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 September 30, 2014
OR
[ ] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from _________ to _________
SALEEN
AUTOMOTIVE, INC.
(Exact
Name of Registrant as Specified in Charter)
Nevada |
|
333-176388 |
|
45-2808694 |
(State
or Other Jurisdiction |
|
(Commission |
|
(I.R.S.
Employer |
of
Incorporation) |
|
File
No.) |
|
Identification
No.) |
|
|
|
|
|
2735
Wardlow Road
Corona,
California |
|
|
|
92882 |
(Address
of Principal Executive Offices) |
|
|
|
(Zip
Code) |
(800)
888-8945
Registrant’s
telephone number, including area code:
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes
[X] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [ ] |
Accelerated
filer [ ] |
Non-accelerated
filer [ ] |
Smaller
reporting company [X] |
Indicate
by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes
[ ] No [X]
As
of November 13, 2014, there were 153,285,607 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
| |
September
30, 2014 | | |
March
31, 2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| | | |
| | |
Current
Assets | |
| | | |
| | |
Cash | |
$ | 7,261 | | |
$ | 1,499,889 | |
Accounts receivable, net | |
| 295,940 | | |
| 198,538 | |
Inventory | |
| 341,080 | | |
| 433,941 | |
Prepaid expenses and other current assets | |
| 24,348 | | |
| 97,926 | |
Total
Current Assets | |
| 668,629 | | |
| 2,230,294 | |
Long
Term Assets | |
| | | |
| | |
Property and equipment, net | |
| 661,968 | | |
| 546,824 | |
Other assets | |
| 42,358 | | |
| 47,904 | |
TOTAL ASSETS | |
$ | 1,372,955 | | |
$ | 2,825,022 | |
LIABILITIES AND
STOCKHOLDERS’ DEFICIT | |
| | | |
| | |
Current
Liabilities | |
| | | |
| | |
Accounts payable | |
$ | 1,697,375 | | |
$ | 2,048,310 | |
Due to related parties | |
| 314,289 | | |
| 148,954 | |
Current portion of notes payable | |
| 648,971 | | |
| 1,275,774 | |
Current portion of convertible notes, net of discount of $139,959 at September
30, 2014 | |
| 16,041 | | |
| — | |
Current portion of notes payable to related parties | |
| 327,000 | | |
| 209,452 | |
Payroll taxes payable | |
| 583,900 | | |
| 669,575 | |
Accrued interest on notes payable | |
| 266,805 | | |
| 380,257 | |
Customer deposits | |
| 913,845 | | |
| 193,912 | |
Deferred vendor consideration | |
| 275,000 | | |
| — | |
Derivative liability | |
| 214,727 | | |
| — | |
Other current liabilities | |
| 376,888 | | |
| 354,346 | |
Total
Current Liabilities | |
| 5,634,841 | | |
| 5,280,580 | |
Accounts to be settled by issuance of equity securities | |
| — | | |
| 470,534 | |
Derivative liability | |
| — | | |
| 5,032,786 | |
Convertible notes payable, net of discount of $3,045,013 and $3,498,981 at
September 30, 2014 and March 31, 2014, respectively | |
| 1,456,707 | | |
| 1,337,751 | |
Total Liabilities | |
| 7,091,548 | | |
| 12,121,651 | |
Commitments and Contingencies | |
| — | | |
| — | |
Stockholders’
Deficit | |
| | | |
| | |
Common stock; $0.001 par value; 500,000,000 shares authorized; 153,230,607 and 137,710,501 issued and outstanding as of
September 30, 2014 and March 31, 2014, respectively | |
| 153,231 | | |
| 137,711 | |
Preferred stock; $0.001 par value; 1,000,000 shares authorized; none issued and outstanding | |
| — | | |
| — | |
Additional paid in capital | |
| 13,091,411 | | |
| 10,431,174 | |
Accumulated deficit | |
| (18,963,235 | ) | |
| (19,865,514 | ) |
Total
Stockholders’ Deficit | |
| (5,718,593 | ) | |
| (9,296,629 | ) |
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |
$ | 1,372,955 | | |
$ | 2,825,022 | |
See
accompanying notes which are an integral part of these condensed consolidated financial statements.
Saleen
Automotive, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations (Unaudited)
| |
Three
month periods ended
September 30, | | |
Six
month periods ended
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Revenue,
net | |
$ | 866,524 | | |
$ | 1,536,264 | | |
$ | 2,563,901 | | |
$ | 2,442,696 | |
| |
| | | |
| | | |
| | | |
| | |
Costs of goods sold | |
| 769,990 | | |
| 1,234,008 | | |
| 2,201,275 | | |
| 2,076,979 | |
Gross
margin | |
| 96,534 | | |
| 302,256 | | |
| 362,626 | | |
| 365,717 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 250,130 | | |
| 190,582 | | |
| 412,436 | | |
| 306,398 | |
Sales and marketing | |
| 443,767 | | |
| 456,556 | | |
| 999,392 | | |
| 578,974 | |
General and administrative | |
| 792,062 | | |
| 776,471 | | |
| 1,898,063 | | |
| 2,511,620 | |
Depreciation and Amortization | |
| 63,806 | | |
| 26,574 | | |
| 109,715 | | |
| 46,744 | |
Total
operating expenses | |
| 1,549,765 | | |
| 1,450,182 | | |
| 3,419,606 | | |
| 3,452,736 | |
Loss
from operations | |
| (1,453,231 | ) | |
| (1,147,926 | ) | |
| (3,056,980 | ) | |
| (3,087,019 | ) |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (571,748 | ) | |
| (127,939 | ) | |
| (1,014,801 | ) | |
| (176,779 | ) |
Costs of reverse merger transaction | |
| — | | |
| — | | |
| — | | |
| (365,547 | ) |
Private placement cost | |
| (85,882 | ) | |
| — | | |
| (85,882 | ) | |
| — | |
Gain in extinguishment of derivative liability | |
| — | | |
| — | | |
| 2,586,732 | | |
| — | |
Change in fair value of derivative liability | |
| 27,156 | | |
| 140,899 | | |
| 2,473,210 | | |
| 51,132 | |
Net
income (loss) | |
$ | (2,083,705 | ) | |
$ | (1,134,966 | ) | |
$ | 902,279 | | |
$ | (3,578,213 | ) |
Net income (loss) per share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | 0.01 | | |
$ | (0.03 | ) |
Diluted | |
$ | (0.01 | ) | |
$ | (0.01 | ) | |
$ | 0.00 | | |
$ | (0.03 | ) |
Shares used in computing
net income (loss) per share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 151,186,865 | | |
| 120,000,000 | | |
| 142,095,832 | | |
| 120,000,000 | |
Diluted | |
| 151,186,865 | | |
| 120,000,000 | | |
| 207,471,094 | | |
| 120,000,000 | |
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 six month period ended September 30, 2014
| |
| | |
| | |
| | |
| | |
Additional | | |
| | |
| |
| |
Common Stock $0.001 Par | | |
Preferred Stock $0.001 Par | | |
Paid
In | | |
Accumulated | | |
Stockholders’ | |
| |
Number | | |
Amount | | |
Number | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
Balance, March 31, 2014 | |
| 137,710,501 | | |
$ | 137,711 | | |
| — | | |
$ | — | | |
$ | 10,431,174 | | |
$ | (19,865,514 | ) | |
$ | (9,296,629 | ) |
Fair value of shares issued for services | |
| 1,000,000 | | |
| 1,000 | | |
| | | |
| | | |
| 169,000 | | |
| | | |
| 170,000 | |
Reclass of amounts settled
through the issuance of equity securities | |
| 1,285,460 | | |
| 1,285 | | |
| | | |
| | | |
| 469,249 | | |
| | | |
| 470,534 | |
Shares issued for cash | |
| 1,183,334 | | |
| 1,183 | | |
| | | |
| | | |
| 176,317 | | |
| | | |
| 177,500 | |
Shares issued upon exercise of warrants | |
| 50,000 | | |
| 50 | | |
| | | |
| | | |
| 7,450 | | |
| | | |
| 7,500 | |
Shares issued as consideration
for the amendments of convertible notes | |
| 747,066 | | |
| 747 | | |
| | | |
| | | |
| 111,312 | | |
| | | |
| 112,059 | |
Fair value of shares issued
upon conversion of convertible notes and accrued interest | |
| 8,032,186 | | |
| 8,032 | | |
| | | |
| | | |
| 588,921 | | |
| | | |
| 596,953 | |
Shares issued as payments
on notes payable and accrued interest | |
| 3,222,060 | | |
| 3,223 | | |
| | | |
| | | |
| 534,013 | | |
| | | |
| 537,236 | |
Beneficial conversion feature
associated with convertible debt financing | |
| | | |
| | | |
| | | |
| | | |
| 250,000 | | |
| | | |
| 250,000 | |
Fair value of stock-based compensation | |
| | | |
| | | |
| | | |
| | | |
| 353,975 | | |
| | | |
| 353,975 | |
Net
income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 902,279 | | |
| 902,279 | |
Balance, September
30, 2014 | |
| 153,230,607 | | |
$ | 153,231 | | |
| — | | |
$ | — | | |
$ | 13,091,411 | | |
$ | (18,963,235 | ) | |
$ | (5,718,593 | ) |
See
accompanying notes which are an integral part of these condensed consolidated financial statements.
Saleen
Automotive Inc.
Condensed
Consolidated Statements of Cash Flows (Unaudited)
|
|
Six
month periods ended
September 30, |
|
|
|
2014 |
|
|
2013 |
|
Cash flows
from operating activities |
|
|
|
|
|
|
|
|
Net
income (loss) |
|
$ |
902,279 |
|
|
$ |
(3,578,213 |
) |
Adjustments
to reconcile net income (loss) to net cash used in operating activities |
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
109,715 |
|
|
|
46,744 |
|
(Gain)
Loss on change in fair value of derivative liability |
|
|
(2,473,209 |
) |
|
|
(51,132 |
) |
Gain
on extinguishment of derivative liability |
|
|
(2,586,732 |
) |
|
|
— |
|
Gain
on settlement of notes payable |
|
|
(72,315 |
) |
|
|
— |
|
Amortization
of discount on convertible notes |
|
|
832,068 |
|
|
|
108,341 |
|
Fair
value of share based compensation |
|
|
353,975 |
|
|
|
— |
|
Costs
of private placement fees |
|
|
85,882 |
|
|
|
— |
|
Fair
value of shares issued for directors fees to related parties |
|
|
— |
|
|
|
250,000 |
|
Fair
value of shares issued as principal payment on notes payable |
|
|
— |
|
|
|
24,697 |
|
Fair
value of shares issued for services |
|
|
170,000 |
|
|
|
279,481 |
|
Changes
in working capital: |
|
|
|
|
|
|
|
|
(Increase)
Decrease in: |
|
|
|
|
|
|
|
|
Cash
held in trust account |
|
|
— |
|
|
|
175,000 |
|
Accounts
receivable |
|
|
(97,402 |
) |
|
|
(42,282 |
) |
Inventory |
|
|
92,861 |
|
|
|
(8,706 |
) |
Prepaid
expenses and other assets |
|
|
79,124 |
|
|
|
(21,597 |
) |
Increase
(Decrease) in: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
(350,935 |
) |
|
|
330,154 |
|
Due
to related parties |
|
|
165,335 |
|
|
|
50,173 |
|
Payroll
taxes payable |
|
|
(85,675 |
) |
|
|
307,916 |
|
Accrued
interest |
|
|
143,358 |
|
|
|
(37,647 |
) |
Customer
deposits |
|
|
719,933 |
|
|
|
(268,667 |
) |
Deferred
vendor consideration |
|
|
275,000 |
|
|
|
— |
|
Other
liabilities |
|
|
22,542 |
|
|
|
62,553 |
|
Net
cash used in operating activities |
|
|
(1,714,196 |
) |
|
|
(2,373,185 |
) |
Cash flows
from investing activities |
|
|
|
|
|
|
|
|
Purchases
of property and equipment |
|
|
(224,859 |
) |
|
|
(237,729 |
) |
Net
cash used in investing activities |
|
|
(224,859 |
) |
|
|
(237,729 |
) |
Cash flows
from financing activities |
|
|
|
|
|
|
|
|
Proceeds
from senior secured notes payable |
|
|
— |
|
|
|
3,000,000 |
|
Proceeds
from unsecured convertible notes |
|
|
156,000 |
|
|
|
|
|
Proceeds
from unsecured convertible notes - related parties |
|
|
250,000 |
|
|
|
— |
|
Proceeds
from notes payable – related parties |
|
|
150,000 |
|
|
|
|
|
Principal
payments on notes payable – related parties |
|
|
—
|
|
|
|
(203,243 |
) |
Principal
payments on notes payable |
|
|
(294,573 |
) |
|
|
(177,031 |
) |
Proceeds
from issuance of common stock |
|
|
177,500 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Proceeds
from exercise of warrants |
|
|
7,500 |
|
|
|
— |
|
Net
cash provided by financing activities |
|
|
446,427 |
|
|
|
2,619,726 |
|
Net
(decrease) increase in cash |
|
|
(1,492,628 |
) |
|
|
8,812 |
|
Cash
at beginning of period |
|
|
1,499,889 |
|
|
|
4,434 |
|
Cash
at end of period |
|
$ |
7,261 |
|
|
$ |
13,246 |
|
(continued)
Saleen
Automotive Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows (Unaudited)
(continued)
| |
Six
months periods ended
September 30: | |
| |
2014 | | |
2013 | |
Supplemental schedule of non-cash investing and financing activities: | |
| | | |
| | |
Derivative liability related to conversion feature | |
$ | 241,882 | | |
$ | 1,660,056 | |
Issuance of Common Stock on conversion of Secured Convertible Notes Payable
and accrued interest | |
| 596,953 | | |
| — | |
Issuance of Common Stock on payment of interest on Notes Payable | |
| 244,869 | | |
| 24,697 | |
Issuance of common stock as payment on Notes Payable | |
| 292,367 | | |
| 22,803 | |
Beneficial conversion feature | |
| 250,000 | | |
| — | |
Fair value of shares issued in exchange for amendment of convertible debts
recorded as debt discount | |
| 112,059 | | |
| — | |
Reclass of amounts to be settled through the issuance
of equity securities | |
| 470,534 | | |
| — | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid during the year for | |
| | | |
| | |
Interest | |
$ | 15,334 | | |
$ | 44,292 | |
Income taxes | |
$ | — | | |
$ | — | |
See
accompanying notes which are an integral part of these condensed consolidated financial statements.
Saleen
Automotive Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements (Unaudited)
Three
and Six Month Periods Ended September 30, 2014 and 2013
The
accompanying condensed consolidated financial statements of Saleen Automotive, Inc. and subsidiaries (“Saleen,” “we,”
“us, “our” and “our Company”) have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and the rules and regulations of the Securities and
Exchange Commission. Accordingly, the unaudited condensed consolidated financial statements do not include all information and
footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments,
consisting of only normal recurring adjustments, considered necessary for a fair presentation. Interim operating results are not
necessarily indicative of results that may be expected for the fiscal year ending March 31, 2015, or for any other interim period.
These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial
statements as of and for the year ended March 31, 2014, which are included in the Company’s Annual Report on Form 10-K for
such year filed on June 30, 2014. The consolidated balance sheet as of March 31, 2014, has been derived from the audited financial
statements included in the Form 10-K filed on June 30, 2014.
NOTE
1 – NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description
of the Company
The
Company designs, develops, manufactures and sells high performance vehicles built from base chassis’ of Ford Mustangs, Chevrolet
Camaros, Dodge Challengers and Tesla Model S vehicles. The Company is a low volume vehicle design, engineering and manufacturing
company focusing on the mass customization (the process of customizing automobiles that are mass produced by the manufacturers
(Ford, Chevrolet, Dodge and Tesla)) of OEM American Sports and Electric Vehicles. A high performance car is an automobile that
is designed and constructed specifically for speed and performance. The design and construction of a high performance car involves
not only providing a capable power train but also providing the handling, aerodynamics and braking systems to support it. The
Company’s Saleen-branded products include a complete line of upgraded high performance vehicles, automotive aftermarket
specialty parts and lifestyle accessories.
History
of the Company
Saleen
Automotive, Inc. (formerly W270, Inc.) was incorporated under the laws of the State of Nevada on June 24, 2011. The Company issued
5,000,000 shares of its common stock to Mr. Wesley Fry (“Fry”) at inception. Following its formation, the Company
issued an additional 1,000,000 shares of its common stock to Fry. On June 21, 2012, the Company issued 2,000,000 shares of its
common stock for a total of $20,000.
On
November 30, 2012, Fry and W-Net Fund I, L.P. ( “W-Net”), entered into a Stock Purchase Agreement (the “Purchase
Agreement”), pursuant to which Fry sold to W-Net 75.0% of the issued and outstanding shares of the Company’s common
stock.
Merger
On
May 23, 2013, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Saleen California
Merger Corporation, its wholly-owned subsidiary, Saleen Florida Merger Corporation, its wholly-owned subsidiary, Saleen Automotive,
Inc. (“Saleen Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive, the “Saleen
Entities”) and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”).
The closing (the “Closing”) of the transactions contemplated by the Merger Agreement (the “Merger”) occurred
on June 26, 2013. At the Closing (a) Saleen California Merger Corporation was merged with and into SMS with SMS surviving as one
of the Company’s wholly-owned subsidiaries; (b) Saleen Florida Merger Corporation was merged with and into Saleen Automotive
with Saleen Automotive surviving as one of the Company’s wholly-owned subsidiaries; (c) holders of the outstanding capital
stock of Saleen Automotive received an aggregate of 554,057 shares of the Company’s Super Voting Preferred Stock, which
was subsequently converted into 69,257,125 shares of the Company’s common stock and holders of the outstanding capital stock
of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of the Company’s
common stock (on a fully-diluted basis) was owned, collectively, by Saleen Parties (including 341,943 shares of the Company’s
Super Voting Preferred Stock, which was subsequently converted into 42,742,875 shares of the Company’s common stock, issued
to Saleen pursuant to the Assignment and License Agreement) and the former holders of the outstanding capital stock of Saleen
Automotive. As a result of the Merger the Company is solely engaged in the Saleen Entities’ business, Saleen Automotive’s
then officers became the Company’s officers and Saleen Automotive’s then three directors became members of the Company’s
five-member board of directors. On June 17, 2013, the Company consummated a merger with WSTY Subsidiary Corporation, its wholly-owned
subsidiary, pursuant to which the Company amended its articles of incorporation to change its name to Saleen Automotive, Inc.
In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars. In January
2014, the Company effected an increase in the number of its common shares authorized to 500,000,000 and all the remaining shares
of Super Voting Preferred Stock were converted into common stock of the Company and the Super Voting Preferred Stock ceased to
be a designated series of the Company’s preferred stock.
As
the owners and management of Saleen Automotive had voting and operating control of the Company after the Merger, the transaction
was accounted for as a recapitalization with the Saleen Entities deemed the acquiring companies for accounting purposes, and the
Company deemed the legal acquirer. Due to the change in control, the condensed consolidated financial statements reflect the historical
results of the Saleen Entities prior to the Merger and that of the consolidated company following the Merger. Common stock and
the corresponding capital amounts of the Company pre-Merger have been retroactively restated as of the earliest periods presented
as capital stock reflecting the exchange ratio in the Merger. The amount of debt assumed upon the Merger of $39,547, legal and
closing costs of $46,000, and a dividend of an aggregate amount of $280,000 paid to our stockholders as of May 23, 2013 have been
reflected as a cost of the Merger in the statement of operations for the six months ended September 30, 2013.
Consolidation
Policy
The
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Saleen Automotive,
Inc., a Florida corporation, Saleen Signature Cars, a California corporation and Saleen Sales Corporation, a California corporation.
Intercompany transactions and balances have been eliminated in consolidation.
Reclassification
of Certain Prior Year Information
The
Company has reclassified certain prior year amounts to conform to the current year presentation. This included 1) reclassification
of engineering salaries of $153,885 and $245,291 for the three and six month periods ended September 30, 2013, respectively, from
general and administrative expenses to research and development expenses; 2) reclassification of sales and marketing salaries
of $160,372 and $258,626 for the three and six month periods ended September 30, 2013, respectively from general and administrative
expenses to sales and marketing expenses; and 3) reclassification of promotional trade discount expenses of $32,216 and $44,368
for the three and six month periods ended September 30, 2013, respectively, to revenue from sales and marketing expenses. The
reclassification of these amounts had no impact on consolidated net loss or cash flows.
Going
Concern
The
Company’s condensed consolidated financial statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
During the six months ended September 30, 2014, the Company incurred an operating loss of $3,056,980 and utilized $1,714,196
of cash in operations. The Company also had a stockholders’ deficit and working capital deficit of $5,718,593 and
$4,966,212, respectively, as of September 30, 2014, and as of that date, the Company owed $583,900 in past unpaid payroll
taxes; $1,148,574 of accounts payable was greater than 90 days past due; $352,795 of outstanding notes payable were in
default; and $398,176 is owed to a bank as of November 2014, which the Company has not paid and expects to be in default
unless the bank agrees to another extension. These factors
raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s independent
auditors, in their audit report for the year ended March 31, 2014, expressed substantial doubt about the Company’s
ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities
that may result from the possible inability of the Company to continue as a going concern.
The
Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately
achieve sustainable revenues and profitable operations. At September 30, 2014 the Company had cash on hand in the amount of $7,261
and is not generating sufficient funds from operations to cover current operating expenses. During the six months ended September
30, 2014, the Company raised $406,000 through the issuance of convertible notes, $150,000 through the issuance of notes payable
to related parties, and entered into Subscription Agreements with individual accredited investors (the “Subscribers”)
pursuant to which the Subscribers purchased from the Company an aggregate of 1,183,334 of restricted common shares at a per share
price of $0.15 for aggregate proceeds of $177,500. However, additional funding will be needed to continue operations through December
31, 2014. In addition, the Company will need and is currently seeking additional funds, primarily through the issuance of debt
or equity securities for cash to operate its business through and beyond December 31, 2014. 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, including diluting Saleen below 50% ownership, in the case
of convertible debt and equity financing.
Use
of Estimates
Financial
statements prepared in accordance with accounting principles generally accepted in the United States require management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Among other things, management estimates include the
estimated collectability of its accounts receivable, the valuation of the S7 Supercar held for sale, the valuation of long lived
assets, warranty reserves, the assumptions used to calculate its 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,
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 September 30, 2014 and March 31, 2014, the Company’s condensed consolidated balance sheet included the fair value of
a derivative liability of $214,728 and $5,032,786, respectively, which was based on Level 2 measurements. There were no other
investments or liabilities of the Company measured and recorded at fair value as of September 30, 2014 and March 31, 2014.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities
are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument
could be required within 12 months of the balance sheet date.
Inventories
|
|
September
30, 2014 |
|
|
March
31, 2014 |
|
|
|
(unaudited) |
|
|
|
|
Parts
and work in process |
|
$ |
91,080 |
|
|
$ |
183,941 |
|
S7 Supercar held
for sale |
|
|
250,000 |
|
|
|
250,000 |
|
Total inventories |
|
$ |
341,080 |
|
|
$ |
433,941 |
|
Income
Taxes
The
Company accounts for income taxes under FASB ASC 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC
740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The
Company maintains a valuation allowance with respect to deferred tax assets. The Company established a valuation allowance based
upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial
position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence
of sufficient taxable income within the carry forward period under the Federal tax laws.
Changes
in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of any
related deferred tax asset. Any change in the valuation allowance would be included in income in the year of the change in estimate.
Stock
Compensation
The
Company uses the fair value recognition provision of ASC 718, “Stock Compensation,” which requires the Company to
expense the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value
of such instruments. The Company uses the Black-Scholes-Merton option pricing model to calculate the fair value of any equity
instruments on the grant date that vests over a period of time.
The
Company also uses the provisions of ASC 505-50, “Equity Based Payments to Non-Employees,” to account for stock-based
compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the
services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement
date guidelines enumerated in ASC 505-50.
Income
(Loss) per Share
The
Company’s computation of earnings (loss) per share (EPS) includes basic and diluted EPS. The basic EPS is calculated by
dividing the Company’s net income (loss) available to common stockholders by the weighted average number of common shares
during the period. The diluted EPS is calculated by dividing the Company’s net income (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. Certain dilutive
common shares are excluded from the diluted income (loss) per share calculation if the effects of such dilutive common shares
are anti-dilutive. In computing diluted EPS, the treasury stock method assumes that outstanding options and warrants are exercised
and the proceeds are used to purchase common stock at the average market price during the period.
Weighted
average number of shares outstanding has been retroactively restated for the equivalent number of shares received by the accounting
acquirer as a result of the reverse merger as if these shares had been outstanding as of the beginning of the earliest period
presented. Weighted average shares outstanding include, as of the earliest period presented, the equivalent number of common shares
that were converted upon conversion of all the Super Voting Preferred Stock, as these shares have the same characteristics of
common stock.
Warrants,
options and other potentially dilutive debt securities that are anti-dilutive have been excluded from the dilutive calculation
when their exercise price or conversion price exceeds the average stock market price during the period or the effect would be
anti-dilutive when applying to a net income (loss) during the period presented. The following table presents a reconciliation
of basic and diluted shares for the three and six month periods ended September 30, 2014 and 2013:
| |
Three Month Periods Ended
September 30, | | |
Six Month Periods Ended
September 30, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Basic weighted-average number of common shares outstanding | |
| 151,186,865 | | |
| 120,000,000 | | |
| 142,095,832 | | |
| 120,000,000 | |
Diluted effect of potentially dilutive convertible debt | |
| — | | |
| — | | |
| 65,375,262 | | |
| — | |
Diluted weighted-average number of potential common shares outstanding | |
| 151,186,865 | | |
| 120,000,000 | | |
| 207,471,094 | | |
| 120,000,000 | |
Potential common shares excluded from the per share computations as the effect of their inclusion
would not be dilutive | |
| 213,529,045 | | |
| 40,000,000 | | |
| 149,264,897 | | |
| 21,333,333 | |
Significant
Concentrations
Sales
to two separate customers comprised 10% and 15% of revenues for the three and six months ended September 30, 2014, respectively.
Two different customers comprised 44% and 29% of accounts receivable as of September 30, 2014. No customers had accounts receivable
in excess of 10% at March 31, 2014 or revenues in excess of 10% during the three and six months ended September 30, 2013.
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, 2016, and early adoption is not permitted. Entities can transition to the standard
either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Management is currently evaluating the
impact, if any, on adopting ASU 2014-09 on the Company’s results of operations or financial condition.
In
April 2014, the FASB issued Accounting Standards Update No. 2014-08 (ASU 2014-08), Presentation of Financial Statements (Topic
205) and Property, Plant and Equipment (Topic 360). ASU 2014-08 amends the requirements for reporting discontinued operations
and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic
shift in operations or that have a major effect on the Company’s operations and financial results should be presented as
discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. Management
is currently evaluating the impact, if any, of adopting ASU 2014-08 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.
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:
| |
September
30, 2014 | | |
March
31, 2014 | |
Tooling | |
$ | 485,098 | | |
$ | 470,399 | |
Equipment | |
| 321,188 | | |
| 264,837 | |
Leasehold improvements | |
| 203,314 | | |
| 203,311 | |
Construction-in-progress | |
| 153,807 | | |
| — | |
Total, cost | |
| 1,163,407 | | |
| 938,548 | |
Accumulated Depreciation and Amortization | |
| (501,439 | ) | |
| (391,724 | ) |
Total
Property, Plant and Equipment | |
$ | 661,968 | | |
$ | 546,824 | |
Depreciation
and amortization expense was $63,806 and $26,574 for the three months ended September 30, 2014 and 2013, respectively, and was
$109,715 and $46,744 for the six months ended September 30, 2014 and 2013, respectively.
NOTE
3 – NOTES PAYABLE
Notes
payable are comprised as follows:
| |
September
30, 2014 | | |
March
31, 2014 | |
Senior secured note payable
to a bank, secured by all assets of Saleen Signature Cars, guaranteed by the U.S. Small Business Administration and personally
guaranteed by the Company’s CEO, payable in full in Novemer 2014 (1) | |
$ | 398,176 | | |
$ | 442,479 | |
Subordinated secured bonds payable,
interest at 6% per annum payable at various maturity dates, currently in default (2) | |
| 97,000 | | |
| 97,000 | |
Subordinated secured note payable,
interest at 10% per annum, payable March 16, 2010, currently in default (3) | |
| 61,046 | | |
| 61,046 | |
Subordinated secured note payable for
legal services rendered, non-interest bearing, payable on October 25, 2013, currently in default (4) | |
| 37,749 | | |
| 37,749 | |
Note and bond payable (5) | |
| - | | |
| 517,500 | |
Unsecured notes
payable, interest at 10% per annum payable on various dates from July 31 to March 31, 2010, currently in default (6) | |
| 55,000 | | |
| 120,000 | |
Total notes payable | |
$ | 648,971 | | |
$ | 1,275,774 | |
(1) |
On February
6, 2014, Saleen Signature Cars received a Complaint from the bank filed in California
Superior Court, Riverside County alleging, among other matters, breach of contract due
to non-timely payment of November and December 2013 principal amounts owed, which were
paid as of March 31, 2014, and the occurrence of a change in control as a result of the
Merger. 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 for
May, June and July 2014. In accordance with the settlement arrangement, the Company was
required to pay $418,429 to this bank in August 2014 as full settlement of remaining
principal amount owed. In August
2014, the bank agreed to extend this date by 90 days to November 2014 in
exchange for $30,000 to be applied towards principal and interest on the loan. As of
the date of this filing, the Company has not paid this balance and expects to be in default
unless the bank agrees to another extension. The Company is currently in discussion with
the bank to obtain another extension.
|
|
|
(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 September 30, 2014 and March 31, 2014,
respectively, the Bonds were in default due to non-payment. |
|
|
(3) |
Note
payable issued on March 16, 2010 due in full on March 16, 2011. The note accrued interest at 10% per annum and was secured
by three vehicles held in inventory by Saleen Signature Cars. On June 7, 2013, the Company entered into a Settlement Agreement
and Mutual General Release by canceling this note and issuing a new unsecured 6% note payable due on or before August 19,
2013. The note was in default as of September 30, 2014 and March 31, 2014 due to non-payment. |
|
|
(4)
|
Non-interest
bearing note payable dated January 25, 2013 due in full on October 25, 2013 or earlier upon the occurrence of certain events
that have not occurred. The note is secured by certain of the Company’s intellectual property. The note was in default
as of September 30, 2014 and March 31, 2014 due to non-payment. |
|
|
(5)
|
As
of March 31, 2014, the Company was indebted on a $317,500 subordinated 6% bond and a $200,000 10%, note payable. On May 7,
2014, the Company, along with its subsidiaries and Steve Saleen, entered into a Settlement Agreement and Mutual Release (the
“Settlement Agreement”) with Thomas Del Franco and Jason B. Cruz (the “Del Franco Parties”), pursuant
to which the Del Franco Parties agreed to fully and finally settle a claim filed against the Company for outstanding Bond
and note payables to Thomas Del Franco, which consisted of a Bond and note payable of $317,500 and $200,000, respectively,
and unpaid interest of $187,535 in exchange for (1) the Company’s payment to Mr. Del Franco of $250,000 (the “Settlement
Payment”) and (2) issuance of 2,250,000 shares of the Company’s common stock (the “Settlement Shares”
and together with the Settlement Payment, the “Settlement Amount”). The Settlement Shares had a value of $382,500
based on the closing price of the Company’s common stock on May 7, 2014 of $0.17. The parties to the Settlement Agreement
also agreed to release each other from all claims arising from their prior business dealings. The Del Franco Parties have
agreed to a contractual restriction on the sale of the Settlement Shares whereby for a period of 12 months from and after
the expiration of any applicable restricted periods imposed by applicable federal and state securities laws and regulations,
including Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), the Del Franco Parties
will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, more than
200,000 of the Settlement Shares in any given calendar month. The Company recognized a gain of $72,265 in the Statement of
Operations during the six months ended September 30, 2014 based on the difference between the value of the common shares and
the amount recorded as of the date of settlement. |
|
|
(6)
|
As
of March 31, 2014, the Company had outstanding $100,000 and $20,000 unsecured 10% notes payable. In June 2014, the Company
entered into a Settlement Agreement and Mutual Release agreement with Jim Marsh American Corporation (“Marsh”)
for one of the notes that had an outstanding principal and interest of $100,000 and $53,374, respectively, in exchange for
(1) issuance of 800,000 shares of its common stock and (2) cash payment of $35,000. The Company issued the common shares in
June 2014 and determined the value to be $112,000, which was based on the value of the common stock of $0.14 as of the date
of settlement. The remaining cash payment of $35,000 was unpaid and was included in notes payable as of September 30, 2014.
In addition, the other $20,000 Note remains outstanding as of September 30, 2014. |
NOTE
4 – NOTES PAYABLE TO RELATED PARTIES
Notes
payable to related parties are as follows:
| |
September
30, 2014 | | |
March
31, 2014 | |
Unsecured note payable to
a stockholder, due on April 1, 2014, currently in default. (1) | |
$ | 102,000 | | |
$ | 102,000 | |
Unsecured note payable to a stockholder,
interest at 10% per annum payable at various maturity dates, settled in April 2014. (2) | |
| — | | |
| 32,452 | |
Unsecured 10% note payable to a stockholder, payable on demand | |
| 135,000 | | |
| — | |
Unsecured $100,000 revolving promissory note to a stockholder, interest
at 12% per annum payable in full on November 15, 2014. $10,000 available at September 30, 2014. | |
| 90,000 | | |
| 75,000 | |
Total notes payable, related parties | |
$ | 327,000 | | |
$ | 209,452 | |
(1) |
The
Company had borrowed an aggregate of $102,000 from a stockholder in prior years which went into default. On May 21, 2013,
the Company entered into a Settlement Agreement and Mutual General Release by cancelling the note and agreeing to enter into
a new note to pay $135,000 on or before April 1, 2014, which represented principal of $102,000 plus interest of $33,000 to
be accrued through April 1, 2014. The note was in default as of September 30, 2014 due to non-payment. |
|
|
(2)
|
Unsecured
note payable to a related party issued on November 3, 2008 for original principal of $60,000 bearing interest at 10% per annum
and due in full on February 10, 2009. In April 2014, the Company entered into a Settlement Agreement and Mutual General Release
with this note holder whereby it agreed to issue 527,520 shares of its common stock along with a five-year warrant to purchase
527,520 shares of its common stock at an exercise price of $0.15 per share in exchange for cancellation of $32,452 of principal
and $1,960 of accrued interest. The value of the common stock issued was $105,504 based on a stock price of $0.20 on date
of settlement. The Company valued the warrants at $82,662 using the Black-Scholes-Merton option pricing model using the following
assumptions: (i) fair market value of stock of $0.21; (ii) dividend yield of 0%; (iii) expected volatility of 100%; (iv) risk
free rate of 1.75% and (v) expected term of 5 years. The loss on the settlement of this note of $153,754 was provided for
and accrued for as of March 31, 2014. |
NOTE
5 – CONVERTIBLE NOTES PAYABLE
Convertible
notes payable are as follows:
|
|
September
30, 2014 |
|
|
March
31, 2014 |
|
Senior
secured convertible notes payable to a private accredited investor group, convertible into 27,797,573 shares of common stock
(including accrued interest) as of September 30, 2014, interest accrued at 3% per annum, notes mature on September 25, 2017
|
|
$ |
2,001,720 |
|
|
$ |
2,586,732 |
|
|
|
|
|
|
|
|
|
|
Unsecured
convertible notes payable to private accredited investor group, convertible into 61,646,190 shares of common stock (including
accrued interest) as of September 30, 2014, interest accrued at 7% per annum, notes mature in March 2017 |
|
|
2,500,000 |
|
|
|
2,250,000 |
|
|
|
|
|
|
|
|
|
|
Unsecured
convertible notes payable to a private accredited investor, convertible into 3,729,071 shares of common stock (including accrued
interest) as of September 30, 2014, interest accrued at 8% per annum, notes mature in June 2015 |
|
|
156,000 |
|
|
|
— |
|
|
|
|
4,657,720 |
|
|
|
4,836,732 |
|
Less:
discount on notes payable |
|
|
(3,184,972 |
) |
|
|
(3,498,981 |
) |
Notes
payable, net of discount |
|
|
1,472,748 |
|
|
|
1,337,751 |
|
Less:
notes payable, current |
|
|
(16,041 |
) |
|
|
— |
|
Notes
payable, long-term |
|
$ |
1,456,707 |
|
|
$ |
1,337,751 |
|
As
of September 31, 2014, $16,041 was included in current portion of convertible notes payable, which represented convertible notes
payable of $156,000 less debt discount of $139,959.
3%
Senior secured convertible notes
On
June 26, 2013, pursuant to a Securities Purchase Agreement, the Company issued senior secured convertible notes, having a total
principal amount of $3,000,000, to 12 accredited investors. During the six months ended September 30, 2014, note holders converted
$585,012 of principal and $11,941 of accrued and unpaid interest into 8,032,186 shares of the Company’s common stock. The
balance of the convertible notes outstanding as of September 30, 2014 was $2,001,720 and is convertible into 27,797,573 shares
of Common Stock including accrued and unpaid interest. The balance of convertible notes outstanding as of March 31, 2014 was $2,586,732.
The Notes pay 3.0% interest per annum with a maturity of 4 years (June 25, 2017) and are secured by all assets and intellectual
property of the Company. No cash interest payments will be required, except that accrued and unconverted interest shall be due
on the maturity date and on each conversion date with respect to the principal amount being converted, provided that such interest
may be added to and included with the principal amount being converted.
Each
Note is convertible at any time into the Company’s common stock at a specified conversion price, which currently is $0.075
per share. Prior to June 2014, the Note conversion price was subject to specified adjustments for certain changes in the numbers
of outstanding shares of the Company’s common stock, including conversions or exchanges thereof, and the agreements included
an anti-dilution provision that allowed for the automatic reset of the conversion or exercise price upon any future sale of the
Company’s common stock instruments at or below the then current exercise price. In June 2014, in exchange for the issuance
in aggregate of 389,923 shares of common stock valued at $58,488, the Company entered into a First Amendment to Saleen Automotive,
Inc. 3.0% Secured Convertible Note (“3% First Amendment”) to remove all specified adjustments to the conversion price
except for standard anti-dilution provisions whereby if the Company consummates a reorganization transaction, pays dividends or
enters into a stock split of its common shares the conversion price would adjust proportionally. In addition, if a Fundamental
Transaction, as defined, were to occur the potential liquidated damages was set to a fixed amount. The Company recorded $58,488
as additional debt discount related to the value of the 389,923 shares issued, which is being amortized over the remaining term
of the Notes.
The
Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock”
which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless
of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own
stock. Accordingly, the Company determined that prior to June 2014 the conversion prices of the notes were not a fixed amount
because they were subject to adjustment based on the occurrence of future offerings or events. As a result, the Company determined
that the conversion features were not considered indexed to the Company’s own stock and characterized the fair value of
these conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the notes on June
26, 2013, the initial fair value of the embedded beneficial conversion feature of the notes was $1,660,656. This amount was determined
by management with the use of an independent valuation specialist using a Monte Carlo simulation option pricing model. As such,
the Company recorded a $1,660,656 derivative liability with an offsetting change to valuation discount upon issuance for financial
reporting purposes. As a result of the 3% First Amendment entered into in June 2014, the conversion price is no longer subject
to fluctuation based on the occurrence of future offerings or events except for standard anti-dilution provisions whereby if the
Company consummates a reorganization transaction, pays dividends or enters into a stock split of its common shares the conversion
price would adjust proportionally. As a result, the Company determined that the derivative liability was extinguished in June
2014 (See Note 6).
During
the six months ended September 30, 2014 and September 30, 2013, the Company amortized $184,456 and $108,341, respectively, of
the valuation discount as additional interest expense. During the six months ended September 30, 2014, the Company wrote off the
remaining unamortized debt discount allocated to the convertible notes of $209,364 to interest expense. As of September 30, 2014
and March 31, 2014, the remaining unamortized valuation discount of $913,649 and $1,248,981, respectively, has been offset against
the face amount of the notes for financial statement purposes.
7%
Unsecured convertible notes
In
March and April 2014, as amended in June 2014, the Company issued 7% Unsecured Convertible Notes, having a total principal amount
of $2,250,000 and $250,000, respectively, to 5 accredited investors of which $2,000,000 was received from 3 investors who participated
in the June 26, 2013 offering above. The Notes were issued in a private placement, exempt from the Securities Act registration
requirements. The Notes pay 7.0% interest per annum with a maturity of 3 years (March and April, 2017). No cash interest payments
are required, except that accrued and unconverted interest shall be due on the maturity date and on each conversion date with
respect to the principal amount being converted, provided that such interest may be added to and included with the principal amount
being converted. Each Note is 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. As of September 30, 2014, the conversion price was approximately $0.04 per share and represented
61,646,190 shares of Common Stock. 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, in exchange for the issuance in aggregate of 357,143 shares of its common stock valued at $53,571, the Company entered
into a First Amendment to Saleen Automotive, Inc. 7% Convertible Note whereby effective as of March 31, 2014 or the applicable
issuance date for notes issued thereafter, the conversion price would in no event adjust below $0.03 per share. In addition, if
a Fundamental Transaction, as defined, were to occur the potential liquidated damages was set to a fixed amount. The Company recorded
$53,571 as additional debt discount related to the value of the shares issued, which is being amortized over the remaining term
of the Notes.
As
the initial conversion price of $0.07 reflected a price discount below the fair market value of the Company’s common stock
as of the issuance date of the Notes, the Company determined that there was deemed a beneficial conversion feature associated
with these Notes. As such, the Company recorded $2,250,000 and $250,000 in March 2014 and April 2014, respectively, representing
the intrinsic value of the beneficial conversion feature at the issuance date of the Notes in additional paid-in capital. The
value of the beneficial conversion feature is being amortized as additional interest expense over the term of the Notes, which
totaled $422,206 for the six months ended September 30, 2014. As of September 30 and March 31, 2014, the remaining unamortized
valuation discount of $2,131,365 and $2,250,000, respectively, has been offset against the face amount of the notes for financial
statement purposes.
8%
Unsecured convertible notes
In
September 2014 the Company issued, pursuant to a Securities Purchase Agreement with an accredited investor, two Convertible Promissory
Notes (“Notes”) in the principal amount of $156,000. The Notes bear interest at 8% per annum and mature in June 2015;
however, within the 180-day period after the issuance of the Notes, the Company may prepay the Notes subject to a premium between
110% and 135% of the then outstanding amount due depending on the date of payment. After the 180th day, the Company
may not prepay the note. Further, the notes contain provisions that under certain events of default, as defined in the agreement,
the amount owed would increase to 150% of the original amount owed. In addition, in the event of non-payment when due, the interest
rate would increase to 22% per annum from the date due until paid.
The
Notes are convertible into shares of Common Stock at the option of the holder commencing on the 180th day following
the date of the Notes and ending on the later of the maturity date or date of full payment of principal and interest. The principal
amount of the Notes along with, at the holder’s option, any unpaid interest and penalties, is convertible at a price per
share equal to the greater of (a) 61% of the average of the lowest 5 trading prices of the Company’s common stock during
the 10 trading day period ending on the latest complete trading day prior to the conversion date, and (b) $0.00009. In addition,
the conversion price is subject to adjustment 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. Further, the conversion price is subject to full-ratchet anti-dilution protection for any issuance of securities
(other than employee stock options) at a price per share below the then conversion price in effect at the time of issuance. As
of the September 30, 2014 and assuming that the holder had the right to convert the Notes, the Notes would have been convertible
into approximately 3,936,910 shares of Common Stock. Per agreement, the Company is required to reserve 28,000,000 shares of Common
Stock for the conversion of these Notes.
The
Company determined that the conversion features are not considered indexed to the Company’s own stock and characterized
the fair value of these conversion features as derivative liabilities upon issuance. The Company determined that upon issuance
of the Notes, the initial fair value of the embedded beneficial conversion feature of the notes to be $241,882. The Company determined
this amount by using a weighted-average Black-Scholes-Merton model using the following assumptions: (i) fair market value of stock
of $0.07; (ii) dividend yield of 0%; (iii) expected volatility of 125%; (iv) risk free rate of .08% and (v) expected term of .75
years. As such, the Company recorded a $241,882 derivative liability with an offsetting charge to valuation discount of $156,000
with the remainder of $85,882 recorded as an expense included in other income (expense) in the Statement of Operations for the
three and six months ended September 31, 2014. As of September 30, 2014, the Company amortized $16,041 of the valuation discount,
and the remaining unamortized valuation discount of $139,959 as of September 30, 2014 has been offset against the face amount
of the Notes for financial statement purposes. The remainder of the valuation discount will be amortized as interest expense over
the remaining term of the Notes.
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
(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. 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 is re-measured at the end of every reporting period
with the change in value reported in the statement of operations.
As
discussed in Note 5 above, the conversion feature of the Company’s senior secured convertible notes issued in June 2013
and unsecured convertible notes issued in September 2014 was separated from the host contract (i.e., the notes) and recognized
as a derivative instrument. The Company re-measures derivative instruments outstanding at the end of every reporting period with
the change in value from previous period reported in the statement of operations. The following represents the changes in the
Company’s derivative liabilities:
In
June 2014 the Company entered into a First Amendment to Saleen Automotive, Inc. 3.0% Secured Convertible Note to remove all specified
adjustments to the conversion price except for standard anti-dilution provisions whereby if the Company consummates a reorganization
transaction pays dividends or enters into a stock split of its common shares the conversion price would adjust proportionally.
As a result of this amendment, after June 17, 2014 the Company no longer recognized a derivative liability related to these notes.
During
2014 the derivative liability was valued at the following dates using a Black-Scholes-Merton model with the following assumptions:
| |
September
30, 2014 | | |
June
17, 2014 | | |
March
31, 2014 | |
Conversion feature: | |
| | | |
| | | |
| | |
Risk-free interest rate | |
| 0.08 | % | |
| 0.02 | % | |
| 0.05 | % |
Expected volatility | |
| 125 | % | |
| 100 | % | |
| 100 | % |
Expected life (in years) | |
| .70
years | | |
| 0
years | | |
| .25
years | |
Expected dividend yield | |
| — | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | |
Fair Value: | |
| | | |
| | | |
| | |
Conversion feature | |
$ | 214,728 | | |
$ | 2,586,732 | | |
$ | 5,032,786 | |
The
risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company used its own volatility as the
estimated volatility. The expected life of the conversion feature of the notes was based on the remaining terms of the notes.
The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its common stockholders
in the past and does not expect to pay dividends to its common stockholders in the future.
The
Company recognized income of $27,156 and $2,473,210 as other income during the three and six months ended September 30, 2014,
respectively, and income of $140,899 and $51,134 as other income during the three and six months ended September 30, 2013, respectively,
which represented the change in the fair value of derivative liability from previous reporting period. In addition, the Company
recognized a gain of $2,586,732 upon extinguishment of the derivative liability as of June 17, 2014 related to the 3% convertible
note.
NOTE
7 – RELATED PARTY TRANSACTIONS
The
amounts of accounts payable to related parties as of September 30 and March 31, 2014 are as follows:
Related
Party: |
|
September
30, 2014 |
|
|
March
31, 2014 |
|
Steve
Saleen (a) |
|
$ |
173,747 |
|
|
$ |
100,000 |
|
Michaels Law Group
(b) |
|
|
71,699 |
|
|
|
23,954 |
|
Top Hat Capital
(c) |
|
|
62,500 |
|
|
|
25,000 |
|
Crystal
Research (d) |
|
|
6,343 |
|
|
|
— |
|
|
|
$ |
314,289 |
|
|
$ |
148,954 |
|
(a)
|
During
the six months ended September 30, 2014 and 2013, the Company incurred $73,747 and $60,000 in officers’ salary expense
that is due and payable to its Director, Chairman and CEO, Mr. Steve Saleen. As of September 30, 2014 and March 31, 2014,
the Company owed $173,747 and $100,000, respectively, to Mr. Saleen for his unpaid officers’ salary. |
|
|
(b)
|
During
the six months ended September 30, 2014 and 2013, the Company incurred $63,295 and $62,516, respectively, in General Counsel
Services and legal fees expense with Michaels Law Group, a firm owned by its Director and General Counsel, Mr. Jonathan Michaels.
During the six months ended September 30, 2014 and 2013, the Company paid $15,550 and $148,258, respectively, in General Counsel
Services and legal fees expense with Michaels Law Group. As of September 30, 2014 and March 31, 2014, $71,699 and $23,954,
respectively, was payable to Michaels Law Group for these services. |
|
|
(c)
|
During
the six months ended September 30, 2014, the Company incurred and paid $50,000 and $12,500, respectively, in investment advisor
and research services from Top Hat Capital, whose co-founder and Managing Partner, Jeffrey Kraws, is a Director of the Company.
As of September 30, 2014 and March 31, 2014, $62,500 and $25,000, respectively, was payable to TopHat Capital for these services. |
|
|
(d) |
During
the six months ended September 30 2014, the Company incurred and paid $31,343 and $25,000, respectively, for research report
services to Crystal Research Associates, whose co-founder and Chief Executive Officer, Jeffrey Kraws, is a Director of the
Company. As of September 30, 2014 $6,343 was payable to Crystal Research Associates for these services. |
Other
Transactions
During
the six months ended September 30, 2013, the Company incurred $88,313 in accounting advisory and CFO services with Miranda &
Associates, a firm owned by its former Chief Financial Officer, Mr. Robert Miranda.
During
the six months ended September 30, 2013, the Company issued 5,277 shares of its Super Voting Preferred stock or the equivalent
of 659,625 shares of its Common Stock, to Robert J. Miranda and Jonathan Michaels (329,811 common shares each). These shares were
valued at $250,000, which was recorded as director’s fee expense. These shares were issued in consideration of Messrs. Miranda’s
and Michaels’ service on the Company’s board of directors.
NOTE
8 – STOCKHOLDERS’ EQUITY
Issuance
of common stock
During
the six months ended September 30, 2014, the Company entered into Subscription Agreements with individual accredited investors
(the “Subscribers”) pursuant to which the Subscribers purchased an aggregate of 1,183,334 restricted shares of the
Company’s common stock at a per share price of $0.15 for aggregate proceeds of $177,500, and also received Common Stock
Purchase Warrants to purchase 1,183,334 shares of the Company’s common stock at an exercise price of $0.15 per share.
During
the six months ended September 30, 2014, the Company issued 1,000,000 shares of common stock valued at $170,000 in in exchange
for services.
During
the six months ended September 30, 2014, the Company issued 1,285,460 shares of common stock to settle $470,534 of previously
recorded accounts to be settled through issuance of equity securities. As a result, the Company reclassified the $470,534 from
a liability as of March 31, 2014 to equity during the six months ended September 30, 2014.
During
the six months ended September 30, 2013, the Company issued the equivalent of 12,178 shares of its Super Voting Preferred Stock
or 1,522,250 shares of its common stock in exchange for the settlement of claims, conditions of employment, director’s fees,
and payment of information technology services. These shares were valued at $576,981 based on management’s estimate of value
of the shares issued and was recorded as general and administration expense.
Omnibus
Incentive Plan
In
January 2014, the Company’s board of directors approved the 2014 Omnibus Incentive Plan (the “Plan”), which
is administered by the Company’s board of directors or a committee thereof (the “Administrator”) as set forth
in the Plan. The Plan provides for the granting of stock options, stock appreciation rights, restricted share awards and restricted
stock units to employees, directors (including non-employee directors), advisors and consultants. Grants under the Plan vest and
expire based on periods determined by the Administrator, but in no event can the expiration date be later than ten years from
the date of grant (five years after the date of grant if the grant is an incentive stock option to an employee who owns more than
10% of the total combined voting power of all classes of the Company’s capital stock (a “10% owner”)). Grants
of stock options may be either incentive stock options or nonqualified stock options. The per share exercise price on an option,
other than with respect to substitute awards, shall not be less than 100% of the fair market value of the Company’s common
stock on the date the option is granted (110% of the fair market value if the grant is to a 10% owner). A total of 28,905,763
shares of common stock have been authorized for issuance and reserved under the Plan. The Plan was approved by the Company’s
stockholders on January 13, 2014.
The
Company utilizes the Black-Scholes option valuation model to estimate the fair value of stock options granted. The Company’s
assessment of the estimated fair value of stock options is affected by the Company’s stock price as well as assumptions
regarding a number of complex and subjective variables and the related tax impact.
Stock
option activity is set forth below:
| |
Number
of Shares | | |
Weighted
Average Exercise Price per Share | | |
Aggregate
Intrinsic Value | | |
Weighted-Average
Remaining Contractual Term (in years) | |
Balance at March 31, 2014 | |
| — | | |
$ | — | | |
$ | — | | |
| — | |
Options granted | |
| 10,104,000 | | |
| 0.10 | | |
| — | | |
| — | |
Options cancelled | |
| — | | |
| — | | |
| — | | |
| — | |
Options exercised | |
| — | | |
| — | | |
| — | | |
| — | |
Balance at September 30, 2014 | |
| 10,104,000 | | |
| 0.10 | | |
| nil | | |
| 9.9 | |
Exercisable at September 30, 2014 | |
| 3,271,333 | | |
| 0.10 | | |
| nil | | |
| 9.9 | |
Expected to vest after September 30, 2014 | |
| 6,832,667 | | |
| 0.10 | | |
| nil | | |
| 9.9 | |
The
aggregate intrinsic value shown in the table above represents the difference between the fair market value of the Company’s
common stock of $0.06 on September 30, 2014 and the exercise price of each option.
During
the six months ended September 30, 2014, the Company recorded stock compensation expense of $353,975 of which $47,972, $190,272,
and $115,731 was included in research and development, sales and marketing, and general and administrative expenses, respectively.
There were no options outstanding during the six months ended September 30, 2013. Unearned compensation of $523,842 existed at
September 30, 2014, related to non-vested stock options, which will be recognized into expense over a weighted average period
of 1.9 years.
Warrants
The
following summarizes warrant activity for the Company during the six months ended September 30, 2014:
|
|
|
Warrants |
|
|
Weighted
Average Exercise Price |
|
|
Weighted
Average Remaining
Contractual Term |
|
Outstanding
March 31, 2014 |
|
|
|
11,252,245 |
|
|
$ |
0.15 |
|
|
|
4.3 |
|
Issued |
|
|
|
2,110,854 |
|
|
|
0.15 |
|
|
|
4.6 |
|
Exercised |
|
|
|
(50,000 |
) |
|
|
0.15 |
|
|
|
— |
|
Outstanding
September 30, 2014 |
|
|
|
13,313,099 |
|
|
$ |
0.15 |
|
|
|
4.4 |
|
During
the six months ended September 30, 2014, warrants to purchase 50,000 shares of the Company’s common stock were exercised
for total proceeds of $7,500. As of September 30, 2014, 13,313,099 warrants were exercisable and the intrinsic value of the warrants
was nil.
NOTE
9 – 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 accounts or notes payable. Except for income tax contingencies (commencing April 1, 2009), the Company records accruals
for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss
can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. Material legal proceedings
that are currently pending are as follows:
SSC
is the plaintiff in a case filed against Douglas Lopez & Rumm, LLP, Diana Lopez and Dana Douglas on October 16, 2012 in the
California Superior Court, Orange County, for legal malpractice for their failure to adequately represent SSC in its litigation
against Connects Marketing for the installation of defective engines in SSC vehicles. The defendants filed a cross-complaint against
SSC and Saleen for payment for legal services rendered in the amount of $10,000. Defendant Dana Douglas has filed bankruptcy,
and all claims against her have been stayed. In May 2014, SSC settled this matter in exchange for payment from Defendant Diana
Lopez of $15,000, via monthly payments. Payments are to continue through approximately September 2015, after which this matter
will be dismissed.
SSC
is the plaintiff in a case filed against Inland Empire Auto Body & Paint, Inc. on August 8, 2012 in the California Superior
Court, Riverside County, for breach of contract related to several paint jobs performed by Inland Empire on SSC vehicles. In July
2014, SSC settled this matter in exchange for payment of $15,000 from Inland Empire Auto Body & Paint, Inc., payable via monthly
payments. Payments are to continue through approximately March 2016, after which this matter will be dismissed.
SSC
is a defendant in the case of Riverside County Transportation Commission v. Haupert, et.al., filed on November 8, 2013, in the
California Superior Court, Riverside County, for eminent domain of a portion of the property on which SSC’s offices are
located. SSC’s landlord, Mr. Haupert, is undertaking the defense of this matter on SSC’s behalf; SSC bears no expense
for this litigation. It is unclear what effect, if any, this litigation will have on SSC.
SSC is a defendant in
a case filed by MSY Trading, Inc. on April 13, 2012 in the California Superior Court, Riverside County, that claimed breach of
contract related to an engine installed by a third party vendor. The suit claimed $200,000 in damages plus interest, legal fees
and costs of litigation. The Company filed a cross complain against MSY Trading, Inc. for breach of warranty, negligence, and
indemnification. On January 10, 2014, the Company settled this claim by agreeing to pay of $112,500 over a period of 18 months
of which the Company paid $45,500 through August 2014. Subsequent to this date the Company has defaulted on payments. On October
30, 2014, a judgment was entered against SSC in the amount of $68,950, which the Company had accrued for in accounts payable.
In February 2014, SSC
received a Complaint from a 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 the payment of $124,000 that was applied towards
principal and unpaid fees along with advance loan principal and interest for May, September and July 2014, and the Company’s
agreement to pay the remaining recorded balance to the bank in August 2014. In August 2014, the bank agreed to extend this date
by 90 days to November 2014 in
exchange for $30,000 to be applied towards principal and interest on the loan. As of the date of this filing, the Company has
not paid this balance and expects to be in default unless the bank agrees to another extension. The Company is currently in discussion
with the bank to obtain another extension the outcome of which is uncertain.
In
September 2014, the Company received a Complaint from Green Global Automotive B.V. (“GAA”) alleging causes of action
for breach of contract and breach of the covenant of good faith and fair dealing, related to a European Distribution Agreement
entered into in September 2011 between GAA and Saleen Electric Automotive, Inc., which was merged into the Company in June 2013.
The suit seeks contract and economic damages of $50,000 along with compensatory damages, restoration, lost profits and attorneys’
fees. Management is currently evaluating the merits of this case, if any, and is working to ascertain the impact on the Company’s
financial statements, if any.
In
September 2014, the Company received a Complaint from Ford of Escondido for 1) claim and delivery of personal property, 2) money
due on a contract, and 3) common count. The Company and Home Heller Ford, which was merged into Ford of Escondido, are parties
to a supply agreement entered into in May 2013. Specifically, Ford of Escondido seeks payment of seven (7) Ford Mustangs for a
total of $222,871 plus interest and attorneys’ fees, less any amounts to be credited to the Company pursuant to proceeds
of sale. As of September 30, 2014, the Company has included in accounts payable the cost of four (4) vehicles, which the Company
believes are owed to Ford of Escondido and disagrees with Ford of Escondido’s number of vehicles and related amount owed.
As such, the Company believes Ford of Escondido’s claims are without merit and has responded to the Complaint including
claims that Ford of Escondido breached said supply agreement. There has been no response to the Company’s position and the
outcome is uncertain; however, the Company believes this matter will not have a material impact, if any, on the Company’s
financial statements.
Although
the Company’s management currently believes that resolving claims against the Company, individually or in aggregate, will
not have a material adverse impact on its financial statements, these matters are subject to inherent uncertainties and management’s
views of these matters may change in the future.
NOTE
10 – SUBSEQUENT EVENTS
Convertible
Notes
a) | On
October 2, 2014, the Company issued a note in the amount of $55,000, pursuant to a Securities
Purchase Agreement and 8% convertible Notes under the same terms and as discussed in
Note 5. |
| |
b) | On
October 14, 2014, the Company entered into a Securities Purchase Agreement (the “SPA”)
with an accredited investor in a private placement pursuant to which the Company issued
two convertible notes each in the principal amount of $55,125 (increasing by 10% if not
paid at maturity) (the “Notes”). Each Note bears interest at 8% (24% during
the occurrence of an event of default) and matures on October 14, 2015. The Notes were
issued at a 5% original issue discount such that the consideration provided for each
Note was $52,500. The Company issued the first Note in consideration of the holder’s
payment to the Company of cash, and the Company issued the second in consideration of
holders’s issuance to the Company of an offsetting Note in the principal amount
of $52,500. The offsetting Note is secured by a pledge of the Notes the Company issued
to the holder. The holder is not permitted to convert the second Note until it fully
pays and satisfies its obligations under its offsetting Note. |
The
Company may prepay the Notes, provided that if the Notes are prepaid within 90 days or between 91 to 180 days of the issuance
date, the Company would be required to pay 135% or 150%, respectively, of the face amount plus accrued interest. The Company may
not prepay the Notes after 180 days of issuance. Further, upon a change in control the holder may request the Company to redeem
each Note for 150% of the face amount plus accrued interest, or the holder may elect to convert outstanding principal and interest
into common stock in accordance with the conversion provisions of each Note.
The
Notes are convertible into shares of Common Stock at the option of the holder commencing on the 180th day following
the date of the Notes and ending on the later of the maturity date or date of full payment of principal and interest. The principal
amount of the Note along with, at the holder’s option, any unpaid interest and penalties is convertible at a price per share
equal to the greater of (a) 61% of the average of the lowest two trading prices of common stock during the 18 trading day period
ending on the conversion date, and (b) $0.00005. In addition, the conversion price is subject to standard anti-dilution provisions
whereby if the Company consummates a reorganization transaction, pays dividends or enters into a stock split of its common shares
the conversion price would adjust proportionally. As of the date of issuance and assuming that the holder had the right to convert
the Notes, the Notes would have been convertible into approximately 2,259,221 shares of Common Stock. Per agreement, the Company
is required to reserve a sufficient number of shares of common stock for the conversion of these Notes, initially set as 8,815,000
shares of Common Stock.
As
the initial conversion price reflected a price discount below the fair market value of the Company’s common stock as of
the issuance date of the Notes, the Company determined that there was deemed a beneficial conversion feature associated with these
Notes. As such, the Company will record $35,244 in the quarter ending December 31, 2014 representing the intrinsic value of the
beneficial conversion feature at the issuance date of the Notes in additional paid-in capital. The value of the beneficial conversion
feature will be amortized as additional interest expense over the term of the Notes.
c) | On
October 15, 2014, the Company issued a 10% Convertible Note (the “10% Note”)
to a separate accredited investor in the principal amount of $50,000. The 10% Note bears
interest at 10% per annum (20% per annum if not paid when due) and is payable upon demand
at any time on or after April 15, 2015. Until 120 days after the issuance date, the 10%
Note will have a redemption premium of 135% of the principal amount and may be prepaid
without the holder’s consent, and thereafter through the maturity date, a redemption
premium of 150% of the principal amount, provided that the investor must approve such
pre-payment. Upon the occurrence of an event of default the holder may declare the 10%
Note immediately due and payable. |
Amounts
due under the 10% Note are convertible into shares of common stock at the lower of 58% of the lowest trading price of common stock
during the 20 trading day period prior to (i) the conversion date and (ii) the execution date. In addition, the conversion price
is subject to standard anti-dilution provisions whereby if the Company consummates a reorganization transaction, pays dividends
or enters into a stock split of its common shares the conversion price would adjust proportionally. As of the date of issuance
and assuming that the holder had the right to convert the Notes, the Notes would have been convertible into approximately 2,155,172
shares of Common Stock. Per agreement, the Company is required to reserve 7,000,000 shares of common stock for the conversion
of this Note.
As
the initial conversion price reflected a price discount below the fair market value of the Company’s common stock as of
the issuance date of the Notes, the Company determined that there was deemed a beneficial conversion feature associated with these
Notes. As such, the Company will record $36,207 in the quarter ending December 31, 2014 representing the intrinsic value of the
beneficial conversion feature at the issuance date of the Notes in additional paid-in capital. The value of the beneficial conversion
feature will be amortized as additional interest expense over the term of the Notes.
d) | On
October 28, 2014, the Company entered into a Securities Purchase Agreement (the “SPA”)
with an accredited investor in a private placement pursuant to which the Company issued
a Convertible Note in the principal amount of $75,000 (the “Note”). The investor,
at their option, may grant five additional Notes with a principal amount of $25,000 each
(the “Notes”). Each Note bears interest at 8% and matures twelve months after
issuance. The Notes has an original issue discount of 5% and the Company may prepay the
Notes at any time upon mutual consent, provided the Company would be required to pay
125% of the face amount plus accrued interest. |
The Notes are convertible into
shares of Common Stock at the option of the holder at any time following the date of the Note 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 is convertible at a price per share equal to the greater of (a) 65% (or 60% in the event the
Company’s stock price is less than $0.02 per share) of the average of the three lowest VWAP for the 20 consecutive trading
days prior to the conversion date, and (b) $0.001. In addition, the conversion price is subject to standard anti-dilution provisions
whereby if the Company consummates a reorganization transaction, pays dividends or enters into a stock split of its common shares
the conversion price would adjust proportionally. As of the date of issuance and assuming that the holder had the right to convert
the Note, the Note would have been convertible into approximately 4,180,571 shares of Common Stock. Per agreement, the Company
is required to reserve a sufficient number of shares of common stock for the conversion of these Notes of 8,000,000 shares of
Common Stock.
As the initial conversion price
reflected a price discount below the fair market value of the Company’s common stock as of the issuance date of the Note,
the Company determined that there was deemed a beneficial conversion feature associated with the Note. As such, the Company will
record $45,096 in the quarter ending December 31, 2014 representing the intrinsic value of the beneficial conversion feature at
the issuance date of the Note in additional paid-in capital. The value of the beneficial conversion feature will be amortized
as additional interest expense over the term of the Note.
e) | On
November 6, 2014, the Company entered into a Convertible Note (the “Note”)
with an accredited investor in a private placement pursuant to which the Company issued
a Note in the principal amount of $60,000 (the “Note”). The investor, at
their option, may grant additional Convertible Notes up to $360,000 (the “Notes”).
The Notes bear interest at 12% (0% if paid within 90 days of issuance) and matures two
years after issuance. The Notes include an original issue discount of 10% and the Company
may prepay the Notes at any time. |
The Notes are convertible into
shares of Common Stock at the option of the holder at any time following the date of the Note 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 is convertible at a price per share equal to the greater of (a) 60% of the lowest trade price
in the 25 trading days previous to the conversion and $0.00005. As of the date of issuance and assuming that the holder had the
right to convert the Note, the Note would have been convertible into approximately 3,333,333 shares of Common Stock. Per agreement,
the Company is required to reserve a sufficient number of shares of common stock for the conversion of these Notes of 40,000,000
shares of Common Stock.
As the initial conversion price
reflected a price discount below the fair market value of the Company’s common stock as of the issuance date of the Note,
the Company determined that there was deemed a beneficial conversion feature associated with these Notes. As such, the Company
will record $40,000 in the quarter ending December 31, 2014 representing the intrinsic value of the beneficial conversion feature
at the issuance date of the Note in additional paid-in capital. The value of the beneficial conversion feature will be amortized
as additional interest expense over the term of the Note.
Stock
Options
In
October 2014, the Company’s board of directors approved the grant of options to two independent contractors to purchase
up to 2,000,000 shares each of the Company’s common stock at an exercise price of $0.03 per share. The options fully vest
immediately. The Company valued the options at $104,400 using the Black-Scholes-Merton option pricing model using the following
assumptions: (i) fair market value of stock of $0.03; (ii) dividend yield of 0%; (iii) expected volatility of 100%; (iv) risk
free rate of 2.25% and (v) expected term of 6 years.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and
cash flows of Saleen Automotive, Inc. and subsidiaries for the three and six months ended September 30, 2014 and 2013. The discussion
and analysis that follows should be read together with the financial statements of Saleen Automotive, Inc. and subsidiaries and
the notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Except
for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and
Results of Operations are forward looking statements that involve risks and uncertainties and are based upon judgments concerning
various factors that are beyond our control. Such forward-looking statements include any expectation of earnings, revenues or
other financial items; any statements regarding the use of working capital, anticipated growth strategies and the development
of and applications for new technology; factors that may affect our operating results; statements concerning our customers and
expansion of our customer base; statements concerning new products; statements related to future economic conditions or performance;
and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing.
These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “will,”
or “plan,” and similar expressions or variations. These statements are based on the beliefs and assumptions of our
management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties
and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed
or implied by such forward-looking statements. Actual events or results may differ materially from our expectations. Important
factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include,
but are not limited to, our ability to successfully achieve profitability and positive cash flows from operations, our ability
to raise additional funds required to continue our operations and meet our planned business objectives, the dilutive impact of
the sale of equity securities to obtain needed additional financing, the potential issuance of shares or securities convertible
into or exchangeable for shares that would result in a change of control of our company in connection with a financing transaction,
the impact of changes in demand for our products, our success with new product development, our success with current dealers and
our ability to expand our dealer base, our ability to maintain or grow our market share, our ability to obtain Ford Mustang, Chevrolet
Camaro, Dodge Challenger and Tesla Model S platform vehicles, our effectiveness in managing development and manufacturing processes,
and the other risks as set forth under “Part I, Item 1A – Risk Factors” which are included in our Report on
Form 10-K for the year ended March 31, 2014 as filed on June 30, 2014. These forward-looking statements represent our judgment
as of the date hereof. We disclaim any intent or obligation to update these forward-looking statements. New factors emerge from
time to time, and their emergence is impossible for us to predict. In addition, we cannot assess the impact of each factor on
our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
General
Overview
We
design, develop, manufacture and sell high performance cars built from base chassis’ of Ford Mustangs, Chevrolet Camaros,
Dodge Challengers and Tesla Model S, as well as exotic sports cars. 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 Cars and the production of high performance
USA-engineered sports and racing cars. Saleen-branded products include a complete 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 along with hybrid and zero-emission vehicles for commercial applications and consumer markets. 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. In August 2014, we launched and began producing a Saleen modified
Tesla Model S sports car.
Our
customers worldwide include muscle and high performance car enthusiasts, collectors, automotive dealers, exotic car retail dealers,
television and motion picture production, and consumers in the luxury supercar and motorsports market. We plan to develop a network
of company-owned branded stores to complement our existing retail dealer locations.
We
utilize automobile manufacturers Ford, Chevrolet, Dodge and Tesla platform vehicles for our muscle and high performance vehicle
production. All aftermarket parts and accessory products are engineered and manufactured exclusively by us. Our main retail outlets
for our products are authorized Ford, Chevrolet and Dodge dealers and we also retail our products with 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, develop our own motorsport program and introduce our next generation American
supercar.
Merger
On
May 23, 2013, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with Saleen California Merger Corporation,
our wholly-owned subsidiary, Saleen Florida Merger Corporation, our wholly-owned subsidiary, Saleen Automotive, Inc. (“Saleen
Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive, the “Saleen Entities”)
and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”). The closing (the
“Closing”) of the transactions (the “Merger”) occurred on June 26, 2013. At the Closing (a) Saleen California
Merger Corporation was merged with and into SMS with SMS surviving as one of our wholly-owned subsidiaries; (b) Saleen Florida
Merger Corporation was merged with and into Saleen Automotive with Saleen Automotive surviving as one of our wholly-owned subsidiaries;
(c) holders of the then outstanding capital stock of Saleen Automotive received an aggregate of 554,057 shares of our Super Voting
Preferred Stock, which was subsequently converted into 69,257,125 shares of our common stock and holders of the outstanding capital
stock of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of our common stock
(on a fully-diluted basis) was owned, collectively, by Saleen Parties (including 341,943 shares of our Super Voting Preferred
Stock, which was subsequently converted into 42,742,875 shares of our common stock, issued to Saleen pursuant to an Assignment
and License Agreement) and the former holders of the outstanding capital stock of Saleen Automotive. As a result of the Merger
we are solely engaged in the Saleen Entities’ business, Saleen Automotive’s officers became our officers and Saleen
Automotive’s three directors became members of our five-member board of directors. On June 17, 2013, we consummated a merger
with WSTY Subsidiary Corporation, our wholly-owned subsidiary, pursuant to which we amended our articles of incorporation to change
our name to Saleen Automotive, Inc. In October 2013, SMS effected an amendment to its articles of incorporation to change its
name to Saleen Signature Cars. In January 2014, we effected an increase in the number of our common shares authorized to 500,000,000
and all the remaining shares of Super Voting Preferred Stock were converted into our common stock and the Super Voting Preferred
Stock ceased to be a designated series of our preferred stock.
The
Merger was accounted for as a reverse merger (recapitalization) with the Saleen Entities deemed to be the accounting acquirers,
and our company deemed to be the legal acquirer. Accordingly, the following represents a discussion of the historical operations
of the Saleen Entities prior to the Merger and that of the consolidated company following the Merger. The accompanying condensed
consolidated financial statements are prepared as if we will continue as a going concern. Accordingly, the condensed consolidated
financial statements do not contain adjustments, including adjustments to recorded assets and liabilities, which might be necessary
if we were unable to continue as a going concern.
Critical
Accounting Policies
Information
with respect to our critical accounting policies which we believe have the most significant effect on our reported results and
require subjective or complex judgments of management are contained starting on page 31 in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended
March 31, 2014 as filed on June 30, 2014.
Three
Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Our
revenue, operating expenses, and net loss for the three months ended September 30, 2014 as compared to the three months ended
September 30, 2013 were as follows – some balances on the prior period’s condensed consolidated financial statements
have been reclassified to conform to the current period presentation:
| |
For
the Three months ended | | |
| | |
Percentage | |
| |
September
30, | | |
| | |
Change | |
| |
2014 | | |
2013 | | |
Change | | |
Inc.
(Dec.) | |
Revenue,
net | |
$ | 866,524 | | |
$ | 1,536,264 | | |
$ | (669,740 | ) | |
| (44 | %) |
| |
| | | |
| | | |
| | | |
| | |
Costs
of goods sold | |
| 769,990 | | |
| 1,234,008 | | |
| (464,018 | ) | |
| (38 | %) |
Gross
margin | |
| 96,534 | | |
| 302,256 | | |
| (205,722 | ) | |
| (68 | %) |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 250,130 | | |
| 190,582 | | |
| 59,548 | | |
| 31 | % |
Sales and marketing | |
| 443,767 | | |
| 456,556 | | |
| (12,789 | ) | |
| (3 | %) |
General and administrative | |
| 792,062 | | |
| 776,471 | | |
| 15,591 | | |
| 2 | % |
Depreciation and Amortization | |
| 63,806 | | |
| 26,574 | | |
| 37,232 | | |
| 140 | % |
Total
operating expenses | |
| 1,549,765 | | |
| 1,450,182 | | |
| 99,582 | | |
| 7 | % |
Loss
from operations | |
| (1,453,231 | ) | |
| (1,147,926 | ) | |
| (305,305 | ) | |
| 27 | % |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (571,748 | ) | |
| (127,939 | ) | |
| (443,809 | ) | |
| 347 | % |
Private placement costs | |
| (85,882 | ) | |
| — | | |
| (85,882 | ) | |
| — | |
Change in fair value of derivative liability | |
| 27,156 | | |
| 140,899 | | |
| (113,743 | ) | |
| (81 | %) |
Net
Income (Loss) | |
$ | (2,083,705 | ) | |
$ | (1,134,966 | ) | |
$ | (948,739 | ) | |
| 84 | % |
Revenues:
Revenue consists of sales of high performance vehicles, aftermarket retail parts and design services. Our revenue from high performance
muscle car vehicles generally includes the base chassis (Mustang, Camaro or Challenger), on which we normally obtain a small margin,
and production conversion of the base chassis into a Saleen OEM high performance sports car. Parts represent aftermarket retail
sales of Saleen lifestyle accessories and Saleen-branded products and automotive aftermarket specialty parts sold to our base
of over 25,000 loyal 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 September 30, 2014 were $866,524, a decrease of $669,740 or 44% from $1,536,264 for the three
months ended September 30, 2013. The decrease relates primarily to lower Mustang sales from less availability of Ford Mustang
base chassis coupled with Saleen authorized dealers preference to place orders for the 2015 Saleen Mustang models instead of the
2014 model. Sales during the three months ended September 30, 2014 were also negatively impacted from availability of Mustang
chassis, as starting in May 2014, Ford discontinued production of the 2014 Mustangs in order to switch to the new 2015 model,
which represents a major model change and will be available to the Company starting in mid to late November 2014. During the same
period in the prior year, the change from the 2013 to 2014 Mustang model year was minimal and the supply of vehicles was not disruptive.
Based on current orders for the 2015 Saleen Mustang model, we anticipate an increase in volume for the Saleen Mustang over the
next twelve months as compared to the same period in the prior year.
Cost
of Goods Sold: Cost of goods sold consists of five major categories: base chassis, material, overhead, labor and purchased
process services. Chassis costs relate to the purchased Ford Mustang, Chevrolet Camaro or Dodge Challenger vehicles. Material
cost relates to the purchase of conversion parts used in the production of our high performance vehicles, and procurement of aftermarket
parts, which are manufactured by third party suppliers using our proprietary tools and molds developed by us. Overhead costs include
costs associated with manufacturing support, shop and warehouse supplies and expenses, small tools and equipment and other related
warehouse and production costs. Our labor costs include the cost of personnel related to the production of our high performance
vehicles and logistics of warehousing and shipping our aftermarket parts. Purchased process services related to the subcontracting
of specific manufacturing processes to outside contractors.
Total
costs of goods sold for the three months ended September 30, 2014 were $769,990, a decrease of $464,018 or 38% from $1,234,008
of costs of goods sold for the three months ended September 30, 2013. The decrease was primarily attributable to decreased vehicle
sales during the three months ended September 30, 2014 as compared to the same period in the prior year.
Gross
Margin: Gross Margin from the sale of vehicles and parts decreased $205,722 to $96,534, or 68%, for a gross margin of 11%
for the three months ended September 30, 2014 from a gross margin of $302,256, or 20%, for the three months ended September 30,
2013. The decrease in gross margin reflects the decrease in sales volume as compared to the same period in the prior year along
with higher costs incurred to obtain the 2014 Mustang chassis due to short supply of such vehicles, as Ford discontinued production
of the 2014 Mustang in May 2014 to switch to the 2015 model.
Research
and Development Expenses: Research and development expenses are expensed as incurred and represent engineering and design
salaries and benefits and costs incurred in the development of new products and processes, including significant improvements
and refinements to existing products and processes.
Research
and development expenses increased by $59,548, or 31%, to $250,130 during the three months ended September 30, 2014 from $190,582
for the three months ended September 30, 2013. The increase is primarily due to our expanded engineering team and development
of our new Saleen Tesla high performance electric vehicle. In addition, research and development costs included $47,972 of non-cash
stock based compensations related to employee grants of stock options during the three months ended September 30, 2014. There
were no stock options issued during the three months ended September 30, 2013.
Sales
and Marketing Expense: Sales and marketing expenses relate to sales and marketing salaries and benefits, including our regional
sales representatives, and costs incurred to promote our existing and new products, such as attending car shows and promotion
through other media outlets, along with new car sales expenses such as commissions and incentives, and costs related to investor
relations.
Sales
and marketing expenses remained relatively consistent as they decreased by $12,789, or 3%, to $443,767 for the three months ended
September 30, 2014 from $456,556 for the three months ended September 30, 2013. Excluding $190,272 of non-cash stock based compensations
related to employee grants of stock options during the three months ended September 30, 2014, sales and marketing expenses decreased
$203,061 for the three months ended September 30, 2014 as compared to the same period in the prior year primarily due to lower
car show expenses. There were no stock options issued during the three months ended September 30, 2013.
General
and Administrative Expense: General and administrative expenses include expenses for administrative salaries, including executive,
finance/accounting, information personnel and administrative support staff and benefits. Other general and administrative costs
also include occupancy costs of our facilities, travel and entertainment, auto, insurance, stock compensation, other office support
costs and professional fees, including outside accounting/audit, legal, and investor fund raising advisory services.
General
and administrative expenses increased by $15,591, or 2%, to $792,062 for the three months ended September 30, 2014 from $776,471
for the three months ended September 30, 2013. Excluding non-cash stock based compensation of $115,731 for the three months ended
September 30, 2014, general and administrative expense decreased $100,140 during the three months ended September 30, 2014 as
compared to the same period in the prior year primarily due to lower professional fees. There were no grants of stock options
during the three months ended September 30, 2013.
Depreciation
and Amortization Expense: Depreciation and amortization expense relates to our depreciating and amortizing costs incurred
for leasehold improvements, equipment and tooling. Depreciation and amortization expense increased by $37,232, or 140%, to $63,806
for the three months ended September 30, 2014 from $26,574 for the three months ended September 30, 2013.
Interest
Expense: Interest expense increased by $443,809 or 347% to $571,748 for the three months ended September 30, 2014 from $127,939
for the three months ended September 30, 2013. The increase is primarily attributable to $478,223 of non-cash interest expense
during the three months ended September 30, 2014 as compared to $140,899 of non-cash interest expense during the three months
ended September 30, 2013. Non-cash interest relates to the amortization of the convertible debt discount on our convertible notes.
Private
Placement Costs: In conjunction with the issuance of 8% convertible notes in September 2014, the conversion features of such
notes was bifurcated from the notes and recorded as derivative liability. The Company recorded a $241,882 derivative liability
with an offsetting charge to valuation discount of $156,000 with the remainder of $85,882 recorded as an expense included in other
income (expense) during the three months ended September 30, 2014. We incurred no similar expense during the three months ended
September 30, 2013.
Change
in Fair Value of Derivative Liability: In accordance with the FASB authoritative guidance, the conversion feature of certain
convertible notes issued by the Company was separated from the host contract (i.e., the notes) and recognized as a derivative
instrument. The conversion feature of these notes was characterized as a derivative liability that was re-measured at the end
of every reporting period with the change in value recognized as a gain or loss in our statement of operations. During the three
months ended September 30, 2014, we recorded a $27,156 gain due to the change in the derivative liability as compared to a gain
of $140,899 for the three months ended September 30, 2013.
Net
Income (Loss): Net loss increased by $948,739, or 84%, to a net loss of $2,083,705 for the three months ended September 30,
2014 from a net loss of $1,134,966 for the three months ended September 30, 2013. The increase in net loss primarily reflects
the lower gross margin experienced coupled with an increase in operating and interest expenses.
Six
Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013
Our
revenue, operating expenses, and net loss from operations for the six months ended September 30, 2014 as compared to the six months
ended September 30, 2013 were as follows – some balances on the prior period’s condensed consolidated financial statements
have been reclassified to conform to the current period presentation:
| |
For
the Six months ended | | |
| | |
Percentage | |
| |
September
30, | | |
| | |
Change | |
| |
2014 | | |
2013 | | |
Change | | |
Inc
(Dec) | |
Revenue,
net | |
$ | 2,563,901 | | |
$ | 2,442,696 | | |
$ | 121,205 | | |
| 5 | % |
| |
| | | |
| | | |
| | | |
| | |
Costs
of goods sold | |
| 2,201,275 | | |
| 2,076,979 | | |
| 124,296 | | |
| 6 | % |
Gross
margin | |
| 362,626 | | |
| 365,717 | | |
| (3,091 | ) | |
| (1 | %) |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Research and development | |
| 412,436 | | |
| 306,398 | | |
| 106,038 | | |
| 35 | % |
Sales and marketing | |
| 999,392 | | |
| 587,974 | | |
| 411,418 | | |
| 70 | % |
General and administrative | |
| 1,898,063 | | |
| 2,511,620 | | |
| (613,557 | ) | |
| (24 | %) |
Depreciation and Amortization | |
| 109,715 | | |
| 46,744 | | |
| 62,971 | | |
| 135 | % |
Total
operating expenses | |
| 3,419,606 | | |
| 3,452,736 | | |
| (33,130 | ) | |
| (1 | %) |
Loss
from operations | |
| (3,056,980 | ) | |
| (3,087,019 | ) | |
| 30,039 | | |
| (1 | %) |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (1,014,801 | ) | |
| (176,779 | ) | |
| (838,022 | ) | |
| 474 | % |
Costs of reverse merger transaction | |
| — | | |
| (365,547 | ) | |
| 365,547 | | |
| (100 | %) |
Private placement costs | |
| (85,882 | ) | |
| — | | |
| (85,882 | ) | |
| — | |
Gain in extinguishment of derivative liability | |
| 2,586,732 | | |
| — | | |
| 2,586,732 | | |
| — | |
Change in fair value of derivative liability | |
| 2,473,210 | | |
| 51,132 | | |
| 2,422,078 | | |
| 4,737 | % |
Net
Income (Loss) | |
$ | 902,279 | | |
$ | (3,578,213 | ) | |
$ | 4,480,492 | | |
| (125 | %) |
Revenues:
Revenue consists of sales of high performance vehicles, aftermarket retail parts and design services. Our revenue from high performance
muscle car vehicles generally includes the base chassis (Mustang, Camaro or Challenger), on which we normally obtain a small margin,
and production conversion of the base chassis into a Saleen OEM high performance sports car. Parts represent aftermarket retail
sales of Saleen lifestyle accessories and Saleen-branded products and automotive aftermarket specialty parts sold to our base
of over 25,000 loyal 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 six months ended September 30, 2014 were $2,563,901, an increase of $121,205 or 6% from $2,442,696 for the six
months ended September 30, 2013. The increase was primarily driven by mix of products sold. However, sales during the six months
ended September 30, 2014 were negatively impacted, as starting in May 2014, Ford discontinued production of the 2014 Mustangs
in order to switch to the new 2015 model, which represents a major model change and will be available to the Company starting
in mid to late November 2014. During the same period in the prior year, the change from the 2013 to 2014 Mustang model year was
minimal and the supply of vehicles was not disruptive. Based on current orders for the 2015 Saleen Mustang model, we anticipate
an increase in volume for the Saleen Mustang over the next twelve months as compared to the same period in the prior year.
Cost
of Goods Sold: Cost of goods sold consists of five major categories: base chassis, material, overhead, labor and purchased
process services. Chassis costs relate to the purchased Ford Mustang, Chevrolet Camaro or Dodge Challenger vehicles. Material
cost relates to the purchase of conversion parts used in the production of our high performance vehicles, and procurement of aftermarket
parts, which are manufactured by third party suppliers using our proprietary tools and molds developed by us. Overhead costs include
costs associated with manufacturing support, shop and warehouse supplies and expenses, small tools and equipment and other related
warehouse and production costs. Our labor costs include the cost of personnel related to the production of our high performance
vehicles and logistics of warehousing and shipping our aftermarket parts. Purchased process services related to the subcontracting
of specific manufacturing processes to outside contractors.
Total
costs of goods sold for the six months ended September 30, 2014 were $2,201,275, an increase of $124,296 or 6% from $2,076,979
of costs of goods sold for the six months ended September 30, 2013. The increase was primarily attributable to mix of sales during
the six months ended September 30, 2014 as compared to the same period in the prior year.
Gross
Margin: Gross Margin from the sale of vehicles and parts decreased slightly by $3,091 to $362,626, or 1%, for a gross margin
of 14% for the six months ended September 30, 2014 from a gross margin of $365,717, or 15%, for the six months ended September
30, 2013. The slight decrease in gross margin was primarily driven by higher costs to obtain the 2014 Mustang chassis due to short
supply of such vehicles, as Ford discontinued production of the 2014 Mustang in May 2014 to switch to the 2015 model.
Research
and Development Expenses: Research and development expenses are expensed as incurred and represent engineering and design
salaries and benefits and costs incurred in the development of new products and processes, including significant improvements
and refinements to existing products and processes.
Research
and development expenses increased by $106,038, or 35%, to $412,436 during the six months ended September 30, 2014 from $306,398
for the six months ended September 30, 2013. The increase is primarily due to our expanded engineering team and development of
our new Saleen Tesla high performance electric vehicle. In addition, research and development costs included $47,972 of non-cash
stock based compensations related to employee grants of stock options during the six months ended September 30, 2014. There were
no stock options issued during the six months ended September 30, 2013.
Sales
and Marketing Expense: Sales and marketing expenses relate to sales and marketing salaries and benefits, including our regional
sales representatives, and costs incurred to promote our existing and new products, such as attending car shows and promotion
through other media outlets, along with new car sales expenses such as commissions and incentives, and costs related to investor
relations.
Sales
and marketing expenses increased by $411,418, or 70%, to $999,392 for the six months ended September 30, 2014 from $587,974 for
the six months ended September 30, 2013. The increase was primarily comprised of increased marketing efforts to promote existing
and new products, including our increased participation at various car shows; higher new car sales expenses related to expansion
of our sales team; and investor and public relation costs incurred to promote our company. Sales and marketing expenses also included
$190,272 of non-cash stock based compensation related to employee grants of stock options during the six months ended September
30, 2014. There were no stock options issued during the six months ended September 30, 2013.
General
and Administrative Expense: General and administrative expenses include expenses for administrative salaries, including executive,
finance/accounting, information personnel and administrative support staff and benefits. Other general and administrative costs
also include occupancy costs of our facilities, travel and entertainment, auto, insurance, stock compensation, other office support
costs and professional fees, including outside accounting/audit, legal, and investor fund raising advisory services.
General
and administrative expenses decreased by $613,557, or 24%, to $1,898,063 for the six months ended September 30, 2014 from $2,511,620
for the six months ended September 30, 2013. The decrease is primarily comprised of $310,212 of lower professional fees primarily
related to merger activity during the six months ended September 30, 2013 that was not incurred during the six months ended September
30, 2014 as we did not have a comparable expense of this type; $388,750 of lower stock based employee compensation; $168,525 of
lower one time settlements of previous claims, as we incurred a gain on settlements of $75,469 during the six months ended September
30, 2014 as compared to a loss of $93,493 for the six months ended September 30, 2013; and $29,134 decrease in other general and
administrative expenses. The decrease was partially offset by $217,393 of higher administrative salaries expense resulting from
our expansion of personnel; and $65,671 of higher auto and travel and entertainment costs related primarily to our increased participation
in car shows during the six months ended September 30, 2014 as compared to the same period in the prior year.
Depreciation
and Amortization Expense: Depreciation and amortization expense relates to our depreciating and amortizing costs incurred
for leasehold improvements, equipment and tooling. Depreciation and amortization expense increased by $62,971, or 135%, to $109,715
for the six months ended September 30, 2014 from $46,744 for the six months ended September 30, 2013.
Interest
Expense: Interest expense increased by $838,022 or 474% to $1,014,801 for the six months ended September 30, 2014 from $176,779
for the six months ended September 30, 2013. The increase is primarily attributable to $832,049 of non-cash interest expense during
the six months ended September 30, 2014 as compared to $117,139 of non-cash interest expense during the six months ended September
30, 2013. Non-cash interest relates to the amortization of the convertible debt discount on our convertible notes.
Expenses
of Reverse Merger Transaction: During the six months ended September 30, 2013, we incurred $365,547 of expenses related to
the reverse merger transaction. This includes $39,547 of liabilities assumed, $46,000 in legal fees, and dividends of $280,000
paid to our existing stockholders prior to the Merger. We did not have a comparable expense of this type during the six months
ended September 30, 2014.
Private
Placement Costs: In conjunction with the issuance of 8% convertible notes in September 2014, the conversion features of such
notes was bifurcated from the notes and recorded as derivative liability. The Company recorded a $241,882 derivative liability
with an offsetting charge to valuation discount of $156,000 with the remainder of $85,882 recorded as an expense included in other
income (expense) during the six months ended September 30, 2014. We incurred no similar expense during the six months ended September
30, 2013.
Gain
on Extinguishment of Derivative Liability: On June 17, 2014 we entered into a First Amendment to Saleen Automotive, Inc. 3.0%
Secured Convertible Note whereby in exchange for the issuance of 389,923 shares of our common stock, the Note holders agreed to
remove all specified adjustments to the conversion price of these Notes except for standard anti-dilution provisions whereby if
we consummate a reorganization transaction that pays dividends or we enter into a stock split of our common shares, the conversion
price would adjust proportionally. As a result of this amendment, we recorded a gain of $2,586,732 during the six months ended
September 30, 2014, which represented the remaining derivative liability as of June 17, 2014 and we no longer record a derivative
liability.
Change
in Fair Value of Derivative Liability: In accordance with the FASB authoritative guidance, the conversion feature of certain
convertible notes issued by the Company was separated from the host contract (i.e., the notes) and recognized as a derivative
instrument. The conversion feature of these notes was characterized as a derivative liability that was re-measured at the end
of every reporting period with the change in value recognized as a gain or loss in our statement of operations. During the six
months ended September 30, 2014, we recorded a $2,473,210 gain due to the change in the derivative liability from issuance date
of which $2,446,054 related to the June 17, 2014 amendment as compared to a gain of $51,132 for the six months ended September
30, 2013.
Net
Income (Loss): Net loss decreased by $4,480,492, or 125%, to a net income of $902,279 for the six months ended September 30,
2014 from a net loss of $3,578,213 for the six months ended September 30, 2013. The decrease in net loss to a net income is primarily
attributable to $5,059,942 of non-cash gain we recorded on the change in the fair value and extinguishment of a derivative liability
related to the issuance of convertible notes in June 2013. Excluding the impact on our net income (loss) of the change in value
and extinguishment of a derivative liability, our net loss increased by $528,318 to a net loss of $4,157,663 for the six months
ended September 30, 2014 from a net loss of $3,629,345 for the six months ended September 30, 2013. This increase in net loss
primarily reflects higher interest costs of $838,022 as compared to the same period in prior year offset somewhat by non-recurring
costs of reverse merger of $365,547 incurred during the six months ended September 30, 2013.
Liquidity
and Capital Resources
Our
working capital deficiency as of September 30, 2014 and March 31, 2014 are follows:
|
|
As of |
|
|
As of |
|
|
|
September
30, 2014 |
|
|
March
31, 2014 |
|
Current Assets |
|
$ |
668,629 |
|
|
$ |
2,230,294 |
|
Current Liabilities |
|
|
(5,634,841 |
) |
|
|
(5,280,580 |
) |
Net Working Capital Deficiency |
|
$ |
(4,966,212 |
) |
|
$ |
(3,050,286 |
) |
Summary
of cash flow activity for the six months ended September 30, 2014 and September 30, 2013 are as follows:
Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months |
|
|
Six months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September
30, 2014 |
|
|
September
30, 2013 |
|
Net cash used in Operating Activities |
|
$ |
(1,714,196 |
) |
|
$ |
(2,373,185 |
) |
Net cash used in Investing Activities |
|
|
(224,859 |
) |
|
|
(237,729 |
) |
Net cash provided by Financing Activities |
|
|
446,427 |
|
|
|
2,619,726 |
|
(Decrease) Increase in Cash during the six month period |
|
|
(1,492,628 |
) |
|
|
8,812 |
|
Cash, Beginning of Period |
|
|
1,499,889 |
|
|
|
4,434 |
|
Cash, End of Period |
|
|
7,261 |
|
|
|
13,246 |
|
For
the six months ended September 30, 2014 and 2013, our principal sources of liquidity have been obtained from cash provided by
financing, including through the private issuance of notes and sale of equity securities, along with customer deposits received
in advance of shipment and gross margin achieved from the sales of high performance vehicles and aftermarket parts. Our principal
uses of cash have been primarily to finance operations; expand our staff; develop new products and improve existing products;
expand marketing efforts to promote our products and company; and other capital expenditures. We anticipate that significant additional
expenditures will be necessary to develop and expand our automotive assets before significant positive operating cash flows will
be achieved and funds will be needed in order to continue operations and achieve these objectives. As such, our cash resources
are insufficient to meet our current operating expense requirements and planned business objectives without additional financing.
As
further presented in our condensed consolidated financial statements and related notes, during the six months ended September
30, 2014, we incurred a loss from operations of $3,056,980 and utilized $1,714,196 of cash in operations. We also had a stockholders’
deficit and working capital deficit of $5,718,593 and $4,966,212, respectively as of September 30, 2014, and as of that date,
we owed $583,900 in past unpaid payroll taxes, $352,795 of our outstanding notes payable were in default and $1,148,578 of our
accounts payable is greater than 90 days past due. These factors raise substantial doubt about our ability to continue as a going
concern.
Our
ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve sustainable
revenues and profitable operations. At September 30 2014, we had cash on hand in the amount of $7,261 and we are not generating
sufficient funds from operations to cover current operating expenses without obtaining additional financing. During the six months
ended September 30, 2014, we raised $406,000 through the issuance of convertible notes and we entered into Subscription Agreements
with individual accredited investors (the “Subscribers”) pursuant to which the Subscribers purchased from us an aggregate
of 1,183,334 of restricted common shares at a per share price of $0.15 for aggregate proceeds of $177,500. However, additional
funding will be needed to continue operations through September 30, 2014. In addition, we will need and are currently seeking
additional funds, primarily through the issuance of debt or equity securities for cash to operate our business beyond September
30, 2014. No assurance can be given that any future financing will be available or, if available, that it will be on terms that
are satisfactory to us. Even if we are able to obtain additional financing, such financing may contain undue restrictions and
covenants on our operations, in the case of debt financing or cause substantial dilution for our stockholders (including the issuance
of securities sufficient to result in a change in control of our company), in the case of equity financing.
At
September 30, 2014, we had a working capital deficit of $4,966,212 compared to a working capital deficit of $3,050,286 at March
31, 2014. The increase in working capital deficit primarily relates to the decrease in cash to $7,261 as of September 30, 2014
from $1,499,889 as of March 31, 2014. In addition, current liabilities increased by $354,261 to $5,634,841 as of September 30,
2014 from $5,280,580 as of March 31, 2014 primarily due to a derivative liability of $214,728, which we recorded in conjunction
with convertible notes issued in September 2014; $719,933 increase in customer deposits received during the six months ended September
30, 2014, including deposits received from signed orders for the 2015 Saleen Mustang; $275,000 in deferred vendor consideration
related to purchase commitment advances received from BASF and FinishMaster; and $165,335 increase in accounts payable with related
parities. The decrease in working capital was offset partially by the decrease in accounts payable of $350,935 due to payments
on account and $626,803 decrease in notes payable primarily related to the issuance of 3,050,000 shares of common stock as payments
on notes payable.
Net
cash used in operating activities for the six months ended September 30, 2013 totaled $1,714,196 after net income of $902,279
was decreased by $3,741,340 in non-cash charges and increased by $954,864 in net changes to the working capital accounts. This
compares to cash used in operating activities for the six months ended September 30, 2013 of $2,373,185 after the net loss for
the period of $3,578,213 was decreased by $658,131 in non-cash charges and increased by $546,897 in changes to the working capital
accounts.
Net
cash used in investing activities was $224,859 for six months ended September 30, 2014 as compared to $237,729 of cash used in
investing activities for the six months ended September 30, 2013.
Net
cash provided by financing activities for the three months ended September 30, 2014 was $446,427. Of this amount, $406,000 came
through the issuance of our unsecured convertible notes, $177,500 came from the issuance of 1,183,344 shares of our common stock
and $150,000 came from issuances of notes to related parties. Cash of $294,573 was used to pay principal on long term notes. This
compares to $2,602,132 in cash provided by financing activities during the six months ended September 30, 2013, of which $3,000,000
was obtained through the issuance of our secured convertible notes partially offset by $221,303 used to pay principal payments
on notes from related parties and $177,031 was used to pay principal on notes payable.
Defaults
on Notes Payable
As of September 30, 2014,
we were in default on $352,795 of unsecured notes payable. While we are in discussions with the note holders to arrange extended
payment terms, the initiation of collection actions by these note holders may severely affect our ability to execute on our business
plan and operations. In addition, Saleen Signature Cars received a Complaint from the bank to which is issued a Senior Secured
Note, which was filed on February 6, 2014 in California Superior Court, Riverside County. In April 2014, we entered into a settlement
arrangement with the bank whereby the bank dismissed this case in exchange for payment of $124,000 that was applied towards principal
and unpaid fees along with advance loan principal and interest for May, September and July 2014. In accordance with the settlement
arrangement, we were required to pay $418,429 to this bank in August 2014 as full settlement of remaining principal amount owed.
In August 2014, the bank agreed to extend this date by 90 days to October
2014 in exchange for $30,000 to be applied towards principal and interest on the loan. As of the date of this filing, we have
not paid this balance and we expect to be in default unless the bank agrees to another extension. We are currently in discussion
with the bank to obtain another extension the outcome of which is uncertain.
Off-Balance
Sheet Arrangements
We
have not entered into any off-balance sheet arrangements
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As
a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required
by this Item 3.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As
of September 30, 2014, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon
that evaluation, and notwithstanding that there were no accounting errors with respect to our financial statements, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of that
date to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that information
required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our
disclosure controls or internal controls over financial reporting were designed to provide only reasonable assurance that such
disclosure controls or internal control over financial reporting will prevent all errors or all instances of fraud, even as the
same are improved to address any deficiencies. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be only reasonable, not absolute assurance that any design will succeed in
achieving its stated goals under all potential future conditions. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Over time, controls
may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs.
Because
of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur
because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of the controls.
Changes
in Internal Control
During
the six months ended September 30, 2014, there were no changes in internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART
II – OTHER INFORMATION
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS
On May 7, 2014, we issued
1,000,000 shares of common stock valued at $170,000 to Dennis Hartmann in exchange for services rendered to us.
In connection with the
foregoing securities issuances, we did not pay any underwriting discounts or commissions. None of the sales of securities described
or referred to above was registered under the Securities Act of 1933, as amended (the “Securities Act”). In making
the sales without registration under the Securities Act, we relied upon one or more of the exemptions from registration contained
in Section 4(2) of the Securities Act, and in Regulation D promulgated under the Securities Act. No general solicitation or advertising
was used in connection with the sales.
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: November 14, 2014 |
/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 quarterly report
on Form 10-Q of Saleen Automotive, Inc.; |
|
|
2. |
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report; |
|
|
3. |
Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15-15(f)
and 15d-15(f)) for the registrant and we have: |
|
a) |
designed such
disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
designed such
internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
evaluated the
effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such
valuation; and |
|
|
|
|
d) |
disclosed in this
report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially effect the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
b) |
any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting. |
Date:
November 14, 2014
/s/ Steve Saleen |
|
Steve Saleen |
|
Chief Executive Officer |
|
Exhibit
31.2
CERTIFICATION
OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO
SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I,
David Fiene, certify that:
1. |
I have reviewed this quarterly report
on Form 10-Q of Saleen Automotive, Inc.; |
|
|
2. |
Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report; |
|
|
3. |
Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15-15(f)
and 15d-15(f)) for the registrant and we have: |
|
a) |
designed such disclosure controls and
procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b) |
designed such internal control over
financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c) |
evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures as of the end of the period covered by this report based on such valuation; and |
|
|
|
|
d) |
disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially effect the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
b) |
any fraud, whether or not material,
that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting. |
Date:
November 14, 2014
/s/ David Fiene |
|
David Fiene |
|
Chief Financial Officer |
|
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the report of Saleen Automotive, Inc. (the “Company”) on Form 10-Q as of and for the six month period
ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, Steve Saleen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
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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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November 14, 2014 |
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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 six month period
ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
I, David Fiene, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) |
The Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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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 |
|
David Fiene |
|
Chief Financial Officer |
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November 14, 2014 |
|