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 June 30, 2015
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 August 17, 2015, there were 489,959,781 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
|
|
June
30, 2015 |
|
|
March
31, 2014 |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current
Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
85,406 |
|
|
$ |
143,083 |
|
Accounts
receivable, net of allowance for doubtful accounts of $271,658 at June 30, 2015 and March 31, 2015 |
|
|
6,176 |
|
|
|
4,945 |
|
Inventory |
|
|
226,522 |
|
|
|
725,687 |
|
Prepaid
expenses and other current assets |
|
|
22,021 |
|
|
|
37,079 |
|
Total
Current Assets |
|
|
340,125 |
|
|
|
910,794 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net |
|
|
574,628 |
|
|
|
592,116 |
|
Other
assets |
|
|
5,000 |
|
|
|
5,000 |
|
TOTAL ASSETS |
|
$ |
919,753 |
|
|
$ |
1,507,910 |
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
Current
Liabilities |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
1,668,054 |
|
|
$ |
1,677,309 |
|
Due
to related parties |
|
|
98,564 |
|
|
|
326,512 |
|
Notes
payable |
|
|
571,750 |
|
|
|
671,750 |
|
Current
portion of convertible notes, net of discount of $64,182 and $250,892 at June 30, 2015 and March 31, 2015, respectively |
|
|
226,758 |
|
|
|
267,332 |
|
Notes
payable to related parties |
|
|
255,584 |
|
|
|
267,000 |
|
Payroll
and other taxes payable |
|
|
716,356 |
|
|
|
745,503 |
|
Accrued
interest on notes payable |
|
|
456,411 |
|
|
|
387,005 |
|
Customer
deposits |
|
|
1,316,708 |
|
|
|
1,896,568 |
|
Deferred
royalty revenue |
|
|
500,000 |
|
|
|
— |
|
Deferred
vendor consideration |
|
|
275,000 |
|
|
|
275,000 |
|
Derivative
liability |
|
|
473,323 |
|
|
|
1,268,588 |
|
Other
current liabilities |
|
|
194,174 |
|
|
|
178,891 |
|
Total
Current Liabilities |
|
|
6,752,682
|
|
|
|
7,961,458 |
|
Convertible
notes payable, net of discount of $1,333,664 and $1,585,935 at June 30, 2014 and March 31, 2015, respectively |
|
|
3,367,948 |
|
|
|
3,215,677 |
|
Total
Liabilities |
|
|
10,120,630
|
|
|
|
11,177,135 |
|
Commitments
and Contingencies |
|
|
— |
|
|
|
— |
|
Stockholders’
Deficit |
|
|
|
|
|
|
|
|
Common Stock;
$0.001 par value; 500,000,000 shares authorized; 460,559,117 and 174,857,028 issued and outstanding at June 30, 2015 and March
31, 2015, respectively |
|
|
460,557 |
|
|
|
174,856 |
|
Preferred stock;
$0.001 par value; 1,000,000 shares authorized; 384,142 and none issued and outstanding at June 30, 2015 and March 31, 2015
|
|
|
384 |
|
|
|
— |
|
Additional paid
in capital |
|
|
19,093,547
|
|
|
|
18,530,191 |
|
Accumulated
deficit |
|
|
(28,755,365 |
) |
|
|
(28,374,272 |
) |
Total
Stockholders’ Deficit |
|
|
(9,200,877 |
) |
|
|
(9,669,225 |
) |
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
$ |
919,753 |
|
|
$ |
1,507,910
|
|
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 June 30, | |
| |
2015 | | |
2014 | |
Revenue,
net | |
$ | 1,591,989 | | |
$ | 1,697,377 | |
| |
| | | |
| | |
Costs of goods sold | |
| 1,251,825 | | |
| 1,431,485 | |
Gross
margin | |
| 340,164 | | |
| 265,892 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Research and development | |
| 111,858 | | |
| 197,955 | |
Sales and marketing | |
| 210,531 | | |
| 576,919 | |
General and administrative | |
| 617,207 | | |
| 1,048,858 | |
Depreciation and
amortization | |
| 26,299 | | |
| 45,909 | |
Total
operating expenses | |
| 965,895
| | |
| 1,869,641 | |
Loss
from operations | |
| (625,731 | ) | |
| (1,603,749 | ) |
Other income (expenses) | |
| | | |
| | |
Interest expense | |
| (522,867 | ) | |
| (443,053 | ) |
Private placement
costs | |
| (27,760 | ) | |
| — | |
Recognition of derivative
liability | |
| (174,437 | ) | |
| — | |
Gain on extinguishment
of derivative liability | |
| 644,543 | | |
| 2,586,732 | |
Change in fair value
of derivative liabilities | |
| 325,159 | | |
| 2,446,054 | |
Net
(loss) income | |
$ | (381,093 | ) | |
$ | 2,985,984 | |
Net (loss) income per share: | |
| | | |
| | |
Basic | |
$ | (0.00 | ) | |
$ | 0.02 | |
Diluted | |
$ | (0.00 | ) | |
$ | 0.01 | |
Shares used in computing
net (loss) income per share: | |
| | | |
| | |
Basic | |
| 642,762,961
| | |
| 120,649,951 | |
Diluted | |
| 642,762,961
| | |
| 212,741,054 | |
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 three month period ended June 30, 2015
|
|
|
|
|
|
|
|
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, 2015 |
|
|
174,857,028 |
|
|
$ |
174,856 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
18,530,191 |
|
|
$ |
(28,374,272 |
) |
|
$ |
(9,669,225 |
) |
Cancellation of
Common Stock held by Steve Saleen, CEO in exchange for Super Voting Preferred Stock |
|
|
(82,133,875 |
) |
|
|
(82,134 |
) |
|
|
82,134
|
|
|
|
82
|
|
|
|
82,052 |
|
|
|
|
|
|
|
— |
|
Shares issued
for services |
|
|
|
|
|
|
|
|
|
|
63,000
|
|
|
|
63
|
|
|
|
113,337 |
|
|
|
|
|
|
|
113,400 |
|
Fair value of
shares issued upon conversion of convertible notes and accrued interest |
|
|
365,455,587 |
|
|
|
365,455 |
|
|
|
|
|
|
|
|
|
|
|
(2,105
|
) |
|
|
|
|
|
|
363,350
|
|
Fair value of
shares issued as payments on accounts payable |
|
|
2,380,377 |
|
|
|
2,380 |
|
|
|
|
|
|
|
|
|
|
|
45,227 |
|
|
|
|
|
|
|
47,607 |
|
Fair value of
shares issued upon settlement of accounts payable, related party |
|
|
|
|
|
|
|
|
|
|
239,008 |
|
|
|
239 |
|
|
|
253,975 |
|
|
|
|
|
|
|
254,214 |
|
Fair value of
stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,870 |
|
|
|
|
|
|
|
70,870 |
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(381,093 |
)
|
|
|
(381,093 |
)
|
Balance,
June 30, 2015 |
|
|
460,559,117 |
|
|
$ |
460,557 |
|
|
|
384,142 |
|
|
$ |
384 |
|
|
$ |
19,093,547 |
|
|
$ |
(28,755,365 |
) |
|
$ |
(9,200,877 |
) |
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)
| |
For
the three month periods ended June 30, | |
| |
2015 | | |
2014 | |
Cash flows from operating
activities | |
| | | |
| | |
Net
(loss) income | |
$ | (381,093 | ) | |
$ | 2,985,984 | |
Adjustments to reconcile
net (loss) income to net cash used in operating activities | |
| | | |
| | |
Depreciation and
amortization | |
| 26,299 | | |
| 45,909 | |
Change in fair value
of derivative liabilities | |
| (325,159 | ) | |
| (2,446,054 | ) |
Gain on extinguishment
of derivative liability | |
| (644,543 | ) | |
| (2,586,732 | ) |
Gain on settlement
of notes payable and accounts payable, related party | |
| — | | |
| (72,297 | ) |
Amortization of
discount on convertible notes | |
| 438,982 | | |
| 353,826 | |
Fair value of share based compensation | |
| 70,870 | | |
| — | |
Private placement
costs | |
| 27,760 | | |
| — | |
Recognition of derivative
liability | |
| 174,437 | | |
| — | |
Fair value of shares issued for services | |
| 113,400 | | |
| 170,000 | |
Changes
in working capital: | |
| | | |
| | |
(Increase) Decrease
in: | |
| | | |
| | |
Accounts receivable | |
| (1,231 | ) | |
| 74,400 | |
Inventory | |
| 499,165 | | |
| (775 | ) |
Prepaid expenses
and other assets | |
| 15,058 | | |
| 65,545 | |
Increase (Decrease)
in: | |
| | | |
| | |
Accounts payable | |
| 38,352 | | |
| (391,446 | ) |
Due to related parties | |
| 26,266 | | |
| 31,118 | |
Payroll and taxes
payable | |
| (29,147 | ) | |
| (56,859 | ) |
Accrued interest | |
| 83,796 | | |
| 80,324 | |
Customer deposits | |
| (579,860 | ) | |
| 36,981 | |
Deferred royalty
revenue | |
| 400,000 | | |
| — | |
Deferred vendor
consideration | |
| — | | |
| 275,000 | |
Other liabilities | |
| 15,282 | | |
| 11,882 | |
Net
cash used in operating activities | |
| (31,366 | ) | |
| (1,423,194 | ) |
Cash flows from investing
activities | |
| | | |
| | |
Purchases
of property and equipment | |
| (8,811 | ) | |
| (210,159 | ) |
Net
cash used in investing activities | |
| (8,811 | ) | |
| (210,159 | ) |
Cash
flows from financing activities | |
| | | |
| | |
Accounts to be settled
by issuance of equity securities | |
| — | | |
| 25,000 | |
Proceeds from unsecured
convertible notes | |
| — | | |
| 250,000 | |
Proceeds from notes
payable – related parties | |
| 30,000 | | |
| — | |
Proceeds from exercise of warrant | |
| — | | |
| 7,500 | |
Principal payments
on notes payable – related parties | |
| (47,500 | ) | |
| | |
Principal payments
on notes payable | |
| — | | |
| (274,320 | ) |
Proceeds from issuance
of Common Stock | |
| — | | |
| 152,500 | |
Net
cash (used in) provided by financing activities | |
| (17,500 | ) | |
| 160,680 | |
Net decrease in cash | |
| (57,677 | ) | |
| (1,472,673 | ) |
Cash at beginning of period | |
| 143,083 | | |
| 1,499,889 | |
Cash at end of period | |
$ | 85,406 | | |
$ | 27,216 | |
(continued)
Saleen
Automotive, Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(continued)
| |
Three
month periods ended June 30: | |
| |
2015 | | |
2014 | |
Supplemental disclosures of cash flow
information: | |
| | | |
| | |
Cash paid during the year for | |
| | | |
| | |
Interest | |
$ | 2,500 | | |
$ | 12,184 | |
Income taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
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 | |
| — | | |
| 80,151 | |
Issuance of Common Stock on conversion
of unsecured convertible Notes payable and accrued interest | |
| 365,351 | | |
| — | |
Issuance of Common Stock on payment
of interest on Notes payable | |
| | | |
| 244,869 | |
Issuance of Common Stock as payment
on Notes payable | |
| | | |
| 364,682 | |
Issuance of Common Stock as settlement
of accounts payable | |
| 47,607 | | |
| — | |
Issuance of Super Voting Preferred Stock
as settlement of accounts payable, related parties | |
| 254,214 | | |
| — | |
Fair value of beneficial conversion
feature | |
| | | |
| 250,000 | |
Fair value of shares issued in exchange
for amendment of convertible debts recorded as debt discount | |
| | | |
| 112,060 | |
Cancellation of Common Stock in exchange
for Super Voting Preferred Stock | |
| 82,134 | | |
| — | |
Reclass of note payable to offset deferred
royalty revenue | |
| 100,000 | | |
| — | |
Reclass of amounts to be settled through
the issuance of equity securities | |
| — | | |
| 470,534 | |
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 Periods Ended June 30, 2015 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, 2016, 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, 2015, which are included in the Company’s Annual Report on Form 10-K for
such year filed on July 14, 2015. The consolidated balance sheet as of March 31, 2015, has been derived from the audited financial
statements included in the Form 10-K filed on July 14, 2015.
NOTE
1 – NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description
of the Company
Saleen
Automotive, Inc. (formerly W270, Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on June
24, 2011. 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.
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 (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.
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.
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 three months
ended June 30, 2015, the Company incurred an operating loss of $625,731 and utilized $31,366 of cash in operations. The Company
also had a stockholders’ deficit and working capital deficit of $9,200,677 and $6,412,557, respectively, as of June 30,
2015, and as of that date, the Company owed $716,356 in past unpaid payroll and other taxes, which the Company has an installment
agreement with the IRS whereby the Company is paying $10,000 a month; $605,986 of outstanding notes payable were in default; $837,721
of accounts payable was greater than 90 days past due; and $333,913 is owed on past due rent. In addition, in May 2015, the Company
received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and
demanding full payment of principal, interest and fees of $369,302. A default under the loan agreement triggers a cross default
under the Company’s 3% Senior Secured Convertible Notes and 7% Convertible Notes (see Note 5) enabling the holders thereof
to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware
of such cure or resolution, accelerate the maturity of the Company’s indebtedness. Further, as of the date of this Form
10-Q filing, the Company was in default with certain unsecured notes payable (see Note 5) due to insufficient availability of
authorized shares to fulfill the note holders’ reserve and conversion requests. In addition, the Company does not currently
maintain workers’ compensation, product liability and other general insurance.
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, 2015, 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 profit from operations. At June 30, 2015, the Company
had cash on hand in the amount of $85,406 and is not generating sufficient funds to cover operations. The Company has utilized
funding to operate the business during the three months ended June 30, 2015 with advance royalty payments of $500,000 obtained
from an Intellectual Property License Agreement entered into in June 2015. However, the Company will need and is currently seeking
additional funds, primarily through the issuance of debt or equity securities to operate its business through and beyond the date
of this Form 10-Q filing. 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 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 June 30, 2015 and March 31, 2015, the Company’s condensed consolidated balance sheets included the fair value of derivative
liabilities of $473,323 and $1,268,588, respectively, which was based on Level 2 measurements.
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.
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. Outstanding shares of Super Voting Preferred Stock are included in the calculation as they
are considered as a common stock equivalent. 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 months ended June 30, 2015, the basic and diluted shares outstanding were the same, as potentially dilutive shares were
considered anti-dilutive. As of June 30, 2015, stock options, warrants, and convertible notes convertible or exercisable into
7,271,333, 13,313,099, and 392,830,156 shares of common stock, respectively, have been excluded from diluted loss per share because
they are anti-dilutive.
For the three months ended
June 30, 2014, basic shares outstanding were 141,832,616. Diluted weighted-average potential common shares outstanding was 212,741,054,
which included diluted effect of potentially dilutive equity and debt shares of 70,908,483 and excluded 13,146,432 of potential
common shares that were anti-dilutive.
Significant
Concentrations
Sales
to one customer comprised 23% of revenues for the three months ended June 30, 2015. No customers comprised accounts receivable
in excess of 10% at June 30, 2015 and March 31, 2015.
Recently
Issued Accounting Standards
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, 2017. 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:
| |
June
30, 2015 | | |
March
31, 2015 | |
Tooling | |
$ | 707,054 | | |
$ | 698,243 | |
Equipment | |
| 210,980 | | |
| 210,980 | |
Leasehold improvements | |
| 203,310 | | |
| 203,310 | |
Total, cost | |
| 1,121,344 | | |
| 1,112,533 | |
Accumulated
depreciation and amortization | |
| (546,716 | ) | |
| (520,417 | ) |
Total Property,
Plant and Equipment | |
$ | 574,628 | | |
$ | 592,116 | |
Depreciation
and amortization expense was $26,299 and $45,909 for the three months ended June 30, 2015, and 2014, respectively.
NOTE
3 – NOTES PAYABLE
Notes
payable are comprised as follows:
| |
June
30, 2015 | | |
March
31, 2015 | |
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, currently in default (1) | |
$ | 358,704 | | |
$ | 358,704 | |
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 | |
Unsecured notes payable, interest at 10%
per annum payable on various dates from July 31 to March 31, 2010, currently in default (4) | |
| 55,000 | | |
| 55,000 | |
Promissory note,
interest at 6%, secured by a vehicle (5) | |
| - | | |
| 100,000 | |
Total notes payable | |
$ | 571,750 | | |
$ | 671,750 | |
(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. From August 2014 to March 31, 2015, in exchange for
payments totaling $90,000, the bank agreed to extend this arrangement through various dates with the last date being March
2015. On April 29, 2015, the bank filed a claim against the Company alleging breach of the loan agreement, breach of a commercial
guaranty by Steve Saleen, Chairman and CEO, and the bank demanded full payment of principal and interest outstanding (see
Note 10). |
|
|
(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 June 30, 2015 and March 31, 2015, 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 June 30, 2015 and March 31, 2015 due to non-payment. |
|
|
(4) |
In
June 2014, the Company entered into a Settlement Agreement and Mutual Release agreement with a note holder 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 June 30, 2015 and March 31, 2015.
In addition, another separate note for $20,000 remains outstanding as of March 31, 2015 and is in default due to non-payment. |
|
|
(5) |
The
Company entered into a note agreement on March 25, 2015 for $100,000 principal and interest bearing at a rate of 6% per annum.
The note was secured by a vehicle provided to the note holder by the Company and was due on demand after 60 days following
the date the secured vehicle was returned to the Company. In June 2015, the note holder agreed to cancel this note and attribute
the then principal outstanding of $100,000 as partial payment against advance royalties received in conjunction with an Intellectual
Property License Agreement entered into with the note holder (see Note 7). |
NOTE
4 – NOTES PAYABLE TO RELATED PARTIES
Notes
payable to related parties are as follows:
| |
June
30, 2015 | | |
March
31, 2015 | |
Unsecured note payable to
a stockholder, due on April 1, 2014, currently in default. | |
$ | 132,000
| | |
$ | 102,000 | |
Unsecured payable to a stockholder at
10% per annum, payable on demand | |
| 123,584 | | |
| 165,000 | |
Total notes payable, related parties | |
$ | 255,584 | | |
$ | 267,000 | |
NOTE
5 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable are as follows:
| |
March
31, 2015 | | |
March
31, 2014 | |
3% Senior secured convertible
notes payable to a private accredited investor group, convertible at $0.075 per share, subject to adjustment, $2,001,720 due
in June 2017 and $499,892 due in January 2019. | |
$ | 2,501,612 | | |
$ | 2,501,612 | |
| |
| | | |
| | |
7% Unsecured convertible notes payable
to private accredited investor group, convertible into 82,484,267 shares of Common Stock (including accrued interest) as of
June 30, 2015, interest accrued at 7% per annum, notes mature in March 2017 | |
| 2,200,000 | | |
| 2,200,000 | |
| |
| | | |
| | |
Unsecured convertible notes payable
to eight separate private accredited investors, convertible into 35,782,732 shares of Common Stock (including accrued interest)
as of June 30, 2015, interest accrued at 8% to 12% per annum, notes mature on various dates from April 2015 to December 2016,
in default | |
| 290,940 | | |
| 618,225 | |
| |
| 4,992,552 | | |
| 5,319,837 | |
Less: discount
on notes payable | |
| (1,397,846 | ) | |
| (1,836,828 | ) |
Notes payable, net of discount | |
| 3,594,706 | | |
| 3,483,009 | |
Less: notes
payable, current | |
| (226,758 | ) | |
| (267,332 | ) |
Notes payable, long-term | |
$ | 3,367,948 | | |
$ | 3,215,677 | |
As
of June 30, 2015, $226,758 was included in current portion of convertible notes payable, which represented convertible notes payable
of $290,940 less debt discount of $64,182.
3%
Senior secured convertible notes
On June 26, 2013, pursuant
to a Securities Purchase Agreement, as amended, the Company issued senior secured convertible notes, as amended, having a total
principal amount of $3,000,000, to 12 accredited investors (“2013 Notes”). The 3% Notes pay 3.0% interest per annum
with a maturity of 4 years from the date of issuance (June 2017 and January 2019) 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 3% Note is convertible
at any time into Common Stock at a specified conversion price, which initially was $0.075 per share. In June 2014, the Company
entered into a First Amendment to Saleen Automotive, Inc. 3.0% Secured Convertible Note (“3% First Amendment”) and
removed 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 in the 2013 Note agreement, were to occur the
potential liquidated damage was set to a fixed amount. As an inducement for the amendment, the Company issued an aggregate of
389,923 shares of Common Stock with a fair value of $58,488 determined based on the market value of the Company’s Common
Stock of $0.15 as the date of issuance. Further, the Company accounted for this amendment as a modification for accounting purposes,
and as such, the derivative liability recorded when the note was originally issued was deemed extinguished.
On January 23, 2015, the
Company entered into a Second Amendment to 3% Senior Secured Convertible Notes whereby the conversion price of the 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 holder 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 this amendment, the Company entered
into two additional 3% Senior Secured Convertible Notes in the principal amount of $499,892 with two accredited investors who
participated in the June 26, 2013 offering (“2015 Notes” and collectively “3% Notes”) of which $98,708
was converted from a revolver note payable previously entered into with one investor in November 2013.
In
May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty
by Steve Saleen and demanding full payment of principal, interest and fees of $369,302 (see Note 3). A default under the loan
agreement triggers a cross default under the 3% Notes enabling the holders thereof to, at their election until the later of 30
days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the
maturity of the indebtedness under the 3% Notes requiring the Company to pay, upon such acceleration, the sum of (1) 120% of the
outstanding principal plus (2) 100% of all accrued and unpaid interest plus (3) all other amounts due under the 3% Notes. Upon
the occurrence of an event of default under the 3% Notes interest accrues at the rate of 12% per annum. The Company continues
to classify the 3% Notes as long term, as a judgment against the Company has not been granted and the Company disagrees with the
compliant and plans to defend it’s position.
In
June 2015, the Company determined that there was not sufficient authorized and available Common Stock available for issuance upon
conversion of the 3% Notes. As a result, the Company determined that the conversion feature of the 3% Notes were not considered
indexed to the Company’s own stock pursuant to FASB guidance on “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. Therefore, the Company characterized the fair value of the 3% Note conversion feature of $106,781 in
June 2015 as derivative liability. See Note 6 for further discussion.
During
the three months ended June 30, 2015 and 2014, the Company amortized $8,245 and $96,421, respectively, of the valuation discount,
and the remaining unamortized valuation discount of $65,776 and $74,021 as of June 30, 2015 and March 31, 2015, respectively,
has been offset against the face amount of the notes for financial statement purposes. As of June 30, 2015, the principal balance
of the convertible Notes outstanding was $2,501,612 and potentially convertible into 131,795,699 shares of Common Stock including
accrued and unpaid interest.
7%
Unsecured convertible notes
In
March and April 2014, as amended in June 2014, the Company issued 7% Unsecured Convertible Notes (the “7% 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 7% Notes pay interest at 7% 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 7% 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.
In
June 2014, 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. As an inducement, the Company issued an aggregate of 357,143 shares of its Common Stock with a fair value of $53,571
based on the market value of the Company’s Common Stock of $0.15 as of the date of issuance.
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 7% Notes, the Company determined that there was deemed a beneficial conversion feature associated
with these 7% 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 7% 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 7% Notes, which
totaled $181,412 and $192,462 for the three months ended June 30, 2015 and 2014, respectively. As of June 30, 2015 and March 31,
2015, the remaining unamortized valuation discount of $1,267,888 and $1,449,300, respectively, has been offset against the face
amount of the notes for financial statement purposes. As of June 30, 2015, the outstanding principal balance of these notes was
$2,500,000.
In May 2015, the Company
received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and
demanded full payment of principal, interest and fees of $369,302 (see Note 3). If the bank is successful in their claim of default,
such default would trigger a cross default under the 7.0% Notes enabling the holders thereof to, at their election, accelerate
the maturity of the outstanding indebtedness under the 7% Notes requiring the Company to pay, upon such acceleration, the greater
of (1) 120% of the outstanding principal (plus all accrued and unpaid interest) and (2) the product of (a) the highest closing
price for the five trading days immediately preceding the holder’s acceleration and (b) a fraction, of which the numerator
is the entire outstanding principal, and of which the denominator is the then applicable conversion price. Upon the occurrence
of an event of default under the 7% Notes interest accrues at the rate of 24% per annum. The
Company continues to classify the 7% Notes as long term, as a judgment against the Company has not been granted and the Company
disagrees with the compliant and plans to defend it’s position.
In
June 2015, the Company determined that there was not sufficient authorized and available Common Stock available for issuance upon
conversion of the 7% Notes. As a result, the Company determined that the conversion feature of the 7% Notes were not considered
indexed to the Company’s own stock pursuant to FASB guidance on “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. Therefore, the Company characterized the fair value of the 7% Note conversion feature of $15,441 in
June 2015 as derivative liability. See Note 6 for further discussion.
Unsecured
convertible notes
From
September 2014 to December 2014, the Company issued Unsecured 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 is currently in default of payment for Note that matured
from April 2015 to July 6, 2015 in the principal amount outstanding of $128,879. The Company may not prepay the Notes without
the Note holder’s consent. 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 various dates following
the issuance 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. The note agreements also require the Company to maintain a reserve
of Common Stock, as determined based on a formula stated in the note agreements, which, upon request by the note holder, can be
adjusted based on the formula and the then share price of the Company’s Common Stock as of the date of request. The note
holder can convert up to the number of the then shares reserved for conversion of their related note. As of June 30, 2015, the
Company is in default of such reserve requirements due to insufficient availability of authorized and available Common Stock shares
to fulfill the note holders’ reserve requests.
The
balance of the unsecured convertible notes was $618,225 as of March 31, 2015. During the three months ended June 30, 2015, Note
holders converted $355,045 of principal and $8,306 of accrued interest into 365,455,587 shares of the Company’s Common Stock.
In addition, in June 2015, the Company agreed to allow one note holder to assign their then note principal balance of $49,240,
which is in default due to non-payment after maturity date and insufficient availability of Common Stock available upon conversion,
to a separate note holder for the new note holder’s payment of $77,000 to the original note.holder. As a result of this
assignment, the Company recorded $27,760 as private placement cost during the three months ended June 30, 2015 as a result of
the increase in principal balance from $49,240 to $77,000. As of June 30, 2015, the principal balance of the convertible Notes
outstanding was $290,940.
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. 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 private placement
costs in the Consolidated Statement of Operations for the year ended March 31, 2015. The balance of the unamortized discount was
$313,507 at March 31, 2015.
During
the three months ended June 30, 2015, the Company amortized $246,798 of the valuation discount, and the remaining unamortized
valuation discount of $64,182 as of June 30, 2015 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.
In
addition, as a result of the assignment of note discussed above, the Company recognized a derivative liability of $54,508 in June
2015. 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 June 2015, the Company determined that there was not
sufficient authorized and available Common Stock available for issuance upon conversion of the 3% senior secured and 7% unsecured
convertible notes. 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.
The
derivative liability was valued at the following dates using a Weighted-Average Black-Scholes-Merton model with the following
assumptions:
|
|
|
June
30, 2015 |
|
|
|
3%
and 7% Notes
June 2015 |
|
|
September
to
December, 2014 (Dates of Inception) |
|
|
March
31, 2015 |
|
Conversion
feature: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate |
|
|
0.11
– 0.27 |
% |
|
|
0.02
- 0.03 |
|
|
|
0.02 |
% |
|
|
0.004
– 1.55 |
% |
Expected
volatility |
|
|
203 |
% |
|
|
203 |
% |
|
|
124
- 139 |
% |
|
|
179 |
% |
Expected
life (in years) |
|
|
.01
– 1.6
years |
|
|
|
1.62
– 1.8 years |
|
|
|
.75
to 2.0 years |
|
|
|
.2
– 1.6 years |
|
Expected
dividend yield |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
feature |
|
$ |
473,323 |
|
|
$ |
119,929 |
|
|
$ |
1,306,455 |
|
|
$ |
1,268,588 |
|
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 holders of
Common Stock in the past and does not expect to pay dividends to holders of its Common Stock in the future.
During
the three months ended June 30, 2015 and 2014, the Company recognized $325,159 and $2,446,054, respectively, as other income,
which represented the difference in the value of the derivative from the respective prior period. In addition, the Company recognized
a gain of $644,543, which represented the extinguishment of derivative liabilities related to the conversion of the unsecured
convertible notes during the three months ended June 30, 2015.
In
June 2015, the Company determined that there was not sufficient authorized and available Common Stock available for issuance upon
conversion of certain of its Notes. As a result, the Company recognized a derivative liability of $119,929 in June 2015.
NOTE
7 – ADVANCE ROYALTY
In June 2015, the Company
entered into an Intellectual Property License Agreement (the “License Agreement”) with Saleen Motors International,
LLC, a Delaware limited liability company (“SMI”) and a wholly owned subsidiary of GreenTech Automotive, Inc. (“GTA”).
SMI is not affiliated with the Company. Pursuant to the License Agreement, the Company granted to SMI an irrevocable, fully paid-up
(subject to certain royalty fees), sublicensable license during the term of the License Agreement to use all of the Company’s
intellectual property on an exclusive basis worldwide other than in North America, Europe, Middle East and Australia (as applicable,
the “Territory”), to make, promote, sell and otherwise exploit the Company’s intellectual property in the Territory.
The License Agreement has an initial term of 10 years, with automatic renewal for periods of five years at SMI’s election
provided that the number of Saleen branded vehicles sold by SMI in the prior 12-month period is not less than the average number
of Saleen-branded vehicles sold by the Company and subsidiaries in the most recently available three-year period. The License
Agreement may be terminated by mutual written agreement, upon a material breach, which remains uncured (with SMI having the right
to cure no more than 3 breaches of its obligation to pay royalties) for 15 days after written notice of such breach, or in the
event of SMI’s bankruptcy.
In
consideration of the license, SMI shall pay royalties, within 15 days after the product shipment date and in all events at least
quarterly, based on a fee per Saleen-branded vehicle sold by SMI depending on its sales volume as set forth in the License Agreement,
and shall pay royalties based on a percentage of SMI’s gross revenues for parts and merchandise (in each case net of discounts,
returns, taxes and similar amounts) received on Saleen-branded non-vehicle products.
As
part of the License agreement, SMI agreed to advance to the Company $500,000 in royalties of which $250,000 was applied from loan
advances previously made to the Company under the 10% Notes made by GTA pursuant to the SPA and the 10.0% First Lien Convertible
Note entered into in May 2015; $100,000 was applied from the cancelation of a note entered into between GTA and the Company in
March 2015; and $150,000 was paid by GTA in cash to the Company. As of June 30, 2015, the Company recognized a deferred advance
royalty of $500,000 and will recognize this amount as revenue based on actual future royalties resulting from sales by SMI under
the License Agreement.
Except
for the transactions under the agreements described above and the Company’s Joint Branding, Marketing, and Distribution
Agreement with WM Industries Corp. (an affiliate of SMI and GTA) dated March 2014, none of the Company or its subsidiaries had
any material relationship with SMI, GTA and its affiliates.
NOTE
8 – RELATED PARTY TRANSACTIONS
The
amounts of accounts payable to related parties as of June 30 and March 31, 2015 are as follows:
| |
June
30, 2015 | | |
March
31, 2015 | |
Related Party: | |
| | |
| |
Steve Saleen (a) | |
$ | 28,919 | | |
$ | 223,455 | |
Top Hat Capital (b) | |
| 62,500 | | |
| 62,500 | |
Crystal Research | |
| 6,343 | | |
| 6,343 | |
Molly Saleen, Inc.
(c) | |
| 802 | | |
| 34,214 | |
| |
$ | 98,564 | | |
$ | 326,512 | |
(a)
|
As
of March 31, 2015 the Company owed $223,455 to Mr. Saleen
for his unpaid officers' salary. During the three months ended June 30, 2015, the Company
incurred $28,919 in officers' salary expense due and payable to its Director, Chairman
and CEO, Mr. Steve Saleen as of June 30, 2015. On June 16, 2015, the Company issued 220,000
shares of Super Voting Preferred Stock to Mr. Saleen in satisfaction of $220,000 of debt
owed to Mr. Saleen. The per share price of Super Voting Preferred Stock issued to Mr.
Saleen was based on the conversion ratio of Super Voting Preferred Stock into 1,000 shares
of Common Stock, multiplied by the per share closing price ($0.001) of Common Stock as
of June 11, 2015, the date the issuance was approved by the Company's Board of Directors.
As of June 30, 2015 the Company owed $28,919 to Mr. Saleen.
|
|
|
(b)
|
The
Company previously incurred $75,000 of which the Company paid $12,500 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 June 30 and March 31,
2015, $62,500 was payable to Top Hat Capital for these services. |
|
|
(c) |
As
of March 31, 2015 the Company owed $34,214 for apparel merchandise purchased on behalf of the Company by Molly Saleen, Inc.,
dba Mollypop (“Mollypop"), who's owner, Molly Saleen, is the Chief Executive Officer of Mollypop and is the daughter
of Steve Saleen. On June 22, 2015, the Company issued to Mollypop, 19,007.777 shares of Super Voting Preferred Stock to reimburse
Mollypop for the amount owed of $34,214. The per share price of Super Voting Preferred Stock issued to Mollypop was based
on the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by the per share closing
price ($0.0018) of Common Stock as of June 19, 2015, the date the issuance was approved by the Board of Directors. During
the three months ended June 30, 2015, the Company incurred $802 of such costs, which was unpaid as of June 30, 2015. |
Other
Transactions
On
June 22, 2015, the Company issued 63,000 shares of Super Voting Preferred Stock to Michaels Law Group, APLC (“MLG”)
as a retainer for legal services to be provided by MLG in connection with various outstanding claims and suits in which the Company
is plaintiff, and for other legal matters. Jonathan Michaels, the founding member of MLG, previously served as a member of the
Company’s Board of Directors and as our general counsel. The per share price of Super Voting Preferred Stock issued to MLG
was based on the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by the per share
closing price ($0.0018) of Common Stock as of June 19, 2015, the date the issuance was approved by the Board of Directors.
NOTE
9 – STOCKHOLDERS’ EQUITY
Issuance
of Common Stock
During
the three months ended June 30, 2015, the Company issued an aggregate of 365,455,587 shares of common stock upon conversion of
the Company’s convertible notes payable and accrued interest amounting to $363,351 (see Note 5).
During
the three months ended June 30, 2015, the Company entered into a Settlement Agreement and Mutual Release with a vendor whereby
the Company issued and aggregate of 2,380,377 shares of Common Stock with a fair value of $47,607 in exchange for extinguishment
of amount owed of $47,607. The value of the Common Stock was based on the market price of the Company’s Common Stock as
of the date of the agreement.
Designation
of Super Voting Preferred
On
June 12, 2015, the Company filed a Certificate of Designation designating the rights and restrictions of 1,000,000 shares of Super
Voting Preferred Stock, par value $0.001 per share, pursuant to resolutions approved by the Company’s Board of Directors
on June 11, 2015.
The
holders of Super Voting Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class, upon
all matters submitted to holders of Common Stock for a vote. Each share of Super Voting Preferred Stock is entitled to a number
of votes equal to the number of shares of our Common Stock into which it is convertible at the applicable record date. Each share
of our Super Voting Preferred Stock will immediately and automatically convert into 1,000 shares (subject to adjustment for splits,
dividends and similar transaction) of Common Stock at such time that the Company files, at such time as determined by the Company’s
board of directors, an amendment to its articles of incorporation effecting a reverse stock split of Common Stock or effecting
an increase in the authorized shares of Common Stock, in each case so that the Company has a sufficient number of authorized and
unissued shares of Common Stock to permit the conversion of all then outstanding shares of Super Voting Preferred Stock into Common
Stock.
In
the event of any liquidation, dissolution or winding up of the Company, the assets available for distribution to the stockholders
will be distributed among the holders of the Super Voting Preferred Stock and the holders of Common Stock, pro rata, on an as-converted-to-common-stock
basis. The holders of Super Voting Preferred Stock are entitled to dividends in the event that the Company pays cash or other
dividends in property to holders of outstanding shares of Common Stock, which dividends would be made pro rata, on an as-converted-to-common-stock
basis.
Issuance
of Super Voting Preferred
During
the three months ended June 30, 2015, the Company issued 63,000 shares of Super Voting Preferred Stock to Michaels Law Group,
APLC (“MLG”) as a retainer for legal services to be provided by MLG in connection with various outstanding claims
and suits in which the Company is plaintiff, and for other legal matters. Jonathan Michaels, the founding member of MLG, previously
served as a member of the Company’s Board of Directors and as our general counsel. The per share price of Super Voting Preferred
Stock issued was based on the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by
the per share closing price ($0.0018) of Common Stock as of June 19, 2015, the date the issuance was approved by the Board of
Directors. The Company recorded these fees as general and administrative expense during the three months ended June 30, 2015.
During
the three months ended June 30, 2015, the Company issued 220,000 shares of Super Voting Preferred Stock to Mr. Saleen in satisfaction
of $220,000 of debt owed to Mr. Saleen. The per share price of Super Voting Preferred Stock issued to Mr. Saleen was based on
the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by the per share closing price
($0.001) of Common Stock as of June 11, 2015, the date the issuance was approved by the Company’s Board of Directors.
During
the three months ended June 30, 2015, the Company issued to Mollypop, 19,007.777 shares of Super Voting Preferred Stock to reimburse
Mollypop for $34,214 of merchandise previously purchased by Mollypop on the Company’s behalf and owed to Mollypop as of
March 31, 2015. The per share price of Super Voting Preferred Stock issued was based on the conversion ratio of Super Voting Preferred
Stock into 1,000 shares of Common Stock, multiplied by the per share closing price ($0.0018) of Common Stock as of June 19, 2015,
the date the issuance was approved by the Board of Directors.
In
order to make available additional shares of Common Stock to facilitate the conversion of outstanding debt, during the three months
ended June 30, 2015 the Company issued to Steve Saleen, the Company’s Chief Executive Officer and President, 82,133.875
shares of Super Voting Preferred Stock in exchange for 82,133,875 shares of Common Stock held by Mr. Saleen.
Omnibus
Incentive Plan
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, 2015 | |
| 13,459,000 | | |
$ | — | | |
$ | — | | |
| — | |
Options granted during the period | |
| — | | |
| — | | |
| — | | |
| — | |
Options cancelled during the period | |
| — | | |
| — | | |
| — | | |
| — | |
Options exercised during the period | |
| — | | |
| — | | |
| — | | |
| — | |
Balance at June 30, 2015 | |
| 13,459,000 | | |
| 0.10 | | |
$ | 0 | | |
| 9.18 | |
Exercisable at June 30, 2015 | |
| 7,271,333 | | |
| 0.10 | | |
$ | 0 | | |
| 9.27 | |
Expected to vest
after June 30, 2015 | |
| 5,826,793 | | |
| 0.10 | | |
$ | 0 | | |
| 9.27 | |
The
aggregate intrinsic value shown in the table above represents the difference between the fair market value of the Company’s
common stock of $0.001 on June 30, 2015 and the exercise price of each option.
During
the three months ended June 30, 2015, the Company recorded stock compensation expense of $70,870 of which $9,356, $39,732, and
$21,782 was included in research and development, sales and marketing, and general and administrative expenses, respectively.
There were no options outstanding during the three months ended June 30, 2014. Unearned compensation of $418,614 at June 30, 2015,
related to non-vested stock options, will be recognized into expense over a weighted average period of .81 years.
Warrants
The
following summarizes warrant activity for the Company during the three months ended June 30, 2015:
| |
Warrants | | |
Weighted
Average Exercise Price | | |
Weighted
Average Remaining Contractual Term | |
Outstanding March 31, 2015 | |
| 13,313,099 | | |
$ | 0.15 | | |
| 3.6 | |
Issued during the
period | |
| — | | |
| — | | |
| — | |
Exercised during
the period | |
| — | | |
| — | | |
| — | |
Outstanding June 30, 2015 | |
| 13,313,099 | | |
$ | 0.15 | | |
| 3.6 | |
As
of June 30, 2015, 13,313,099 warrants were exercisable and the intrinsic value of the warrants was nil.
NOTE
10 – COMMITMENTS AND CONTINGINCIES
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:
The
Company 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. SSC 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 we paid $45,500 through August 2014. Subsequent to this date the Company defaulted on payments. On October 30, 2014,
a judgment was entered against SSC in the amount of $68,950, which the Company accrued for in accounts payable.
In
December 2014, the Saleen Automotive, Inc. (formerly Saleen Electric Automotive, Inc.), the Company’s wholly-owned subsidiary,
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 Automotive. The suit seeks contract and economic damages of $50,000 along with compensatory damages, restoration,
lost profits and attorneys’ fees. The Company is currently evaluating the merits of this case, if any, and is working to
ascertain the impact on its financial statements.
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. Home Heller Ford, which was merged into Ford of Escondido, is a party to a supply agreement
with us 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 pursuant to proceeds of sale. As of March 31, 2015, the
Company has included in accounts payable the amount owed for four (4) vehicles which the Company believes are owed to Ford of
Escondido. As such, the Company believes that Ford of Escondido’s claims with respect to the remaining three (3) vehicles
are without merit and have responded to the Complaint including claims that Ford of Escondido breached the supply agreement with
the Company. There has been no response received from Ford of Escondido 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 its financial statements.
In
February 2014, SSC received a Complaint from a Citizens Business Bank (the “Bank”) 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 December
31, 2013, and the occurrence of a change in control as a result of the Merger. In April 2014, the Bank agreed to dismiss the suit
in exchange for payment of $124,000 that was applied towards principal and unpaid fees along with advance loan principal and interest
for May, June and July 2014, and the agreement to pay the remaining recorded balance due of $443,000 to the Bank in August 2014.
From August 2014 to March 31, 2015, in exchange for payments totaling $90,000, the Bank agreed to extend this arrangement through
various dates with the last date being March 2015. The Company did not pay the then outstanding principal and interest in March
2015 and the Bank did not agree to an additional extension. In May 2015, the Company was notified of a lawsuit filed by the Bank
in the Superior Court of the State of California, County of Riverside, alleging breach of the Loan Agreement with the Bank (“Loan
Agreement”), breach of a commercial guaranty by Steve Saleen and indebtedness for principal and interest of at least $369,302,
and seeking appointment, which has not been granted by the court as of the date of this filing, of a limited purpose receiver
and a temporary restraining order enjoining the Company from transferring the collateral securing the loan, which related to SSC.
The main complaint by the Bank stems from the Company’s reverse merger that occurred in June 2013 whereby the Bank deemed
this event to constitute a change in control, as defined in the loan agreement. The Company disagrees with the Bank’s interpretation
and believes the claims by the bank are without merit. Although the Company currently believes that resolving claims against the
Company, individually or in aggregate, will not have a material adverse impact on the Company’s financial statements, these
matters are subject to inherent uncertainties and management’s views of these matters may change in the future. See Note
3
Insurance
The
Company currently does not maintain insurance ordinarily customary for businesses it’s size and type such as garage and
general liability insurance. As such, the Company may incur losses against it due to natural disasters or other business risks
for which the Company is not insured. Such damages could have a material adverse effect on its business and results of operations.
There can be no assurance that the Company will be able to obtain, afford or qualify for insurance to address such potential risks
or if such insurance will adequately cover any potential matters encountered.
NOTE
11 – SUBSEQUENT EVENTS
Common
Stock Issued in Conjunction with Unsecured Convertible Notes
From
July 1, 2015 to the date of this Form 10-Q filing, unsecured convertible note holders (see note 5) converted $17,054 of principal
and unpaid interest into 29,402,985 shares of Common Stock. As discussed in Note 5, the note agreements require the Company to
maintain a reserve of Common Stock, as determined based on a formula stated in the note agreements, which, upon request by the
note holder, can be adjusted based on the formula and the then share price of the Company’s Common Stock as of the date
of request. The note holder can convert up to the number of the then shares reserved for conversion of their related note. As
of the date of this filing of Form 10-Q, the Company is in default of the Common Stock reserve requirements due to insufficient
availability of authorized shares to fulfill the note holders’ reserve requests.
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 months ended June 30, 2015 and 2014. 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, 2015 as filed on July 14, 2015. 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 vehicles. 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 high performance and electric 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, Chevrolet, 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 (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.
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, 2015 as filed on July 14, 2015.
Three
Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014
Our
revenue, operating expenses, and net (loss) income for the three months ended June 30, 2015 as compared to the three months ended
June 30, 2014 were as follows:
| |
For
the Three months ended | | |
| | |
Percentage | |
| |
June
30, | | |
| | |
Change | |
| |
2015 | | |
2014 | | |
Change | | |
Inc.
(Dec.) | |
Revenue,
net | |
$ | 1,591,989 | | |
$ | 1,697,377 | | |
$ | (105,388 | ) | |
| (6 | )% |
| |
| | | |
| | | |
| | | |
| | |
Costs
of goods sold | |
| 1,251,825 | | |
| 1,431,485 | | |
| (179,660 | ) | |
| (13 | )% |
Gross
profit | |
| 340,164 | | |
| 265,892 | | |
| 74,272 | | |
| 28 | % |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 111,858 | | |
| 197,955 | | |
| (86,097 | ) | |
| (43 | )% |
Sales and marketing | |
| 210,531 | | |
| 576,919 | | |
| (366,388 | ) | |
| (64 | )% |
General and administrative | |
| 617,207 | | |
| 1,048,858 | | |
| (431,651 | ) | |
| (41 | )% |
Depreciation
and Amortization | |
| 26,299 | | |
| 45,909 | | |
| (19,610 | ) | |
| (43 | )% |
Total
operating expenses | |
| 965,895 | | |
| 1,869,641 | | |
| (903,746 | ) | |
| (48 | )% |
Loss
from operations | |
| (625,731 | ) | |
| (1,603,749 | ) | |
| 978,218 | | |
| (61 | )% |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (522,867 | ) | |
| (443,053 | ) | |
| (79,814 | ) | |
| 18 | % |
Private placement
costs | |
| (27,760 | ) | |
| — | | |
| (27,760 | ) | |
| — | |
Recognition of derivative
liability | |
| (174,437 | ) | |
| — | | |
| (174,437 | ) | |
| — | |
Gain on extinguishment
of derivative liability | |
| 644,543 | | |
| 2,586,732 | | |
| (1,942,189 | ) | |
| (75 | )% |
Change
in fair value of derivative liabilities | |
| 325,159 | | |
| 2,446,054 | | |
| (2,120,895 | ) | |
| (87 | )% |
Net
(Loss) Income | |
$ | (381,093 | ) | |
$ | 2,985,984 | | |
$ | (3,367,077 | ) | |
| (113 | )% |
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 minimal to no
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 three months ended June 30, 2015 were $1,591,989, a decrease of $105,388 or 6% from $1,697,377 for the three
months ended June 30, 2014. The decrease was primarily a result of our recent release of the 2015 Mustang, which started shipping
our 2015 Saleen Mustang White Label models in February 2015 and the Yellow and Black Labels in late April 2015. The new 2015 model
represented a major model change requiring us to make significant design and tooling modifications to our Saleen Mustang. During
the same period in the prior year, Ford’s change from the 2013 to 2014 Mustang model year was minimal requiring little change
and the supply of vehicles was not disruptive nor did customers opt to wait for the newer model.
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 in which we
are the primary obligor. 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, such as paint.
Total
costs of goods sold for the three months ended June 30, 2015 were $1,251,825, a decrease of $179,660 or 13% from $1,431,485 of
costs of goods sold for the three months ended June 30, 2014. The decrease was primarily attributable to the decrease in the volume
of vehicle sales during the three months ended June 30, 2015 as compared to the same period in the prior year.
Gross
Margin: Gross Margin from the sale of vehicles and parts increased $74,272 to a margin of $340,164 for the three months ended
June 30, 2015 from a gross margin of $265,892 for the three months ended June 30, 2014. The increase in gross margin reflects
the sales mix 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 $86,097, or 43%, to $111,858 during the three months ended June 30, 2015 from $197,955 for
the three months ended June 30, 2014. The decrease is primarily due to lower expenses related to lower outside services.
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 $366,388, or 64%, to $210,531 for the three months ended June 30, 2015 from $576,919 for the
three months ended June 30, 2014. The decrease was primarily related to lower car show expenses, as we incurred higher car show
expenses in the prior year related to the 50th anniversary celebration of the Ford Mustang. These costs were somewhat
offset by non-cash stock based compensation of $39,732 incurred during the three months ended June 30, 2015. There were no stock
options issued during the three months ended June 30, 2014.
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 $431,651, or 41%, to $617,207 for the three months ended June 30, 2015 from $1,048,858
for the three months ended June 30, 2014. The decrease is primarily comprised of lower professional fees; lower general and administrative
salaries as a result of headcount reduction; lower auto, travel and entertainment costs due to less car show expenses; and decrease
in other expenses primarily resulting from our efforts to reduce costs. General and administrative expenses included non-cash
stock based compensation of $27,772 for the three months ended June 30, 2015. There were no stock options issued during the three
months ended June 30, 2014.
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 decreased by $19,610, or 43%, to $26,299
for the three months ended June 30, 2015 from $45,909 for the three months ended June 30, 2014.
Interest
Expense: Interest expense increased by $79,814 or 18% to $522,867 for the three months ended June 30, 2015 from $443,053 for
the three months ended June 30, 2014. The increase is primarily attributable to higher non-cash interest expense incurred during
the three months ended June 30, 2015 as compared to same period in the prior year resulting from our increase in convertible notes.
Private
Placement Costs: In conjunction with a note holder agreeing to assign their then outstanding note and principal balance of
$49,240 to a separate note holder in exchange for the new note holder’s payment of $77,000 to the original note holder,
we recorded $27,760 as private placement cost during the three months ended June 30, 2015 representing the increase in principal
balance from $49,240 to $77,000.
Gain
on Extinguishment of Derivative Liability: Gain on the extinguishment of derivative liability related to gains of $644,543
during the three months ended June 30, 2015 as a result of the extinguishment of derivative liabilities resulting from certain
note holders’ request to convert their convertible debt to stock in accordance with the terms of their convertible notes.
During the three months ended June 30, 2014, we recognized a gain of $2,586,732 related to the extinguishment of a derivative
liability related to our 3% Senior Secured Convertible Notes.
Change
in Fair Value of Derivative Liability: In accordance with the FASB authoritative guidance, the conversion feature of certain
convertible notes issued by us was separated from the host contract (i.e., the notes) and recognized as a derivative instrument.
The conversion feature of these notes are characterized as a derivative liability, which is 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 June
30, 2015 and 2014, we recorded a gain of $325,159 and $2,446,054, respectively, due to the change in the fair value of our derivative
liability. During the three months ended June 30, 2014, we recognized a gain of $1,123,836 related to our extinguishment of a
derivative in conjunction with the June 2014 First Amendment to our 3% Senior Convertible.
Net Loss:
Net loss increased by $3,367,077, or 113%, to a net loss of $381,093 for the three months ended June 30, 2015 from a net income
of $2,985,984 for the three months ended June 30, 2014. The increase in net loss was primarily attributable to a decrease of $1,942,189
in gain on extinguishment of derivative liability; a $2,120,895 decrease in change in fair value of derivative liability; a $174,437
recognition of a derivative liability; and a $79,814 increase in interest expense. This increase in net loss was offset by a $978,018
decrease in loss from operations related to a $903,749 decrease in operating expenses along with a $74,272 improvement in gross
profit.
Liquidity
and Capital Resources
Our
working capital deficiency as of June 30, 2015 and March 31, 2015 are follows:
| |
As
of | | |
As
of | |
| |
June
30, 2015 | | |
March
31, 2015 | |
Current Assets | |
$ | 340,125 | | |
$ | 910,794 | |
Current Liabilities | |
| (6,752,682 | ) | |
| (7,961,458 | ) |
Net Working Capital
Deficiency | |
$ | (6,412,557 | ) | |
$ | (7,050,664 | ) |
Summary of cash flow activity
for the three months ended June 30, 2015 and June 30, 2014 are as follows:
Cash Flows | |
| | |
| |
| |
| | |
| |
| |
Three
months | | |
Three
months | |
| |
Ended | | |
Ended | |
| |
June
30, 2015 | | |
June
30, 2014 | |
Net cash used in Operating
Activities | |
$ | (31,366 | ) | |
$ | (1,423,194 | ) |
Net cash used in Investing Activities | |
| (8,811 | ) | |
| (210,159 | ) |
Net cash (used in) provided by Financing
Activities | |
| (17,500 | ) | |
| 160,680 | |
Decrease in Cash during the three month period
| |
| (57,677 | ) | |
| (1,472,673 | ) |
Cash, Beginning of Period | |
| 143,083 | | |
| 1,499,889 | |
Cash, End of Period | |
| 85,406 | | |
| 27,216 | |
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, gross margin achieved from the sales of high performance vehicles and aftermarket parts along with
customer deposits received in advance of shipment. Our principal uses of cash have been primarily for production and purchase
of parts for our high performance vehicles; expansion of operations and staff; development of new products and improvement of
existing products; expansion of 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 requirements and planned business objectives beyond the
date of this Form 10-Q filing without additional financing.
As further presented in
our condensed consolidated financial statements and related notes, during the three months ended March 31, 2015, we incurred a
loss from operations of $625,731 and utilized $31,366 of cash in operations. We also had a stockholders’ deficit and working
capital deficit of $9,200,877 and $6,412,557, respectively as of June 30, 2015, and as of that date, we owed $716,356 in past
unpaid payroll and other taxes (for which we have an installment agreement with the IRS whereby we are paying $10,000 a month);
$605,986 of outstanding notes payable were in default; $837,721 of accounts payable was greater than 90 days past due; and $333,913
is owed on past due rent. In addition, in May 2015, we received a complaint from Citizens Business Bank alleging breach of our
loan agreement with the bank and breach of a commercial guaranty by Steve Saleen and demanding full payment of principal, interest
and fees of $369,302. A default under the loan agreement triggers a cross default under our 3% Senior Secured Convertible Notes
and 7% Convertible Notes (see Note 5 to our condensed consolidated financial statements) enabling the holders thereof to, at their
election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure
or resolution, accelerate the maturity of our indebtedness. In addition, we currently do not maintain workers’ compensation,
product liability and other general insurance. 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 June 30, 2015, we had cash on hand
in the amount of $85,406 and we are not generating funds from operations to cover current production and operating expenses and
we will have to obtain additional financing. As such, we will need and are currently seeking additional funds, primarily through
the issuance of debt or equity securities for production and to operate our business through and beyond the date of this Form
10-Q filing. 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, it 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 convertible debt and equity financing.
At June 30, 2015, we had
a working capital deficit of $6,412,557 compared to a working capital deficit of $7,050,664 at March 31, 2015. The decrease in
working capital deficit was primarily related to decrease in current liabilities of $1,208,776 primarily due to a $795,265 decrease
in derivative liability; a $579,860 decrease in customer deposits; a $227,948 decrease in accounts payables with related parties;
and a $151,990 decrease in notes payable including a $11,416 decrease from related parties. This decrease was offset somewhat
by a decrease of $570,669 in current assets primarily due to $499,165 decrease in inventory.
Net
cash used in operating activities for the fiscal year ended March 31, 2015 totaled $31,366 after the net loss of $381,093 was
decreased by $117,954 of non-cash charges and by $467,681 in net changes to the working capital accounts. This compares to net
cash used in operating activities for the three months ended June 30, 2014 of $1,423,174 after net income of $2,985,984 was decreased
by $4,535,348 in non-cash charges and increased by $126,190 in net changes to the working capital accounts.
Net
cash used in investing activities was $8,811 for three months ended June 30, 2015 as compared to $210,159 of cash used in investing
activities for the three months ended June 30, 2014.
Net
cash used in financing activities for the three months ended June 30, 2015 was $17,500, which was comprised of $47,500 of principal
payments on notes payable to related parties offset by $30,000 note payable received from a related party. This compares to net
cash provided by financing activities for the three months ended June 30, 2014 of $160,680 which comprised $250,000 from the issuance
of our unsecured convertible notes; $152,500 from the issuance of 1,066,667 shares of our common stock; and $25,000 came from
accounts to be settled through the issuance of equity securities. This was offset by cash of $274,320 was used to pay principal
on long term notes.
Defaults
on Notes and Accounts Payable
As
of June 30, 2015, we were in default on $605,986 of unsecured notes payable; $837,721 of accounts payable was past 90 days outstanding;
and $333,913 was past due on rent for our facilities. 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, in May 2015, we received a complaint from Citizens Business Bank
alleging breach of our loan agreement with the bank and breach of a commercial guaranty by Steve Saleen and demanding full payment
of principal, interest and fees of $369,302. A default under the loan agreement triggers a cross default under our 3% Senior Secured
Convertible Notes and 7% Convertible Notes (see Note 5 to our consolidated financial statements) enabling the holders thereof
to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware
of such cure or resolution, accelerate the maturity of our indebtedness.
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 June 30, 2015, 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 three months
ended June 30, 2015, 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 |
|
|
|
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: August 19,
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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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: August 19, 2015
/s/ Steve Saleen |
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Steve Saleen |
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Chief Executive Officer |
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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.; |
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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; |
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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; |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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: August 19, 2015
/s/ David Fiene |
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David Fiene |
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Chief Financial Officer |
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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 three month period ended June 30, 2015, 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 |
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(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 |
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Steve Saleen |
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Chief Executive Officer |
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August 19, 2015 |
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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 three month period ended June 30, 2015, 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 |
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(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 |
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David Fiene |
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Chief Financial Officer |
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August 19, 2015 |
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