Leatt Losses Narrow Ahead of Interbike Helmet Launch

The company said sales of its body armor and other protective sports gear, reached $4.2 million, compared to $3.6 million in the second quarter of 2013. Gross profit margin increased year-to-year by 600 basis points, to 55 percent. The net loss of $29,834 was lower by 95 percent, compared to the net loss in the second quarter of 2013 of $636,264. On a per-share basis, the net loss was $0.01 versus the prior-year loss of $0.12.

 

 

The improvement in numbers during the 2014 period is attributable to careful management of our financial resources, as well as higher sales in the neck brace product line, particularly with respect to the 2013 debut of the company’s new Fusion 2.0 Junior, its first product designed specifically for children that includes upper-body and neck protection, and its 5.5 Neck Brace, a new generation of the classic Leatt neck brace. The improvement follows a strengthening trend that emerged last autumn, and continued in the fourth quarter of 2013 and through the first quarter of this year.

 

Product research and development (“R&D”) expense was up by 20 percent during the 2014 period, partly due to work tailoring the new Knee Brace to a wider range of sports and uses. Additionally, the company continued to focus on widening its innovative product offering to include new product categories for Leatt, including our technologically advanced helmet range. The increase in R&D expense during the period was balanced by decreases in selling, general and administrative (“SG&A”), consulting, professional fees and advertising/marketing expense. Overall, SG&A expense declined to $2.4 million, from $2.6 million in the 2013 second quarter.

 

For the 2014 six-month period, revenue increased by 12 percent to $7.7 million, from $6.9 million in the first half of 2013, and gross profit margin was 55 percent, compared to 49 percent in the prior year period. Net loss was $370,720, compared to a loss of $1.4 million last year, which is a 73 percent improvement over the prior period. The six-month SG&A trends were equivalent to those seen in the quarterly periods, with overall SG&A expense at $4.7 million for the first half of 2014, compared to $5.0 million last year. On a per-share basis, the net loss for the first six months of 2014 was $0.07, versus $0.27 last year. Our current ratio was 3.54:1 at June 30, and although cash was down to $640,184 as of June 30, compared to $835,012 at December 31, we are confident in our ability to profitably fund the ongoing increase in sales.

 

 

“The rise in sales for the neck brace product line was largely attributable to the successful market acceptance of the Fusion 2.0 Junior and 5.5 Neck Brace products, both introduced in the fourth quarter of 2013,” said CEO Sean Macdonald. “Sales were good for neck brace products both in the United States and abroad. The decrease in the sale of body armor products during the 2014 period was primarily due to the fact that our distributors completed their initial stocking and pipeline filling during 2013 which boosted body armor product sales during that period, but this process typically does not recur the following year. Product royalty income decreased primarily because during 2013 the company settled various intellectual property cases and were paid licensing fees for sales of infringing products from inception.”

 

“We keep an eagle eye on expenses,” Macdonald added, “and we are proud that our SG&A decreased in the second quarter year-over-year, to $2.4 million, compared to $2.6 million last year. We accomplished notable reductions in professional fees (due to lower spending on litigation), while we accelerated our R&D and product development activities and added new senior staff in that area and on our US sales and distribution team. We also note that at $69,989, the 2014 second quarter depreciation expense, which is a non-cash charge, was greater than the dollar amount of our loss. So, but for depreciation expense, we would have realized an operating profit for the period.

 

 

“We began shipments of salesman samples of our new knee brace for motorcyclists and motocross athletes in June,” Macdonald said, “and we expect to ship our first production units of knee braces before the end of the third quarter. Furthermore, our knee brace for winter sports is nearing completion and we expect to ship initial orders during the fourth quarter of 2014. We are optimistic that our knee braces will gain market acceptance but we will not be able to assess its performance in the marketplace until the critical fourth quarter holiday shopping season. We are also continuing our collaboration with leading knee specialists in South Africa to tailor our knee brace for rehabilitation and to obtain CE approval for the knee brace as a medical rehabilitation device.”

 

“Our transition from being a one-product company to being an across-the-board designer and supplier of protective gear for athletes is moving forward,” continued Macdonald. “Dr. Leatt and our R&D team are progressing with the design of the first ever Leatt helmet that everyone expects will be, like other Leatt premium products, smaller, more light-weight, more comfortable and more technologically advanced than those currently available in the marketplace. A prototype of the helmet was favorably received at a recent showing to certain industry dealers and distributors in Mallorca, California and Singapore, and the company is looking forward to introducing the finished product to the marketplace. While salesman samples of the helmet should be available by the fourth quarter, helmets are not expected to be available for consumer purchase until early next year. We plan to officially launch the bicycle version of the helmet in the EU at the 2014 Eurobike show in Friedrichshafen, Germany, in late August, and in the US at the 2014 Interbike show in Las Vegas, Nevada, in mid-September. We expect to launch the motorcycle version of the helmet at the 2014 Intermot show in Cologne, Germany, in early October.”