UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31,
2014
OR
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to
_________
SALEEN AUTOMOTIVE, INC.
(Exact Name of Registrant as Specified in Charter)
Nevada |
|
333-176388 |
|
45-2808694 |
(State or Other Jurisdiction |
|
(Commission |
|
(I.R.S. Employer |
of Incorporation) |
|
File No.) |
|
Identification No.) |
2735
Wardlow Road
Corona, California |
|
|
|
92882 |
(Address of Principal
Executive Offices) |
|
|
|
(Zip Code) |
(800)
888-8945
Registrant’s
telephone number, including area code:
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes
[X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [ ] |
Accelerated
filer [ ] |
Non-accelerated
filer [ ] |
Smaller
reporting company [X] |
Indicate
by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes
[ ] No [X]
As
of February 13, 2015, there were 170,460,122 shares of the issuer’s common stock, $0.001 par value per share, outstanding.
SALEEN
AUTOMOTIVE, INC.
FORM
10-Q
INDEX
PART
I – FINANCIAL INFORMATION
Item
1. Unaudited Condensed Financial Statements:
Saleen
Automotive, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
| |
December 31, 2014 | | |
March 31, 2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current Assets | |
| | | |
| | |
Cash | |
$ | 95,435 | | |
$ | 1,499,889 | |
Accounts receivable, net of allowance for doubtful accounts of $246,519 as of March 31, 2014 | |
| 170,808 | | |
| 198,538 | |
Inventory | |
| 402,485 | | |
| 433,941 | |
Prepaid expenses and other current assets | |
| 4,540 | | |
| 97,926 | |
Total Current Assets | |
| 673,268 | | |
| 2,230,294 | |
Long Term Assets | |
| | | |
| | |
Property and equipment, net | |
| 615,186 | | |
| 546,824 | |
Other assets | |
| 42,358 | | |
| 47,904 | |
TOTAL ASSETS | |
$ | 1,330,812 | | |
$ | 2,825,022 | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable | |
$ | 1,779,782 | | |
$ | 2,048,310 | |
Due to related parties | |
| 253,118 | | |
| 148,954 | |
Notes payable | |
| 616,793 | | |
| 1,275,774 | |
Current portion of convertible notes, net of discount of $488,996 at December
31, 2014 | |
| 149,229 | | |
| — | |
Notes payable to related parties | |
| 372,000 | | |
| 209,452 | |
Payroll taxes payable | |
| 635,250 | | |
| 669,575 | |
Accrued interest on notes payable | |
| 328,872 | | |
| 380,257 | |
Customer deposits | |
| 1,122,167 | | |
| 193,912 | |
Deferred vendor consideration | |
| 275,000 | | |
| — | |
Derivative liability | |
| 1,150,117 | | |
| — | |
Other current liabilities | |
| 363,175 | | |
| 354,346 | |
Total Current Liabilities | |
| 7,045,503 | | |
| 5,280,580 | |
Accounts to be settled by issuance of equity securities | |
| 75,000 | | |
| 470,534 | |
Derivative liability | |
| — | | |
| 5,032,786 | |
Convertible notes payable, net of discount of $2,513,979
and $3,498,981 at December 31, 2014 and March 31, 2014, respectively | |
| 1,687,741 | | |
| 1,337,751 | |
Total Liabilities | |
| 8,808,244 | | |
| 12,121,651 | |
Commitments and Contingencies | |
| — | | |
| — | |
Stockholders’ Deficit | |
| | | |
| | |
Common stock; $0.001 par value; 500,000,000 shares authorized; 167,962,443 and 137,710,501 issued and outstanding as of
December 31, 2014 and March 31, 2014, respectively | |
| 167,962 | | |
| 137,711 | |
Preferred stock; $0.001 par value; 1,000,000 shares authorized; none issued and outstanding | |
| — | | |
| — | |
Additional paid in capital | |
| 13,760,734 | | |
| 10,431,174 | |
Accumulated deficit | |
| (21,406,128 | ) | |
| (19,865,514 | ) |
Total Stockholders’ Deficit | |
| (7,477,432 | ) | |
| (9,296,629 | ) |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
$ | 1,330,812 | | |
$ | 2,825,022 | |
See
accompanying notes which are an integral part of these condensed consolidated financial statements.
Saleen
Automotive, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations (Unaudited)
| |
Three month periods ended
December 31, | | |
Nine month periods ended
December 31, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Revenue, net | |
$ | 536,895 | | |
$ | 1,007,179 | | |
$ | 3,072,596 | | |
$ | 3,449,875 | |
| |
| | | |
| | | |
| | | |
| | |
Costs of goods sold | |
| 552,788 | | |
| 773,467 | | |
| 2,725,378 | | |
| 2,852,665 | |
Gross margin (loss) | |
| (15,893 | ) | |
| 233,712 | | |
| 347,218 | | |
| 597,210 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 144,316 | | |
| 204,026 | | |
| 543,070 | | |
| 489,723 | |
Sales and marketing | |
| 232,666 | | |
| 251,103 | | |
| 1,209,248 | | |
| 821,391 | |
General and administrative | |
| 801,757 | | |
| 1,029,054 | | |
| 2,736,796 | | |
| 3,576,843 | |
Depreciation and amortization | |
| 40,608 | | |
| 18,588 | | |
| 150,323 | | |
| 65,332 | |
Total operating expenses | |
| 1,219,347 | | |
| 1,502,771 | | |
| 4,639,437 | | |
| 4,953,289 | |
Loss from operations | |
| (1,235,240 | ) | |
| (1,269,059 | ) | |
| (4,292,219 | ) | |
| (4,356,079 | ) |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (754,488 | ) | |
| (186,004 | ) | |
| (1,769,289 | ) | |
| (362,784 | ) |
Costs of reverse merger transaction | |
| — | | |
| — | | |
| — | | |
| (365,547 | ) |
Private placement costs | |
| (582,347 | ) | |
| — | | |
| (668,230 | ) | |
| — | |
Gain on extinguishment of derivative liability | |
| — | | |
| 40,548 | | |
| 2,586,732 | | |
| 40,548 | |
Change in fair value of derivative liabilities | |
| 129,182 | | |
| (125,026 | ) | |
| 2,602,392 | | |
| (73,892 | ) |
Net loss | |
$ | (2,442,893 | ) | |
$ | (1,539,541 | ) | |
$ | (1,540,614 | ) | |
$ | (5,117,754 | ) |
Net loss per share: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.02 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | (0.04 | ) |
Shares used in computing net loss per share: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 156,891,289 | | |
| 120,649,951 | | |
| 146,930,440 | | |
| 120,635,914 | |
See
accompanying notes which are an integral part of these condensed consolidated financial statements.
Saleen
Automotive, Inc. and Subsidiaries
Condensed
Consolidated Statement of Stockholders’ Deficit (Unaudited)
For
the nine month period ended December 31, 2014
| |
| | |
| | |
| | |
| | |
Additional | | |
| | |
| |
| |
Common Stock $0.001 Par | | |
Preferred Stock $0.001 Par | | |
Paid In | | |
Accumulated | | |
Stockholders’ | |
| |
Number | | |
Amount | | |
Number | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance, March 31, 2014 | |
| 137,710,501 | | |
$ | 137,711 | | |
| — | | |
$ | — | | |
$ | 10,431,174 | | |
$ | (19,865,514 | ) | |
$ | (9,296,629 | ) |
Fair value of shares issued for services | |
| 1,000,000 | | |
| 1,000 | | |
| | | |
| | | |
| 169,000 | | |
| | | |
| 170,000 | |
Reclass of amounts settled through the issuance of equity securities | |
| 1,285,460 | | |
| 1,285 | | |
| | | |
| | | |
| 469,249 | | |
| | | |
| 470,534 | |
Shares issued for cash | |
| 1,183,334 | | |
| 1,183 | | |
| | | |
| | | |
| 176,317 | | |
| | | |
| 177,500 | |
Shares issued upon exercise of warrants | |
| 50,000 | | |
| 50 | | |
| | | |
| | | |
| 7,450 | | |
| | | |
| 7,500 | |
Shares issued as consideration for the amendments of convertible notes | |
| 747,066 | | |
| 747 | | |
| | | |
| | | |
| 111,312 | | |
| | | |
| 112,059 | |
Fair value of shares issued upon conversion of convertible notes and accrued interest | |
| 18,032,186 | | |
| 18,032 | | |
| | | |
| | | |
| 894,063 | | |
| | | |
| 912,095 | |
Fair value of shares issued as payments on notes payable and accrued interest | |
| 3,222,060 | | |
| 3,222 | | |
| | | |
| | | |
| 534,013 | | |
| | | |
| 537,235 | |
Fair value of shares issued upon settlement of accounts payable | |
| 4,731,836 | | |
| 4,732 | | |
| | | |
| | | |
| 137,223 | | |
| | | |
| 141,955 | |
Fair value of beneficial conversion feature associated with convertible debt financing | |
| | | |
| | | |
| | | |
| | | |
| 250,000 | | |
| | | |
| 250,000 | |
Fair value of stock-based compensation | |
| | | |
| | | |
| | | |
| | | |
| 580,933 | | |
| | | |
| 580,933 | |
Net loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (1,540,614 | ) | |
| (1,540,614 | ) |
Balance, December 31, 2014 | |
| 167,962,443 | | |
$ | 167,962 | | |
| — | | |
$ | — | | |
$ | 13,760,734 | | |
$ | (21,406,128 | ) | |
$ | (7,477,432 | ) |
See
accompanying notes which are an integral part of these condensed consolidated financial statements.
Saleen
Automotive Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows (Unaudited)
| |
Nine month periods ended
December 31, | |
| |
2014 | | |
2013 | |
Cash flows from operating activities | |
| | | |
| | |
Net loss | |
$ | (1,540,614 | ) | |
$ | (3,578,213 | ) |
Adjustments to reconcile net (loss) to net cash used in operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 150,323 | | |
| 46,744 | |
Change in fair value of derivative liabilities | |
| (2,602,392 | ) | |
| (51,132 | ) |
Gain on extinguishment of derivative liability | |
| (2,586,732 | ) | |
| — | |
Gain on settlement of notes payable and accounts payable, related party | |
| (89,938 | ) | |
| — | |
Amortization of discount on convertible notes | |
| 1,496,290 | | |
| 108,341 | |
Fair value of share based compensation | |
| 580,933 | | |
| — | |
Costs of private placement | |
| 668,230 | | |
| — | |
Fair value of shares issued for directors fees to related parties | |
| — | | |
| 250,000 | |
Fair value of shares issued as principal payment on notes payable | |
| — | | |
| 24,697 | |
Loss on shares issued as payment on settlement of accounts payable | |
| 58,886 | | |
| — | |
Fair value of shares issued for services | |
| 170,000 | | |
| 279,481 | |
Changes in working capital: | |
| | | |
| | |
(Increase) Decrease in: | |
| | | |
| | |
Cash held in trust account | |
| — | | |
| 175,000 | |
Accounts receivable | |
| 27,730 | | |
| (42,282 | ) |
Inventory | |
| 31,456 | | |
| (8,706 | ) |
Prepaid expenses and other assets | |
| 98,932 | | |
| (21,597 | ) |
Increase (Decrease) in: | |
| | | |
| | |
Accounts payable | |
| (185,459 | ) | |
| 330,154 | |
Due to related parties | |
| 196,787 | | |
| 50,173 | |
Payroll taxes payable | |
| (34,325 | ) | |
| 307,916 | |
Accrued interest | |
| 220,566 | | |
| (37,647 | ) |
Customer deposits | |
| 928,255 | | |
| (268,667 | ) |
Deferred vendor consideration | |
| 275,000 | | |
| — | |
Other liabilities | |
| 8,829 | | |
| 62,553 | |
Net cash used in operating activities | |
| (2,127,243 | ) | |
| (2,373,185 | ) |
Cash flows from investing activities | |
| | | |
| | |
Purchases of property and equipment | |
| (218,685 | ) | |
| (237,729 | ) |
Net cash used in investing activities | |
| (218,685 | ) | |
| (237,729 | ) |
Cash flows from financing activities | |
| | | |
| | |
Proceeds from senior secured notes payable | |
| — | | |
| 3,000,000 | |
Proceeds from unsecured convertible notes | |
| 638,225 | | |
| — | |
Proceeds from unsecured convertible notes - related parties | |
| 250,000 | | |
| — | |
Proceeds from notes payable – related parties | |
| 195,000 | | |
| — | |
Principal payments on notes payable – related parties | |
| — | | |
| (203,243 | ) |
Principal payments on notes payable | |
| (326,751 | ) | |
| (177,031 | ) |
Proceeds from issuance of common stock | |
| 185,000 | | |
| — | |
Net cash provided by financing activities | |
| 941,474 | | |
| 2,619,726 | |
Net (decrease) increase in cash | |
| (1,404,454 | ) | |
| 8,812 | |
Cash at beginning of period | |
| 1,499,889 | | |
| 4,434 | |
Cash at end of period | |
$ | 95,435 | | |
$ | 13,246 | |
(continued)
Saleen
Automotive Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(continued)
| |
Nine
month periods ended December 31: | |
| |
2014 | | |
2013 | |
Supplemental schedule of non-cash financing activities: | |
| | | |
| | |
Derivative liability related to conversion feature | |
$ | 1,306,455 | | |
$ | 1,660,056 | |
Issuance of common stock on conversion of secured convertible Notes Payable
and accrued interest | |
| 596,953 | | |
| — | |
Issuance of common stock on conversion of unsecured convertible Notes payable
and accrued interest | |
| 315,142 | | |
| — | |
Issuance of common stock on payment of interest on notes payable | |
| 537,235 | | |
| 24,697 | |
Issuance of common stock as settlement of accounts payable | |
| 141,955 | | |
| — | |
Fair value of beneficial conversion feature | |
| 250,000 | | |
| — | |
Fair value of shares issued in exchange for amendment of convertible debts recorded as debt discount | |
| 112,059 | | |
| — | |
Accounts payable to be settled by equities securities | |
| 75,000 | | |
| — | |
Reclass of amounts to be settled through the issuance of equity securities | |
| 470,534 | | |
| — | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid during the year for | |
| | | |
| | |
Interest | |
$ | 21,408 | | |
$ | 44,292 | |
Income taxes | |
$ | — | | |
$ | — | |
See
accompanying notes which are an integral part of these condensed consolidated financial statements.
Saleen
Automotive Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
Three
and Nine Month Periods Ended December 31, 2014 and 2013
The
accompanying condensed consolidated financial statements of Saleen Automotive, Inc. and subsidiaries (“Saleen,” “we,”
“us, “our” and “our Company”) have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and the rules and regulations of the Securities and
Exchange Commission. Accordingly, the unaudited condensed consolidated financial statements do not include all information and
footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments,
consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not
necessarily indicative of results that may be expected for the fiscal year ending March 31, 2015, or for any other interim period.
These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial
statements as of and for the year ended March 31, 2014, which are included in the Company’s Annual Report on Form 10-K for
such year filed on June 30, 2014. The consolidated balance sheet as of March 31, 2014, has been derived from the audited financial
statements included in the Form 10-K filed on June 30, 2014.
NOTE
1 – NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description
of the Company
The
Company designs, develops, manufactures and sells high performance vehicles built from base chassis’ of Ford Mustangs, Chevrolet
Camaros, Dodge Challengers and Tesla Model S vehicles. The Company is a low volume vehicle design, engineering and manufacturing
company focusing on the mass customization (the process of customizing automobiles that are mass produced by the manufacturers
(Ford, Chevrolet, Dodge and Tesla) of OEM American Sports and Electric Vehicles. A high performance car is an automobile that
is designed and constructed specifically for speed and performance. The design and construction of a high performance car involves
not only providing a capable power train but also providing the handling, aerodynamics and braking systems to support it. The
Company’s Saleen-branded products include a complete line of upgraded high performance vehicles, automotive aftermarket
specialty parts and lifestyle accessories.
History
of the Company
Saleen
Automotive, Inc. (formerly W270, Inc.) was incorporated under the laws of the State of Nevada on June 24, 2011. The Company issued
5,000,000 shares of its common stock to Mr. Wesley Fry (“Fry”) at inception. Following its formation, the Company
issued an additional 1,000,000 shares of its common stock to Fry. On June 21, 2012, the Company issued 2,000,000 shares of its
common stock for a total of $20,000.
On
November 30, 2012, Fry and W-Net Fund I, L.P. (“W-Net”), entered into a Stock Purchase Agreement (the “Purchase
Agreement”), pursuant to which Fry sold to W-Net 75.0% of the issued and outstanding shares of the Company’s common
stock.
Merger
On
May 23, 2013, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Saleen California
Merger Corporation, its wholly-owned subsidiary, Saleen Florida Merger Corporation, its wholly-owned subsidiary, Saleen Automotive,
Inc. (“Saleen Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive, the “Saleen
Entities”) and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”).
The closing (the “Closing”) of the transactions contemplated by the Merger Agreement (the “Merger”) occurred
on June 26, 2013. At the Closing (a) Saleen California Merger Corporation was merged with and into SMS with SMS surviving as one
of the Company’s wholly-owned subsidiaries; (b) Saleen Florida Merger Corporation was merged with and into Saleen Automotive
with Saleen Automotive surviving as one of the Company’s wholly-owned subsidiaries; (c) holders of the outstanding capital
stock of Saleen Automotive received an aggregate of 554,057 shares of the Company’s Super Voting Preferred Stock, which
was subsequently converted into 69,257,125 shares of the Company’s common stock and holders of the outstanding capital stock
of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of the Company’s
common stock (on a fully-diluted basis) was owned, collectively, by Saleen Parties (including 341,943 shares of the Company’s
Super Voting Preferred Stock, which was subsequently converted into 42,742,875 shares of the Company’s common stock, issued
to Saleen pursuant to the Assignment and License Agreement) and the former holders of the outstanding capital stock of Saleen
Automotive. As a result of the Merger the Company is solely engaged in the Saleen Entities’ business, Saleen Automotive’s
then officers became the Company’s officers and Saleen Automotive’s then three directors became members of the Company’s
five-member board of directors. On June 17, 2013, the Company consummated a merger with WSTY Subsidiary Corporation, its wholly-owned
subsidiary, pursuant to which the Company amended its articles of incorporation to change its name to Saleen Automotive, Inc.
In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars. In January
2014, the Company effected an increase in the number of its common shares authorized to 500,000,000 and all the remaining shares
of Super Voting Preferred Stock were converted into common stock of the Company and the Super Voting Preferred Stock ceased to
be a designated series of the Company’s preferred stock.
As
the owners and management of Saleen Automotive had voting and operating control of the Company after the Merger, the transaction
was accounted for as a recapitalization with the Saleen Entities deemed the acquiring companies for accounting purposes, and the
Company deemed the legal acquirer. Due to the change in control, the condensed consolidated financial statements reflect the historical
results of the Saleen Entities prior to the Merger and that of the consolidated company following the Merger. Common stock and
the corresponding capital amounts of the Company pre-Merger have been retroactively restated as of the earliest periods presented
as capital stock reflecting the exchange ratio in the Merger. The amount of debt assumed upon the Merger of $39,547, legal and
closing costs of $46,000, and a dividend of an aggregate amount of $280,000 paid to our stockholders as of May 23, 2013 have been
reflected as a cost of the Merger in the statement of operations for the nine months ended December 31, 2013.
Consolidation
Policy
The
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Saleen Automotive,
Inc., a Florida corporation, Saleen Signature Cars, a California corporation and Saleen Sales Corporation, a California corporation.
Intercompany transactions and balances have been eliminated in consolidation.
Reclassification
of Certain Prior Year Information
The
Company has reclassified certain prior year amounts to conform to the current year presentation. This included reclassification
of promotional trade discount expenses of $68,974 and $120,847 for the three and nine month periods ended December 31, 2013, respectively,
to revenue from sales and marketing expenses. The reclassification of these amounts had no impact on consolidated net loss or
cash flows.
Going
Concern
The
Company’s condensed consolidated financial statements have been presented on the basis that it is a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the nine months
ended December 31, 2014, the Company incurred an operating loss of $4,292,219 and utilized $2,127,243 of cash in operations. The
Company also had a stockholders’ deficit and working capital deficit of $7,477,432 and $6,372,235, respectively, as of December
31, 2014, and as of that date, the Company owed $635,250 in past unpaid payroll taxes; $1,295,705 of accounts payable was greater
than 90 days past due; $352,795 of outstanding notes payable were in default; and $365,998 is owed to a bank in March 2015. These
factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s independent
auditors, in their audit report for the year ended March 31, 2014, expressed substantial doubt about the Company’s ability
to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going concern.
The
Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately
achieve sustainable revenues and profitable operations. At December 31, 2014 the Company had cash on hand in the amount of $95,435
and is not generating sufficient funds to cover current production and operations. During the nine months ended December 31, 2014,
the Company raised $888,225 through the issuance of convertible notes, $195,000 through the issuance of notes payable to related
parties, and entered into Subscription Agreements with individual accredited investors (the “Subscribers”) pursuant
to which the Subscribers purchased from the Company an aggregate of 1,183,334 of restricted common shares at a per share price
of $0.15 for aggregate proceeds of $177,500. In addition, on January 26, 2015 the Company entered into two 3% Senior Secured Convertible
Notes in the principal amount of $499,892 (see Note 10). However, additional funding will be needed to continue operations through
March 31, 2015. In addition, the Company will need and is currently seeking additional funds, primarily through the issuance of
debt or equity securities for cash to operate its business through and beyond March 31, 2015. No assurance can be given that any
future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the
Company is able to obtain additional financing, it may contain undue restrictions and covenants on its operations, in the case
of debt financing or cause substantial dilution for its stockholders in the case of convertible debt and equity financing.
Use
of Estimates
Financial
statements prepared in accordance with accounting principles generally accepted in the United States require management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Among other things, management estimates include the
estimated collectability of its accounts receivable, the valuation of the S7 Supercar held for sale, the valuation of long lived
assets, warranty reserves, the assumptions used to calculate derivative liabilities, and equity instruments issued for financing
and compensation. Actual results could differ from those estimates.
Fair
Value of Financial Instruments
The
Company accounts for the fair value of financial instruments in accordance with the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (ASC) topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS
No. 157 “Fair Value Measurements”. ASC 820 defines “fair value” as the price that would be received for
an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date.
Authoritative
guidance provided by the FASB defines the following levels directly related to the amount of subjectivity associated with the
inputs to fair valuation of these financial assets:
Level
1 Quoted prices in active markets for identical assets or liabilities.
Level
2 Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly.
Level
3 Unobservable inputs based on the Company’s assumptions.
The
Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, accrued liabilities,
customer deposits, and notes payable. The carrying amounts of such financial instruments in the accompanying balance sheets approximate
their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed
to any significant currency or credit risks arising from these financial instruments.
As
of December 31, 2014 and March 31, 2014, the Company’s condensed consolidated balance sheets included the fair value of
a derivative liabilities of $1,150,116 and $5,032,786, respectively, which was based on Level 2 measurements. There were no other
investments or liabilities of the Company measured and recorded at fair value as of December 31, 2014 and March 31, 2014.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities
are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument
could be required within 12 months of the balance sheet date.
To
determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, the Company uses
a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, the Company
reviews its convertible securities to determine their classification is appropriate.
Inventories
|
|
December
31, 2014 |
|
|
March
31, 2014 |
|
|
|
(unaudited) |
|
|
|
|
Parts
and work in process |
|
$ |
152,485 |
|
|
$ |
183,941 |
|
S7 Supercar held
for sale |
|
|
250,000 |
|
|
|
250,000 |
|
Total inventories |
|
$ |
402,485 |
|
|
$ |
433,941 |
|
Income
Taxes
The
Company accounts for income taxes under FASB ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC
740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The
Company maintains a valuation allowance with respect to deferred tax assets. The Company established a valuation allowance based
upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial
position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence
of sufficient taxable income within the carry forward period under the Federal tax laws.
Changes
in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of any
related deferred tax asset. Any change in the valuation allowance would be included in income in the year of the change in estimate.
Stock
Compensation
The
Company uses the fair value recognition provision of ASC 718, “Stock Compensation,” which requires the Company to
expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value
of such instruments. The Company uses the Black-Scholes-Merton option pricing model to calculate the fair value of any equity
instruments on the grant date that vests over a period of time.
The
Company also uses the provisions of ASC 505-50, “Equity Based Payments to Non-Employees,” to account for stock-based
compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the
services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement
date guidelines enumerated in ASC 505-50.
Loss
per Share
The
basic EPS is calculated by dividing the Company’s net loss available to common stockholders by the weighted average number
of common shares during the period. The diluted EPS is calculated by dividing the Company’s net loss available to common
stockholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number
of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity securities
unless the effects thereof are anti-dilutive, that is inclusion of such shares would reduce the net loss or increase the net income.
For the three and nine months ended December 31, 2014 and 2013, the basic and diluted shares outstanding were the same, as potentially
dilutive shares were considered anti-dilutive. As of December 31, 2014, stock options, warrants, and convertible notes convertible
or exercisable into 7,271,333, 13,313,099, and 139,159,937 shares of common stock, respectively, have been excluded from diluted
loss per share because they are anti-dilutive. As of December 31, 2013, warrants and notes convertible or exercisable into 3,786,666
and 38,992,296 shares of common stock, respectively, have been excluded from diluted loss per share because they are anti-dilutive.
Weighted
average number of shares outstanding has been retroactively restated for the equivalent number of shares received by the accounting
acquirer as a result of the reverse merger as if these shares had been outstanding as of the beginning of the earliest period
presented. Weighted average shares outstanding include, as of the earliest period presented, the equivalent number of common shares
that were converted upon conversion of all the Super Voting Preferred Stock, as these shares have the same characteristics of
common stock.
Significant
Concentrations
Sales
to three separate customers comprised 28%, 11% and 10%, respectively, and one separate customer comprised 13% of revenues for
the three and nine months ended December 31, 2014, respectively. Two different customers comprised 63% and 37% of accounts receivable
as of December 31, 2014. One customer comprised 17% of revenues for the three months ended December 31, 2013. No customers comprised
revenues in excess of 10% during the nine months ended December 31, 2013 and no customers comprised accounts receivable in excess
of 10% at March 31, 2014.
Recently
Issued Accounting Standards
In
April 2014, the FASB issued Accounting Standards Update No. 2014-08 (ASU 2014-08), Presentation of Financial Statements (Topic
205) and Property, Plant and Equipment (Topic 360). ASU 2014-08 amends the requirements for reporting discontinued operations
and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic
shift in operations or that have a major effect on the Company’s operations and financial results should be presented as
discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. Adoption
of ASU 2014-08 will not have an impact on the Company’s results of operations or financial condition.
On
May 28, 2014, the FASB issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers. ASU
2014-09 will eliminate transaction and industry specific revenue recognition guidance under current U.S. GAAP and replace it with
a principle-based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based
on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about
the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments
and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for
reporting periods beginning after December 15, 2016, and early adoption is not permitted. Entities can transition to the standard
either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently evaluating the
impact, if any, on adopting ASU 2014-09 on the Company’s results of operations or financial condition.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Disclosure of Uncertainties about an Entity’s
Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties
in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s
ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide
certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.
The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter,
with early adoption permitted.
In
November 2014, the FASB issued Accounting Standards Update No. 2014-16 (ASU 2014-16), Determining Whether the Host Contract in
a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in this
ASU do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in
a hybrid financial instrument is required. The amendments clarify that an entity should consider all relevant terms and
features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract.
The ASU applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form
of a share and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2015. Early adoption is permitted.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future condensed consolidated financial statements.
NOTE
2 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
December
31, 2014 |
|
|
March
31, 2014 |
|
Tooling |
|
$ |
627,186 |
|
|
$ |
470,399 |
|
Equipment |
|
|
321,189 |
|
|
|
264,837 |
|
Leasehold
improvements |
|
|
203,310 |
|
|
|
203,311 |
|
Construction-in-progress |
|
|
5,546 |
|
|
|
— |
|
Total,
cost |
|
|
1,157,231 |
|
|
|
938,548 |
|
Accumulated
depreciation and amortization |
|
|
(542,045 |
) |
|
|
(391,724 |
) |
Total
Property, Plant and Equipment |
|
$ |
615,186 |
|
|
$ |
546,824 |
|
Depreciation
and amortization expense was $40,608 and $18,588 for the three months ended December 31, 2014 and 2013, respectively, and was
$150,323 and $46,744 for the nine months ended December 31, 2014 and 2013, respectively.
NOTE
3 – NOTES PAYABLE
Notes
payable are comprised as follows:
|
|
December
31, 2014 |
|
|
March
31, 2014 |
|
Senior
secured note payable to a bank, secured by all assets of Saleen Signature Cars, guaranteed by the U.S. Small Business Administration
and personally guaranteed by the Company’s CEO, payable in full in March 2015 (1) |
|
$ |
365,998 |
|
|
$ |
442,479 |
|
Subordinated
secured bonds payable, interest at 6% per annum payable at various maturity dates, currently in default (2) |
|
|
97,000 |
|
|
|
97,000 |
|
Subordinated
secured note payable, interest at 6% per annum, payable March 16, 2010, currently in default (3) |
|
|
61,046 |
|
|
|
61,046 |
|
Subordinated
secured note payable for legal services rendered, non-interest bearing, payable on October 25, 2013, currently in default
(4) |
|
|
37,749 |
|
|
|
37,749 |
|
Note
and bond payable (5) |
|
|
- |
|
|
|
517,500 |
|
Unsecured
notes payable, interest at 10% per annum payable on various dates from July 31 to March 31, 2010, currently in default (6) |
|
|
55,000 |
|
|
|
120,000 |
|
Total
notes payable |
|
$ |
616,793 |
|
|
$ |
1,275,774 |
|
(1) |
On
February 6, 2014, Saleen Signature Cars received a Complaint from the bank filed in California Superior Court, Riverside County
alleging, among other matters, breach of contract due to non-timely payment of November and December 2013 principal amounts
owed, which were paid as of March 31, 2014, and the occurrence of a change in control as a result of the Merger. The bank
sought full payment of principal and interest owed. In April 2014, the Company entered into a settlement arrangement with
the bank whereby the bank dismissed this case in exchange for payment of $124,000 that was applied towards principal and unpaid
fees along with advance loan principal and interest through July 2014 and required the Company to pay all then outstanding
amounts owed under the loan in August 2014. In August, the bank agreed to extend the requirement of full payment to November
2014 for a payment of $30,000. In November 2014, the bank agreed to further extend the requirement of full payment to March
2015 in exchange for a payment of $60,000, of which $40,000 was paid in December 2014 and $20,000 was paid in January 2015.
The bank requires the Company to pay all the then outstanding amounts owed under the loan in March 2015. As of the date of
this filing, the Company expects to be in default unless the bank agrees to another extension, the outcome of which is uncertain. |
(2) |
Bonds
and notes issued on March 1, 2008, 2009 and 2010, payable in full upon one year from issuance. The Bonds accrue interest at
6% per annum and are secured by the personal property of Saleen Signature Cars. As of December 31, 2014 and March 31, 2014,
respectively, the Bonds were in default due to non-payment. |
|
|
(3) |
Note
payable issued on March 16, 2010 due in full on March 16, 2011. The note accrued interest at 10% per annum and was secured
by three vehicles held in inventory by Saleen Signature Cars. On June 7, 2013, the Company entered into a Settlement Agreement
and Mutual General Release by canceling this note and issuing a new unsecured 6% note payable due on or before August 19,
2013. The note was in default as of December 31, 2014 and March 31, 2014 due to non-payment. |
|
|
(4)
|
Non-interest
bearing note payable dated January 25, 2013 due in full on October 25, 2013 or earlier upon the occurrence of certain events.
The note is secured by certain intellectual property of the Company. The note was in default as of December 31, 2014 and March
31, 2014 due to non-payment. |
|
|
(5)
|
As
of March 31, 2014, the Company was indebted on a $317,500 subordinated 6% bond and a $200,000 10%, note payable. On May 7,
2014, the Company, along with its subsidiaries and Steve Saleen, entered into a Settlement Agreement and Mutual Release (the
“Settlement Agreement”) with Thomas Del Franco and Jason B. Cruz (the “Del Franco Parties”), pursuant
to which the Del Franco Parties agreed to fully and finally settle a claim filed against the Company for outstanding Bond
and note payables to Thomas Del Franco, which consisted of a Bond and note payable of $317,500 and $200,000, respectively,
and unpaid interest of $187,535 in exchange for (1) the Company’s payment to Mr. Del Franco of $250,000 (the “Settlement
Payment”) and (2) issuance of 2,250,000 shares of the Company’s common stock (the “Settlement Shares”
and together with the Settlement Payment, the “Settlement Amount”). The Settlement Shares had a value of $382,500
based on the closing price of the Company’s common stock on May 7, 2014 of $0.17. The parties to the Settlement Agreement
also agreed to release each other from all claims arising from their prior business dealings. The Del Franco Parties have
agreed to a contractual restriction on the sale of the Settlement Shares whereby for a period of 12 months from and after
the expiration of any applicable restricted periods imposed by applicable federal and state securities laws and regulations,
including Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), the Del Franco Parties
will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, more than
200,000 of the Settlement Shares in any given calendar month. The Company recognized a gain of $72,265 in the Statement of
Operations during the nine months ended December 31, 2014 based on the difference between the value of the common shares and
the amount recorded as of the date of settlement. |
|
|
(6)
|
As
of March 31, 2014, the Company had outstanding $100,000 and $20,000 unsecured 10% notes payable. In June 2014, the Company
entered into a Settlement Agreement and Mutual Release agreement with Jim Marsh American Corporation (“Marsh”)
for one of the notes that had an outstanding principal and interest of $100,000 and $53,374, respectively, in exchange for
(1) issuance of 800,000 shares of its common stock and (2) cash payment of $35,000. The Company issued the common shares in
June 2014 and determined the value to be $112,000, which was based on the value of the common stock of $0.14 as of the date
of settlement. The remaining cash payment of $35,000 was unpaid and was included in notes payable as of December 31, 2014.
In addition, the other $20,000 Note remains outstanding as of December 31, 2014. |
NOTE
4 – NOTES PAYABLE TO RELATED PARTIES
Notes
payable to related parties are as follows:
|
|
December
31, 2014 |
|
|
March
31, 2014 |
|
Unsecured
note payable to a stockholder, due on April 1, 2014, currently in default. (1) |
|
$ |
102,000 |
|
|
$ |
102,000 |
|
Unsecured note
payable to a stockholder, interest at 10% per annum payable at various maturity dates, settled in April 2014. (2) |
|
|
— |
|
|
|
32,452 |
|
Unsecured 10%
note payable to a stockholder, payable on demand |
|
|
180,000 |
|
|
|
— |
|
Unsecured $100,000
revolving promissory note to a stockholder, interest at 10% per annum payable in full in November 2014. (3) |
|
|
90,000 |
|
|
|
75,000 |
|
Total
notes payable, related parties |
|
$ |
372,000 |
|
|
$ |
209,452 |
|
(1) |
The
Company had borrowed an aggregate of $102,000 from a stockholder in prior years, which went into default. On May 21, 2013,
the Company entered into a Settlement Agreement and Mutual General Release by cancelling the note and agreeing to enter into
a new note to pay $135,000 on or before April 1, 2014, which represented principal of $102,000 plus interest of $33,000 to
be accrued through April 1, 2014. The note was in default as of December 31, 2014 due to non-payment. |
|
|
(2)
|
Unsecured
note payable to a related party issued on November 3, 2008 for original principal of $60,000 bearing interest at 10% per annum
and due in full on February 10, 2009. In April 2014, the Company entered into a Settlement Agreement and Mutual General Release
with this note holder whereby it agreed to issue 527,520 shares of its common stock along with a five-year warrant to purchase
527,520 shares of its common stock at an exercise price of $0.15 per share in exchange for cancellation of $32,452 of principal
and $1,960 of accrued interest. The value of the common stock issued was $105,504 based on a stock price of $0.20 on date
of settlement. The Company valued the warrants at $82,662 using the Black-Scholes-Merton option pricing model using the following
assumptions: (i) fair market value of stock of $0.21; (ii) dividend yield of 0%; (iii) expected volatility of 100%; (iv) risk
free rate of 1.75% and (v) expected term of 5 years. The loss on the settlement of this note of $153,754 was provided for
and accrued for as of March 31, 2014. |
|
|
(3) |
In
January 2015, the note holder and the Company agreed to cancel this revolver and role the then principal and interest outstanding
into a convertible note under the same terms as the 3% Senior secured convertible notes discussed in Note 5. See Note 10 for
further discussion. |
NOTE
5 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable are as follows:
|
|
December
31, 2014 |
|
|
March
31, 2014 |
|
3%
Senior secured convertible notes payable to a private accredited investor group, convertible into 27,995,547 shares of common
stock (including accrued interest) as of December 31, 2014, interest accrued at 3% per annum, notes mature on June 25, 2017
|
|
$ |
2,001,720 |
|
|
$ |
2,586,732 |
|
|
|
|
|
|
|
|
|
|
7%
Unsecured convertible notes payable to private accredited investor group, convertible into 82,484,267 shares of common stock
(including accrued interest) as of December 31, 2014, interest accrued at 7% per annum, notes mature in March 2017 |
|
|
2,200,000 |
|
|
|
2,250,000 |
|
|
|
|
|
|
|
|
|
|
Unsecured
convertible notes payable to eight separate private accredited investors, convertible into 35,782,732 shares of common stock
(including accrued interest) as of December 31, 2014, interest accrued at 8% to 12% per annum, notes mature on various dates
from April 2015 to December 2016 |
|
|
638,225 |
|
|
|
— |
|
|
|
|
4,839,945 |
|
|
|
4,836,732 |
|
Less:
discount on notes payable |
|
|
(3,002,975 |
) |
|
|
(3,498,981 |
) |
Notes
payable, net of discount |
|
|
1,836,970 |
|
|
|
1,337,751 |
|
Less:
notes payable, current |
|
|
(149,229 |
) |
|
|
— |
|
Notes
payable, long-term |
|
$ |
1,687,741 |
|
|
$ |
1,337,751 |
|
As
of December 31, 2014, $149,229 was included in current portion of convertible notes payable, which represented convertible notes
payable of $638,225 less debt discount of $488,996.
3%
Senior secured convertible notes
On
June 26, 2013, pursuant to a Securities Purchase Agreement, the Company issued senior secured convertible notes, having a total
principal amount of $3,000,000, to 12 accredited investors. The balance of convertible notes outstanding as of March 31, 2014
was $2,586,732. During the nine months ended December 31, 2014, note holders converted $585,012 of principal and $11,941 of accrued
and unpaid interest into 8,032,186 shares of the Company’s common stock. The balance of the convertible notes outstanding
as of December 31, 2014 was $2,001,720 and is convertible into 27,995,547 shares of Common Stock including accrued and unpaid
interest. The Notes pay 3.0% interest per annum with a maturity of 4 years (June 25, 2017) and are secured by all assets and intellectual
property of the Company. No cash interest payments will be required, except that accrued and unconverted interest shall be due
on the maturity date and on each conversion date with respect to the principal amount being converted, provided that such interest
may be added to and included with the principal amount being converted.
Each
Note is convertible at any time into the Company’s common stock at a specified conversion price, which was $0.075 per share
as of December 31, 2014. Prior to June 2014, the Note conversion price was subject to specified adjustments for certain changes
in the numbers of outstanding shares of the Company’s common stock, including conversions or exchanges thereof, and the
agreements included an anti-dilution provision that allowed for the automatic reset of the conversion or exercise price upon any
future sale of the Company’s common stock instruments at or below the then current exercise price. In June 2014, in exchange
for the issuance in aggregate of 389,923 shares of common stock valued at $58,488, the Company entered into a First Amendment
to Saleen Automotive, Inc. 3.0% Secured Convertible Note (“3% First Amendment”) to remove all specified adjustments
to the conversion price except for standard anti-dilution provisions whereby if the Company consummates a reorganization transaction,
pays dividends or enters into a stock split of its common shares the conversion price would adjust proportionally. In addition,
if a Fundamental Transaction, as defined, were to occur the potential liquidated damages was set to a fixed amount. The Company
recorded $58,488 as additional debt discount related to the value of the 389,923 shares issued, which is being amortized over
the remaining term of the Notes. In January 2015, the Notes were amended to adjust the conversion price to equal the lesser of
(i) $0.075 and (ii) 70% of the average of the three lowest volume weighted average prices (“VWAP”) occurring during
the twenty consecutive trading days immediately preceding the applicable conversion date, but not less than $0.02 per share (see
Note 10).
The
Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock”
which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless
of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own
stock. Accordingly, the Company determined that prior to June 2014, the conversion prices of the notes were not a fixed amount
because they were subject to adjustment based on the occurrence of future offerings or events. As a result, the Company determined
that the conversion feature was not considered indexed to the Company’s own stock and characterized the fair value of these
conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the notes on June 26,
2013, the initial fair value of the embedded beneficial conversion feature was $1,660,656. This amount was determined by management
with the use of an independent valuation specialist using a Monte Carlo simulation option pricing model. As such, the Company
recorded a $1,660,656 derivative liability with an offsetting change to valuation discount upon issuance for financial reporting
purposes. As a result of the 3% First Amendment entered into in June 2014, the conversion price was considered indexed to the
Company’s own stock and was no longer subject to fluctuation based on the occurrence of future offerings or events except
for standard anti-dilution provisions whereby if the Company consummates a reorganization transaction, pays dividends or enters
into a stock split of its common shares the conversion price would adjust proportionally. As a result, the Company determined
that the derivative liability was extinguished in June 2014 (See Note 6).
During
the nine months ended December 31, 2014 and 2013, the Company amortized $270,701 and $215,348, respectively, of the valuation
discount as additional interest expense. During the nine months ended December 31, 2014, the Company wrote off the remaining unamortized
debt discount allocated to the convertible notes of $209,364 to interest expense. As of December 31, 2014 and March 31, 2014,
the remaining unamortized valuation discount of $827,105 and $1,248,981, respectively, has been offset against the face amount
of the notes for financial statement purposes.
7%
Unsecured convertible notes
In
March and April 2014, as amended in June 2014, the Company issued 7% Unsecured Convertible Notes, having a total principal amount
of $2,250,000 and $250,000, respectively, to 5 accredited investors of which $2,000,000 was received from 3 investors who participated
in the June 26, 2013 offering above. The Notes were issued in a private placement, exempt from the Securities Act registration
requirements. During the nine months ended December 31, 2014 one note holder converted $300,000 of principal and $15,808 of accrued
interest into 10,000,000 shares of the Company’s common stock. The Notes pay 7.0% interest per annum with a maturity of
3 years (March and April, 2017). No cash payments are required, except that unconverted outstanding principal and accrued interest
shall be due and payable on the maturity date. Each Note is initially convertible at any time into the Company’s common
stock at a conversion price, which is adjustable to the lower of $0.07 or the three lowest daily volume weighted average prices
of the Company’s common stock during the twenty consecutive trading days immediately preceding any conversion date. However,
in no event shall the conversion price be lower than $0.03 per share. In addition, the conversion price adjusts for standard anti-dilution
provisions whereby if the Company consummates a reorganization transaction, pays dividends or enters into a stock split of its
common shares the conversion price would adjust proportionally. As of December 31, 2014, the principal balance of the convertible
Notes outstanding was $2,200,000 and is convertible into 77,169,100 shares of Common Stock including accrued and unpaid interest.
In
June 2014, in exchange for the issuance in aggregate of 357,143 shares of its common stock valued at $53,571, the Company entered
into a First Amendment to Saleen Automotive, Inc. 7% Convertible Note whereby effective as of March 31, 2014 or the applicable
issuance date for notes issued thereafter, the conversion price would in no event adjust below $0.03 per share. In addition, if
a Fundamental Transaction, as defined, were to occur the potential liquidated damages was set to a fixed amount. The Company recorded
$53,571 as additional debt discount related to the value of the shares issued, which is being amortized over the remaining term
of the Notes.
As
the initial conversion price of $0.07 reflected a price discount below the fair market value of the Company’s common stock
as of the issuance date of the Notes, the Company determined that there was deemed a beneficial conversion feature associated
with these Notes. As such, the Company recorded $2,250,000 and $250,000 in March 2014 and April 2014, respectively, representing
the intrinsic value of the beneficial conversion feature at the issuance date of the Notes in additional paid-in capital. The
value of the beneficial conversion feature is being amortized as additional interest expense over the term of the Notes, which
totaled $631,168 for the nine months ended December 31, 2014. As of December 31 and March 31, 2014, the remaining unamortized
valuation discount of $1,689,735 and $2,250,000, respectively, has been offset against the face amount of the notes for financial
statement purposes.
Unsecured
convertible notes
From
September 2014 to December 2014, the Company issued Convertible Promissory Notes (“Notes”) in the aggregate principal
amount of $638,225 to eight separate accredited investors. The Notes bear interest ranging from 8% to 12% per annum and mature
on various dates from April 2015 to December 2016. The Company may prepay the Notes within periods ranging from 90 to 180 days
after issuance subject to a premium between 110% and 150% of the then outstanding amount due depending on the date of payment.
After this period, the Company may not prepay the Notes, with the exception of one note in the principal amount of $40,000. Further,
the Notes contain provisions that under certain events of default, as defined in the agreements, the amount owed could increase
by amounts ranging from 135% to 150% depending on the event of default. In addition, in the event of non-payment when due, the
interest rates would increase to between 20% and 25% per annum from the date due until paid.
The
Notes are convertible into shares of Common Stock of the Company at the option of the holder commencing on the various dates following
the date of the Notes and ending on the later of the maturity date or date of full payment of principal and interest. The principal
amount of the Notes along with, at the holder’s option, any unpaid interest and penalties, are convertible at price per
share discounts ranging from 42% to 38% of the Company’s common stock trading market price during a certain time period,
as defined in the agreement. Further, the conversion prices are subject to a floor such that the conversion prices will not be
less than a certain price, as defined in the agreement, with such floor prices ranging from $0.001 to $0.00005 per share. In addition,
the conversion prices are subject to adjustment in certain events, such as in conjunction with any sale, conveyance or disposition
of all or substantially all of the Company’s assets or consummation of a transaction or series of related transactions in
which the Company is not the surviving entity. As of the December 31, 2014 and assuming that the holders had the right to convert
the Notes, the Notes would have been convertible into approximately 35,782,732 shares of Common Stock. Per the Notes, the Company
is required to reserve 153,000,000 shares of Common Stock for the conversion of these Notes.
The
Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment
to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or
not within the issuers’ control means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined
that the conversion prices of the notes were not a fixed amount because they were subject to an adjustment based on the occurrence
of future offerings or events. In addition, the Company determined that instruments with floor prices ranging from $0.001 to $0.00001
were de minimis and in substance not indexed to the Company’s own stock. As a result, the Company determined that the conversion
features of the notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion
features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value
of the embedded conversion feature was $1,306,455. The Company determined this amount by using a weighted-average Black-Scholes-Merton
model using the following assumptions: (i) fair market value of stock as of the date of issuance of the note ranging from $0.03
to $0.07; (ii) dividend yield of 0%; (iii) expected volatility ranging from 124% to 139%; (iv) risk free rates ranging from .04%
to .55%; and (v) expected term ranging from 0.75 to 2.0 years. As such, the Company recorded a $1,306,455 derivative liability,
of which $638,225 was recorded as debt discount offsetting the fair value of the Notes and the remainder of $668,230 recorded
as an expense included in other income (expense) in the Condensed Consolidated Statement of Operations for the nine months ended
December 31, 2014. As of December 31, 2014, the Company amortized $149,229 of the valuation discount, and the remaining unamortized
valuation discount of $488,996 as of December 31, 2014 has been offset against the face amount of the Notes for financial statement
purposes. The remainder of the valuation discount will be amortized as interest expense over the remaining term of the Notes.
The derivative liability is re-measured at the end of every reporting period with the change in value reported in the statement
of operations (see Note 6).
NOTE
6 – DERIVATIVE LIABILITY
In
June 2008, the FASB issued authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an
entity’s own stock. Under the authoritative guidance, effective January 1, 2009, instruments, which do not have fixed settlement
provisions, are deemed to be derivative instruments. The conversion feature of the Company’s senior secured convertible
notes and unsecured convertible notes (described in Note 5 above), did not have fixed settlement provisions because their conversion
prices could be lowered if the Company issues securities at lower prices in the future or the ultimate determination of shares
to be issued could exceed current available authorized shares. In accordance with the FASB authoritative guidance, the conversion
feature of the notes was separated from the host contract (i.e., the notes) and recognized as a derivative instrument. The conversion
feature of the notes had been characterized as a derivative liability and was re-measured at the end of every reporting period
with the change in value reported in the statement of operations.
In
June 2014 the Company entered into a First Amendment to Saleen Automotive, Inc. 3.0% Secured Convertible Note to remove all specified
adjustments to the conversion price except for standard anti-dilution provisions whereby if the Company consummates a reorganization
transaction pays dividends or enters into a stock split of its common shares the conversion price would adjust proportionally.
As a result of this amendment, after June 17, 2014 the Company no longer recognized a derivative liability related to these notes.
During
2014 the derivative liability was valued at the following dates using a Weighted-Average Black-Scholes-Merton model with the following
assumptions:
| |
December
31, 2014 | | |
September
to December, 2014
(Dates
of Inception) | | |
March 31, 2014 | |
Conversion feature: | |
| | | |
| | | |
| | |
Risk-free interest rate | |
| 0.04
– 0.55 | % | |
| 0.02 | % | |
| 0.05 | % |
Expected volatility | |
| 128 | % | |
| 124
- 139 | % | |
| 100 | % |
Expected life (in years) | |
| .3
– 1.9 years | | |
| .75
to 2.0 years | | |
| .25
years | |
Expected dividend yield | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | |
Fair Value: | |
| | | |
| | | |
| | |
Conversion feature | |
$ | 1,150,117 | | |
$ | 1,306,455 | | |
$ | 5,032,786 | |
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company used its own stock’s volatility
as the estimated volatility. The expected life of the conversion feature of the notes was based on the remaining terms of the
notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its common stockholders
in the past and does not expect to pay dividends to its common stockholders in the future.
The
Company recognized income of $129,182 and $2,602,392 as other income (expense) during the three and nine months ended December
31, 2014, respectively, and an expense of $125,026 and $73,892 as other income (expense) during the three and nine months ended
December 31, 2013, respectively, which represented the change in the fair value of derivative liability from the previous reporting
period. In addition, the Company recognized a gain of $2,586,732 upon extinguishment of the derivative liability as of June 17,
2014 related to the 3% convertible notes.
NOTE
7 – RELATED PARTY TRANSACTIONS
The
amounts of accounts payable to related parties as of December 31 and March 31, 2014 are as follows:
Related
Party: |
|
December
31, 2014 |
|
|
March
31, 2014 |
|
Steve
Saleen (a) |
|
$ |
184,275 |
|
|
$ |
100,000 |
|
Michaels Law Group
(b) |
|
|
— |
|
|
|
23,954 |
|
Top Hat Capital
(c) |
|
|
62,500 |
|
|
|
25,000 |
|
Crystal Research
(d) |
|
|
6,343 |
|
|
|
— |
|
|
|
$ |
253,118 |
|
|
$ |
148,954 |
|
(a)
|
During
the nine months ended December 31, 2014 and 2013, the Company incurred $84,275 and $131,787 in officers’ salary expense
that is due and payable to its Director, Chairman and CEO, Mr. Steve Saleen. As of December 31, 2014 and March 31, 2014, the
Company owed $184,275 and $100,000, respectively, to Mr. Saleen for his unpaid officers’ salary. |
|
|
(b)
|
During
the nine months ended December 31, 2014 and 2013, the Company incurred $68,969 and $158,459, respectively, in General Counsel
Services and legal fees expense with Michaels Law Group, a firm owned by its Director and General Counsel, Mr. Jonathan Michaels.
During the nine months ended December 31, 2014 and 2013, the Company paid $550 and $32,041, respectively, to Michaels Law
Group. As of March 31, 2014, $23,954 was payable to Michaels Law Group for these services. In January 2015, the Company entered
into a Fee Reduction Agreement with Michaels Law Group whereby Michaels Law Group reduced the amount owed to $75,000 and the
Company agreed to issue 2,500,000 shares of Common Stock to Michaels Law Group as full payment. The value of the Common Stock
issued of $75,000 was based on a fair value of $0.03 per share and was reflected as Accounts to be settled by Common Stock
in the Company’s Condensed Consolidated Balance Sheet as of December 31, 2014. |
|
|
(c)
|
During
the nine months ended December 31, 2014, the Company incurred and paid $50,000 and $12,500, respectively, in investment advisor
and research services from Top Hat Capital, whose co-founder and Managing Partner, Jeffrey Kraws, is a Director of the Company.
As of December 31, 2014 and March 31, 2014, $62,500 and $25,000, respectively, was payable to TopHat Capital for these services. |
|
|
(d) |
During
the nine months ended December 31 2014, the Company incurred and paid $31,343 and $25,000, respectively, for research report
services to Crystal Research Associates, whose co-founder and Chief Executive Officer, Jeffrey Kraws, is a Director of the
Company. As of December 31, 2014 $6,343 was payable to Crystal Research Associates for these services. |
Other
Transactions
During
the nine months ended December 31, 2013, the Company incurred $230,860 in accounting advisory and CFO services with Miranda &
Associates, a firm owned by its former Chief Financial Officer, Mr. Robert Miranda.
During
the nine months ended December 31, 2013, the Company issued 5,277 shares of its Super Voting Preferred stock or the equivalent
of 659,625 shares of its Common Stock, to Robert J. Miranda and Jonathan Michaels (329,811 common shares each). These shares were
valued at $250,000, which was recorded as director’s fee expense. These shares were issued in consideration of Messrs. Miranda’s
and Michaels’ service on the Company’s board of directors.
NOTE
8 – STOCKHOLDERS’ EQUITY
Issuance
of common stock
During
the nine months ended December 31, 2014, the Company entered into Subscription Agreements with individual accredited investors
(the “Subscribers”) pursuant to which the Subscribers purchased an aggregate of 1,183,334 restricted shares of the
Company’s common stock at a per share price of $0.15 for aggregate proceeds of $177,500, and also received Common Stock
Purchase Warrants to purchase 1,183,334 shares of the Company’s common stock at an exercise price of $0.15 per share.
During
the nine months ended December 31, 2014, the Company issued 1,000,000 shares of common stock valued at $170,000 in in exchange
for services.
During
the nine months ended December 31, 2014, the Company issued 1,285,460 shares of common stock to settle $470,534 of previously
recorded accounts to be settled through issuance of equity securities. As a result, the Company reclassified the $470,534 from
a liability as of March 31, 2014 to equity during the nine months ended December 31, 2014.
On
December 19, 2014, the Company entered into a Settlement Agreement and Mutual Release with a vendor whereby the Company agreed
to issue 4,731,836 shares of common stock in exchange for extinguishment of amount owed of $141,955. The value of the common stock
was based on a fair value of $0.03 per share. The Company recorded $58,885 as expense related to the difference between $141,955
fair value of common stock issued and $83,070 amount recorded as accounts payable as of the date of settlement.
During
the nine months ended December 31, 2013, the Company issued the equivalent of 12,178 shares of its Super Voting Preferred Stock
or 1,522,250 shares of its common stock in exchange for the settlement of claims, conditions of employment, director’s fees,
and payment of information technology services. These shares were valued at $576,981 based on management’s estimate of value
of the shares issued and was recorded as general and administration expense.
Omnibus
Incentive Plan
In
January 2014, the Company’s board of directors approved the 2014 Omnibus Incentive Plan (the “Plan”), which
is administered by the Company’s board of directors or a committee thereof (the “Administrator”) as set forth
in the Plan. The Plan provides for the granting of stock options, stock appreciation rights, restricted share awards and restricted
stock units to employees, directors (including non-employee directors), advisors and consultants. Grants under the Plan vest and
expire based on periods determined by the Administrator, but in no event can the expiration date be later than ten years from
the date of grant (five years after the date of grant if the grant is an incentive stock option to an employee who owns more than
10% of the total combined voting power of all classes of the Company’s capital stock (a “10% owner”)). Grants
of stock options may be either incentive stock options or nonqualified stock options. The per share exercise price on an option,
other than with respect to substitute awards, shall not be less than 100% of the fair market value of the Company’s common
stock on the date the option is granted (110% of the fair market value if the grant is to a 10% owner). A total of 28,905,763
shares of common stock have been authorized for issuance and reserved under the Plan. The Plan was approved by the Company’s
stockholders on January 13, 2014.
The
Company utilizes the Black-Scholes option valuation model to estimate the fair value of stock options granted. The Company’s
assessment of the estimated fair value of stock options is affected by the Company’s stock price as well as assumptions
regarding a number of complex and subjective variables and the related tax impact.
Stock
option activity is set forth below:
| |
Number
of Shares | | |
Weighted
Average Exercise Price per Share | | |
Aggregate
Intrinsic Value | | |
Weighted-Average
Remaining Contractual Term (in years) | |
Balance at March 31, 2014 | |
| — | | |
$ | — | | |
$ | — | | |
| — | |
Options granted during the period | |
| 14,104,000 | | |
| 0.10 | | |
| — | | |
| — | |
Options cancelled during the period | |
| — | | |
| — | | |
| — | | |
| — | |
Options exercised during the period | |
| — | | |
| — | | |
| — | | |
| — | |
Balance at December 31, 2014 | |
| 14,104,000 | | |
| 0.10 | | |
| nil | | |
| 9.67 | |
Exercisable at December 31, 2014 | |
| 7,271,333 | | |
| 0.10 | | |
| nil | | |
| 9.72 | |
Expected to vest after December 31, 2014 | |
| 6,322,100 | | |
| 0.10 | | |
| nil | | |
| 9.67 | |
The
aggregate intrinsic value shown in the table above represents the difference between the fair market value of the Company’s
common stock of $0.03 on December 31, 2014 and the exercise price of each option.
During
the nine months ended December 31, 2014, the Company recorded stock compensation expense of $580,933 of which $56,805, $229,305,
and $294,822 was included in research and development, sales and marketing, and general and administrative expenses, respectively.
There were no options outstanding during the nine months ended December 31, 2013. Unearned compensation of $489,484 at December
31, 2014, related to non-vested stock options, will be recognized into expense over a weighted average period of 1.2 years.
Warrants
The
following summarizes warrant activity for the Company during the nine months ended December 31, 2014:
|
|
|
Warrants |
|
|
Weighted
Average Exercise Price |
|
|
Weighted
Average Remaining
Contractual Term |
|
Outstanding
March 31, 2014 |
|
|
|
11,252,245 |
|
|
$ |
0.15 |
|
|
|
4.3 |
|
Issued
during the period |
|
|
|
2,110,854 |
|
|
|
0.15 |
|
|
|
4.3 |
|
Exercised
during the period |
|
|
|
(50,000 |
) |
|
|
0.15 |
|
|
|
— |
|
Outstanding
December 31, 2014 |
|
|
|
13,313,099 |
|
|
$ |
0.15 |
|
|
|
4.1 |
|
During
the nine months ended December 31, 2014, warrants to purchase 50,000 shares of the Company’s common stock were exercised
for total proceeds of $7,500. As of December 31, 2014, 13,313,099 warrants were exercisable and the intrinsic value of the warrants
was nil.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Purchase
Commitments
In
April 2014, the Company entered into an agreement with BASF to exclusively use BASF’s products for paint work. The agreement
continues from May 2014 until the Company purchases in aggregate $4,131,000 of BASF products. If the aggregate purchases of BASF
products are less than $1,697,000 over a period of 36 consecutive months, the Company is required to repay BASF 6.1% of the shortfall
between $1,697,000 and the amount it actually purchased over this period. In consideration for the Company’s exclusive use
of BASF’s products and fulfilling this purchase commitment, BASF paid the Company $250,000, which was recorded as deferred
vendor consideration. This amount will be recorded as a reduction of cost of services based on a systematic and rational allocation
of the cash consideration offered to the underlying transaction.
In
May 2014, the Company entered into an agreement with FinishMaster, Inc. (“FinishMaster”) to exclusively use FinishMaster’s
paint material supplies. The agreement continues from May 2014 until the Company purchases in aggregate $1,555,000 of FinishMaster
products. In consideration for the Company’s exclusive use of FinishMaster’s products and fulfilling this purchase
commitment, FinishMaster paid the Company $25,000, which was recorded as deferred vendor consideration, and FinishMaster will
pay an additional $25,000 upon the achievement of purchase level milestones, as outlined in the agreement. Should the Company
not complete a set purchase level milestone, the Company would be required to re-pay the $25,000 along with $11,475 compensation
to FinishMaster. This initial amount paid will be recorded as a reduction of cost of services based on a systematic and rational
allocation of the cash consideration offered to the underlying transaction.
Litigation
The
Company is involved in certain legal proceedings that arise from time to time in the ordinary course of its business. The Company
is currently a party to several legal proceedings related to claims for payment that are currently accrued for in its financial
statements as accrued liabilities, accounts or notes payable. Except for income tax contingencies (commencing April 1, 2009),
the Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that
the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred.
Material legal proceedings that are currently pending are as follows:
SSC
is the plaintiff in a case filed against Douglas Lopez & Rumm, LLP, Diana Lopez and Dana Douglas on October 16, 2012 in the
California Superior Court, Orange County, for legal malpractice for their failure to adequately represent SSC in its litigation
against Connects Marketing for the installation of defective engines in SSC vehicles. The defendants filed a cross-complaint against
SSC and Saleen for payment for legal services rendered in the amount of $10,000. Defendant Dana Douglas has filed bankruptcy,
and all claims against her have been stayed. In May 2014, SSC settled this matter in exchange for payment from Defendant Diana
Lopez of $15,000, via monthly payments. Payments are to continue through approximately September 2015, after which this matter
will be dismissed.
SSC
is the plaintiff in a case filed against Inland Empire Auto Body & Paint, Inc. (“Inland Empire”) on August 8,
2012 in the California Superior Court, Riverside County, for breach of contract related to several paint jobs performed by Inland
Empire on SSC vehicles. In July 2014, SSC settled this matter in exchange for payment of $15,000 from Inland Empire, payable via
monthly payments. Payments are to continue through approximately March 2016, after which this matter will be dismissed. In conjunction
with the Fee Reduction Agreement entered into with Michaels Law Group in January 2015, the Company has assigned the rights to
receive payments from Inland Empire to Michaels Law Group.
SSC
is a defendant in a case filed by MSY Trading, Inc. on April 13, 2012 in the California Superior Court, Riverside County, that
claimed breach of contract related to an engine installed by a third party vendor. The suit claimed $200,000 in damages plus interest,
legal fees and costs of litigation. The Company filed a cross complaint against MSY Trading, Inc. for breach of warranty, negligence,
and indemnification. On January 10, 2014, the Company settled this claim by agreeing to pay of $112,500 over a period of 18 months
of which the Company paid $45,500 through August 2014. Subsequent to this date the Company has defaulted on payments. On October
30, 2014, a judgment was entered against SSC in the amount of $68,950, which the Company has accrued for in accounts payable.
In
December 2014, the Company received a Complaint from Green Global Automotive B.V. (“GAA”) alleging causes of action
for breach of contract and breach of the covenant of good faith and fair dealing, related to a European Distribution Agreement
entered into in December 2011 between GAA and Saleen Electric Automotive, Inc., which was merged into the Company in June 2013.
The suit seeks contract and economic damages of $50,000 along with compensatory damages, restoration, lost profits and attorneys’
fees. Management is currently evaluating the merits of this case, if any, and is working to ascertain the impact on the Company’s
financial statements, if any.
In
December 2014, the Company received a Complaint from Ford of Escondido for 1) claim and delivery of personal property, 2) money
due on a contract, and 3) common count. The Company and Home Heller Ford, which was merged into Ford of Escondido, are parties
to a supply agreement entered into in May 2013. Specifically, Ford of Escondido seeks payment of seven (7) Ford Mustangs for a
total of $222,871 plus interest and attorneys’ fees, less any amounts to be credited to the Company pursuant to proceeds
of sale. As of December 31, 2014, the Company has included in accounts payable the vehicles, which the Company believes are owed
to Ford of Escondido and disagrees with Ford of Escondido’s number of vehicles and related amount owed. As such, the Company
believes Ford of Escondido’s claims are without merit and has responded to the Complaint including claims that Ford of Escondido
breached said supply agreement. There has been no response to the Company’s position and the outcome is uncertain; however,
the Company believes this matter will not have a material impact, if any, on the Company’s financial statements.
Although
the Company’s management currently believes that resolving claims against the Company, individually or in aggregate, will
not have a material adverse impact on its financial statements, these matters are subject to inherent uncertainties and management’s
views of these matters may change in the future.
NOTE
10 – SUBSEQUENT EVENTS
3%
Senior Secured Convertible Notes
On
January 23, 2015, the Company entered into a First Amendment to Securities Purchase Agreement dated June 26, 2013 by and among
the Company and the related June 26, 2013 note holders (“June 2013 Notes”) whereby the note holders agreed to amend
the Securities Purchase Agreement entered into on June 26, 2013 to provide for the issuance of up to $600,000 in additional Notes
for a period up to June 26, 2015 under the same terms as the June 2013 Notes. In addition, the Company entered into a Second Amendment
to 3% Senior Secured Convertible Notes whereby the conversion price of the June 2013 Notes was amended to be the lesser of (a)
$0.075 and (b) 70% of the average of the three lowest VWAPs occurring during the twenty consecutive trading days immediately preceding
the applicable conversion date on which the note holders elects to convert all or part of the note. However, in no event shall
the conversion price be less than $0.02.
In
conjunction with these amendments, on January 26, 2015 the Company entered into two 3% Senior Secured Convertible Notes in the
principal amount of $499,892 with two accredited investors who participated in the June 26, 2013 offering of which $98,708 was
converted from a revolver entered into in November 2013 and owed as of December 31, 2014 (see Note 5). The Company will characterize
the fair value of the conversion features of these additional notes as a derivative liability upon issuance with the initial fair
value of the embedded feature determined to be $740,304. The Company determined this amount by using a weighted-average Black-Scholes-Merton
model using the following assumptions: (i) fair market value of stock as of the date of issuance of the Notes of $0.02; (ii) dividend
yield of 0%; (iii) expected volatility of 128%; (iv) risk free rate of .55%; and (v) expected term of 2.4 years. As such, the
Company will record $740,304 as a derivative liability, of which $449,892 will be recorded as debt discount offsetting the Notes
with $290,412 to be recorded as an expense. The valuation discount will be amortized as interest expense over the remaining term
of the 3% Senior Secured Convertible Notes. In addition, the derivative liability will be re-measured at the end of every reporting
period with the change in value reported in the statement of operations.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and
cash flows of Saleen Automotive, Inc. and subsidiaries for the three and nine months ended December 31, 2014 and 2013. The discussion
and analysis that follows should be read together with the financial statements of Saleen Automotive, Inc. and subsidiaries and
the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Except
for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and
Results of Operations are forward looking statements that involve risks and uncertainties and are based upon judgments concerning
various factors that are beyond our control. Such forward-looking statements include any expectation of earnings, revenues or
other financial items; any statements regarding the use of working capital, anticipated growth strategies and the development
of and applications for new technology; factors that may affect our operating results; statements concerning our customers and
expansion of our customer base; statements concerning new products; statements related to future economic conditions or performance;
and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing.
These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “will,”
or “plan,” and similar expressions or variations. These statements are based on the beliefs and assumptions of our
management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties
and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed
or implied by such forward-looking statements. Actual events or results may differ materially from our expectations. Important
factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include,
but are not limited to, our ability to successfully achieve profitability and positive cash flows from operations, our ability
to raise additional funds required to continue our operations and meet our planned business objectives, the dilutive impact of
the sale of equity securities to obtain needed additional financing, the potential issuance of shares or securities convertible
into or exchangeable for shares that would result in a change of control of our company in connection with a financing transaction,
the impact of changes in demand for our products, our success with new product development, our success with current dealers and
our ability to expand our dealer base, our ability to maintain or grow our market share, our ability to obtain Ford Mustang, Chevrolet
Camaro, Dodge Challenger and Tesla Model S platform vehicles, our effectiveness in managing development and manufacturing processes,
and the other risks as set forth under “Part I, Item 1A – Risk Factors” which are included in our Report on
Form 10-K for the year ended March 31, 2014 as filed on June 30, 2014. These forward-looking statements represent our judgment
as of the date hereof. We disclaim any intent or obligation to update these forward-looking statements. New factors emerge from
time to time, and their emergence is impossible for us to predict. In addition, we cannot assess the impact of each factor on
our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
General
Overview
We
design, develop, manufacture and sell high performance cars built from base chassis’ of Ford Mustangs, Chevrolet Camaros,
Dodge Challengers and Tesla Model S. We are a low volume specialist vehicle design, engineering and manufacturing company focusing
on the mass customization (the process of customizing automobiles that are mass produced by manufacturers (Ford, Chevrolet, Dodge
and Tesla)) of OEM American sports and electric vehicles and the production of high performance USA-engineered sports cars. Saleen-branded
products include a line of high performance and upgraded muscle and electric cars, automotive aftermarket specialty parts and
lifestyle accessories. A high performance car is an automobile that is designed and constructed specifically for speed. The design
and construction of a high performance car involves not only providing a capable power train but also providing the handling and
braking systems to support it. Muscle cars are any of a group of American-made 2-door sports coupes with powerful engines designed
for high performance driving. We are also planning to develop an American supercar. The term supercar describes an expensive (approximately
$250,000 or more), limited production, fast or powerful (capable of reaching speeds in excess of 180 miles per hour) sports car
with a centrally located engine.
Our
customers worldwide include muscle and high performance car enthusiasts, collectors, automotive dealers, exotic car retail dealers,
television and motion picture production, and consumers in the luxury supercar and motorsports market. We plan to develop a network
of company-owned branded stores to complement our existing retail dealer locations.
We
utilize automobile manufacturers Ford, Chevrolet, Dodge and Tesla platform vehicles for our muscle and high performance vehicle
production. All aftermarket parts and accessory products are engineered and manufactured exclusively by us. Our main retail outlets
for our products are authorized Ford, Chevrolert, Dodge and exotic car dealers.
We
plan to operate as a global high performance automotive brand and expand our production, sales and marketing operations extensively
within the markets of the USA and into multiple international markets. In March 2014, we entered into an agreement to distribute
the full collection of Saleen automobiles in China. We also plan to open our own retail outlets, market our expertise in specialist
engineering and design services to third party clients, and introduce our next generation American supercar.
Merger
On
May 23, 2013, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with Saleen California Merger Corporation,
our wholly-owned subsidiary, Saleen Florida Merger Corporation, our wholly-owned subsidiary, Saleen Automotive, Inc. (“Saleen
Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive, the “Saleen Entities”)
and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”). The closing (the
“Closing”) of the transactions (the “Merger”) occurred on June 26, 2013. At the Closing (a) Saleen California
Merger Corporation was merged with and into SMS with SMS surviving as one of our wholly-owned subsidiaries; (b) Saleen Florida
Merger Corporation was merged with and into Saleen Automotive with Saleen Automotive surviving as one of our wholly-owned subsidiaries;
(c) holders of the then outstanding capital stock of Saleen Automotive received an aggregate of 554,057 shares of our Super Voting
Preferred Stock, which was subsequently converted into 69,257,125 shares of our common stock and holders of the outstanding capital
stock of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of our common stock
(on a fully-diluted basis) was owned, collectively, by Saleen Parties (including 341,943 shares of our Super Voting Preferred
Stock, which was subsequently converted into 42,742,875 shares of our common stock, issued to Saleen pursuant to an Assignment
and License Agreement) and the former holders of the outstanding capital stock of Saleen Automotive. As a result of the Merger
we are solely engaged in the Saleen Entities’ business, Saleen Automotive’s officers became our officers and Saleen
Automotive’s three directors became members of our five-member board of directors. On June 17, 2013, we consummated a merger
with WSTY Subsidiary Corporation, our wholly-owned subsidiary, pursuant to which we amended our articles of incorporation to change
our name to Saleen Automotive, Inc. In October 2013, SMS effected an amendment to its articles of incorporation to change its
name to Saleen Signature Cars. In January 2014, we effected an increase in the number of our common shares authorized to 500,000,000
and all the remaining shares of Super Voting Preferred Stock were converted into our common stock and the Super Voting Preferred
Stock ceased to be a designated series of our preferred stock.
The
Merger was accounted for as a reverse merger (recapitalization) with the Saleen Entities deemed to be the accounting acquirers,
and our company deemed to be the legal acquirer. Accordingly, the following represents a discussion of the historical operations
of the Saleen Entities prior to the Merger and that of the consolidated company following the Merger. The accompanying condensed
consolidated financial statements are prepared as if we will continue as a going concern. Accordingly, the condensed consolidated
financial statements do not contain adjustments, including adjustments to recorded assets and liabilities, which might be necessary
if we were unable to continue as a going concern.
Critical
Accounting Policies
Information
with respect to our critical accounting policies which we believe have the most significant effect on our reported results and
require subjective or complex judgments of management are contained starting on page 31 in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended
March 31, 2014 as filed on June 30, 2014.
Three
Months Ended December 31, 2014 Compared to Three Months Ended December 31, 2013
Our
revenue, operating expenses, and net loss for the three months ended December 31, 2014 as compared to the three months ended December
31, 2013 were as follows – some balances on the prior period’s condensed consolidated financial statements have been
reclassified to conform to the current period presentation:
| |
For
the Three months ended | | |
| | |
Percentage | |
| |
December
31, | | |
| | |
Change | |
| |
2014 | | |
2013 | | |
Change | | |
Inc.
(Dec.) | |
Revenue,
net | |
$ | 536,895 | | |
$ | 1,007,179 | | |
$ | (470,284 | ) | |
| (47 | %) |
| |
| | | |
| | | |
| | | |
| | |
Costs
of goods sold | |
| 552,788 | | |
| 773,467 | | |
| (220,679 | ) | |
| (29 | %) |
Gross
margin (loss) | |
| (15,893 | ) | |
| 233,712 | | |
| (249,605 | ) | |
| (107 | %) |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 144,316 | | |
| 204,026 | | |
| (59,710 | ) | |
| (29 | %) |
Sales and marketing | |
| 232,666 | | |
| 251,103 | | |
| (18,437 | ) | |
| (7 | %) |
General and administrative | |
| 801,757 | | |
| 1,029,054 | | |
| (227,297 | ) | |
| (22 | %) |
Depreciation and Amortization | |
| 40,608 | | |
| 18,588 | | |
| 22,020 | | |
| 118 | % |
Total
operating expenses | |
| 1,219,347 | | |
| 1,502,771 | | |
| (283,424 | ) | |
| (19 | %) |
Loss
from operations | |
| (1,235,240 | ) | |
| (1,269,059 | ) | |
| 33,819 | | |
| (3 | %) |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (754,488 | ) | |
| (186,004 | ) | |
| (568,484 | ) | |
| 306 | % |
Private placement costs | |
| (582,347 | ) | |
| — | | |
| (582,347 | ) | |
| — | |
Gain on extinguishment of derivative liability | |
| — | | |
| 40,548 | | |
| (40,548 | ) | |
| (100 | %) |
Change in fair value of derivative liabilities | |
| 129,182 | | |
| (125,026 | ) | |
| (254,208 | ) | |
| (203 | %) |
Net
Loss | |
$ | (2,442,893 | ) | |
$ | (1,539,541 | ) | |
$ | (903,352 | ) | |
| 59 | % |
Revenues:
Revenue consists of sales of high performance vehicles and aftermarket retail parts. Our revenue from high performance muscle
car vehicles generally includes the base chassis (Mustang, Camaro or Challenger), on which we normally obtain a small margin,
and production conversion of the base Mustang, Camaro, Challenger and Tesla Model S chassis into a high performance vehicle. Parts
represent aftermarket retail sales of Saleen lifestyle accessories and Saleen-branded products and automotive aftermarket specialty
parts sold to our base of automotive vehicle enthusiasts in the U.S. and overseas. Additionally, many of these parts and accessories
are marketed and sold to the owners of Ford Mustangs, Chevrolet Camaros and Dodge Challengers.
Total
revenues for the three months ended December 31, 2014 were $536,895, a decrease of $470,284 or 47% from $1,007,179 for the three
months ended December 31, 2013. The decrease relates primarily to lower Mustang sales due to 1) the significant model changes
made by Ford to the base Mustang chassis, which requires us to make significant design and tooling modifications to our Saleen
Mustang, 2) no availability of the 2015 Ford Mustang base chassis, as Ford just recently began shipment of the 2015 models in
November 2014, and 3) traditionally from November through mid-January production in the auto industry slows due to the holidays
and the subsequent temporary shut down of plants and shipping causing delivery of cars to be interrupted. During the same period
in the prior year, the change from the 2013 to 2014 Mustang model year was minimal requiring little change to our Saleen Mustang
and the supply of vehicles was not as disruptive. Based on current orders for the 2015 Saleen Mustang models, we anticipate an
increase in volume for the Saleen Mustang and just recently started shipping our Saleen Mustang White Label models in February
2015.
Cost
of Goods Sold: Cost of goods sold consists of five major categories: base chassis, material, overhead, labor and purchased
process services. Chassis costs relate to the purchased Ford Mustang, Chevrolet Camaro or Dodge Challenger vehicles. Material
cost relates to the purchase of conversion parts used in the production of our high performance vehicles, and procurement of aftermarket
parts, which are manufactured by third party suppliers using our proprietary tools and molds developed by us. Overhead costs include
costs associated with manufacturing support, shop and warehouse supplies and expenses, small tools and equipment and other related
warehouse and production costs. Our labor costs include the cost of personnel directly related to the production of our high performance
vehicles and logistics of warehousing and shipping of our aftermarket parts. Purchased process services relate to the subcontracting
of specific manufacturing processes to outside contractors.
Total
costs of goods sold for the three months ended December 31, 2014 were $552,788, a decrease of $220,679 or 29% from $773,467 of
costs of goods sold for the three months ended December 31, 2013. The decrease was primarily attributable to the decrease in the
volume of vehicle sales during the three months ended December 31, 2014 as compared to the same period in the prior year.
Gross
Margin: Gross Margin from the sale of vehicles and parts decreased $249,605 to a net loss on margin of $15,893 for the three
months ended December 31, 2014 from a gross margin of $233,712 for the three months ended December 31, 2013. The decrease in gross
margin reflects the lower sales volume as compared to the same period in the prior year.
Research
and Development Expenses: Research and development expenses are expensed as incurred and represent engineering and design
salaries and benefits and costs incurred in the development of new products and processes, including significant improvements
and refinements to existing products and processes.
Research
and development expenses decreased by $59,710, or 29%, to $144,316 during the three months ended December 31, 2014 from $204,206
for the three months ended December 31, 2013. The decrease is primarily due to lower expenses related to outside services, as
we expanded our internal engineering team, which requires less outside development.
Sales
and Marketing Expense: Sales and marketing expenses relate to sales and marketing salaries and benefits, including our regional
sales representatives, and costs incurred to promote our existing and new products, such as attending car shows and promotion
through other media outlets, along with new car sales expenses such as commissions and incentives, and costs related to investor
relations.
Sales
and marketing expenses decreased by $18,437, or 7%, to $232,666 for the three months ended December 31, 2014 from $251,103 for
the three months ended December 31, 2013. Excluding $39,042 of non-cash stock based compensations related to employee grants of
stock options during the three months ended December 31, 2014, sales and marketing expenses decreased $57,479 for the three months
ended December 31, 2014 as compared to the same period in the prior year primarily due to 1) lower car show expenses, and 2) lower
public relations expenses from less use of outside services, offset somewhat by higher salaries due to expansion of in-house sales
personnel. There were no stock options issued during the three months ended December 31, 2013.
General
and Administrative Expense: General and administrative expenses include expenses for administrative salaries, including executive,
finance/accounting, information personnel and administrative support staff and benefits. Other general and administrative costs
also include occupancy costs of our facilities, travel and entertainment, auto, insurance, stock compensation, other office support
costs and professional fees, including outside accounting/audit, legal, and investor fund raising advisory services.
General
and administrative expenses decreased by $227,297, or 22%, to $801,757 for the three months ended December 31, 2014 from $1,029,054
for the three months ended December 31, 2013. Excluding non-cash stock based compensation of $179,082 for the three months ended
December 31, 2014, general and administrative expense decreased $406,379 during the three months ended December 31, 2014 as compared
to the same period in the prior year. The decrease was primarily due to 1) lower professional fees of $94,805, 2) one time settlement
costs of $115,000 incurred during the three months ended December 31, 2013 that was not incurred during the three months ended
December 31, 2014, 3) less auto, travel and entertainment costs of $54,611, and 4) lower salaries from decrease in general and
administrative personnel. There were no grants of stock options during the three months ended December 31, 2013.
Depreciation
and Amortization Expense: Depreciation and amortization expense relates to our depreciating and amortizing costs incurred
for leasehold improvements, equipment and tooling. Depreciation and amortization expense increased by $22,020, or 118%, to $40,608
for the three months ended December 31, 2014 from $18,588 for the three months ended December 31, 2013. This was primarily due
to increased spending on tooling used in production.
Interest
Expense: Interest expense increased by $568,484 or 306% to $754,488 for the three months ended December 31, 2014 from $186,004
for the three months ended December 31, 2013. The increase is primarily attributable to $664,222 of non-cash interest expense
during the three months ended December 31, 2014 as compared to $107,008 of non-cash interest expense during the three months ended
December 31, 2013. Non-cash interest relates to the amortization of the convertible debt discount on our convertible notes.
Private
Placement Costs: In conjunction with the issuance of convertible notes from October to December 2014, the conversion features
of such notes were bifurcated from the notes and recorded as derivative liability. The Company recorded a $1,064,572 derivative
liability with an offsetting charge to valuation discount of $482,225 with the remainder of $582,347 recorded as an expense included
in other income (expense) during the three months ended December 31, 2014. We incurred no similar expense during the three months
ended December 31, 2013.
Change
in Fair Value of Derivative Liability: In accordance with the FASB authoritative guidance, the conversion feature of certain
convertible notes issued by the Company was separated from the host contract (i.e., the notes) and recognized as a derivative
instrument. The conversion feature of these notes was characterized as a derivative liability that was re-measured at the end
of every reporting period with the change in value recognized as a gain or loss in our statement of operations. During the three
months ended December 31, 2014, we recorded a $129,182 gain due to the change in the derivative liability as compared to a loss
of $125,026 for the three months ended December 31, 2013.
Net
Loss: Net loss increased by $903,352, or 59%, to a net loss of $2,442,893 for the three months ended December 31, 2014 from
a net loss of $1,539,541 for the three months ended December 31, 2013. The increase in net loss primarily reflects the lower gross
margin experienced coupled with an increase in other expenses related to interest and private placement costs offset by a decrease
in operating expenses and favorable change in our derivative liability.
Nine
months Ended December 31, 2014 Compared to Nine Months Ended December 31, 2013
Our
revenue, operating expenses, and net loss from operations for the nine months ended December 31, 2014 as compared to the nine
months ended December 31, 2013 were as follows – some balances on the prior period’s condensed consolidated financial
statements have been reclassified to conform to the current period presentation:
| |
For
the Nine months ended | | |
| | |
Percentage | |
| |
December
31, | | |
| | |
Change | |
| |
2014 | | |
2013 | | |
Change | | |
Inc.
(Dec.) | |
Revenue,
net | |
$ | 3,072,596 | | |
$ | 3,449,875 | | |
$ | (377,280 | ) | |
| (11 | %) |
| |
| | | |
| | | |
| | | |
| | |
Costs
of goods sold | |
| 2,725,378 | | |
| 2,852,665 | | |
| (127,287 | ) | |
| (4 | %) |
Gross
margin | |
| 347,218 | | |
| 597,210 | | |
| (249,993 | ) | |
| (42 | %) |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 543,070 | | |
| 489,723 | | |
| 53,347 | | |
| 11 | % |
Sales and marketing | |
| 1,209,248 | | |
| 821,391 | | |
| 387,857 | | |
| 47 | % |
General and administrative | |
| 2,736,796 | | |
| 3,576,843 | | |
| (840,047 | ) | |
| (23 | %) |
Depreciation and Amortization | |
| 150,323 | | |
| 65,332 | | |
| 84,991 | | |
| 130 | % |
Total operating expenses | |
| 4,639,437 | | |
| 4,953,289 | | |
| (313,853 | ) | |
| (6 | %) |
Loss from operations | |
| (4,292,219 | ) | |
| (4,356,079 | ) | |
| 63,860 | | |
| (1 | %) |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (1,769,289 | ) | |
| (362,784 | ) | |
| (1,406,505 | ) | |
| 388 | % |
Costs of reverse merger transaction | |
| — | | |
| (365,547 | ) | |
| 365,547 | | |
| (100 | %) |
Private placement costs | |
| (668,230 | ) | |
| — | | |
| (668,230 | ) | |
| — | |
Gain on extinguishment of derivative liability | |
| 2,602,392 | | |
| 40,548 | | |
| 2,546,184 | | |
| 6,279 | % |
Change in fair value of derivative liabilities | |
| 2,602,392 | | |
| (73,892 | ) | |
| 2,676,284 | | |
| (3,622 | %) |
Net
Loss | |
$ | (1,540,614 | ) | |
$ | (5,117,754 | ) | |
$ | 3,577,140 | | |
| (70 | %) |
Revenues:
Revenue consists of sales of high performance vehicles and aftermarket retail parts. Our revenue from high performance muscle
car vehicles generally includes the base chassis (Mustang, Camaro or Challenger), on which we normally obtain a small margin,
and production conversion of the base Mustang, Camaro, Challenger and Tesla Model S chassis into a Saleen high performance vehicle.
Parts represent aftermarket retail sales of Saleen lifestyle accessories and Saleen-branded products and automotive aftermarket
specialty parts sold to our base of Saleen automotive vehicle enthusiasts in the U.S. and overseas. Additionally, many of these
parts and accessories are marketed and sold to the owners of Ford Mustangs, Chevrolet Camaros and Dodge Challengers.
Total
revenues for the nine months ended December 31, 2014 were $3,072,596, a decrease of $377,279 or 11% from $3,449,875 for the nine
months ended December 31, 2013. The decrease was primarily driven by the availability of Ford Mustang chassis, which was negatively
impacted revenues starting in May 2014, as Ford discontinued production of the 2014 Mustangs in order to switch to the new 2015
model, which represented a major model change requiring us to make significant design and tooling modifications to our Saleen
Mustang. In addition, due to the change in model years, Ford stopped producing the 2014 models in May 2014 and did not start to
ship the 2015 models until November 2014, which caused a significant decrease in the availability of chassis. During the same
period in the prior year, the change from the 2013 to 2014 Mustang model year was minimal requiring little change and the supply
of vehicles was not disruptive. Based on current orders for the 2015 Saleen Mustang models, we anticipate an increase in volume
for the Saleen Mustang and just recently started shipping our Saleen Mustang White Label models in February 2015.
Cost
of Goods Sold: Cost of goods sold consists of five major categories: base chassis, material, overhead, labor and purchased
process services. Chassis costs relate to the purchased Ford Mustang, Chevrolet Camaro or Dodge Challenger vehicles. Material
cost relates to the purchase of conversion parts used in the production of our high performance vehicles, and procurement of aftermarket
parts, which are manufactured by third party suppliers using our proprietary tools and molds developed by us. Overhead costs include
costs associated with manufacturing support, shop and warehouse supplies and expenses, small tools and equipment and other related
warehouse and production costs. Our labor costs include the cost of personnel related to the production of our high performance
vehicles and logistics of warehousing and shipping our aftermarket parts. Purchased process services related to the subcontracting
of specific manufacturing processes to outside contractors.
Total
costs of goods sold for the nine months ended December 31, 2014 were $2,725,378, a decrease of $127,287 or 4% from $2,852,665
of costs of goods sold for the nine months ended December 31, 2013. The decrease was primarily attributable to lower volume of
sales during the nine months ended December 31, 2014 as compared to the same period in the prior year.
Gross
Margin: Gross Margin from the sale of vehicles and parts decreased by $249,992 to $347,218, or 42%, for a gross margin of
11% for the nine months ended December 31, 2014 from a gross margin of $597,210, or 17%, for the nine months ended December 31,
2013. The decrease in gross margin was primarily driven by lower volume of sales coupled with higher costs to obtain the 2014
Mustang chassis due to short supply of such vehicles, as Ford discontinued production of the 2014 Mustang in May 2014 to switch
to the 2015 model.
Research
and Development Expenses: Research and development expenses are expensed as incurred and represent engineering and design
salaries and benefits and costs incurred in the development of new products and processes, including significant improvements
and refinements to existing products and processes.
Research
and development expenses increased by $53,347, or 11%, to $543,070 during the nine months ended December 31, 2014 from $489,723
for the nine months ended December 31, 2013. The increase was primarily related to $56,805 of non-cash stock based compensation
related to employee grants of stock options during the nine months ended December 31, 2014. There were no stock options issued
during the nine months ended December 31, 2013.
Sales
and Marketing Expense: Sales and marketing expenses relate to sales and marketing salaries and benefits, including our regional
sales representatives, and costs incurred to promote our existing and new products, such as attending car shows and promotion
through other media outlets, along with new car sales expenses such as commissions and incentives, and costs related to investor
relations.
Sales
and marketing expenses increased by $387,857, or 47%, to $1,202,248 for the nine months ended December 31, 2014 from $821,391
for the nine months ended December 31, 2013. Excluding non-cash stock based compensation of $229,314 incurred during the nine
months ended December 31, 2014, sales and marketing expenses increased by $158,543 driven by increased marketing efforts to promote
existing and new products, including our increased participation at various car shows; higher new car sales expenses related to
expansion of our sales team; and investor and public relations costs incurred to promote our company. There were no stock options
issued during the nine months ended December 31, 2013.
General
and Administrative Expense: General and administrative expenses include expenses for administrative salaries, including executive,
finance/accounting, information personnel and administrative support staff and benefits. Other general and administrative costs
also include occupancy costs of our facilities, travel and entertainment, auto, insurance, stock compensation, other office support
costs and professional fees, including outside accounting/audit, legal, and investor fund raising advisory services.
General
and administrative expenses decreased by $840,047, or 23%, to $2,736,796 for the nine months ended December 31, 2014 from $3,576,843
for the nine months ended December 31, 2013. The decrease is primarily comprised of $458,837 of lower professional fees primarily
related to merger activity during the nine months ended December 31, 2013 that was not incurred during the nine months ended December
31, 2014 as we did not have a comparable expense of this type; $224,639 of lower one time settlements of previous claims, as we
incurred a gain on settlements of $16,146 during the nine months ended December 31, 2014 as compared to a loss of $208,493 for
the nine months ended December 31, 2013; and $156,571 decrease in other expenses primarily due to lower general and administrative
expenses and headcount. General and administrative expenses included non-cash stock based compensation of $580,932 for the nine
months ended December 31, 2014 as compared to $504,481 for the nine months ended December 31, 2013.
Depreciation
and Amortization Expense: Depreciation and amortization expense relates to our depreciating and amortizing costs incurred
for leasehold improvements, equipment and tooling. Depreciation and amortization expense increased by $84,991, or 130%, to $150,323
for the nine months ended December 31, 2014 from $65,332 for the nine months ended December 31, 2013.
Interest
Expense: Interest expense increased by $1,406,505 or 388% to $1,769,289 for the nine months ended December 31, 2014 from $362,784
for the nine months ended December 31, 2013. The increase is primarily attributable to $1,496,271 of non-cash interest expense
during the nine months ended December 31, 2014 as compared to $224,146 of non-cash interest expense during the nine months ended
December 31, 2013. Non-cash interest relates to the amortization of the convertible debt discount on our convertible notes.
Expenses
of Reverse Merger Transaction: During the nine months ended December 31, 2013, we incurred $365,547 of expenses related to
the reverse merger transaction. This includes $39,547 of liabilities assumed, $46,000 in legal fees, and dividends of $280,000
paid to our existing stockholders prior to the Merger. We did not have a comparable expense of this type during the nine months
ended December 31, 2014.
Private
Placement Costs: In conjunction with the issuance of convertible notes from September to December 2014, the conversion features
of such notes was bifurcated from the notes and recorded as derivative liability. The Company recorded a $1,306,455 derivative
liability with an offsetting charge to valuation discount of $638,225 with the remainder of $668,230 recorded as an expense included
in other income (expense) during the nine months ended December 31, 2014. We incurred no similar expense during the nine months
ended December 31, 2013.
Gain
on Extinguishment of Derivative Liability: On June 17, 2014 we entered into a First Amendment to 3.0% Secured Convertible
Note whereby in exchange for the issuance of 389,923 shares of our common stock, the Note holders agreed to remove all specified
adjustments to the conversion price of these Notes except for standard anti-dilution provisions whereby if we consummate a reorganization
transaction that pays dividends or we enter into a stock split of our common shares, the conversion price would adjust proportionally.
As a result of this amendment, we recorded a gain of $2,586,732 during the nine months ended December 31, 2014, which represented
the remaining derivative liability as of June 17, 2014 and we no longer record a derivative liability.
Change
in Fair Value of Derivative Liability: In accordance with the FASB authoritative guidance, the conversion feature of certain
convertible notes issued by the Company was separated from the host contract (i.e., the notes) and recognized as a derivative
instrument. The conversion feature of these notes was characterized as a derivative liability that was re-measured at the end
of every reporting period with the change in value recognized as a gain or loss in our statement of operations. During the nine
months ended December 31, 2014, we recorded a $2,602,392 gain due to the change in the derivative liability from issuance date
of which $2,446,054 related to the June 17, 2014 amendment as compared to an expense of $73,892 for the nine months ended December
31, 2013.
Net
Loss: Net loss decreased by $3,577,140, or 70%, to a net loss of $1,540,614 for the nine months ended December 31, 2014 from
a net loss of $5,117,754 for the nine months ended December 31, 2013. The decrease in net loss was primarily attributable to $5,189,124
of non-cash gain we recorded on the change in the fair value and extinguishment of a derivative liability related to the issuance
of convertible notes. Excluding the impact on our net loss of the change in value and extinguishment of a derivative liability,
our net loss increased by $1,646,328 to a net loss of $6,729,738 for the nine months ended December 31, 2014 from a net loss of
$5,084,410 for the nine months ended December 31, 2013. This increase in net loss primarily reflects higher interest costs of
$1,406,505 as compared to the same period in prior year offset somewhat by non-recurring costs of reverse merger of $365,547 incurred
during the nine months ended December 31, 2013.
Liquidity
and Capital Resources
Our
working capital deficiency as of December 31, 2014 and March 31, 2014 are follows:
| |
As
of | | |
As
of | |
| |
December
31, 2014 | | |
March
31, 2014 | |
Current Assets | |
$ | 673,268 | | |
$ | 2,230,294 | |
Current Liabilities | |
| (7,045,503 | ) | |
| (5,280,580 | ) |
Net Working Capital Deficiency | |
$ | (6,372,235 | ) | |
$ | (3,050,286 | ) |
Summary
of cash flow activity for the nine months ended December 31, 2014 and December 31, 2013 are as follows:
Cash
Flows
| |
Nine
months | | |
Nine
months | |
| |
Ended | | |
Ended | |
| |
December
31, 2014 | | |
December
31, 2013 | |
Net cash used in Operating Activities | |
$ | (2,127,243 | ) | |
$ | (2,373,185 | ) |
Net cash used in Investing Activities | |
| (218,685 | ) | |
| (237,729 | ) |
Net cash provided by Financing Activities | |
| 941,474 | | |
| 2,619,726 | |
(Decrease) Increase in Cash during the nine month period | |
| (1,404,454 | ) | |
| 8,812 | |
Cash, Beginning of Period | |
| 1,499,889 | | |
| 4,434 | |
Cash, End of Period | |
| 95,435 | | |
| 13,246 | |
For
the nine months ended December 31, 2014 and 2013, our principal sources of liquidity have been obtained from cash provided by
financing, including through the private issuance of notes and sale of equity securities, along with customer deposits received
in advance of shipment and gross margin achieved from the sales of high performance vehicles and aftermarket parts. Our principal
uses of cash have been primarily to finance operations; expand our staff; develop new products and improve existing products;
expand marketing efforts to promote our products and company; and capital expenditures primarily for tooling. We anticipate that
significant additional expenditures will be necessary to develop and expand our automotive assets before sufficient and consistent
positive operating cash flows will be achieved including sufficient cash flows to service existing debt. Additional funds will
be needed in order to continue operations, obtain profitability and to achieve our objectives. As such, our cash resources are
insufficient to meet our current operating expense and production requirements and planned business objectives beyond March 31,
2015 without additional financing.
As
further presented in our condensed consolidated financial statements and related notes, during the nine months ended December
31, 2014, we incurred a loss from operations of $4,292,219 and utilized $2,127,242 of cash in operations. We also had a stockholders’
deficit and working capital deficit of $7,477,432 and $6,073,564, respectively as of December 31, 2014, and as of that date, we
owed $635,250 in past unpaid payroll taxes, $352,795 of our outstanding notes payable were in default and $1,295,715 of our accounts
payable is greater than 90 days past due. These factors raise substantial doubt about our ability to continue as a going concern.
Our
ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve revenues
at a level that will achieve profitably and generate positive cash flows from operations. At December 31 2014, we had cash on
hand in the amount of $95,435 and we are not generating funds from operations to cover current operating expenses and will have
to obtain additional financing. During the nine months ended December 31, 2014, we raised $888,225 through the issuance of convertible
notes, $195,000 through the issuance of notes payable to related parties, and entered into Subscription Agreements with individual
accredited investors (the “Subscribers”) pursuant to which the Subscribers purchased an aggregate of 1,183,334 of
our restricted common shares at a per share price of $0.15 for aggregate proceeds of $177,500. However, additional funding will
be needed to continue operations through March 31, 2015. In addition, we will need and are currently seeking additional funds,
primarily through the issuance of debt or equity securities for cash to operate our business beyond March 31, 2015. No assurance
can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us.
Even if we are able to obtain additional financing, such financing may contain undue restrictions and covenants on our operations,
in the case of debt financing or cause substantial dilution for our stockholders (including the issuance of securities sufficient
to result in a change in control of our company), in the case of equity financing.
At
December 31, 2014, we had a working capital deficit of $6,372,235 compared to a working capital deficit of $3,050,286 at March
31, 2014. The increase in working capital deficit primarily relates to the decrease in cash to $95,435 as of December 31, 2014
from $1,499,889 as of March 31, 2014. In addition, current liabilities increased by $1,466,252 to $6,746,832 as of December 31,
2014 from $5,280,580 as of March 31, 2014 primarily due to a derivative liability of $851,446, which we recorded in conjunction
with convertible notes issued from September to December 2014; $928,255 increase in customer deposits received during the nine
months ended December 31, 2014, including deposits received from signed orders for the 2015 Saleen Mustang; $275,000 in deferred
vendor consideration related to purchase commitment advances received from BASF and FinishMaster; and $104,164 increase in accounts
payable with related parities. The decrease in working capital was offset partially by the decrease in accounts payable of $268,529
due to payments on account and $347,204 decrease in notes payable.
Net
cash used in operating activities for the nine months ended December 31, 2013 totaled $2,127,242 after the net loss of $1,540,614
was increased by $2,133,448 in non-cash charges and decreased by $1,546,819 in net changes to the working capital accounts. This
compares to cash used in operating activities for the nine months ended December 31, 2013 of $3,375,364 after the net loss for
the period of $5,117,754 was decreased by $843,505 in non-cash charges and increased by $898,885 in changes to the working capital
accounts.
Net
cash used in investing activities was $218,685 for nine months ended December 31, 2014 as compared to $285,090 of cash used in
investing activities for the nine months ended December 31, 2013.
Net
cash provided by financing activities for the three months ended December 31, 2014 was $941,474. Of this amount, $888,225 came
through the issuance of our unsecured convertible notes, $177,500 came from the issuance of 1,183,344 shares of our common stock
and $195,000 came from issuances of notes to related parties. Cash of $326,751 was used to pay principal on long-term notes. This
compares to $3,666,860 in cash provided by financing activities during the nine months ended December 31, 2013, of which $3,000,000
was obtained through the issuance of our secured convertible notes; $544,000 was received through the issuance of our Common Stock;
$550,000 was obtained from a loan from a related party; partially offset by $203,245 used to pay principal payments on notes from
related parties and $223,895 used to pay principal on notes payable.
Defaults
on Notes and Accounts Payable
As
of December 31, 2014, we were in default on $352,795 of unsecured notes payable and $1,298,215 of accounts payable was past 90
days outstanding. While we are in discussions with the note holders and vendors to arrange extended payment terms, the initiation
of collection actions by these note holders and vendors may severely affect our ability to execute on our business plan and operations.
In addition, Saleen Signature Cars received a Complaint from a bank that previously issued a Senior Secured Note to Saleen Signature
Cars, which was filed on February 6, 2014 in California Superior Court, Riverside County. In April 2014, we entered into a settlement
arrangement with the bank whereby the bank dismissed this case in exchange for payment of $124,000 that was applied towards principal
and unpaid fees along with advance loan principal and interest through July 2014 and required us to pay all then outstanding amounts
owed under the loan in August 2014. In August and again in December 2014, the bank agreed to extend the requirement of full payment
to November 2014 and then March 2015, respectively, in exchange for payments of $30,000 and $60,000, respectively, of which $20,000
was paid in January 2015, and requires us to pay all the then outstanding amounts owed under the loan in March 2015. As of the
date of this filing, we expect to be in default unless the bank agrees to another extension the outcome of which is uncertain.
Off-Balance
Sheet Arrangements
We
have not entered into any off-balance sheet arrangements
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As
a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required
by this Item 3.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As
of December 31, 2014, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon
that evaluation, and notwithstanding that there were no accounting errors with respect to our financial statements, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of that
date to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that information
required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our
disclosure controls or internal controls over financial reporting were designed to provide only reasonable assurance that such
disclosure controls or internal control over financial reporting will prevent all errors or all instances of fraud, even as the
same are improved to address any deficiencies. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be only reasonable, not absolute assurance that any design will succeed in
achieving its stated goals under all potential future conditions. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Over time, controls
may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs.
Because
of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur
because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the controls.
Changes
in Internal Control
During
the nine months ended December 31, 2014, there were no changes in internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART
II – OTHER INFORMATION
ITEM
6. EXHIBITS
EXHIBIT
INDEX
Exhibit
Number |
|
Description
of Exhibit |
|
|
|
10.1 |
|
Form
of Securities Purchase Agreement between Saleen Automotive, Inc. and KMB Worldwide. |
10.2 |
|
Form
of Convertible Promissory Note issued by Saleen Automotive, Inc. to KMB Worldwide, Inc. |
10.3 |
|
Securities
Purchase Agreement dated October 14, 2014, between Saleen Automotive, Inc. and LG Capital Funding, LLC. |
10.4 |
|
Form
of Convertible Note issued by Saleen Automotive, Inc. to LG Capital Funding, LLC. |
10.5 |
|
Form
of Securities Purchase Agreement between Saleen Automotive, Inc. and JSJ Investments Inc. |
10.6 |
|
Form
of 10% Convertible Note issued by Saleen Automotive, Inc. to JSJ Investments Inc. |
10.7 |
|
Securities
Purchase Agreement dated December 3, 2014, between Saleen Automotive, Inc. and Rock Capital, LLC. |
10.8 |
|
Form
of Convertible Note issued by Saleen Automotive, Inc. to Rock Capital, LLC. |
10.9 |
|
Convertible
Note dated December 3, 2014 issued by Saleen Automotive, Inc. to Vista Capital Investments, LLC |
10.10 |
|
Securities
Purchase Agreement dated December 3, 2014, between Saleen Automotive, Inc. and Coventry Enterprises, LLC. |
10.11 |
|
Form
of Convertible Note issued by Saleen Automotive, Inc. to Coventry Enterprises, LLC. |
10.12 |
|
Securities
Purchase Agreement dated October 28, 2014, between Saleen Automotive, Inc. and Typenex Co-Investment, LLC. |
10.13 |
|
Convertible
Note dated October 28, 2014 issued by Saleen Automotive, Inc. to Typenex Co-Investment, LLC. |
10.14 |
|
Convertible
Note dated November 6, 2014 issued by Saleen Automotive, Inc. to JMJ Financial. |
31.1 |
|
Certification
by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
31.2 |
|
Certification
by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. |
32.1 |
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. |
32.2 |
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. |
|
|
|
101.INS** |
|
XBRL
Instance. |
101.SCH** |
|
XBRL
Taxonomy Extension Schema. |
101.CAL** |
|
XBRL
Taxonomy Extension Calculation. |
101.DEF** |
|
XBRL
Taxonomy Extension Definition. |
101.LAB** |
|
XBRL
Taxonomy Extension Labels. |
101.PRE** |
|
XBRL
Taxonomy Extension Presentation. |
**
XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or
12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
|
Saleen
Automotive, Inc. |
|
a
Nevada Corporation |
|
|
Date: February
17, 2015 |
/S/
Steve Saleen |
|
Steve
Saleen |
|
Chief
Executive Officer |
Exhibit
31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Steve Saleen, certify that:
1. |
I have reviewed this annual report
on Form 10-Q of Saleen Automotive, Inc.; |
|
|
2. |
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report; |
|
|
3. |
Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15-15(f)
and 15d-15(f)) for the registrant and we have: |
|
a) |
designed such
disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
designed such
internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
evaluated the
effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such
valuation; and |
|
|
|
|
d) |
disclosed in this
report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially effect the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
b) |
any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting. |
Date:
February 17, 2015
/s/ Steve Saleen |
|
Steve Saleen |
|
Chief Executive Officer |
|
Exhibit
31.2
CERTIFICATION
OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I,
David Fiene, certify that:
1. |
I have reviewed this annual report
on Form 10-Q of Saleen Automotive, Inc.; |
|
|
2. |
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report; |
|
|
3. |
Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15-15(f)
and 15d-15(f)) for the registrant and we have: |
|
a) |
designed such disclosure controls and
procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures as of the end of the period covered by this report based on such valuation; and |
|
|
|
|
d) |
disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially effect the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
b) |
any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting. |
Date:
February 17, 2015
/s/
David Fiene |
|
David Fiene |
|
Chief Financial Officer |
|
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the report of Saleen Automotive, Inc. (the “Company”) on Form 10-Q as of and for the nine month period
ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
Steve Saleen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
(2) |
The information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company. |
/s/
Steve Saleen |
|
Steve Saleen |
|
Chief Executive Officer |
|
|
|
February 17, 2015 |
|
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the report of Saleen Automotive, Inc. (the “Company”) on Form 10-Q as of and for the nine month period
ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
David Fiene, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company. |
/s/
David Fiene |
|
David Fiene |
|
Chief Financial Officer |
|
|
|
February 17, 2015 |
|