Special Note Regarding Forward Looking Statements

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

• our expectations regarding growth in the motor sports market;

• our expectation regarding increasing demand for protective equipment used in the motor sports market;

• our belief that we will be able to effectively compete with our competitors and increase our market share;

• our expectations with respect to increased revenue growth and our ability to achieve profitability resulting from increases in our production volumes; and

• our future business development, results of operations and financial condition.

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

Use of Certain Defined Terms

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

• "Leatt," "we," "us," "our," the "Registrant" or the "Company" are to the combined business of Leatt Corporation, a Nevada corporation, its South African branch, Leatt SA, and its direct, wholly-owned subsidiaries, Two Eleven and Leatt Prop;

• "Leatt Prop" refers to Leatt Prop (Pty) Ltd, a South African Company incorporated under the laws of South Africa with registration number: 2022/523867/07;

• "Leatt SA" are to the Company's branch office known as 'Leatt Corporation (Incorporated in the State of Nevada)' incorporated under the laws of South Africa with registration number: 2007/032780/10;

• "Leatt USA" are to Leatt USA, LLC, a Nevada Limited Liability Company;

• "PRC", and "China" are to the People's Republic of China;

• "Two Eleven" refers to Two Eleven Distribution, LLC, a Nevada Limited Liability Company;

• "Securities Act" are to the Securities Act of 1933, as amended, and to "Exchange Act" are to Securities Exchange Act of 1934, as amended;

• "South Africa" are to the Republic of South Africa;

• "U.S. dollar," "$" and "US$" are to the legal currency of the United States;

• "Xceed Holdings" refers to Xceed Holdings CC., a close corporation incorporated under the laws of South Africa, and wholly- owned by The Leatt Family Trust, of which Dr. Christopher J. Leatt, the Company's chairman, is a Trustee and Beneficiary; and

• "ZAR" refers to the South African Rand, the legal currency of South Africa. For all ZAR amounts reported, the dollar amount has been calculated on the basis that $1 = ZAR 16.1471 for its June 30, 2022 balance sheet.

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

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

The Company's research and development efforts are conducted at its research facilities, located at its executive headquarters in Cape Town, South Africa. The Company employs 3 full-time employees who are dedicated exclusively to research, development, and testing. The Company also utilizes consultants, academic institutions and engineering companies as independent contractors or consultants, from time to time, to assist it with its research and development efforts. Leatt products have been tested and reviewed internally and by external bodies. All Leatt products are compliant with applicable European Union directives, or CE certified, where appropriate. Depending on the market we have other certifications outside of CE. For the US market our motorcycle helmets comply with the DOT (FMVSS 218) helmet safety standard and our bicycle helmet complies with EN1078, as well as CPSC 1203. Our downhill specific bicycle helmets also comply with ASTM F1952. For our Australian Market our bicycle helmet complies with AS/NZS 2063. For the UK market our motorcycle helmets comply with ACU Gold and our Moto 3.5 helmet with JIS T 8133 for the Japanese Market. For the Brazilian market our Moto 7.5 and Moto 3.5 helmets comply with NBR 7471.

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

Leatt earns revenues through the sale of its products through approximately 55 distributors worldwide, who in turn sell its products to retailers. Leatt distributors are required to follow certain standard business terms and guidelines for the sale and distribution of Leatt products. Two Eleven and Leatt SA directly distribute Leatt products to dealers in the United States and South Africa, respectively.

Principal Factors Affecting Our Financial Performance

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

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

• Trade Restrictions - We engage in international manufacturing and sales which exposes us to trade restrictions and disruptions that could harm our business and competitive position. Most of our products are manufactured in China, and the U.S. administration has announced 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 as at June 30, 2022, we believe that the future imposition of, or significant increases in, the level of tariffs, custom duties, export quotas and other barriers and restrictions by the 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.

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

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

• Protection of Intellectual Property - We believe that the continued success of our business is dependent on our intellectual property portfolio consisting of globally registered trademarks, design patents and utility patents related to the Leatt-Brace®. We believe that a loss of these rights would harm or cause a material disruption to our business and, our corporate strategy is to aggressively take legal action against any violators of our intellectual property rights, regardless of where they may be. From time to time, we have had to enforce our intellectual property rights through litigation, and we may be required to do so in the future. Such litigation may result in substantial costs and could divert resources and management attention from the operations of our business.

• Fluctuations in Foreign Currencies - We are exposed to foreign exchange risk as our revenues and consolidated results of operations may be affected by fluctuations in foreign currency as we translate these currencies into U.S. dollars when we consolidate our financial results. While our reporting currency is the U.S. Dollar, a portion of our consolidated revenues are denominated in South African Rand, or ZAR, certain of our assets are denominated in ZAR, and our research and marketing operations in South Africa utilize South African labor sources. A decrease in the value of the U.S. dollar in relation to the ZAR could increase our cost of doing business in South Africa. If the ZAR depreciates against the U.S. Dollar, the value of our ZAR revenues, earnings and assets as expressed in our U.S. Dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk. Furthermore, since 78% of our sales are 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.

• Natural or Man-made Catastrophic Events - 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. As the COVID-19 pandemic continues to evolve, we believe the extent of the impact to our operations will be primarily driven by the severity and duration of the pandemic, the pandemic's impact on the U.S. and global economies and the timing, scope and effectiveness of federal, state and local governmental responses to the pandemic. Due to strong consumer demand for outdoor product categories since the initial stages of the pandemic, we did not see any significant material negative impact of COVID-19 on the Company's results of operations for the six months ended June 30, 2022. 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 global quarantines. The continued mutation and spread of the virus, economic headwinds caused by global quarantines, or the occurrence of any other catastrophic events, could have a negative impact on our sales revenue for the coming periods and beyond.

• Conflict in Ukraine - We are exposed to conflicts that may disrupt our business and may reduce consumer demand for our products. A disruption or failure of our systems, government sanctions or operations in the event of a conflict could directly affect consumer demand for our products, cause delays in completing sales, shipping of our products, continuing production or performing other critical functions of our business, particularly if a conflict occurs at our primary manufacturing locations or our distributor locations worldwide. Furthermore, a prolonged conflict may have unintended global consequences such as increased inflation, fuel and transportation costs. While we have conducted due diligence on our customers in Russia to ensure that they do not fall into any sanctioned categories, we have seen a delay in the receipt of receivables in our bank account from the distributors of our products in Russia caused by enhanced screening of Russian funds in compliance with global sanctions against Russia for the war in Ukraine. The prolonging or expansion of the conflict could have an adverse impact on our consumers and on consumer purchasing behavior, and result in delays of new orders and completing sales, order cancellations, or payment and shipping delays. We will continue to monitor this fluid situation and any adverse impact that it may have on the global economy in general and on our business operations and especially that of our customers in particular, and we will develop contingencies as necessary to address any disruptions to our business operations as they arise.

• Rising Freight Shipping and Logistics Costs - The economic disruption resulting from the COVID-19 pandemic has had an adverse impact on the global freight shipping industry and on the cost of shipping our products to our global network of distributors, dealers and customers, or their import agents, from warehouses in China. Over the past year, the strong rise in demand for Chinese exports has outpaced the availability of containers in Asia, creating a container shortage and huge backlogs in many freight markets around the world, including the U.S., the Middle East, and East Asia. These container shortages at Asian ports have exacerbated supply bottlenecks and further increased shipping costs, by up to 400% in some regions, as companies in Asia are reported to be paying premium rates to get containers back. Further compounding matters is the shortage of dockworkers and truck drivers available to load and unload containers at ports in Europe and the U.S. and to move them to other locations, resulting in congested ports. We are working closely with our supply chain management in Asia, our logistics service providers, and our freight forwarders, to streamline our global shipping and logistics processes, to mitigate any disruption to our operations. Continued disruption and pricing volatility in the global shipping and logistics industry could have a negative impact on our results of operations for the coming periods and beyond.

The following summary of our results of operations should be read in conjunction with our financial statements and the notes thereto for the three and six-month periods ended June 30, 2022 and 2021 included herein.

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

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

Commissions and Consulting 150,634 215,986 $ (65,352 ) -30% Professional Fees

Revenues - We earn revenues from the sale of our protective gear comprising of neck braces, body armor, helmets and other products, parts and accessories both in the United States and abroad. Revenues for the quarter ended June 30, 2022 were $17.94 million, a 25% increase, compared to $14.30 million for the quarter ended June 30, 2021. This increase in worldwide revenues is primarily attributable to a $0.94 million increase in body armor sales, a $1.35 million increase in helmet sales and a $1.61 million increase in other products, parts and accessories, that were partially offset by a $0.26 million decrease in neck brace sales. Revenues associated with international customers were $13.91 million and $9.58 million, or 78% and 67% of revenues, respectively, for the quarters ended June 30, 2022 and 2021, respectively.

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

Sales of our flagship neck brace accounted for $1.31 million and $1.58 million, or 7% and 11% of our revenues for the quarters ended June 30, 2022 and 2021, respectively. The 17% decrease in neck brace revenues is primarily attributable to a 17% decrease in the volume of neck braces sold to our customers in the United States and abroad during the 2022 period.

Our body armor products are comprised of chest protectors, full upper body protectors, upper body protection vests, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes. Body armor sales accounted for $9.51 million and $8.57 million, or 53% and 60% of our revenues for the quarters ended June 30, 2022 and 2021, respectively. The 11% increase in body armor revenues during the 2022 second quarter is primarily the result of continued strong demand for our off-road motorcycle boots and upper body protective gear globally.

Our helmet sales accounted for $2.38 million and $1.03 million or 13% and 7% of our revenues for the quarters ended June 30, 2022 and 2021, respectively. The 132% increase in helmet sales during the 2022 second quarter is primarily due to a strong increase in the sales volume of our expanded and redesigned MOTO helmet line up for off-road motorcycle use to our customers in the United States and abroad.

Our other products, parts and accessories are comprised of goggles, hydrations bags and apparel items including jerseys, pants, shorts and jackets as well as aftermarket support items required primarily to replace worn or damaged parts through our global distribution network. Other products, parts and accessories sales accounted for $4.73 million and $3.13 million, or 27% and 22% of our revenues for the quarters ended June 30, 2022 and 2021, respectively. The 51% increase in revenues from the sale of other products, parts and accessories during the 2022 second quarter is primarily due to continued strong sales of our MOTO and MTB technical apparel designed off-road motorcycle and mountain biking use, respectively.

Cost of Revenues and Gross Profit - Cost of revenues for the quarters ended June 30, 2022 and 2021 were $10.29 million and $8.11 million, respectively. Gross Profit for the quarters ended June 30, 2022 and 2021 were $7.64 million and $6.19 million, respectively, or 43% and 43% of revenues, respectively. Our neck brace products continue to generate a higher gross profit margin than our other product categories. Although neck brace revenues accounted for 7% and 11% of our revenues for the quarters ended June 30, 2022 and 2021, respectively our gross profit remained consistent with the 2021 period due to a stabilization in global and domestic shipping and logistics costs.

Product Royalty Income - Product royalty income is earned on sales to distributors that have royalty agreements in place, as well as on sales of licensed products by third parties that have licensing agreements in place. Product royalty income for the quarters ended June 30, 2022 and 2021 were $46,971 and $58,479, respectively. The 20% decrease in product royalty income is due to a decrease in the sale of licensed products by licensees during the 2022 period.

Salaries and Wages - Salaries and wages for the quarters ended June 30, 2022 and 2021 were $1,325,177 and $912,811, respectively. The 45% increase in salaries and wages during the 2022 period was primarily due to the employment of additional sales professionals and operational warehousing staff in the United States as we continue to expand and build our selling activities domestically in order to facilitate growth. Additionally, share compensation costs relating to a share issuance made to key personnel contributed to the increase in salaries and wages for the 2022 period.

Commissions and Consulting Expense - During the quarters ended June 30, 2022 and 2021, commissions and consulting expenses were $150,634 and $215,986, respectively. The 30% decrease in commissions and consulting expenses is primarily the result of a decrease in commissions and incentives paid to both in-house and external sales representatives in the United States in line with a decrease in sales growth in the region.

Professional Fees - Professional fees consist of costs incurred for audit, tax and regulatory filings, as well as patent protection and product liability litigation expenses incurred as the Company continues to expand. Professional fees for the quarters ended June 30, 2022 and 2021 were $79,653 and $123,501, respectively. The 36% decrease in professional fees is primarily due to a decrease in patent development and product liability litigation expenses incurred during the 2022 period.

Advertising and Marketing - The Company places paid advertising in various motorsport and bicycle magazines and online media and sponsors a number of events, professional teams and individuals to increase product and brand visibility globally. Advertising and marketing expenses for the quarters ended June 30, 2022 and 2021 were $746,114 and $518,153, respectively. The 44% increase in advertising and marketing expenditure during the 2022 period is primarily due to the production, execution and distribution of global marketing campaigns that incorporate athlete sponsorships, event attendance, campaign activation and coordinated digital marketing activities designed to market the Company's growing product offering and increase global consumer engagement.

Office Lease and Expenses - Office lease and expenses for the quarters ended June 30, 2022 and 2021 were $193,878 and $87,200, respectively. The 122% increase in office lease and expenses during the 2022 period is primarily due to additional warehouse storage rented in the United States as the Company continues to expand its Reno, Nevada warehouse to accommodate storage of its expanding line up of exceptional protective gear.

Research and Development Costs - These costs consist of the salaries of personnel who are directly involved in the research and development of innovative products, as well as the direct costs associated with developing these products. Research and development costs for the quarter ended June 30, 2022, increased to $480,843, from $445,156 during the same 2021 quarter. The 8% increase in research and development costs during the 2022 second quarter is primarily due to the employment of professional product development, engineering and design personnel in order to continue the refinement of the Company's widening product categories and the expansion of our pipeline of exceptional cutting-edge products.

Bad Debt Recovery - Bad debt recovery for the quarters ended June 30, 2022 and 2021 were $13,969 and $51,732, respectively. The 73% decrease in bad debt recovery is primarily the result of a decrease in provisions made for unrecoverable debts during the 2022 period, in line with a decrease in the Two Eleven's accounts receivable balance at June 30, 2022, when compared to March 31, 2022, that was partially offset by an increase in the provision for unrecoverable debts relating to the Company's international customers.

General and Administrative Expenses - General and administrative expenses consist of insurance, travel, merchant fees, telephone, office and computer supplies. General and administrative expenses for the quarters ended June 30, 2022 and 2021 were $710,351 and $609,760, respectively. The 16% increase in general and administrative expenses is primarily due to an increase in product and general liability insurance premiums paid during the 2022 period as a result of increased inventory levels to facilitate an increase in the Company's selling activities.

Depreciation Expense - Depreciation expense for the quarters ended June 30, 2022 and 2021 were $287,943 and $242,401, respectively. The 19% increase in depreciation during the 2022 second quarter is primarily due to the addition of molds and tooling utilized in the production of the Company's expanding product categories.

Total Operating Expenses - Total operating expenses increased by $857,388, to $3,960,624 million, in the quarter ended June 30, 2022, or 28%, compared to $3.10 million in the 2021 period. This increase is primarily due to increases in salaries, general and administrative, office and warehouse leasing and advertising and marketing costs that were partially offset by a decrease in professional fees and commissions paid discussed above.

Net Income - The net income after income taxes for the quarter ended June 30, 2022 was $2.73 million, as opposed to net income of $2.41 million for the quarter ended June 30, 2021. This 13% increase in net income is primarily due to the increase in sales revenues discussed above.

Comparison of Six Months Ended June 30, 2022 and Six Months Ended June 30, 2021

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

Revenues - We earn revenues from the sale of our protective gear comprising of neck braces, body armor, helmets and other products, parts and accessories both in the United States and internationally. Revenues for the six months ended June 30, 2022 were $42.17 million, a 55% increase, compared to $27.20 million for the six months ended June 30, 2021. Revenues generated from sales to our customers in the United States decreased from $10.48 million to $9.32 million, for the six months ended June 30, 2022 and 2021, respectively. Revenues associated with international customers were $32.85 million and $16.71 million, or 78% and 61% of revenues, respectively, for the six months ended June 30, 2022 and 2021. This increase in global revenues during the 2022 period is attributable to a $6.05 million increase in body armor sales, a $4.09 million increase in sales of other products, parts and accessories and a $5.50 million increase in helmet sales that were partially offset by a $0.67 million decrease in neck brace sales.

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

Sales of our flagship neck brace accounted for $2.85 million and $3.52 million, or 7% and 13% of our revenues for the six-month periods ended June 30, 2022 and 2021, respectively. The 19% decrease in neck brace revenues is primarily attributable to a 26% decrease in the volume of neck braces sold to our customers in the United States and abroad.

Our body armor products are comprised of chest protectors, full upper body protectors, upper body protection vests, back protectors, knee braces, knee and elbow guards, off-road motorcycle boots and mountain biking shoes. Body armor sales accounted for $21.99 million and $15.94 million, or 52% and 59% of our revenues for the six-month period ended June 30, 2022 and 2021, respectively. The 38% increase in body armor revenues was primarily the result of continued shipments of our footwear category consisting of off-road motorcycle boots and mountain biking shoes and continued strong consumer demand for our innovative upper body and limb protectors.

Our Helmets accounted for $8.07 million and $2.57 million, or 19% and 9% of our revenues for the six-month periods ended June 30, 2022 and 2021, respectively. The 214% increase in helmet sales during the 2022 period is primarily due to continued strong demand for the Company's expanding and award-winning MTB helmet line up designed to appeal to a wide range of riders, and continued strong shipments of our redesigned MOTO helmet line up for off-road motorcycle use to our customers in the United States and abroad.

Our other products, parts and accessories are comprised of goggles, hydrations bags and apparel items including jerseys, pants, shorts and jackets as well as aftermarket support items required primarily to replace worn or damaged parts through our global distribution network. Other products, parts and accessories sales accounted for $9.26 million and $5.17 million, or 22% and 19% of our revenues for the six-month periods ended June 30, 2022 and 2021, respectively. The 79% increase in revenues from the sale of other products, parts and accessories is primarily due to strong demand for our MOTO and MTB technical apparel designed for off-road motorcycle and mountain biking use respectively.

Cost of Revenues and Gross Profit - Cost of revenues for the six-month periods ended June 30, 2022 and 2021 were $24.90 million and $14.95 million, respectively. Gross Profit for the six-month periods ended June 30, 2022 and 2021 were $17.27 million and $12.24 million, respectively, or 41% and 45% of revenues respectively. Our neck brace products continue to generate a higher gross margin than our other product categories. Neck brace revenues accounted for 7% and 13% of our revenues for the six-month periods ended June 30, 2022 and 2021, respectively. Additionally, revenues associated with international customers were 78% and 61% of our revenues for the six months ended June 30, 2022 and 2021, respectively, with revenues associated with international distribution customers continuing to generate a lower gross profit margin than direct dealer sales in the United States.

Product Royalty Income - Product royalty income is earned on sales to distributors that have royalty agreements in place, as well as on sales of licensed products by third parties that have licensing agreements in place. Product royalty income for the six-month periods ended June 30, 2022 and 2021 were $125,810 and $83,289, respectively. The 51% increase in product royalty income is due to an increase in the sale of licensed products by licensees during the 2022 period.

Salaries and Wages - Salaries and wages for the six-month periods ended June 30, 2022 and 2021 were $2,623,139 and $1,837,348, respectively. The 43% increase in salaries and wages during the 2022 period was primarily due to the employment of additional sales professionals and warehousing staff in the United States as we continue to expand and build our selling activities domestically in order to facilitate growth. Additionally, share compensation costs relating to a share issuance made to key personnel in recognition of performance contributed significantly to the increase in salaries and wages for the 2022 period.

Commissions and Consulting Expense - During the six-month periods ended June 30, 2022 and 2021, commissions and consulting expenses were $313,220 and $436,648. This 28% decrease in commissions and consulting expenses during the 2022 period is primarily due to a decrease in commissions and incentives paid to both in-house and external sales representatives in the United States in line with a decrease in sales growth in the region.

Professional Fees - Professional fees consist of costs incurred for audit, tax and regulatory filings, as well as patent protection and product liability litigation expenses incurred as the Company continues to expand. Professional fees for the six-month periods ended June 30, 2022 and 2021 were $338,768 and $461,256, respectively. This 27% decrease in professional fees is primarily due to a decrease in expenditure on product liability litigation during the 2022 period.

Advertising and Marketing - The Company places paid advertising in various motorsport magazines and online media, and sponsors a number of events, teams and individuals to increase product and brand visibility. Advertising and marketing expenses for the six-months ended June 30, 2022 and 2021 were $1,360,004 and $1,035,733, respectively. The 31% increase in advertising and marketing expenditure during the 2022 period is primarily due to the production, execution and distribution of global marketing campaigns that incorporate high caliber athlete sponsorships, event attendance and activation activities, and coordinated digital marketing plans designed to market the Company's product offering to a wider group of riders and enthusiasts and continue building a global consumer brand.

Office Lease and Expenses - Office lease and expenses for the six-month periods ended June 30, 2022 and 2021 were $400,899 and $174,573, respectively. The 130% increase in office lease and expenses during the 2022 period was primarily due to additional warehouse storage rented in the United States as the Company continues to build out and expand its Reno, Nevada warehouse to accommodate storage and sales of its expanding line up of exceptional protective gear.

Research and Development Costs - These costs consist of the salaries of personnel who are directly involved in the research and development of innovative products, as well as the direct costs associated with developing these products. Research and development costs for the six-month periods ended June 30, 2022 and 2021, increased to $1,014,543, from $850,261, during the same 2021 period. The 19% increase in research and development costs during the 2022 period is primarily due to the employment of industry specific product development, engineering and design professionals as the Company continues to refine its widening product categories and expand a pipeline of exceptional cutting-edge products.

Bad Debt Expense - Bad debt expense for the six-month periods ended June 30, 2022 and 2021 were $4,355 and $14,093, respectively. This 69% decrease in bad debt expense during the 2022 period is primarily the result of a decrease in provisions made for unrecoverable debts during the 2022 period in line with a decrease in the Two Eleven accounts receivable balance at June 30, 2022, when compared to December 31, 2021, that was partially offset by an increase in the provision for unrecoverable debts relating to the Company's international customers.

General and Administrative Expenses - General and administrative expenses consist of insurance, travel, merchant fees, telephone, office and computer supplies. General and administrative expenses for the six-month periods ended June 30, 2022 and 2021 were $1,422,103 and $1,138,359, respectively. The 25% increase in general and administrative expenses during the 2022 period is primarily as a result of an increase in expenditures on product liability, general risk and directors' and officers' insurance premiums during the 2022 period, as the Company expands its product offerings and selling activities. Additionally, travel expenditure increased in line with a relaxation of travel restrictions imposed as a result of the COVID-19 pandemic and an increase in marketing and sales management travel activity.

Depreciation Expense - Depreciation Expense for the six-month periods ended June 30, 2022 and 2021 were $564,867 and $478,936, respectively. This 18% increase in depreciation during the 2022 period is primarily due to the addition of molds and tooling utilized in the production of the Company's widening product range.

Total Operating Expenses - Total operating expenses increased by $1.61 million to $8.04 million in the six-month period ended June 30, 2022, or 25%, compared to $6.43 million for the six-month period ended June 30, 2021. This increase in total operating expenses during the 2022 period is primarily due to increases in salaries, general and administrative, office and warehouse leasing, advertising and marketing and research and development costs, that were partially offset by a decrease in professional fees and commissions paid discussed above.

Net Income - Net income after income taxes for the six-month period ended June 30, 2022 was $6.95 million, compared to net income of $4.47 million for the six-month period ended June 30, 2021. This increase in net income during the 2022 period is primarily due to the increase in revenue and gross profit discussed above.

At June 30, 2022, we had cash and cash equivalents of $4.95 million and $0.06 million of short-term investments. The following table sets forth a summary of our cash flows for the periods indicated:

Net increase (decrease) in cash and cash equivalents $ (72,665 ) $ 781,538 Cash and cash equivalents at the beginning of period $ 5,022,436 $ 2,967,042 Cash and cash equivalents at the end of period

Cash decreased by $72,665 or 1%, for the six months ended June 30, 2022, when compared to cash on hand at December 31, 2021. The primary sources of cash for the six months ended June 30, 2022 were net income of $6,949,675, decreased prepaid expenses of $729,338, increased income taxes payable of $703,220 and proceeds from the issuance of common stock amounting to $255,800. The primary uses of cash for the six months ended June 30, 2022 were increased accounts receivable of $1,155,162, decreased accounts payable and accrued expenses of $6,649,900, increased inventory of $866,061 and the repayment of a short term loan amounting to $747,845.

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

Pursuant to our Licensing Agreement with Xceed Holdings, a company controlled by Dr. Christopher Leatt, our founder, chairman and head of research and development, we pay Xceed Holdings 4% of all neck brace sales revenue billed and received by the Company on a quarterly basis based on sales of the previous quarter. During the quarters ended June 30, 2022 and 2021, the Company paid an aggregate of $66,844 and $79,590, in licensing fees to Xceed Holdings. In addition, pursuant to a separate license agreement between the Company and Mr. J. P. De Villiers, our former director, the Company is obligated to pay a royalty fee of 1% of all our billed and received neck brace sales revenue, in quarterly installments, based on sales of the previous quarter, to a trust that is beneficially owned and controlled by Mr. De Villiers. During the quarters ended June 30, 2022 and 2021, the Company paid an aggregate of $16,711 and $19,898, in licensing fees to Mr. De Villiers.

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

On November 8, 2021, the Company entered into a consulting agreement with Innovation Services Limited, a Jersey limited company in which, Dr. Christopher Leatt, the Company's founder and chairman, is an indirect beneficiary. Pursuant to the terms of the agreement, Innovation has agreed to serve as the Company's exclusive research, development and marketing consultant, in exchange for a monthly fee of $42,233; provided, however, that Dr. Leatt must remain an Innovation director and beneficiary of a majority of its ownership interests during the term of the agreement, and Dr. Leatt must remain the Company's primary point of contact responsible for the oversight, review and delivery of the services to be performed by Innovation under the agreement. Innovation may increase its monthly fees, on an annual basis, by no greater than the lesser of: (a) two and one-half percent (2.5%) of the prior year's annualized fee; or (b) a percentage equal to then-applicable annual percentage increase in the Consumer Price Index (CPI) published by the United States Department of Labor's bureau of labor statistics, plus one-half percent (0.5%). The parties further agreed that all intellectual property generated in connection with the services provided under the consulting agreement will be the sole property of the Company. The consulting agreement was effective as of November 1, 2021, and will continue unless terminated by either party in accordance with its terms. Either party has the right to terminate the consulting agreement upon six months' prior written notice, except that the consulting agreement may be terminated by the Company immediately without notice if the services to be performed by Innovation cease to be performed by Dr. Leatt, if beneficial ownership in Innovation by Dr. Leatt's and his immediate family members decreases, or for any other material breach of the agreement. The parties have agreed to settle any dispute under the consulting agreement by submission to JAMS for final and binding arbitration pursuant to its Comprehensive Arbitration Rules and Procedures and in accordance with the Expedited Procedures in those Rules. The Company also simultaneously entered into a side letter agreement, dated November 8, 2021, with Dr. Leatt, pursuant to which Dr. Leatt agreed, among other things: (1) not to perform services similar to the services provided under the agreement for any current or future, direct or indirect competitor of the Company or any similar company; (2) not to solicit any current or future employees of the Company for employment with Innovation or any other entity with which he may become affiliated, or to contact or solicit any current or future stockholder or investor of the Company in connection with any matter that is not directly related to the ongoing or future business operations of the Company; and (3) that he will apprise the Company of any business opportunity that he becomes aware of that could benefit the Company so that the Company, can in its sole discretion, make a determination regarding whether to pursue such opportunity in the best interest of the Company and its stockholders. Dr. Leatt further agreed to continue dedicating a majority of his time on matters related to performance of his duties as a director of the Company and to the fulfillment of his obligations to the Company's research and development efforts under the consulting agreement, and the Company will have the right to adjust the amount of the fees payable under the consulting agreement to the extent of any substantial diminution in his fulfillment of such duties and obligations. Accordingly, effective January 1, 2022, the Company's monthly fee to Innovation, increased to $43,289. During the quarters ended June 30, 2022 and 2021, the Company recognized an aggregate of $129,867 and $0, respectively, in consulting fees to Innovation.

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

Pursuant to a Premium Finance Agreement, dated October 29, 2021, between the Company and APF, the Company is obligated to pay APF an aggregate sum of $1,122,858 in eleven payments of $102,078, at a 4.650% annual interest rate, commencing on November 1, 2021 and ending on September 1, 2022. Any late payment during the term of the agreement will be assessed a late penalty of 5% of the payment amount due, and in the event of default APF has the right to accelerate the payment due under the agreement. As of June 30, 2022, the Company had not defaulted on its payment obligations under this agreement.

On November 19, 2018, the Company entered into a $1,000,000 revolving line of credit agreement with a bank. Payments for the advances under the line bear interest at the LIBOR Daily Floating Rate plus 2.5 percentage points commencing January 1, 2019. The line of credit matured on November 19, 2020, at which time the unpaid principal, interest, or other charges outstanding under the agreement are due and payable. On November 5, 2020, the Company executed an amendment to the line of credit to extend the line of credit facility through November 19, 2021. The amendment took retroactive effect to October 27, 2020 and introduced an index floor so that payments for any future advances will bear interest at the greater of the LIBOR Daily Floating Rate or an Index Floor of 1.25 percentage points plus 2.5 percentage points. Obligations under the line of credit are secured by equipment and fixtures in the United States of America, accounts receivable and inventory of Leatt Corporation and Two-Eleven Distribution, LLC. On March 1, 2021, we executed a second amendment to the line of credit. The amendment took retroactive effect to February 17, 2021, extended the line of credit facility through February 28, 2022 and increased the revolving line of credit to $1,500,000. Effective January 21, 2022, the Company executed an amendment to the line of credit to extend the line of credit facility through February 28, 2023 and to replace interest determined by LIBOR Daily Floating Rate with the Bloomberg Short-Term Bank Yield Index rate. As of June 30, 2022, there were no advances of the line of credit leaving $1,500,000 of the line of credit available for advance.

On December 29, 2021, Two Eleven entered into a Loan and Security agreement with a bank, effective December 17, 2021, to finance equipment. The Equipment Note financed under the Loan and Security Agreement has a total value of $272,519, payable in 36 consecutive monthly installments commencing February 5, 2022, and continuing to January 5, 2025. Interest shall accrue on the entire principal amount of this Equipment Note outstanding from time to time at a fixed rate of 3.5370% per annum. The principal and interest amount of each payment shall be $7,990. As of June 30, 2022, the amount of $236,373 was outstanding.

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

Revenue and Cost Recognition - The Company's products are sold worldwide to a global network of distributors and dealers, and directly to consumers when there are no dealers or distributors in their geographic area or where consumers choose to purchase directly via the Company's e-commerce website (collectively the "customers").

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

Our standard distributor payment terms range from pre-payment in full to 60 days after shipment and subsequent sales of our products by distributors have no effect on the amount and timing of payments due to us, however, in limited instances qualified distributors and dealers may be granted extended payment terms during selected order periods. In performing such evaluations, we utilize historical experience, sales performance, and credit risk requirements. Furthermore, products purchased by distributors may not be returned to us in the event that any such distributor relationship is terminated.

Since the Company (through its wholly-owned subsidiary) serves as the distributor of Leatt products in the United States, the Company records its revenue and related cost of revenue for its product sales in the United States upon shipment of the merchandise to the dealer or to the ultimate consumer when there is no dealer in the geographic area or the consumer chooses to purchase directly from the Company's e-commerce website and the sales order was received directly from, and paid by, the ultimate consumer. Since the Company (through its South African branch) serves as the distributor of Leatt products in South Africa, the Company records its revenue and related cost of revenue for its product sales in South Africa upon shipment of the merchandise from the branch to the dealer. The Company's standard terms and conditions of sale for non-consumer direct or web-based sales do not allow for product returns other than under warranty.

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

The Company reviews the reserves for customer returns at each reporting period and adjusts them to reflect data available at that time. To estimate reserves for returns, the Company estimates the expected returns and claims based on historical rates as well as events and circumstances that indicate changes to historical rates of product returns and claims. Historically, returns due to product quality issues have not been material and there have been no distributor terminations that resulted in product returns. The provision for estimated returns at June 30, 2022 and December 31, 2021 was $-0- and $-0-, respectively.

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

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

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

Allowance for Doubtful Accounts Receivable - Accounts receivable consist of amounts due to the Company from normal business activities. Credit is granted to substantially all distributors on an unsecured basis. We continuously monitor collections and payments from customers and maintain an allowance for doubtful accounts receivable based upon the expected credit losses determined utilizing historical experience and any specific customer collection issues that have been identified. In determining the amount of the allowance, we are required to make certain estimates and assumptions. Accounts receivable balances that are still outstanding after we have used reasonable collection efforts are written off as uncollectible. While such credit losses have historically been minimal, within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectability of our accounts receivable and our future operating results. The allowance for doubtful accounts was $283,713 at June 30, 2022 and $291,584 at December 31, 2021.

Inventory Valuation - Inventory is stated at the lower of cost or market. Cost is determined using the first-in first-out (FIFO) method. Inventory consists primarily of finished goods. Shipping and handling costs are included in the cost of inventory. In assessing the inventory value, we make estimates and judgments regarding reserves required for product obsolescence, aging of inventory and other issues potentially affecting the saleable condition of products. In performing such evaluations, we utilize historical experience as well as current market information. The reserve for obsolescence was $210,452 at June 30, 2022 and $116,183 at December 31, 2021.

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

Operating Leases - The Company determines if an arrangement is a lease at contract inception. Operating leases are included in the right-of-use assets ("ROU''), and lease liability obligations are included in the Company's consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset of the lease term and lease liability obligations represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date, based on the present value of lease payments over the lease term. As the Company's leases typically do not provide an implicit rate, the Company estimates its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 3 "Leases", in the Notes to Consolidated Financial Statements for additional information.

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

See Note 11, "Recent Accounting Pronouncements" in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the respective dates of adoption, or expected adoption and effects on our consolidated financial position, results of operations and cash flows.

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

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