the fastest growing product category in the Leatt range of products. In 2015, we introduced a new product category of gloves to our apparel products and expanded our offering of cooling apparel products. We have since added a variety of apparel products for off-road motorcycle riders and bicycle riders, including jackets, jerseys, pants, shorts, socks and gloves. All products in this range come in a variety of trendy colors and are designed in line with the latest international fashion trends.
Casual Clothing and Accessories
We also sell a variety of casual clothing and caps which we have expanded to include sunglasses. We sell accessories that complement our expanding range of products including toolbelt bags, duffel bags, gear bags, helmet bags, hats and hydration kits. The products are designed in line with the latest international fashion trends.
Spare Parts
We also provide aftermarket support to users of our protective products primarily for the replacement of worn or damaged parts through our global distribution network. The nature of many of our products is such that certain components collapse and fail in a controlled mode to help prevent further bodily injury. As such, specific parts of a product or the entire product may need to be replaced after a significant impact.
Our team is committed to consistently updating and refining these products based on consumer feedback and demand on an annual basis. To view a detailed listing of these products please see our website: www.leatt.com.
Accolades
The Leatt products have won a series of awards and accolades since 2007, including the following:
• Motocross Action: Leatt-Brace GPX awarded 5/5 Star Product Rating (2007) and Decade's Most Significant Product (awarded by an industry magazine based on comfort, fit and safety)
• Transworld MX: Editors' Choice-Leatt Brace Adventure awarded Best New Product of Year (2009) (selected by editors of an industry magazine with no published criteria)
• ISPO Brandnew Awards: Leatt-Brace DBX awarded Best Protection at Bike Expo (2010) (Bike Expo is an annual gathering of industry participants)
• Transworld MX: Leatt GPX Pro Best Product of the Year (2011) (selected by editors of an industry magazine, based on comfort and safety)
• Motocrossgear.com: Perfect Score to New 2012 Leatt-Brace Chest Protector Adventure Pro (selected by an industry website, based on looks, comfort and safety)
• Transworld Motorcross Magazine: Chest Protector Leatt Pro Lite was awarded "Product of the Year" for 2012 (selected by editors of industry magazine based on testing and looks)
• PPS Moto: This Motocross Product review website awarded the Company the 2014 PPS Moto Protective Gear Company of the Year Award.
• Mountainbike Magazine: The Leatt F4 Hydration System won the Design and Innovation Award for 2015. The product was chosen from over 100 brands and vetted by an international jury featuring top athletes, including Enduro World Series Winner, Nico Lau.
• 2015 Vital MX Audience Survey: The Leatt Neck Brace was voted the number one Neck Brace to buy in the Vital MX Audience Survey.
• Design & Innovation 2016 Awards: The Leatt DBX 5.0 Composite Helmet won a Design and Innovation Award for 2016. The Design & Innovation jury of bicycle industry experts seeks to recognize bicycles and bicycle products.
• Design & Innovation 2016 Awards: The Leatt DBX Enduro Lite WP 2.0 won a Design and Innovation Award for 2016. The Design & Innovation jury of bicycle industry experts seeks to recognize bicycles and bicycle products.
• Decline Magazine: awarded Leatt Knee Guards a five-star rating based on the products' fit, impact testing, breathability and overall appeal (July 2016).
• Eurobike Award 2017: In 2017, the Leatt DBX 3.5 neck brace won a Eurobike Award. Eurobike is the world's leading trade fair where international bike industry exhibitors present their products and services. The prestigious Eurobike Award honors innovative products and is a highlight of the annual exposition.
• Interbike Innovation 2017 Award Winner: The Leatt DBX 3.5 neck brace was named an Interbike Innovation Award winner in 2017. The Interbike International Bicycle Exposition is the largest bicycle industry trade event in North America and their awards are aimed at recognizing excellence and innovation in product, retail and advocacy.
• Mountain Bike Magazine 2017 Editor's Choice Innovations Category Winner: In 2017, the Leatt DBX 3.0 helmet was one of ten winners in the Editor's Choice Innovations category reserved for innovations that the Editors believe most shaped the mountain bike world during the prior year.
• The MTB Lab Best of 2017 Award: In 2017, The MTB Lab, an online publication on mountain bikes and outdoor gear, named the Leatt DBX 3.0 All-Mountain Helmet one of the best products for 2017.
• 2017 Crankjoy Gear of the Year: The Leatt DBX 3.0 helmet was listed by the Editors of Crankjoy, an online publication on mountain bike lifestyle and gear, as among its favorite riding gears for 2017.
• Design & Innovation 2018 Awards: In 2018, the Leatt DBX 2.0 Helmet and the Leatt DBX 3.5 Neck Brace won a Design and Innovation Award. The Design & Innovation award is granted by a jury of bicycle industry experts in recognition of the best bicycles and bicycle products.
• 2018 Powersports Business Nifty 50 Award: In 2018, the Leatt GPX 4.5 Helmet and the Leatt GPX 3.5 Neck Brace was awarded the Nifty 50 Award by the editors of Powersports Business, an industry publication that selects aftermarket products and services that they believe will help boost dealer profitability. To be eligible for the 2018 award, products had to be new or substantially improved from previous years and be ready for delivery in calendar year 2018.
• Interbike Innovation 2018 Award Winner: Leatt DBX 4.0 Helmet was named an Interbike Innovation Award winner in 2018. The Interbike International Bicycle Exposition is the largest bicycle industry trade event in North America and their awards are aimed at recognizing excellence and innovation in product, retail and advocacy.
• Design & Innovation 2019 Awards: In 2019, the Leatt DBX 4.0 Helmet won a 2019 Design & Innovation Award. The Design & Innovation award is granted by a jury of bicycle industry experts in recognition of the best bicycles and bicycle products.
• 2019 Vital MX Audience Survey: The Leatt Neck Brace was voted the number one Neck Brace to buy in the Vital MX Audience Survey.
• 2019 Racer X Readers' Choice Award: The number one worn Neck Brace.
• 2020 Gear Of The Year Award: The Moto 9.5 Helmet was named 2020 Gear of the Year award by German Cross Magazine. The award winner is selected on an annual basis by the Editors of the magazine.
• 2020 Racer X Readers' Choice Award: The number one worn Neck Brace.
• 2020 Vital MX Audience Survey: The Leatt Neck Brace was voted the number one Neck Brace to buy in the Vital MX Audience Survey.
• Design & Innovation 2021 Awards: In 2021, the Leatt 4.0 Velocity Goggles won a Design and Innovation Award. The Design & Innovation award is granted by a jury of bicycle industry experts in recognition of the best bicycles and bicycle products.
• 2021 Powersports Business Nifty 50 Award: This year the Leatt X-Frame Hybrid Knee Braces was awarded the Nifty 50 Award by the editors of Powersports Business, an industry publication that selects aftermarket products and services that they believe will help boost dealer profitability. To be eligible for the 2021 award, products had to be new or substantially improved from previous years and be ready for delivery in calendar year 2021.
We believe that the premium quality of Leatt-Brace® products has resulted in increased sales since inception. We have sold in excess of 850,000 units of Leatt-Brace® products worldwide to date.
Manufacturing
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 do not currently have written agreements with our neck brace third-party manufacturers but will include any such future written agreement with our periodic filings. We offer warranty on our products based on the legal requirements of the specific geographical region that our customers reside in. Products purchased through international sales are usually shipped directly from our consolidation warehouse or manufacturers' warehouses to customers or their import agents.
Upon our determination of order quantities, we issue periodic purchase orders for products to our third-party manufacturers at negotiated prices. A security deposit of between 10 - 30% of the total purchase order value is made with such manufacturers upon receipt of a manufacturer's invoice reflecting quantities ordered and the negotiated price for the products. The standard lead time from purchase order date to ship-ready date is 70-100 days, and our standard supplier shipping terms are FOB (Port).
During production, we measure the manufacturer's quality and on-time performance to determine whether to continue our relationship. We utilize outside consultants and our own employees to ensure the quality of our products through regular on-site product inspections. Such quality inspections are conducted in conformance with ISO/IEC 17025 specifications at the manufacturer's premises and penalties are levied against a manufacturer if any delay in shipment to customers or customer rejection or non-acceptance is caused by quality issues. The balance of open invoices is paid to the manufacturer four to six weeks after successful inspection.
Raw Materials and Suppliers
Our products are manufactured from generally available engineering materials, such as thermoset carbon fiber, glass fiber reinforced nylon and high impact polycarbonate resin. The cost of materials used in our products varies depending on the target market for, and the price of, our products. The prices of these raw materials are determined based upon prevailing market conditions, supply and demand, and global conditions may impact the supply of these raw materials and adversely affect the supply of our products. We have not experienced any interruptions to our production due to shortage of our raw materials.
Our third-party manufacturers arrange for the purchase of most of the raw materials that are used to manufacture our products and they pay for the cost of such materials. We may occasionally directly source and pay for highly specialized protection materials, for use in the production of our products. These protection materials are generally available. We also occasionally acquire raw materials on behalf of a third-party manufacturer in order to secure and maintain a specified production capacity. The expenses incurred for such materials for the years ended December 31, 2020 and 2019, were not material and we do not foresee these amounts being material in the near future.
We have implemented certain protocols to check the quality of raw materials used in the production process. Our third-party manufacturers are required to perform prescribed strength testing on critical parts of certain products. In addition, certain materials are tested by our research and development employees at Leatt SA and by independent material laboratories for compliance to manufacturing and material specification.
Our Customers
Leatt earns revenues through the sale of 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 certain international brands. Leatt sells its products directly to dealers in South Africa (through Leatt SA), in the USA (through Two Eleven), and through a network of approximately 55 third-party distributors worldwide. Our distributors are required to follow certain standard business terms and guidelines for the sale and distribution of our products. Two Eleven also sells our products directly to consumers through our online store available at www.leatt.com.
Products purchased through international sales are usually shipped directly from our consolidation warehouse or manufacturers' warehouses to customers or their import agents. Revenue and related cost of revenue is recognized at the time of shipment from the manufacturer's port when 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 customer.
We generate revenue both in the United States and internationally. For the years ended December 31, 2020 and 2019, annual revenues associated with international customers were $24,670,072 and 18,897,942, or 64% and 67% of total revenue, respectively.
We have derived a significant portion of our revenue from a limited number of customers, however none of our customers account for more than 10% of our consolidated revenues for the year ended December 31, 2020. For the years ended December 31, 2020 and 2019, our largest customer accounted for approximately 9% and 11% of our annual U.S. revenue, respectively. As of December 31, 2020, and 2019, $199,808 or 3% and $35,217 or 1% of our accounts receivable, was due from this customer.
For both years ended December 31, 2020 and 2019, our international revenue derived outside of the U.S. was earned from one customer that accounted for approximately 9% and 8% of our annual international revenue. As of December 31, 2020 and 2019, $421,976, or 6% and $0 or 0% of our accounts receivable, was due from this international customer.
Advertising and Marketing
Initially we gained market recognition through customer word-of-mouth and then subsequently through third-party articles and reviews of the Leatt-Brace® in motorcycle and racing magazines with unsolicited and unpaid endorsements from current and former celebrity motocross (and other) riders supporting these sports, but we now implement global marketing campaigns that incorporate web and print based advertising, social media engagement, sponsorship of sporting events and athlete sponsorships that are designed to promote the Company's growing product range and consumer brand on a global basis by increasing product and brand visibility.
We believe that, as a result of our marketing efforts, and based on our internal marketing estimates, we have approximately 785 active distributors and dealers who stock Leatt products in the U. S. and approximately 200 active distributors and dealers in South Africa. We expect that the number of our distributors and dealers will also grow as the market segments that we sell to and our product offering grows but we cannot guarantee that this will be the case.
Our advertising and marketing expenses for the years ended December 31, 2020 and 2019 were $2,167,445 and $1,989,959, respectively, representing approximately 6% and 7% of our revenues, respectively.
Our Growth Strategy
We are committed to growing our business in the coming years. The key elements of our growth strategy are summarized below:
• Regional Distribution. Our product range has attracted the interest of global retailers and distributors of protective gear for motor and extreme sports, as well as motorcycle manufacturers and racing teams. The resultant interest and the expected demand for our products prompted us to change our production and distribution strategy in order to cater to this demand. In November 2007, we established Two Eleven, our wholly owned California subsidiary, to manage and control the distribution of our products, particularly in the United States. We distribute products to international consumers through a network of international third party distributors who are selected by our management team based on their financial status, distribution abilities and creditworthiness, their location in major geographic territories, their marketing and media presence and their portfolio of leading motorcycle brands and accessories as well as their reputation among industry players. We are working on developing our bicycle distribution network throughout the world by appointing new distributors and dealers with a specific focus on the bicycle market. We believe that regional distributors will better promote our products in the designated regions and expand our global customer base. In the U.S. we are expanding and upgrading our dealer network and sales management team.
• Strategic Alliances. We are actively researching and evaluating strategic alliances that will enable the Company to grow into markets outside of its core markets in an efficient manner. We are also working with our OEM partners to develop more mutually beneficial, sustainable, long-term relationships in line with the Company's goals.
• Industry Accreditation and Endorsements. We are pursuing accreditation and endorsements of our products from global motor sports governing and homologation bodies as well as industry organizations. We believe that these accreditations and endorsements will increase sales of our products and solidify our position as a leader in safety products. Should neck protection in two wheeled sports become compulsory we believe that such accreditations and endorsements will additionally increase our sales.
• Developing Brand Awareness and Brand Loyalty. We are continuing with our efforts to develop brand loyalty by refining our marketing strategy and by engaging in more targeted communication with current and potential consumers of our products. We are working to build loyalty among more consumers in our core bicycle and moto markets by introducing more price points for our products and addressing more consumer needs in more segments, while remaining true to our mission-pioneering functional safety gear.
• Expanding our Portfolio of Products. We are always looking for opportunities to introduce new products to reach a wider audience and penetrate new markets. This will include extending our product range to include both innovative protection products as well as peripheral or accessory products such as clothing. In the 2015 first quarter our Knee Brace was accepted for registration by both the United States Food and Drug Administration (FDA) and the UK's Medicine and Healthcare Regulatory Products Agency (MHRA), and our Shoulder Brace was accepted by the FDA, as Class 1 Medical Devices. FDA and MHRA registration allow us to take these products directly to market as medical devices for patients (not just athletes) recuperating from injuries, surgery, muscle tears or strains, dislocations, breaks or fractures. In 2015, we launched two additions to our body armor product range, namely helmets and gloves. We also added two full apparel lines to our product range, one line designed for the off-road motorcycle market and the other designed for the bicycling market. In 2019, we added motorcycle Boots and Goggles to our range which has made the company a head-to-toe brand for motorcycle protection. In 2020, we added cycling shoes to our product range, which has made the company a head-to-toe brand for bicycling protection. We expect that our sales of peripheral products and accessories will increase in line with increased brand awareness.
Our Research and Development Efforts
Our Chairman and Founder, Dr. Christopher Leatt, is our primary research and development consultant and heads the research and development efforts conducted at our research facility, or Leatt Lab, located at our executive headquarters in Cape Town, South Africa. The facility houses a team of a biomedical engineer, consultants and designers who ensure products are scientifically and mechanically sound. This facility features state of the art testing and prototyping equipment and sophisticated simulation models. Leatt also utilizes other consultants, academic institutions and engineering companies from time to time to assist us with our research and development efforts.
We believe that the development of new products and new technology is critical to our success. We are continuously working to improve the quality, efficiency and cost-effectiveness of our existing products. All our products have achieved CE certification when necessary. Depending on the market we have other certifications outside of CE. For the US market our motorcycle helmets comply with the DOT (FMVSS 218) helmet safety standard and our bicycle helmet complies with EN1078, as well as CPSC 1203. Our downhill specific bicycle helmets also comply with ASTM F1952. For our Australian Market our bicycle helmet complies with AS/NZS 2063. For the UK market our motorcycle helmets comply with ACU Gold and our Moto 3.5 helmets comply with JIS T 8133 for the Japanese Market. We are currently in the process of applying to certify our Moto 3.5 helmet and latest helmet model Moto 7.5 to the CCC standard in China and NBR 7471 in Brazil. We are working to develop technology to expand our range of products with further innovation, comfort, ergonomics and market appeal. We believe that our scientific and medical approach to product development gives our products a competitive edge.
Our research and development expenses for the fiscal years ended December 31, 2020 and 2019 amounted to $1,522,758 and $1,491,155, respectively. These expenses included salaries for research and development employees as well as other direct product development and research costs.
Competition
We compete with a small number of dominant competitors in the neck brace and body protection market, some of whom have substantially greater financial and other resources than we currently have. According to the 2019 Racer X Readers' Choice Survey discussed elsewhere herein and available at http://mediakit.filterpubs.com/survey , our major competitors in the neck brace market is Atlas Brace USA, LLC, Alpinestars S.p.A and EVS Sports; our major competitor in the knee brace market is EVS Sports; and our major competitor in the body protection, apparel and helmet market is Fox Racing.
Competition is based on quality, price, reputation, industry endorsements and certifications, as well as, on product design, brand names, marketing support and distribution strategies. We believe that our products can be distinguished from the products offered by our competitors due to the fact that our products are innovative, safety tested, versatile, aesthetically appealing, priced competitively and comfortable without compromising quality and performance.
Our Competitive Strengths
We believe that our competitive strengths include the following:
• Intellectual Property. Both our patents and licensed patented technology allows us to provide a product that cannot easily be duplicated by our competitors. We have invested extensive resources to patent our products worldwide and have taken legal action to protect our intellectual property rights from infringement.
• Diverse Multi-Cultural Skilled Management Team. Our management team is knowledgeable and experienced in the personal protective equipment industry, sports medicine and business development. Our executive corporate management team consists of Mr. Sean Macdonald, Dr. Christopher Leatt, Mr. Erik Olsson and Mr. Todd Repsher. Mr. Macdonald is our Chief Executive Officer, Chief Financial Officer, President and Director, and is a Chartered Accountant with over 15 years' experience in the financial and operational aspects of running sports orientated growth companies. Dr. Leatt is our Founder, Chairman and Research and Development consultant, who developed the Leatt- Brace® from his study of the benefits and viability of a neck protection system for helmet clad sport and recreational users. Mr. Olsson is our General Manager and Head of International Distribution and has served for over 20 years as a Sales and Product Manager for various companies in the power sports industry. Mr. Repsher is our US General Manager, who is an award-winning sales executive with over 15 years' experience in the marketing and sales of sports orientated companies in North America.
• Sale and Distribution Channels: Our ability to attract top tier distribution and retail sales channels for the sale of our products is a competitive advantage. These distributors have the financial and distribution resources and relationships to penetrate existing product categories within dealerships and reach a wide geographical dealer network and ultimately consumer base. The Company sells its products to consumers through a global network of approximately 55 global distributors, including the Company's U.S. subsidiary, Two Eleven, and its South African subsidiary, Leatt SA. The Company exercises control over this distribution network through its establishment of standard business terms and guidelines for the sale and distribution of its products to retailers worldwide, and through its direct control of Two Eleven and Leatt SA, the exclusive distributors of Leatt products to retailers in the US and South Africa, respectively. Our research and development and marketing teams also work closely with distributors to educate their sales forces about technical innovations in our products, and to provide support in the marketing and other promotion of our products. We believe that our increase in worldwide sales and our continued expansion into global markets is a testament to the efficiency and effectiveness of our worldwide distribution channels.
• Outsourced Manufacturing. We outsource our manufacturing to third-party manufacturers in order to produce large volumes of our products. The manufacturing process remains subject to our strict quality control guidelines safeguarded by our employees and the third-party inspectors who we hire as consultants to ensure that these guidelines are being implemented at the production point. While such manufacturing arrangements pose a risk to our ability to safeguard our proprietary technologies and may lead to increased costs, as discussed under the "Risk Factors" heading in this report, we expect that the increase in expected sales volumes will contribute to a lower production cost per unit and that this will translate to better margins for our distributors and retailers.
• Research, Development, Certification and Marketing Capabilities. We have in-house know-how in the areas of product development, testing and accreditation, particularly in the field of personal protective equipment. With the experience and capabilities developed and established in taking our product to market, we believe that we are well positioned to develop, manufacture and market additional products. With our medical and mechanical expertise, demonstrated research and development capabilities, established outsource manufacturing capacity, established brand and our dedicated, loyal and enthusiastic distribution network, we believe that we have the components necessary to bring new successful products to market.
• Industry Accreditation, Testing Standards and Regulations. We are pursuing accreditation and endorsements of our products from global motor sports governing and homologation bodies as well as industry organizations. We have obtained homologations of our products from various global racing authorities where objective standards have been set and we are in discussions with governing racing bodies, such as the FIM, to have the Leatt-Brace® accredited. Should industry accreditation become compulsory, we would be ahead of our competitors in the marketplace.
• Brand Recognition. We believe that public recognition of the Leatt® brand drives the sales of our products, regardless of the action of competitors and competitive products. We expect that the reputation of our brand in the market place, particularly our product testing and applicable CE certification, will continue to ensure market acceptance and facilitate market penetration of our new products. In order to bolster and grow the Leatt® brand, stringent quality control and assurance are our highest priority and our ongoing marketing, advertising and public relations efforts continue to stress the quality, safety and innovation of our products.
Our 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®. Most of these initial intellectual property rights are held by Xceed Holdings, a corporation controlled by our Chairman, Dr. Christopher Leatt and the rest of these rights are held by the Company. We license most of our intellectual property from Xceed Holdings, pursuant to a patent and royalty license agreement, or Licensing Agreement, dated March 1, 2006, between the Company and Xceed Holdings. Under the terms of the Licensing Agreement, we are obligated to pay Xceed Holdings 4% of all our revenues billed and received from the Leatt-Brace®. In addition, pursuant to a separate license agreement between us and Mr. De Villiers, we are obligated to pay a royalty fee of 1% of all our billed and received 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. We also rely on nondisclosure agreements and other methods to protect our intellectual property rights. However, the steps we have taken may be inadequate to prevent the misappropriation of our technology.
The following table lists the patents and designs licensed from Xceed Holdings:
Country
|
Application No
|
Patent No
|
Filing Date
|
Invention Title
|
Status
|
Renewal Date
|
South Africa
|
2006/05044
|
2006/05044
|
06/20/2006
|
Neck Brace
|
Granted
|
11/26/2021
|
Brazil
|
PI0416971-9
|
PI04169719
|
05/26/2006
|
Neck Brace
|
Granted
|
11/26/2021
|
Canada
|
2,547,855
|
2,547,855
|
05/26/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
China
|
20048003507 2.4
|
ZL200480035072.4
|
05/26/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Indonesia
|
W002006014 67
|
IDP0030269
|
06/19/2006
|
Neck Brace
|
Granted
|
10/27/2021
|
Israel
|
175931
|
175931
|
06/19/2006
|
Neck Brace
|
Granted
|
11/25/2022
|
Japan
|
2006541524
|
4553903
|
05/26/2006
|
Neck Brace
|
Granted
|
07/22/2021
|
South Korea
|
10-2006- 7012173
|
10-0904041
|
06/19/2006
|
Neck Brace
|
Granted
|
06/19/2021
|
Morocco
|
PV29105
|
28229
|
06/15/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Mexico
|
JL/a/2006/000 026
|
301465
|
05/26/2006
|
Neck Brace
|
Granted
|
11/26/2022
|
Malaysia
|
PI 20062407
|
MY-145683-A
|
05/25/2006
|
Neck Brace
|
Granted
|
03/15/2021
|
Singapore
|
200808773-6
|
148205
|
05/26/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
USA
|
11/440,576
|
7,993,293
|
05/25/2006
|
Neck Brace
|
Granted
|
02/09/2023
|
USA (Broad)
|
11/690,412
|
8,002,723
|
03/23/2007
|
Neck Brace
|
Granted
|
02/23/2023
|
USA (Continuation)
|
13/206,312
|
8,562,551
|
08/9/2011
|
Neck Brace
|
Granted
|
04/22/2021
|
Eurasia
|
200601049
|
10815
|
06/26/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Australia
|
2004293118
|
2004293118
|
06/23/2003
|
Neck Brace
|
Granted
|
11/30/2021
|
India
|
2315/CHENP/ 2006
|
266400
|
06/26/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Norway
|
20062971
|
327461
|
06/26/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
New Zealand
|
548068
|
548068
|
06/22/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Vietnam
|
1-2006-01015
|
13771
|
06/26/2006
|
Neck Brace
|
Granted
|
02/09/2021
|
Germany
|
04816084.0
|
6020040259 75,6
|
06/22/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
France
|
04816084.0
|
1696842
|
06/22/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
UK
|
04816084.0
|
1696842
|
06/22/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Switzerland
|
04816084.0
|
1696842
|
06/22/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Spain
|
04816084.0
|
2342402
|
06/22/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Italy
|
04816084.0
|
1696842
|
06/22/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Netherlands
|
04816084.0
|
1696842
|
06/22/2006
|
Neck Brace
|
Granted
|
11/30/2021
|
Switzerland
|
09165346.9
|
2113231
|
07/13/2009
|
Neck Brace
|
Granted
|
11/30/2021
|
Germany
|
09165346.9
|
602004035367.1
|
07/13/2009
|
Neck Brace
|
Granted
|
11/30/2021
|
Spain
|
09165346.9
|
2377592
|
07/13/2009
|
Neck Brace
|
Granted
|
11/30/2021
|
France
|
09165346.9
|
2113231
|
07/13/2009
|
Neck Brace
|
Granted
|
11/30/2021
|
UK
|
09165346.9
|
2113231
|
07/13/2009
|
Neck Brace
|
Granted
|
11/30/2021
|
Italy
|
09165346.9
|
2113231
|
07/13/2009
|
Neck Brace
|
Granted
|
11/30/2021
|
Netherlands
|
09165346.9
|
2113231
|
07/13/2009
|
Neck Brace
|
Granted
|
11/30/2021
|
USA
|
29/224,261
|
D552,742
|
02/28/2005
|
Moto-R Brace
|
Registered
|
|
USA
|
29/225,477
|
D542,919
|
03/17/2005
|
Moto-GPX Brace
|
Registered
|
|
Europe
|
000 312 061- 0001
|
000 312 061- 0001
|
03/17/2005
|
Moto-GPX Brace
|
Registered
|
03/17/2021
|
USA
|
29/279,249
|
D631,167
|
04/24/2007
|
SSS Brace
|
Registered
|
|
Europe
|
000 711 130- 0001
|
000 711 130- 0001
|
04/20/2007
|
SSS Brace
|
Registered
|
04/20/2022
|
USA
|
29/284,258
|
D592,310
|
09/04/2007
|
Moto-GPX Brace 2006
|
Registered
|
|
Europe
|
000 785 373- 0001
|
000 785 373- 0001
|
09/06/2007
|
Moto-GPX Brace 2006
|
Registered
|
09/06/2022
|
USA
|
29/325,870
|
D633,623
|
10/07/2008
|
Damper Brace
|
Registered
|
|
The following table lists our own patents and designs:
Country
|
Application No
|
Patent No
|
Filing date
|
Invention Title
|
Status
|
Renewal Date
|
Held by Leatt Corporation
|
South Africa
|
2013/01921
|
2013/01921
|
10/01/2010
|
Chest Protector
|
Granted
|
10/01/2021
|
South Africa
|
2015/00206
|
2015/00206
|
01/13/2015
|
Shoulder Brace
|
Granted
|
06/26/2021
|
United Kingdom
|
14737320.3
|
EP 3003233
|
12/3/2015
|
Knee Brace
|
Granted
|
05/31/2021
|
Germany
|
14737320.3
|
DE 2014007672.6
|
12/03/2015
|
Knee Brace
|
Granted
|
05/31/2021
|
Europe
|
15730280.3
|
EP 3145354
|
5/21/2015
|
Turbine Helmet
|
Granted-Opposed
|
|
USA
|
16/460,606
|
|
12/21/2016
|
Turbine Helmet
|
Pending
|
After Grant
|
Australia
|
2015262893
|
2015262893
|
11/21/2016
|
Turbine Helmet
|
Granted
|
05/21/2021
|
Hong Kong
|
17107095.0
|
HK1233458
|
07/14/2017
|
Turbine Helmet
|
Granted
|
05/21/2021
|
Germany
|
15730280.3
|
602015008583.3
|
12/21/2016
|
Turbine Helmet
|
Granted
|
05/31/2021
|
United Kingdom
|
15730280.3
|
EP 3145354
|
12/21/2016
|
Turbine Helmet
|
Granted
|
05/31/2021
|
USA
|
16/064,914
|
|
06/26/2018
|
Boot
|
Pending
|
After Grant
|
Germany
|
16828780.3
|
6020160175
|
06/21/2018
|
Boot
|
Granted
|
12/21/2021
|
United Kingdom
|
16828780.3
|
3393289
|
06/21/2018
|
Boot
|
Granted
|
12/21/2021
|
Italy
|
16828780.3
|
3393289
|
06/21/2018
|
Boot
|
Granted
|
12/21/2021
|
Thailand
|
1801003720
|
|
06/21/2018
|
Boot
|
Pending
|
After Grant
|
Europe
|
17712829.5
|
EP 3419453
|
07/23/2018
|
Jacket
|
Granted
|
|
Germany
|
17712829.5
|
60 2017 014 422.3
|
07/23/2018
|
Jacket
|
Granted
|
02/22/2021
|
United Kingdom
|
17712829.5
|
EP 3419453
|
07/23/2018
|
Jacket
|
Granted
|
|
USA
|
16/078,379
|
10,888,129
|
08/21/2018
|
Jacket
|
Accepted
|
After Grant
|
Germany
|
112018007123.5
|
|
08/12/2020
|
Magnetic Hood
|
Pending
|
02/22/2021
|
United Kingdom
|
2011091.2
|
|
07/17/2020
|
Magnetic Hood
|
Pending
|
02/22/2021
|
USA
|
16/964,259
|
|
07/23/2020
|
Magnetic Hood
|
Pending
|
After Grant
|
PCT
|
PCT/IB2019/061001
|
|
12/20/2018
|
Goggle
|
Pending
|
|
PCT
|
PCT/IB2020/050170
|
|
01/14/2019
|
Velcro strap Boot
|
Pending
|
|
USA
|
29/381,768
|
D649,649
|
12/22/2010
|
STX Brace
|
Registered
|
|
United Kingdom
|
2010759.5
|
|
07/13/2020
|
Body protection (skidding function)
|
Pending
|
After Grant
|
Europe
|
001 251 508- 0001
|
001 251 508- 0001
|
12/23/2010
|
STX Brace
|
Registered
|
12/23/2025
|
Japan
|
2010-031383
|
1422456
|
12/28/2010
|
STX Brace
|
Registered
|
08/04/2021
|
USA
|
29/297,349
|
D609,815
|
11/08/2007
|
Leatt Sock Kit
|
Registered
|
|
USA
|
29/510,597
|
D784,123
|
12/01/2014
|
Visor Screw
|
Registered
|
|
USA
|
29,509,338
|
D768,940
|
11/17/2014
|
Hydration System
|
Registered
|
|
Europe
|
02588970-0001- 0003
|
02588970-0001- 0003
|
12/02/2014
|
Visor Screw & Hydration System
|
Registered
|
12/02/2024
|
USA
|
29/683,567
|
|
03/14/2019
|
Boot
|
Pending
|
|
Europe
|
006308763-0001
|
006308763-001
|
03/15/2019
|
Boot
|
Registered
|
03/15/2024
|
USA
|
29/680,992
|
|
02/21/2019
|
Velocity Goggles
|
Pending
|
|
Europe
|
006263224-0001
|
006263224-0001
|
02/21/2019
|
Velocity Goggles
|
Registered
|
02/21/2024
|
Europe
|
007715412-0001-0004
|
007715412-0001-0004
|
02/21/2019
|
Ventilated Goggle Straps
|
Registered
|
02/21/2024
|
USA
|
29/747,717
|
|
08/25/2020
|
Ventilated Goggle Straps (Fine)
|
Pending
|
|
USA
|
29/747,724
|
|
08/25/2020
|
Ventilated Goggle Straps (Large)
|
Pending
|
|
Europe
|
007717962-0001
|
007717962-0001
|
02/27/2020
|
DBX Shoe Soles
|
Registered
|
02/27/2025
|
USA
|
29/735,244
|
|
05/19/2020
|
Body Protector
|
Pending
|
|
____________________
* The Patent Cooperation Treaty, or PCT, is an international agreement for filing patent applications having effect in up to 117 countries. Under the PCT, an inventor can file a single international patent application in one language with one patent office in order to simultaneously seek protection for an invention in up to 117 countries throughout the world.
Patents applicable to specific products extend for varying periods according to the date of patent application filing or patent grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage and the availability of legal remedies in the country. Issued patents or patents based on pending patent applications or any future patent applications may not exclude competitors or may not provide a competitive advantage to us. In addition, patents issued or licensed to us may not be held valid if subsequently challenged and others may claim rights in or ownership of such patents. In addition, the validity and breadth of claims in protective gear technology patents involve complex legal and factual questions and, therefore, the extent of their enforceability and protection is highly uncertain.
The following table lists our licensed and/or registered and pending trademarks:
Country Name
|
Trademark
|
Classes
|
Filing Date
|
Filing Number
|
Status
|
Expiry/renewal
|
Australia
|
LEATT
|
09, 10, 28
|
07/16/2010
|
1372902
|
Granted
|
07/16/2030
|
Australia
|
BraceOn
|
09
|
09/23/2011
|
1450772
|
Granted
|
09/23/2021
|
Australia
|
LEATT
|
9, 25
|
09/12/2018
|
1954696
|
Granted
|
09/12/2028
|
Australia
|
RIDEVIZ
|
09
|
01/17/2020
|
2063298
|
Granted
|
01/17/ 2030
|
Brazil
|
LEATT (SPECIAL SCRIPT)
|
09
|
11/05/2009
|
830.409.432
|
Granted
|
10/09/2022
|
Brazil
|
LEATT AND DEVICE
|
09
|
11/05/2009
|
830.409.440
|
Granted
|
10/09 2022
|
Brazil
|
LEATT (SPECIAL SCRIPT)
|
10
|
11/05/2009
|
902.094.165
|
Granted
|
10/09/2022
|
Brazil
|
LEATT AND DEVICE
|
10
|
11/05/2009
|
902.094.149
|
Granted
|
01/14/2024
|
Brazil
|
LEATT (SPECIAL SCRIPT)
|
25
|
11/05/2009
|
902.094.238
|
Granted
|
10/09/2022
|
Brazil
|
LEATT AND DEVICE
|
25
|
11/05/2009
|
902.094.190
|
Granted
|
10/09/2022
|
Brazil
|
DEVICE
|
10
|
11/05/2009
|
902.094.084
|
Granted
|
10/09/2022
|
Brazil
|
DEVICE
|
25
|
11/05/2009
|
902.094.157
|
Granted
|
10/09/2022
|
Brazil
|
DEVICE
|
09
|
11/05/2009
|
830.409.416
|
Granted
|
10/09/2022
|
Canada
|
LEATT
|
|
07/13/2011
|
1535498
|
Granted
|
01/29/2028
|
Canada
|
LEATT
|
|
10/17/2018
|
1925610
|
Pending
|
|
Chile
|
LEATT
|
9 and 28
|
07/03/2019
|
1328669
|
Granted
|
03/10/2030
|
China
|
LEATT-BRACE
|
10
|
09/21/2007
|
6287826
|
Granted
|
02/20/2020
|
China
|
LEATT
|
10
|
09/21/2007
|
6287824
|
Granted
|
02/20/2030
|
China
|
LEATT-BRACE
|
09
|
09/03/2009
|
7668832
|
Granted
|
03/06/2031
|
China
|
LEATT
|
09
|
09/03/2009
|
7668830
|
Granted
|
03/06/2031
|
China
|
LEATT
|
25
|
09/28/2010
|
8706821
|
Granted
|
10/13/2021
|
China
|
LEATT
|
09
|
08/31/2016
|
21157818
|
Granted
|
10/27/2027
|
China
|
LEATT
|
25
|
08/31/2016
|
21157816
|
Granted
|
10/27/ 2027
|
China
|
LEATT
|
28
|
08/31/2016
|
21157815
|
Granted
|
10/27/2027
|
China
|
RIDEVIZ
|
09
|
02/03/2020
|
43980431
|
Granted
|
02/03/2030
|
China
|
RideGrip
|
25
|
07/01/2020
|
47720276
|
Pending
|
|
China
|
FirstTurn
|
9
|
07/01/2020
|
47710732
|
Pending
|
|
China
|
LEATT (SPECIAL SCRIPT)
|
25
|
12/02/2020
|
51812992
|
Pending
|
|
China
|
LEATT
|
12
|
02/02/2021
|
53504400
|
Pending
|
|
EU
|
LEATT-BRACE
|
09
|
09/19/2007
|
006313993
|
Granted
|
09/19/2027
|
EU
|
LEATT
|
09
|
09/19/2007
|
006314017
|
Granted
|
09/19/2027
|
EU
|
DEVICE (HELMET FOR YOUR NECK)
|
09
|
09/19/2007
|
006314132
|
Granted
|
09/19/2027
|
EU
|
LEATT DEVICE
|
09
|
07/23/2009
|
008444136
|
Granted
|
07/23/2029
|
EU
|
LEATT
|
25
|
09/23/2010
|
009395997
|
Granted
|
09/23/2030
|
EU
|
BraceOn
|
09
|
09/23/2011
|
010288405
|
Granted
|
09/30/2021
|
EU
|
THREE L DEVICE
|
09, 18, 25, 28
|
09/23/2014
|
13289822
|
Granted
|
09/23/2024
|
EU
|
LEATT
|
9
|
09/11/2018
|
017952736
|
Granted
|
09/11/2028
|
EU (EUIPO)
|
RIDEVIZ
|
09
|
01/16/2020
|
1818520
|
Granted
|
01/16/2030
|
EU (EUIPO)
|
RIDEGRIP
|
25
|
06/25/2020
|
18261405
|
Granted
|
06/25/2030
|
EU (EUIPO)
|
FIRSTTURN
|
9
|
06/25/2020
|
18261407
|
Granted
|
06/25/2030
|
Indonesia
|
LEATT
|
9
|
07/30/2020
|
DID2020041942
|
Pending
|
|
Indonesia
|
LEATT
|
28
|
07/30/2020
|
DID2020041945
|
Pending
|
|
Japan
|
LEATT
|
09, 10, 28
|
07/16/2010
|
2010-56635
|
Granted
|
08/12/2021
|
Japan
|
LEATT
|
25
|
10/22/2010
|
2010-074427
|
Granted
|
04/01/2021
|
Japan
|
LEATT
|
9
|
09/13/2018
|
2018-115304
|
Granted
|
11/15/2029
|
Mexico
|
LEATT
|
09
|
08/25/2017
|
1938215
|
Granted
|
08/25/2027
|
Mexico
|
LEATT
|
18
|
08/25/2017
|
1938218
|
Granted
|
08/25/2027
|
Mexico
|
LEATT
|
25
|
08/25/2017
|
1938216
|
Granted
|
08/25/2027
|
Mexico
|
LEATT
|
28
|
08/25/2017
|
1938213
|
Granted
|
08/25/2027
|
Mexico
|
LEATT
|
9
|
10/11/2018
|
2114511
|
Granted
|
10/11/2028
|
New Zealand
|
LEATT
|
28
|
09/27/2010
|
831035
|
Granted
|
09/27/2030
|
New Zealand
|
LEATT
|
9, 25
|
09/12/2018
|
1102269
|
Granted
|
09/12/2028
|
South Africa
|
LEATT- BRACE
|
10
|
05/28/2004
|
2004/08584
|
Granted
|
05/28/2024
|
South Africa
|
DEVICE
|
09
|
06/26/2009
|
2009/11856
|
Granted
|
06/26/2029
|
South Africa
|
DEVICE
|
10
|
06/26/2009
|
2009/11857
|
Granted
|
06/26/2029
|
South Africa
|
DEVICE
|
28
|
06/26/2009
|
2009/11858
|
Granted
|
06/26/2029
|
South Africa
|
LEATT
|
09
|
10/05/2020
|
2020/26711
|
Pending
|
|
South Africa
|
LEATT
|
25
|
10/05/2020
|
2020/26722
|
Pending
|
|
United Kingdom
|
RIDEGRIP
|
25
|
06/25/2020
|
3504789
|
Granted
|
06/25/2030
|
USA
|
LEATT-BRACE
|
09
|
07/11/2007
|
77227507
|
Granted
|
08/12/2028
|
USA
|
LEATT
|
09
|
08/24/2007
|
77264178
|
Granted
|
08/12/2028
|
USA
|
ALPT
|
09
|
05/22/2009
|
77/742,823
|
Granted
|
03/01/2031
|
USA
|
ALTERNATIVE LOAD PATH TECHNOLOGY
|
09
|
05/22/2009
|
77/742,826
|
Pending
|
10/26/2030
|
USA
|
LEATT DEVICE
|
09
|
06/23/2009
|
77765739
|
Granted
|
10/12/2030
|
USA
|
LEATT
|
09, 25
|
09/22/2010
|
85135308
|
Granted
|
09/04/2022
|
USA
|
BraceOn
|
09
|
09/22/2011
|
85/429,145
|
Granted
|
01/15/2023
|
USA
|
THREE L DEVICE
|
09, 18, 25, 28
|
11/05/2014
|
86445638
|
Granted
|
01/17/2027
|
USA
|
LEATT
|
09, 18, 25, 28
|
12/11/2015
|
86846033
|
Granted
|
04/11/2027
|
USA
|
RIDEVIZ
|
09
|
01/29/2020
|
88777360
|
Accepted
|
|
USA
|
RideGrip
|
25
|
07/02/2020
|
90032534
|
Pending
|
|
USA
|
FirstTurn
|
9
|
07/02/2020
|
90032653
|
Pending
|
|
____________________
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. Reverse engineering, unauthorized copying or other misappropriation of our technologies could enable third parties to benefit from our technologies without paying us. We cannot assure you that our competitors have not developed or will not develop similar products, will not duplicate our products, or will not design around any patents issued to or licensed by us. 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.
Our Employees
As of December 31, 2020, we employed 53 full-time employees and 34 independent contractors. The following table sets forth the number of our full-time employees and contractors by function as of December 31, 2020.
Employee Function
|
Number
|
Executive
|
4
|
Internet & Technology
|
2
|
Product Development
|
9
|
Marketing
|
11
|
Finance
|
4
|
Operations and Distributions/Logistics
|
16
|
Research and Development/Leatt Lab
|
3
|
Legal and Compliance
|
2
|
Sales & Customer Services
|
17
|
Support Staff (Receptionist/Cleaners/Driver)
|
2
|
Outside Sales Representatives
|
17
|
Total
|
87
|
We are required to pay UIF, or unemployment insurance, for each of our South African employees. We are also required to withhold income taxes for our South African and U.S. based employees. We generally provide health care benefits and other standard benefits to our employees. Effective January 1, 2019 we implemented a 401k plan for the benefit of all our U.S. based employees and effective June 1, 2019 we implemented a provident fund for the benefit of all our permanent S.A. based employees.
We believe that we maintain a satisfactory working relationship with our employees, and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.
Regulations
The 2012 JOBS Act
We qualify as an "emerging growth company," as defined in Title I of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company is defined as an issuer, including a foreign private issuer, with less than $1 billion of total annual gross revenues during the most recently completed fiscal year. The SEC has interpreted "total annual gross revenues" to mean total revenues as presented on the income statement presentation under U.S. GAAP, which for the Company was $38.60 million for the fiscal year ended December 31, 2020. We will retain our status as an emerging growth company until the earlier of: (1) the fifth anniversary of the date we first sell securities pursuant to an IPO registration statement; (2) the last day of the fiscal year in which we first exceed $1 billion in annual gross revenues; (3) the time we become a large accelerated filer (an SEC registered company with a public float of at least $700 million); or (4) the date on which we have issued, within the previous three years, $1 billion of nonconvertible debt, whether issued in a registered or unregistered offering and whether or not it is still outstanding at the determination date.
The JOBS Act provides scaled disclosure provisions for us, including, among other things: (a) permitting us to include only two years of audited financial statements in a registration statement filed under the Securities Act of 1933 for an IPO of common equity securities; (b) allowing us to comply with the smaller reporting company version of Item 402 of Regulation S-K (Executive Compensation); and (c) removing the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting in accordance with Section 404(b) of the Sarbanes-Oxley Act of 2002. The JOBS Act also exempts us from the following additional compensation-related disclosure provisions that were imposed on U.S. public companies pursuant to the Dodd-Frank Act: the advisory "say-on-pay" vote on executive compensation required under Section 14A(a) of the Exchange Act; the Section 14A(b) requirements relating to shareholder advisory votes on golden parachute compensation; the Section 14(i) requirements for disclosure relating to the relationship between executive compensation and financial performance of the issuer; and the requirement of Dodd-Frank Act Section 953(b)(1), which will require disclosure as to the relationship between CEO and median employee pay.
Under Section 102(b)(1) of the JOBS Act, "emerging growth companies" can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, we have irrevocably elected not to avail ourselves of this extended transition period for compliance with new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not "emerging growth companies."
European Union Directives
All our products are compliant with applicable European Union directives, or CE certified, where appropriate. All Leatt Personal Protective Equipment (PPE) products are CE Certified showing compliance with European Economic Community (EEC) directive 89/686/EEC that imposes mandatory accreditation of all Personal Protective Equipment products offered for sale in the EEC. This includes the Company's Leatt-Brace® and body protection products.
This means that as a minimum these products must comply with: the basic Health and Safety requirements of the directive; certain chemical innocuousness tests prescribed in EN 340:2003 - Protective clothing - General Requirements; and the requirements relating to usage, care, cleaning, sizing and other information to be supplied with the product. Accordingly, all Leatt-Braces®, chest protectors and body protection products are CE certified. Only our peripheral products such as jackets, clothing, and caps are not covered.
In addition to the minimum requirements the Company complies with the European Standards, or EN (European Norm), specific to certain categories of PPE. An EN is a standard that has been adopted by one of the three recognized European Standardization Organizations (ESOs): CEN, CENELEC or ETSI. It is produced by all interested parties (including manufacturers, users, consumers and regulators of a particular material, product, process or service) through a transparent, open and consensus-based process. In the Company's case these are the applicable EN standards: EN 14021 Stone Shields; EN 1621-1 Limb Protectors; EN 1621-2 Back Protectors; and CE EN1621-3 level 2 impact front Chest Protectors. These standards are more performance related and, among other things, measure the performance of PPE at various intensity levels and under different environmental conditions. They also prescribe product labeling, tests for user comfort and ease of use. Where no specific standards exist in the EU, such as with the neck brace, the Notifying Body will be responsible for CE evaluation and certification.
FDA and MHRA Registration
In the 2015 first quarter our Knee Brace was accepted for registration by both the FDA and the MHRA, and our Shoulder Brace was accepted by the FDA, as Class 1 Medical Devices. FDA and MHRA registration allow us to take these products directly to market as medical devices for patients (not just athletes) recuperating from injuries, surgery, muscle tears or strains, dislocations, breaks or fractures. The Company's FDA registration included the contract manufacturer of the braces, a Good Manufacturing Practices (GMP) vendor. For the registration period, which currently expires on December 31, 2021 we will be required to maintain logs of complaints or problems, and to provide appropriate labeling for medical uses. We have renewed our registration until December 31, 2021. The MHRA registration of the knee brace is open-ended, subject to the Company's continued monitoring of product performance in the marketplace and delivery of prompt responses to the MHRA as necessary.
Other Accreditation
We have also obtained certifications for our helmets depending on the market, all Leatt products are compliant with applicable European Union directives, or CE certified, where appropriate. Depending on the market we have other certifications outside of CE. For the US market our motorcycle helmets comply with the DOT (FMVSS 218) helmet safety standard and our bicycle helmet complies with EN1078, as well as CPSC 1203. Our downhill specific bicycle helmets also comply with ASTM F1952. For our Australian Market, our bicycle helmet complies with AS/NZS 2063, for the UK market our motorcycle helmets comply with ACU Gold and for the Japanese market our Moto 3.5 helmet complies with JIS T 8133. We are currently in the process of applying to certify our Moto 3.5 helmet and latest helmet model Moto 7.5 to the CCC standard in China and NBR 7471 in Brazil.
We also voluntarily submitted our Moto GPX neck brace to be tested by the in-house engineers of BMW Motorrad (Germany) and to be reviewed by KTM (Austria). We believe that such testing, while not mandatory, provides validation for our product's performance.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. You should read the section entitled "Special Note Regarding Forward-Looking Statements" above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.
RISKS RELATED TO OUR BUSINESS
Our business and financial performance may be adversely affected if our information technology systems fail to perform adequately or if they are the subject of a security breach or cyberattack.
We are a multinational company and rely on a variety of information technology systems in the ordinary course of business to manage business data, communications, supply chain, order entry and fulfilment, customer support, billing and payments. Our system and processes are potentially vulnerable to cybersecurity incidents, such as terrorist or hacker attacks, the introduction of malicious computer viruses, ransomware, falsification of banking and other information, insider risk, or other security breaches, including individual or advanced persistent cyber-attacks on our information technology infrastructure and attempts by others to gain access to our proprietary or sensitive information regarding our employees, suppliers and customers.
If there is a cybersecurity incident, we may suffer interruptions to our business and service, loss of assets or data, or reduced functionality, which could materially adversely affect our financial condition, business and results of operations. Many of our systems are not redundant, and our disaster recovery planning is not sufficient for every eventuality a cybersecurity incident could cause. Security breaches of our systems which allow inappropriate access to or inadvertent transfer of information and misappropriation or unauthorized disclosure of confidential information belonging to us or to our employees, customers, or suppliers could have an adverse impact on our results of operation. If a customer, supplier or employee alleges that a cyberattack caused or contributed to a loss or compromise of critical information, we could face significant harm to our reputation and financial condition. Any remedial costs or other liabilities related to information security system failures and cybersecurity incidents may not be fully insured or indemnified by other means.
While we attempt to mitigate cybersecurity risks by employing a number of proactive measures, including, technical security controls, enhanced data protection, advanced intrusion detection, targeted threat protection and maintenance of backup and protective systems, our systems remain potentially vulnerable to cybersecurity threats, any of which could have a material adverse effect on our business. We believe our mitigation measures reduce, but cannot eliminate, the risk of a cybersecurity incident. Despite any precautions we may take, a cybersecurity incident could harm our reputation and financial condition and cause us to incur legal liability and increased costs to respond to such events. Our cyber liability insurance may not be sufficient to compensate us for losses that may result from interruptions in our services or asset or data loss as a result of cybersecurity incidents.
Global economic turmoil could negatively affect our domestic and international sales, results of operations, and financial condition.
Prolonged turmoil in the global economy, especially in the U.S., South America and Europe, could have a negative impact on our business and our financial condition. Economic uncertainty in many parts of the world, including uncertainty caused by international trade disputes involving the European Union, China and the United States, and by global business closures designed to limit social contact and reduce spread of the COVID-19 pandemic, are situations that we are monitoring closely. Our exposure to such risks may further increase if any of these economic conditions impact levels of consumer spending. While we do not expect to see any significant material adverse impact of COVID-19 on our distribution channels (discussed elsewhere in this report), temporary business closures and social distancing around COVID-19 may have a negative impact on consumer purchasing behavior, which could cause delays in, or even cancellation of, orders from our distributors. If demand for our products fluctuates as a result of these economic conditions or otherwise, our revenue and gross margin could be harmed.
Our international business is especially sensitive to economic uncertainty that may affect our ability to conduct business outside of the U.S. For the years ended December 31, 2020 and 2019, annual revenues from sales to international customers were $24,670,072 and $18,897,942, or 64% and 67% of our total revenue, respectively. Although there is more certainty regarding the outcome of BREXIT due to the withdrawal agreement that was concluded between The European Union and the United Kingdom on January 24, 2020, we continue to evaluate the potential effect of the United Kingdom's (UK) departure from the European Union (EU) (commonly referred to as "Brexit") on our business operations and financial results. We anticipate that Brexit may have adverse tax effects on movement of products or sustainment activities between the UK and EU. Additionally, Brexit may still have an impact the value of the pound sterling. If the pound sterling were to depress significantly against the U.S. dollar, this could negatively impact the ability of our UK customers to afford our products. Currently, we do not anticipate that Brexit will have a material impact on our operations or our financial results.
If our customers were to experience slow growth or recession, we could see a drop-in demand for our products, difficulty in obtaining materials and supplies, difficulty in collecting accounts receivables, an increase in accounts receivable write-offs, and greater foreign exchange rate volatility affecting our profitability and cash flow. Customers may also purchase lower-cost products made by competitors and not resume purchasing our products even after economic conditions improve. While we employ comprehensive controls regarding global cash management to guard against cash or investment loss and to ensure our ability to fund our operations and commitments, a material disruption to the counterparties with whom we transact business could expose us to financial loss.
Our international operations expose us to foreign exchange risk and currency fluctuations affect our operating profits.
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. Operating outside of the United States further exposes us to foreign exchange risk, which we monitor. We are most sensitive to changes in the exchange rates of the South African rand, the renminbi, the euro and the U.S. dollar. We have more ZAR expenses than we do sales in South Africa. Furthermore, 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. Alternatively, 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. In China we have more renminbi expenses than we do sales, because we manufacture our products in China that we sell globally. A decrease in the value of the U.S. dollar in relation to the renminbi could increase our cost of purchasing products in China. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.
In Europe we have significantly more sales than we do expenses. Since 64% 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 those areas.
We engage in international manufacturing and sales which exposes us to trade restrictions and disruptions that could harm our business and competitive position.
We derive 64% of our revenues from international sales and we develop and primarily manufacture our products outside of the U.S. As a result, we are subject to risks associated with shipping products across borders, including shipping delays, customs duties, export quotas and other trade restrictions that could have a significant impact on our revenue and profitability. Most of our products are manufactured in China, and the U.S. administration has imposed tariffs on certain products 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 to date, we cannot predict the impact of future tariffs on our products or the value and category of products that would be affected. If we cannot deliver our products on a competitive and timely basis, our relationships with international customers will be damaged and our financial condition could also be harmed. The future imposition of, or significant increases in, the level of tariffs, custom duties, export quotas and other barriers and restrictions by the U.S. 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.
In order to grow at the pace expected by management, we may require additional capital to support our long-term growth strategies. If we are unable to obtain additional capital in future years, we may be unable to proceed with our plans and we may be forced to curtail our operations.
We currently meet our working capital requirements with cash flow provided by our operating activities and we expect to continue doing so for the foreseeable future. However, in the future we may require additional working capital to support our long-term growth strategies, including identifying suitable targets for horizontal or vertical mergers or acquisitions so as to enhance the overall productivity and benefit from economies of scale. If the uncertainty arising out of domestic and global economic conditions and the ongoing tightening of domestic credit markets persist, we may not be able to generate adequate cash flows or obtain adequate levels of additional financing, whether through equity financing, debt financing or other sources. Even if we are able to get additional financing, it might not be on terms that are favorable to the Company. Furthermore, additional financings could result in significant dilution to our earnings per share or the issuance of securities with rights superior to our current outstanding securities, including registration rights. If we are unable to raise additional financing, we may be unable to implement our long-term growth strategies, develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures on a timely basis, if at all. In addition, a lack of additional financing could force us to substantially curtail operations.
A substantial amount of our sales revenue is derived from sales to a limited number of customers, and our business will suffer if sales to these customers decline.
We have derived a significant portion of our revenue from a limited number of customers, however none of our customers account for more than 10% of our consolidated revenues. For the years ended December 31, 2020 and 2019, our largest customer accounted for approximately 9% and 11% of our annual U.S. revenue, respectively. As of December 31, 2020, and 2019, $199,808 or 3% and $35,217 or 1% of our accounts receivable, was due from this customer.
For both the years ended December 31, 2020 and 2019, our international revenue derived outside of the U.S. was earned from one customer that accounted for approximately 9% and 8% of our annual international revenue. As of December 31, 2020, and 2019, $421,976 or 6% and $0, or 0% of our accounts receivable, respectively, was due from this international customer.
We do not have long term contractual arrangements with most of these wholesale customers. The loss of one or more of these customers could damage our business, financial condition and results of operations.
Significant fluctuations in fuel prices could have an adverse impact on our business and operations.
A significant portion of our revenue is derived from international sales and so significant fluctuations in fuel prices could adversely affect our business and operations. While fluctuations in fuel prices could 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, 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.
Expansion of our business may put added pressure on our management, financial resources and operational infrastructure impeding our ability to meet any increased demand for our products and possibly hurting our operating results.
Our business plan is to significantly grow our operations to meet anticipated growth in demand for existing products, and by the introduction of new product offerings. Our planned growth includes the construction of several new production lines to be put into operation over the next five years. Growth in our business may place a significant strain on our personnel, management, financial systems and other resources. We may be unable to successfully and rapidly expand sales to potential customers in response to potentially increasing demand or control costs associated with our growth.
To accommodate any such growth and compete effectively, we may need to obtain additional funding to improve information systems, procedures and controls and expand, train, motivate and manage our employees, and such funding may not be available in sufficient quantities, if at all. If we are not able to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.
We rely on patent and trade secret laws that are complex and difficult to enforce and we may not be able to prevent others from unauthorized use of our intellectual property. If we are not able to adequately secure and protect our patent, trademark and other proprietary rights our business may be materially affected.
The continued success of our business is dependent on our intellectual property portfolio consisting of globally registered trademarks, design patents and utility patents related to the Leatt-Brace®. We also rely on nondisclosure agreements and other methods to protect our intellectual property rights. However, the steps we have taken may be inadequate to prevent the misappropriation of our technology. In addition, the validity and breadth of claims in protective gear technology patents involve complex legal and factual questions and, therefore, the extent of their enforceability and protection is highly uncertain. Issued patents or patents based on pending patent applications or any future patent applications may not exclude competitors or may not provide a competitive advantage to us. In addition, patents issued or licensed to us may not be held valid if subsequently challenged and others may claim rights in or ownership of such patents. Reverse engineering, unauthorized copying or other misappropriation of our technologies could enable third parties to benefit from our technologies without paying us. We cannot assure you that our competitors have not developed or will not develop similar products, will not duplicate our products, or will not design around any patents issued to or licensed by us.
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.
We depend on key personnel, and turnover of key employees and senior management could harm our business.
Our future business and results of operations depend in significant part upon the continued contributions of our key technical and senior management personnel, including specifically, Dr. Christopher Leatt, our Chairman and Research and Development Consultant and the licensor of some of our intellectual property, Sean Macdonald, our Chief Executive Officer and President, Erik Olsson, our International General Manager and Todd Repsher, our U.S. General Manager. They also depend in significant part upon our ability to attract and retain additional qualified management, technical, marketing and sales and support personnel for our operations. To address this risk, we have taken out key man insurance on key personnel such as Dr. Leatt. However, if we lose key personnel or if any such personnel fails to perform in his or her current position, or if we are unable to attract and retain skilled personnel as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key personnel in managing the development, manufacturing, technical, marketing and sales aspects of our business, any part of which could be harmed by further turnover.
We face an inherent business risk of exposure to product liability claims that could have a material adverse effect on our operating results.
Because of the nature of our products, we face an inherent business risk of exposure to product liability claims arising from the claimed failure of our products to prevent the types of personal injury or death against which they are designed to protect. Plaintiffs may also advance other legal theories supporting claims that our products or actions resulted in harm to them. We maintain product liability insurance policies with a self-insured retention to attempt to manage this risk worldwide. We are currently defending against 1 such claim which we have a fair expectation will be resolved in our favor. But although we maintain product liability insurance coverage, there can be no absolute assurance that our coverage limits will be sufficient to cover any successful product liability claims made against us now or in the future. Furthermore, our insurance coverage does not include damages which may be assessed against us for willful and/or intentional injury, or for exemplary or punitive damages. Any claim or aggregation of claims substantially in excess of our insurance coverage, or any substantial claim not covered by insurance, could have a material adverse effect on our financial condition and results of operations. These claims also have a negative impact on the renewal our product liability insurance policy and the premiums.
We may not be able to adequately finance the significant costs associated with the development of new protective equipment products.
The products in the protective equipment market can change dramatically with new technological advancements. We are currently conducting research and development on new products, which requires a substantial outlay of capital. To remain competitive, we must continue to incur significant costs in product development, equipment, facilities and invest in research and development of new products. These costs may increase, resulting in greater fixed costs and operating expenses.
In addition to research and development costs, we could be required to expend substantial funds for and commit significant resources to the following:
• additional engineering and other technical personnel;
• advanced design, production and test equipment;
• manufacturing services that meet changing customer needs;
• technological changes in manufacturing processes;
• working capital and;
• manufacturing capacity
Our future operating results will depend to a significant extent on our ability to continue to provide new and competitive products that compare favorably on the basis of cost and performance with the design and manufacturing capabilities of competitive third-party technologies. We will need to sufficiently increase our net sales to offset these increased costs, the failure of which would negatively affect our operating results.
We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company's internal controls over financial reporting in their annual reports, including Form 10-K. Under current law, we became subject to the requirements of SOX 404 beginning with our annual report for the fiscal year ended December 31, 2012 and since becoming a U.S. public company, we have evaluated our internal control systems in order to allow our management to meet these requirements, including for this annual report for the fiscal year ended December 31, 2020. We can provide no assurance that we will comply with all of the requirements imposed thereby in the coming years. In the event that we ever identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements.
We are an "emerging growth company," and have availed ourselves of scaled public company reporting requirements and requirements for stockholder approval and advice applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies, including not being required to comply with the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of these reporting exemptions and requirements of stockholder advisory votes and approvals until we are no longer an emerging growth company.
We could be an "emerging growth company" for up to five years after the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, which we expect will be pursuant to a Registration Statement on Form S-8 or on Form S-1. However, if certain events occur prior to the end of such five-year period, including if we become a "large accelerated filer," our annual gross revenues exceed $1 billion or we issue more than $1 billion of non-convertible debt in any three-year period, we would cease to be an "emerging growth company" prior to the end of such five-year period. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choice we make to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.
Unseasonable weather may disrupt our operations and may reduce consumer demand for our products.
Our products are primarily designed for outdoor use and unseasonable weather could lead to increased expenses and a reduction in our sales revenue. Unseasonable weather and prolonged, extreme temperatures, such as hurricanes, winter storms, earthquakes, floods, heat waves, and other natural disasters may affect consumer participation in outdoor sporting activities and adversely impact their demand for our products. In addition, severe weather could disrupt operation of our facilities and cause service outages, production delays and property damage that require us to incur additional expenses. Such weather conditions may also affect our ability to deliver our products to our customers or may require them to close certain stores temporarily, thereby reducing sales. As a result, unseasonable weather in any of our markets could negatively impact our net revenues.
Natural or man-made catastrophic events may disrupt our business and negatively impact our results of operation.
We are exposed to natural or man-made catastrophic events that may disrupt our business and may reduce consumer demand for our products. A disruption or failure of our systems or operations in the event of a natural disaster, health pandemic, such as the outbreak and global spread of COVID-19 or the coronavirus, or a man-made catastrophic event could cause delays in completing sales, continuing production or performing other critical functions of our business, particularly if a catastrophic event occurred at our primary manufacturing locations or our distributor locations worldwide. Any of these events could severely affect our ability to conduct normal business operations and, as a result, our operating results could be adversely affected. There may also be secondary impacts that are unforeseeable, such as impacts on our consumers and on consumer purchasing behavior, which could cause delays in new orders, delays in completing sales or even order cancellations. The Company experienced conservative international distributor ordering levels during the first quarter of 2020 as a result of the COVID-19 pandemic which resulted in a decrease in category revenues of our more established product categories and particularly our most established product category, neck braces during the third quarter of 2020. Due to strong consumer demand for outdoor product categories; however, we have not seen any significant material negative impact of COVID-19 on our results of operations for the year ended December 31, 2020. During the period we reviewed all operating costs, adjusted our budgets, streamlined staffing requirements in line with a possible decrease in revenues, negotiated favorable working capital terms, and obtained government assistance where applicable. We remain cautiously optimistic that ongoing efforts to increase the availability of new COVID-19 vaccines worldwide will mitigate the spread of the virus throughout Europe and the U.S. (our largest markets) and bring about an end to the extended global quarantine that commenced at the tail of the first quarter. The continued mutation and spread of the virus, or the occurrence of any other catastrophic events, could have a negative impact our sales revenue for the coming periods and beyond.
RISKS RELATED TO OUR INDUSTRY
We may not be able to maintain or improve our competitive position because of strong competition in the personal protective equipment industry, and we expect this competition to continue to intensify.
We face competition from other global manufacturers and distributors who provide personal protective equipment to users of motorcycles, ATVs, snowmobiles, motor racing cars and other helmeted sports. Some of our international competitors are larger than we and possess greater name recognition, assets, personnel, sales and financial resources. These entities may be able to respond more quickly to changing market conditions by developing new products and services that meet customer requirements or are otherwise superior to our products and services and may be able to more effectively market their products than we can because they have significantly greater financial, technical and marketing resources than we do. They may also be able to devote greater resources than we can to the development, promotion and sale of their products. Increased competition could require us to reduce our prices, result in our receiving fewer customer orders, and result in our loss of market share. We cannot assure you that we will be able to distinguish ourselves in a competitive market. To the extent that we are unable to successfully compete against existing and future competitors, our business, operating results and financial condition would be materially adversely affected.
If we are unable to develop competitive new products our future results of operations could be adversely affected.
Our future revenue stream depends to a large degree on our ability to utilize our technology in a way that will allow us to offer new types of safety products to a broader client base. We will be required to make investments in research and development in order to continue to develop new products, enhance our products and achieve market acceptance. We may incur problems in the future in innovating and introducing new and innovative products or, if developed, such products may not achieve significant customer acceptance. If we are unable to successfully define, develop and introduce competitive new products or improve on existing ones, our future results of operations would be adversely affected.
The value of our brand and sales of our products could be diminished if we, the individuals who use our products or the sport and activity categories in which our products are used, are associated with negative publicity.
Our success depends on the value of our brand. Our brand could be adversely affected if our public image or reputation were to be tarnished by negative publicity. Many athletes and other public individuals use our products and actions taken by such persons that harm the reputations of activities they participate in could also harm our brand image and result in a material decrease in our revenues and net income, which could have a negative effect on our financial condition and liquidity. In addition, negative publicity resulting from severe injuries or death occurring in the sports or activities in which our products are used and negatively impacts the popularity of such sport or activity, could have a subsequent negative effect on our net sales of products used in that sport or activity.
We may not be able to receive certain industry certifications and accreditation for our products.
We have obtained certification and approvals for certain of our products, including approval of our new knee brace as a Class 1 medical device by both the U.S. FDA and the UK's Medicine and Healthcare Regulatory Products Agency (MHRA), and approval of our shoulder brace as a Class 1 medical device by the U.S. FDA. All our products are compliant with applicable European Union directives, or CE certified, where appropriate. All Leatt Personal Protective Equipment (PPE) products are CE Certified showing compliance with European Economic Community (EEC) directive 89/686/EEC that imposes mandatory accreditation of all Personal Protective Equipment products offered for sale in the EEC. This includes the Company's Leatt-Brace® and body protection products. We have also obtained certifications for our helmets depending on the market, for the US market our motorcycle helmets comply with the DOT (FMVSS 218) helmet safety standard and our bicycle helmets comply with EN1078, as well as CPSC 1203. Our downhill specific bicycle helmets also comply with ASTM F1952. For our Australian Market our bicycle helmet complies with AS/NZS 2063. For the UK market our motorcycle helmets comply with ACU Gold and our Moto 3.5 helmets comply with JIS T 8133 for the Japanese Market. We are currently in the process of applying to certify our Moto 3.5 helmet and latest helmet model Moto 7.5 to the CCC standard in China and NBR 7471 in Brazil. We also voluntarily submitted our GPX neck brace to be tested by the in-house engineers of BMW Motorrad (Germany) and to be reviewed by KTM (Austria). We believe that such testing, while not mandatory, will provide validation for our product's performance.
There is no guarantee that our products will receive DOT, EN1078, CPSC 1203, ASTM F1952, AS/NZS 2063, ACU Gold, CE Certification or meet BMW testing standards.
RISKS RELATED TO DOING BUSINESS IN NON-US JURISDICTIONS
We face risks associated with doing business in non-US jurisdictions.
We have affiliates, and our products are manufactured in and distributed from facilities, located in foreign countries, including countries in Asia and South Africa. International operations are subject to certain risks inherent in doing business abroad, including:
• Exposure to political, social and economic instability;
• Expropriation and nationalization;
• Withholding and other taxes on remittances and other payments by subsidiaries;
• Difficulties in enforcement of contract and intellectual property rights;
• Exposure to foreign current exchange rates, interests rates and inflation;
• Investment restrictions or requirements; and Export and import restrictions.
We are highly dependent on our foreign affiliates for their production capabilities and increasing our foreign operations and business relationships are important elements of our strategy. As a result, our exposure to the risks described above may be greater in the future. The likelihood of such occurrences and their potential impact on us varies from country to country and are unpredictable.
Our operations and assets in China are subject to significant political and economic uncertainties.
Changes in PRC laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition. Under its current leadership, the Chinese government has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.
We may have limited legal recourse under PRC law if disputes arise under our outsourcing manufacturing arrangements with third parties.
The Chinese government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. If our outsourcing manufacturing arrangements are unsuccessful or other adverse circumstances arise from these arrangements, we face the risk that our third-party manufacturers may dishonor our purchase orders or unwritten arrangements. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance, or to seek an injunction under PRC law, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.
Our potential inability to adequately protect our intellectual property during the outsource manufacturing of our products in China could negatively impact our performance.
Our products are manufactured primarily in China through third-party outsource manufacturing arrangements. We rely on our third-party manufacturers to implement customary manufacturer safeguards onsite, such as the use of confidentiality agreements with employees, to protect our proprietary information and technologies during the manufacturing process, however, these safeguards may not effectively prevent unauthorized use of such information and technical knowhow or prevent such manufacturers from retaining them. The legal regime governing intellectual property rights in China is relatively weak and it is often difficult to create and enforce intellectual property rights or protect trade secrets there. We face risks that our proprietary information may not be afforded the same protection in China as it is in countries with well-developed intellectual property laws, and local laws may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights in China, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations and agreements with third parties worldwide and such activities create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents or distributors of our Company, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability in connection with FCPA violations committed by companies in which we invest or that we acquire.
Your ability to bring an action against us, and those of our officers and directors who are based in South Africa, or to enforce a judgment against us or recover assets in our possession may be difficult since any such action or recovery of assets would be an international matter, involving South African laws and geographic and temporal disparities.
We conduct substantial operations in South Africa through our foreign registered branch and a substantial portion of our assets are located outside of the United States. In addition, all but two of our management personnel reside in South Africa. As a result, it may be difficult or impossible for you to bring an action against us or these individuals in the United States in the event that you believe that your rights have been violated under applicable law or otherwise. Even if an action of this type is successfully brought, the laws of the United States and of South Africa may render a judgment unenforceable.
RISKS RELATING TO OUR COMMON STOCK
There is not now, and there may not ever be, an active market for our common stock and we cannot assure you that the common stock will become liquid or that it will be listed on a securities exchange.
There currently is no active market for our common stock. We plan to list our common stock as soon as practicable. However, we cannot assure you that we will be able to meet the initial listing standards of any stock exchange, or that we will be able to maintain any such listing. Until our common stock is listed on an exchange, we expect that it would be eligible to continue being quoted in the over-the-counter market maintained by the OTC Markets Group Inc. In this venue, however, an investor may find it difficult to obtain accurate quotations as to the market value of the common stock and trading of our common stock may be extremely sporadic. For example, several days may pass before any shares may be traded. A more active market for the common stock may never develop. In addition, if we failed to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling the common stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital.
We are subject to penny stock regulations and restrictions that may affect our ability to sell our securities on the secondary market.
The SEC has adopted regulations that generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. While the current market price for our stock is above this limit, our stock price has been below this limit during the past 12 months and we cannot guarantee that it will not do so in the coming months. Brokers or dealers effecting transactions in "penny stock" must disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability to sell shares.
Our holding company structure may limit the payment of dividends.
We have no direct business operations, other than our ownership of our subsidiaries. While we have no immediate intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions as discussed below. If we determine that we will pay dividends to the holders of our common stock, we cannot assure that such dividends will be paid on a timely basis. As a result, you will not receive any return on your investment prior to selling your shares in our company and, for the other reasons discussed in this "Risk Factors" section, you may not receive any return on your investment even when you sell your shares in our company and your shares may become worthless. If future dividends are paid in ZAR, fluctuations in the exchange rate for the conversion of ZAR into U.S. dollars may reduce the amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars.
The Company's officers, directors and affiliates collectively have the power to make all major decisions regarding the Company without the need to get consent from any stockholder or other person. This discretion could lead to decisions that are not necessarily in the best interests of minority shareholders.
Our Company's officers, directors and affiliates collectively own 48.30% of our common stock (including our preferred stock which converts on a one-for-one basis to common stock, but vote on a one-for-one hundred basis to common stock). Our officers and directors, therefore, has the power to make all major decisions regarding our affairs, including decisions regarding whether or not to issue stock and for what consideration, whether or not to sell all or substantially all of our assets and for what consideration and whether or not to authorize more stock for issuance or otherwise amend our charter or bylaws. Our officers and directors are in a position to elect all of our directors and to dictate all of our policies.