0001493152-15-002943.txt : 20150714 0001493152-15-002943.hdr.sgml : 20150714 20150714172110 ACCESSION NUMBER: 0001493152-15-002943 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20150331 FILED AS OF DATE: 20150714 DATE AS OF CHANGE: 20150714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Saleen Automotive, Inc. CENTRAL INDEX KEY: 0001528098 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 452808694 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-55236 FILM NUMBER: 15987916 BUSINESS ADDRESS: STREET 1: 2735 WARDLOW ROAD CITY: CORONA STATE: CA ZIP: 92882 BUSINESS PHONE: 800-888-8945 MAIL ADDRESS: STREET 1: 2735 WARDLOW ROAD CITY: CORONA STATE: CA ZIP: 92882 FORMER COMPANY: FORMER CONFORMED NAME: Saleen Automotive, INC. DATE OF NAME CHANGE: 20130628 FORMER COMPANY: FORMER CONFORMED NAME: W270, INC. DATE OF NAME CHANGE: 20110816 10-K 1 form10k.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the year ended March 31, 2015

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

 

Saleen Automotive, Inc.

(Exact Name of Registrant as Specified in Charter)

 

Nevada   333-176388   45-2808694
(State or Other Jurisdiction of
Incorporation or Organization)
  (Commission
File No.)
  (I.R.S. Employer
Identification No.)
         

2735 Wardlow Road

Corona, California

      92882
(Address of Principal Executive Offices)       (Zip Code)

 

(714) 400-2121

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:

None

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes [  ] No [X]

 

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 pursuant 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

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 [  ] (Do not check if smaller reporting company)   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]

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $12,239,251.

 

As of July 13, 2015, there were 460,556,796 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.

 

 

 

 
 

 

SALEEN AUTOMOTIVE, INC.

FORM 10-K

For The Fiscal Year Ended March 31, 2015

INDEX

 

      Page
PART I    
ITEM 1. Business   3
ITEM 1A. Risk Factors   12
ITEM 1B. Unresolved Staff Comments   27
ITEM 2. Properties   27
ITEM 3. Legal Proceedings   28
ITEM 4. Mine Safety Disclosures   28
       
PART II    
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   29
ITEM 6. Selected Financial Data   29
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   30
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk   39
ITEM 8. Financial Statements and Supplementary Data   40
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   41
ITEM 9A. Controls and Procedures   41
ITEM 9B. Other Information   42
       
PART III    
ITEM 10. Directors, Executive Officers and Corporate Governance   43
ITEM 11. Executive Compensation   46
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   48
ITEM 13. Certain Relationships and Related Transactions, and Director Independence   48
ITEM 14. Principal Accounting Fees and Services   49
       
PART IV    
ITEM 15. Exhibits, Financial Statements Schedules   50

 

2
 

 

Note About Forward-Looking Statements

 

This Annual Report on Form 10-K (“Annual Report”) contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they prove incorrect or never materialize, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Item 1—“Business,” Item 1A—“Risk Factors” and Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but may also appear in other areas of this Annual Report. 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 diversification of our customer base; statements concerning new products or services; statements related to future economic conditions or performance; statements as to industry trends 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. Factors that could cause or contribute to such differences include, but are not limited to those discussed under Part I, Item 1.A. “Risk Factors” in this Annual Report, and such forward looking statements are qualified in their entirety by reference to such risk factors. Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such 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.

 

PART I

 

ITEM 1. BUSINESS

 

Overview

 

We design, develop, manufacture and sell high performance enhancements to vehicles built from base chassis’ of Ford Mustangs, Chevrolet Camaros, Dodge Challengers and Tesla Model S vehicles. We are a low volume specialist vehicle design, engineering and manufacturing company focusing on the mass customization (the process of customizing automobiles that are mass produced by manufacturers (Ford, Chevrolet, Dodge and Tesla)) of OEM American sports and electric vehicles and the production of high performance USA-engineered sports cars. Saleen-branded products include a line of high performance and upgraded muscle and electric cars, automotive aftermarket specialty parts and lifestyle accessories. A high performance car is an automobile that is designed and constructed specifically for speed. The design and construction of a high performance car involves not only providing a capable power train but also providing the handling and braking systems to support it. Muscle cars are any of a group of American-made 2-door sports coupes with powerful engines designed for high performance driving. We are also planning to develop an American supercar. The term supercar describes an expensive (approximately $250,000 or more), limited production, fast or powerful (capable of reaching speeds in excess of 180 miles per hour) sports car with a centrally located engine.

 

Our customers worldwide include muscle and high performance car enthusiasts, collectors, automotive dealers, exotic car retail dealers, television and motion picture production, and consumers in the luxury supercar and motorsports market. We plan to develop a network of company-owned branded stores to complement our existing retail dealer locations.

 

We utilize automobile manufacturers Ford, Chevrolet, Dodge and Tesla platform vehicles for our high performance and electric vehicle production. All aftermarket parts and accessory products are engineered and manufactured exclusively by us. Our main retail outlets for our products are authorized Ford, Chevrolet, Dodge and exotic car dealers.

 

We plan to operate as a global high performance automotive brand and expand our production, sales and marketing operations extensively within the markets of the USA and into multiple international markets. We also have entered into an arrangement to distribute our full collection of Saleen branded automobiles in China. We also plan to open our own retail outlets, market our expertise in specialist engineering and design services to third party clients, and introduce our next generation American supercar.

 

3
 

  

History of the Company

 

Saleen Automotive, Inc. (formerly W270, Inc., “we,” “us,” “our” and “our company”) was incorporated under the laws of the State of Nevada on June 24, 2011. We issued 5,000,000 shares of our Common Stock to Mr. Wesley Fry (“Fry”) at inception in exchange for organizational costs/services incurred upon our incorporation. Following our formation, we issued an additional 1,000,000 shares of our Common Stock to Fry, in exchange for a business plan along with a client/customer list related to his information technology consulting services.

 

On June 21, 2012, we issued 2,000,000 shares of our 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, and W-Net purchased from Fry, an aggregate of 6,000,000 shares of our Common Stock (the “Shares”), which Shares represented 75.0% of the issued and outstanding shares of our Common Stock, (2) Fry released the Company from any and all existing claims, (3) Fry settled various liabilities of the Company and (4) Fry indemnified W-Net and our company from liabilities arising out of any breach of any representation, warranty, covenant or obligation of Fry. The closing occurred on November 30, 2012. W-Net paid for the Shares with personal funds. Simultaneous with the closing, W-Net sold to Verdad Telecom, Inc. one half of the Shares. There are no arrangements or understandings by and among members of both the former and new control groups and their associates with respect to election of directors or other matters of our company.

 

Merger

 

On May 23, 2013, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with Saleen California Merger Corporation, our wholly-owned subsidiary, Saleen Florida Merger Corporation, our wholly-owned subsidiary, Saleen Automotive, Inc. (“Saleen Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive, the “Saleen Entities”) and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”). The closing (the “Closing”) of the transactions (the “Merger”) occurred on June 26, 2013. At the Closing (a) Saleen California Merger Corporation was merged with and into SMS with SMS surviving as one of our wholly-owned subsidiaries; (b) Saleen Florida Merger Corporation was merged with and into Saleen Automotive with Saleen Automotive surviving as one of our wholly-owned subsidiaries; (c) holders of the then outstanding capital stock of Saleen Automotive received an aggregate of 554,057 shares of our Super Voting Preferred Stock, which was subsequently converted into 69,257,125 shares of our Common Stock and holders of the outstanding capital stock of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of our Common Stock (on a fully-diluted basis) was owned, collectively, by Saleen (including 341,943 shares of our Super Voting Preferred Stock, which was subsequently converted into 42,742,875 shares of our Common Stock, issued to Saleen pursuant to an Assignment and License Agreement) and the former holders of the outstanding capital stock of Saleen Automotive. As a result of the Merger we are solely engaged in the Saleen Entities’ business, Saleen Automotive’s officers became our officers and Saleen Automotive’s three directors became members of our five-member board of directors. On June 17, 2013, we consummated a merger with WSTY Subsidiary Corporation, our wholly-owned subsidiary, pursuant to which we amended our articles of incorporation to change our name to Saleen Automotive, Inc. In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars. In January 2014, we effected an increase in the number of our common shares authorized to 500,000,000 and all the remaining shares of Super Voting Preferred Stock were converted into our Common Stock and the Super Voting Preferred Stock ceased to be a designated series of our preferred stock.

 

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.

 

Going Concern

 

Since inception, our principal sources of liquidity have been obtained from cash provided by financing, including through the private issuance of notes and sale of equity securities, along with customer deposits received in advance of shipment and gross margin achieved from the sales of high performance vehicles and aftermarket parts. Our principal uses of cash have been primarily to finance operations; expand our staff; develop new products and improve existing products; expand marketing efforts to promote our products and company; and capital expenditures primarily for tooling. We anticipate that significant additional expenditures will be necessary to develop and expand our automotive assets before sufficient and consistent positive operating cash flows will be achieved including sufficient cash flows to service existing debt. Additional funds will be needed in order to complete production, continue operations, obtain profitability and to achieve our objectives. As such, our cash resources are insufficient to meet our current operating expense and production requirements and planned business objectives beyond the filing date of this Form 10-K without additional financing.

 

4
 

  

As further presented in our consolidated financial statements and related notes, during the year ended March 31, 2015, we incurred a loss from operations of $5,321,929 and utilized $2,549,895 of cash in operations. We also had a stockholders’ deficit and working capital deficit of $9,669,225 and $7,050,664, respectively as of March 31, 2015, and as of that date, we owed $745,503 in past unpaid payroll and other taxes; $933,271 of outstanding notes payable were in default; $1,204,840 of accounts payable was greater than 90 days past due; and $288,900 is owed on past due rent. In addition, in May 2015, we received a complaint from Citizens Business Bank alleging breach of our loan agreement with the bank and breach of a commercial guaranty by Steve Saleen and demanding full payment of principal, interest and fees of $369,302. A default under the loan agreement triggers a cross default under our 3% Senior Secured Convertible Notes and 7% Convertible Notes (see Note 5 to our consolidated financial statements) enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of that indebtedness. In addition, we currently do not maintain workers’ compensation, product liability and other general insurance. These factors raise substantial doubt about our ability to continue as a going concern.

 

Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve revenues at a level that will achieve profitably and generate positive cash flows from operations. At March 31 and July 8, 2015, we had cash on hand in the amount of $143,803 and approximately $21,000, respectively, and we are not generating funds from operations to cover current production and operating expenses and will have to obtain additional financing. We have utilized funding to operate the business during the year ended March 31, 2015 with funds obtained from $1,702,656 of customer deposits received in advance of shipment from orders placed by customers; received $500,000 advance royalities from an Intellectual Property License Agreement; raised $1,289,409 through the issuance of convertible notes; received $295,000 through the issuance of notes payable of which $195,000 came from related parties; and obtained cash from sales of Common Stock through entering 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, we will need and are currently seeking additional funds, primarily through the issuance of debt or equity securities for production and to operate our business through and beyond the date of this filing of Form 10-K. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions and covenants on our operations, in the case of debt financing or cause substantial dilution for our stockholders (including the issuance of securities sufficient to result in a change in control of our company), in the case of convertible debt and equity financing.

 

Business of Saleen Automotive

 

Immediately prior to the Closing, we were a public “shell” company with nominal assets. As a result of the Merger, we are solely engaged in the Saleen Entities’ business. With respect to this discussion, the terms “we,” “us,” “our” and “our company” refer to Saleen Automotive, Inc., a Nevada corporation and its wholly-owned subsidiaries Saleen Automotive and Saleen Signature Cars.

 

History and Background

 

The Saleen brand, started by former racing driver Steve Saleen, began in 1983. Saleen used his business degree from USC, coupled with experience in his father’s manufacturing business, to build the Saleen brand. Saleen began auto crossing, then rapidly moved into SCCA pro series (Formula Atlantic, Trans-Am Championship, Sport Truck racing) and then into Indy car racing.

 

On July 1, 2008, following his affiliation with several predecessor automotive companies bearing the “Saleen” brand, Saleen established SMS Signature Cars. SMS commenced operations in Corona, California, producing high performance automobiles and selling automotive aftermarket parts. SMS expanded the historical offering of mass customized Mustangs into a broader line of vehicles including Chevrolet Camaros and Dodge Challengers. SMS also was contracted to produce specialty vehicles for the movie “Bullet” and produced replica supercars for the movie “Need for Speed”. In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars.

 

On July 21, 2011, Saleen and a group of private investors established Saleen Electric Automotive, Inc., a Florida corporation (“SEA”). SEA had identified opportunities in the commercial electric vehicle market and was formed to develop a line of electric delivery vans, automobiles, and high capacity chargers. On April 26, 2012, Saleen Electric Automotive, Inc. changed its name to “Saleen Automotive, Inc.”

 

On April 2, 2012, Saleen announced that after several years of litigation with the former Saleen, Inc., he had successfully regained control of the Saleen brand and products that he had created. Pursuant to the Assignment and License Agreement, as amended, we own certain intellectual property that relates to the “Saleen” brand name and related rights as listed in the Assignment and License Agreement, as amended, including various design patents for superchargers and trademarks related to the “Saleen” brand, and we license from Saleen the right to use his image, signature, full name, voice, biographical materials, likeness, and goodwill associated with the “Saleen” brand.

 

5
 

  

Our Vehicles, Products and Services

 

We currently provide or intend to provide the following products and services:

 

High Performance Cars: We are an OEM of customized American sports cars, building them into Saleen-branded performance vehicles through a transformational process in which every part we incorporate into the vehicle is designed, engineered, tooled, tested, manufactured and certified by us or under our control for the entire vehicle. We are currently converting Ford Mustangs, Chevrolet Camaros and Dodge Challengers. The current product line of high performance vehicles includes the Saleen 570 Challenger, the Saleen 302 Mustang and the Saleen 620 Camaro, which are offered as three different models – White, Yellow and Black Labels. We also produce a line of Heritage Collection Cars which are modern Saleen High Performance vehicles designed as replicas of past iconic race cars from the SCAA Trans-Am Racing lineage. In early 2015, we released an update to our Saleen Mustang product line in response to the 2015 Ford Mustang new model.

 

Performance Parts: We manufacture and distribute specialty automotive aftermarket parts and accessories designed for and used in our current and past high performance vehicles to our base of loyal Saleen automotive 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.

 

Saleen GTX: During our fiscal year ended March 31, 2015, we designed, engineered, tooled, tested, and manufactured performance improvement parts designed to incorporate and enhance the performance and design of an existing Tesla Model S car. The Saleen GTX design is our first effort in enhancing and modifying the design of an existing electric vehicle. Similar to our Saleen line of high performance vehicles, our design improved the level of performance of the Tesla Model S car primarily through aerodynamics, body and suspension changes incorporated into an existing Tesla Model S. We take existing customer owned Tesla Model S vehicles and enhance their vehicle with Saleen proprietary designed and manufactured product enhancements. We also sell our designed Saleen GTX parts as aftermarket parts.

 

American Supercars: We are currently designing an American supercar that we anticipate would be manufactured and sold through our Supercars division and our retail stores. 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. There are supercar models built by foreign manufacturers including Lamborghini and Ferrari.

 

Retail Distribution Outlets: While we presently do not have any retail stores in operation, we intend to open a network of retail branded stores that will become a primary sales channel for our high performance vehicles, supercars and aftermarket parts and accessories. The concept of this store is based on a location inside a major retail mall whereby customers can see floor models of our vehicles and purchase parts and accessories. Customers interested in purchasing a vehicle may arrange to test drive vehicles that will be parked nearby. A buyer of our cars will meet with a sales representative to custom select the vehicle model, colors, upgrades, and place the order. Saleen apparel, presently sold online, is branded under the Saleen Lifestyle, Saleen Performance, Saleen Racing and Heritage marquees. We intend to operate these stores in high traffic malls in major cities where Saleen has a customer base, such as Orange County, Los Angeles, San Jose, Miami and other locations.

 

Motorsports & Engineering Services: We provide contract design, engineering and product development services, which have included working with major Hollywood movie producers where we developed and manufactured working replicas of high performance vehicles and racing “supercars” featured in such films as “Need for Speed” and “Bullet”. During the year ended March 31, 2015, we did not have any contracts for our design, engineering or product development services.

 

Battery Electric Vehicles: We plan to develop a line of electric battery electric vehicles (or BEVs) for commercial and consumer oriented applications, utilizing the same mass-customization process used with our high performance vehicles and existing facilities to overlay the BEV design on selected new OEM automobile chassis designed for internal combustion engines. Our business strategy in this BEV market is to utilize certain models of Ford, Chevrolet or Dodge vehicles that are mass produced as the base chassis’ of the vehicles that we will convert into BEV’s by installing electric drive systems. Due to our current funding constraints, we do not plan to start the development of this product until we are able to raise additional funding from debt or equity sources. The factors that we may consider in determining whether to pursue this product line are (1) commercial price point for the electric vehicle, (2) range of the vehicle, (3) market opportunity for the product line, (4) costs of developing a sales distribution network, (5) market size and growth potential and (6) profitability of the product line. Once we have completed our product development and testing process, we will further consider what steps we will take, budget we will require, and funding we will pursue to develop our battery electric vehicle business. There is no guarantee that we will have sufficient funds to develop our battery electric vehicle business line.

 

6
 

  

Technology, Design and Engineering Capabilities

 

We believe the core competencies of our company are high performance car design and vehicle engineering. Our core intellectual property is contained within our supercharger and related performance enhancing products.

 

Our engineering team is staffed with experienced and dedicated professionals with a wide range of expertise in providing design, analysis, and prototyping and validation capabilities to the global vehicle industry. We offer in-house expertise in areas ranging from chassis, body and power train, NVH (noise, vibration, harshness) engineering, electrical systems, thermal systems and CAE (computer aided engineering). We provide seamlessly integrated services in a broad range of engineering disciplines through a unique mix of automotive engineering expertise and motorsports carefully matched to their position specifications. Our engineering team utilizes the most technically advanced engineering tools available in a results-driven and highly stimulating environment.

 

Our product development methodology is designed to ensure a disciplined and quantifiable approach that emphasizes quality and progress accountability as follows:

 

  Market Definition and Potential
  Product Definition
  Realistic Revenue Targets
  Design and Engineering
  Prototyping
  Testing
  Volume Production Engineering
  Product Launch
  Success Reporting and Measurement
  Product Enhancement Plan

 

Over a 30-year history, our founder, Saleen, has developed his core competency in the design, engineering, manufacturing, marketing and sales of high performance vehicles as well as developed or acquired the technology to apply the same processes to the production of high performance vehicles. Specifically, we have expertise with respect to the following:

 

  Engineering Capabilities
  Suspension & Chassis
  Powertrain
  Certification
  Engineering Tools
  CAD Systems
  Data Acquisition Systems
  ETAS Calibration Tools
  Crash Simulation Software
  Suspension Simulation Software
  CFD, Fluid Simulation Software
  Design and Prototyping Capabilities
  Style & Design Center
  Full product development from the first sketch to final production
  Manufacturing, Assembly and Production

 

Our manufacturing and assembly teams collaborate regularly with the engineering development team to ensure that the appropriate processes, tooling, sourcing and timing is considered early in every program. Sharing of ideas throughout the business ensures that every aspect of a program is considered and understood by the entire enterprise.

 

We utilize the most current design, testing and prototyping systems in our manufacturing process, some of which include: Adams Kinematics - CAD (Computer Aided Design) - CFD (Computational Fluid Dynamics) - FEA (Finite Element Analysis) – CAM (Computer Aided Machining) - Rapid Prototyping - Machine Tools - Composites Manufacturing - Wind Tunnel – Pam Crash for crash simulation and design of occupant safety systems.

 

Vehicle Limited Warranty Policy

 

We provide a three-year or 36,000 miles New Vehicle Limited Warranty with every Saleen 302 Mustang, Saleen 570 Challenger, Saleen 620 Camaro, and Saleen GTX high performance vehicle. The vehicle limited warranty applies to installed parts and/or assemblies in new Saleen high performance cars. All of the unaltered parts are covered under the original full warranty of the OEM manufacturer of the base vehicles (Ford, Chevrolet, Dodge and Tesla).

 

7
 

  

Supply Chain

 

We use over 1,000 purchased parts, which we source globally from over 100 suppliers, many of whom are currently our single source suppliers for these components. We have developed close relationships with several key suppliers particularly in the procurement of body components and certain other key system parts. While we obtain components from multiple sources whenever possible, similar to other automobile manufacturers, many of the components used in our vehicles are purchased by us from a single source. We are currently expanding our supplier sources to reduce the risk of a single source supplier adversely affecting our operations. To date, we have expanded from one to two suppliers, the sources from which we obtain one of our automobile body components. We will continue our efforts to reduce our dependence on single source suppliers.

 

Research and development costs, which consist of expenditures for the research and development of new products and technology, were $747,837 and $766,996 during the years ended March 31, 2015 and 2014, respectively.

 

Marketing Strategy

 

Our principal marketing goals are to:

 

  generate demand for our vehicles and drive leads to our sales teams;
  build long-term brand awareness and manage corporate reputation;
  manage our existing customer base to create loyalty and customer referrals; and
  enable customer input into the product development process.

 

We operate similiar to Original Equipment Manufacturers (OEM) producing muscle and high performance cars.

 

We currently utilize Ford Mustangs, Chevrolet Camaros and Dodge Challengers base chassis and manufacture these vehicles into Saleen-branded high performance cars through a transformational process in which every part incorporated into the vehicle is designed, engineered, tooled and extensively tested before being manufactured and moved into the conversion production process. Our Saleen GTX conversions are based on customer provided Tesla Model S vehicles. It is our belief that this conversion process, while not unique, is an important differentiator from our competitors due to the reputation of the Saleen brand.

 

We also manufacture and distribute Saleen-branded specialty automotive aftermarket parts and accessories directly to an ever growing base of loyal automotive enthusiasts in both the U.S. and internationally. Additionally, many of these parts and accessories are marketed and sold to Mustang, Camaro, Challenger, Ford Truck and Tesla Model S owners.

 

Our Saleen-branded high performance cars are sold through Ford, Chevrolet and Dodge retail dealers and exotic automobile dealers. We currently have arrangements with approximately 40 dealers located throughout the United States and are growing our dealer distribution network. Our dealer agreements provide for an exclusive dealer marketing area in which the applicable dealer can promote our products based on our current product price list. The key terms of our dealer agreements include (a) target dealer product sales goals, (b) exclusive dealer marketing territories and (c) a one-year term, renewable annually. Our agreements may be terminated if our dealers fail to meet our target dealer product sales goals. Our dealer territories are generally based on the local dealers’ county geographical boundaries; however, we may have multiple dealers in densely populated counties such as Los Angeles or San Francisco. Our dealers earn a markup on the sale of our products at the time that the sale is completed upon delivery of the vehicle. We also have a strategic relationship with GreenTech Automotive to market and distribute our products in China.

 

While we presently do not have any retail stores in operation, we are planning to source store locations for a network of retail branded stores that will become a primary sales channel for our high performance vehicles, supercars, aftermarket parts and accessories. We intend to market and sell to end consumers not only through our existing dealer network but also through our company-owned stores. We will also be able to better service our dealer network by region as we open retail stores. Initially, we plan to open stores in southern California, northern California and south Florida. We will conduct a market assessment of cities within the regions listed above to determine the optimum locations for the stores. The estimated cost to open each store is $1 million, which we have yet to obtain the funding required to pursue the opening of retail stores. Given our current cash constraints, limited operating history and history of losses, we have planned for a three year roll out of these retail stores at the rate of one new store per year, however we have yet to determine the specific time frame in which we will commence the roll out. In addition, there is no guarantee that we will have the funding necessary to open any retail stores.

 

Our annual operating budget includes a commitment to effective marketing, advertising and promotional efforts in order to further strengthen awareness of our brand and expose our products to a larger audience. We will contract with marketing and advertising businesses with experience marketing and promoting specialty automotive brands to further promote our business. We utilize various performance-based advertising metrics to measure the effectiveness of our sales and marketing campaigns. These metrics will include CPM (“Cost per Thousand”), PPC (“Pay per click”), and “pay per call” for our Internet advertising. Other advertising metrics will include CPL (“Cost per Lead”), directory assistance call measurement, and print ad coupon responses. CPM is defined as a “cost per thousand” pricing model whereby the merchant is charged a fee per thousand impressions – the number of times people view an advertisement. PPC is defined as a “pay per click” pricing model in which the merchant pays the website owner when the ad is clicked. PPC is also defined as “pay per call” whereby the merchant pays the service provider a fee per call for connecting the consumer to the advertised number. CPL is defined as “cost per lead” whereby the merchant pays for an explicit sign-up from an interested consumer interested in the advertised offer.

 

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Events Marketing: As a high performance specialty manufacturer, we take pride in attending events on the international auto show circuit such as in Chicago, Los Angeles, Detroit, New York, Pebble Beach, Shanghai and Beijing. The major car shows we participated in during the year ended March 31, 2015 included Detroit, Pebble Beach, Los Angeles, Shanghai and Beijing. The costs of these major shows are approximately $100,000 per show. We also participate in regional car shows that generally cost between $5,000 to $15,000 per show. Our participation in each event includes securing a trade booth to display our products, holding press events to announce new models, and networking with attendees and dealers at the shows.

 

Print Marketing: Our print marketing strategy includes purchasing of ad space targeted to our customer base as well as free press through press releases of newsworthy or entertainment-worthy information. The estimated costs of purchased ad space will vary by target market, but generally runs from $2,500 to $10,000 per ad. We generally purchase ad space at car show venues from time to time as we determine and in keeping with our marketing budget in cities where our dealers are actively engaged in promoting our vehicles.

 

International: In February, 2014, we entered into an exclusive agreement with GreenTech Automotive, Inc. (“GTA” or “GreenTech”), to distribute the full collection of Saleen automobiles in China. In June 2015, we expanded our relationship with GTA whereby we along with Steve Saleen entered into an Intellectual Property License Agreement (the “License Agreement”) with Saleen Motors International, LLC, a Delaware limited liability company (“SMI”), wholly owned subsidiary of GreenTech and nonaffiliated subsidiary of our company. Under the License Agreement, we granted to SMI an irrevocable, fully paid-up (subject to certain royalty fees), sublicensable license during the term of the License Agreement to use all of our intellectual property on an exclusive basis worldwide other than in North America, Europe, Middle East and Australia (as applicable, the “Territory”), to make, promote, sell and otherwise exploit our intellectual property in the Territory. Under our agreements, we provide GreenTech with the same collection of vehicles that are available in the North American marketplace.

 

We also plan on expanding our business model internationally by identifying other strategic partners in targeted countries throughout the world. Initial targeted areas are the Middle East and India. Once a strategic partner is identified in a particular country, we and our strategic partner will jointly develop a business plan for that country.

 

Given our limited cash resources, we will need to raise additional capital to continue and expand our marketing initiatives and to realize our plans regarding domestic and international expansion. There is no guarantee that we will be able to raise this additional capital for our expansion. In addition, we will encounter significant challenges expanding our business model internationally due to our limited business experience operating in these markets, the current general economic slowdown in China and India, and uncertainty about the amount of capital needed to successfully expand internationally.

 

Sales Strategy

 

We currently sell our high performance cars through a network of Ford, Chevrolet, Dodge and exotic automobile dealers. Our dealer sales team is continuing to increase our base of dealers. We currently have arrangements with 40 dealers located throughout the United States. We sell our Saleen GTX vehicles through our in-house sales team.

 

We sell our performance parts, aftermarket parts and accessories through our retail store in Corona, California and over the Internet.

 

We sell Saleen branded vehicles and parts and merchandise under a License Agreement with GTA pursuant to which we granted to SMI an irrevocable, fully paid-up (subject to certain royalty fees), sublicensable license to use all of our intellectual property on an exclusive basis worldwide other than in North America, Europe, Middle East and Australia, to make, promote, sell and otherwise exploit our intellectual property in the Territory.

 

Automotive Aftermarkets Parts Market

 

The specialty equipment and parts market includes products used to modify the performance and appearance, and/or handling of vehicles. There are no guarantees that we will be able to acquire a sufficient market share of the automotive aftermarkets parts market.

 

Supercars Market

 

Based on current sales of supercars, we believe that there is a solidly growing market globally for dependable, American-made supercars offering demonstrably superior performance with revolutionary styling and design characteristics.

 

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Regulation—Vehicle Safety and Testing

 

Our Saleen branded vehicles are subject to, and we comply with, or are exempt from, numerous regulatory requirements established by the NHTSA, including all applicable United States federal motor vehicle safety standards (FMVSS). Our high performance Saleen branded muscle cars fully comply with all FMVSS without the need for any exemptions. As a manufacturer, we must self-certify that a vehicle meets, or otherwise obtain an exemption from, all applicable FMVSS before the vehicle can be sold in the United States.

 

We are also required to comply with other requirements of federal laws administered by the NHTSA, including the Corporate Average Fuel Economy standards, Theft Prevention Act requirements, consumer information labeling requirements, early warning reporting requirements regarding warranty claims, field reports, death and injury reports and foreign recalls, and owner’s manual requirements.

 

The Automobile Information and Disclosure Act requires manufacturers of motor vehicles to disclose certain information regarding the manufacturer’s suggested retail price, optional equipment and pricing. In addition, the Act allows inclusion of city and highway fuel economy ratings, as determined by the EPA, as well as crash test ratings, as determined by the NHTSA, if such tests are conducted.

 

Regulation—EPA Emissions & Certificate of Conformity

 

The Clean Air Act requires that we obtain a Certificate of Conformity issued by the EPA and a California Executive Order issued by the California Air Resources Board (“CARB”) with respect to emissions for our vehicles. The Certificate of Conformity is required for vehicles sold in states covered by the Clean Air Act’s standards and both the Certificate of Conformity and the Executive Order is required for vehicles sold in states that have sought and received a waiver from the EPA to utilize California standards. The California standards for emissions control for certain regulated pollutants for new vehicles and engines sold in California are set by the CARB. States that have adopted the California standards as approved by the EPA also recognize the Executive Order for sales of vehicles.

 

Some states have laws providing that a manufacturer cannot deliver a vehicle to a resident of such state except through a dealer licensed to do business in that state. We will therefore be required to either obtain a dealer license in such states, partner with a licensed dealer or obtain an exemption from such requirements in connection with sales of our vehicles over the Internet. We have not commenced the process to obtain a dealer license in states requiring such licenses, and are currently determining our strategy with respect to sales of our vehicles in such states.

 

In addition, some states have requirements that service facilities be available with respect to vehicles sold in the state, which may be interpreted to also require that service facilities be available with respect to vehicles sold over the Internet to residents of the state. In the event that such regulations are applicable to vehicles sold over the Internet, we will be limited in our ability to sell vehicles in such states to the extent that we do not have qualifying service facilities.

 

The foregoing examples of state laws governing the sale of motor vehicles are just some of the regulations we face as we sell our vehicles. In many states, the application of state motor vehicle laws to Internet sales is largely without precedent, and would be determined by a fact specific analysis of numerous factors, including whether we have a physical presence or employees in the applicable state, whether we advertise or conduct other activities in the applicable state, how the sale transaction is structured, the volume of sales into the state, and whether the state in question prohibits manufacturers from acting as dealers. As a result of the fact specific and untested nature of these issues, and the fact that applying these laws intended for the traditional automobile distribution model to our sales model allows for some interpretation and discretion by the regulators, state legal prohibitions may prevent us from selling to consumers in such state.

 

Competition

 

Domestic United States auto sales are currently at their highest pace in over five years since the financial crisis hit. We believe that the boost in sales is poised to reverberate through the world’s largest economy with a spillover into production, profits and jobs for Americans.

 

Competition in this industry is in most cases based on reputation, prestige, quality, service and overall price. A strong combination of all these areas tends to attract repeat and loyal customers and enthusiast. Consumers tend to shop for name brand and expect high customer service levels. Promptness of service also matters because customers want and need their cars back as soon as possible.

 

In addition to customer service, name or brand recognition and reputation play an important role in determining how competitive an auto customization business is.

 

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The location of retail outlets is another crucial competitive factor defining this industry. A location is best determined by a combination of population distribution, average income levels and the number of vehicle registrations and existing competitors. The optimum combination results in a location that often allows the company to achieve economies of scale in terms of advertising and distribution costs.

 

Our primary competition will come from other high-end cars, their manufacturing companies, and third-party companies that specialize in customization for these cars. These companies include Acura, Aston Martin, Audi, Ferrari, Ford GT, Lamborghini, Lexus, McLaren, and Porsche.

 

Intellectual Property

 

Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents, patent applications, trade secrets, including know-how, employee and third party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. Saleen Automotive owns trademarks registered with the U.S. Patent and Trademark Office. In addition, we own the Saleen “brand” registered trademarks as well as other unregistered common law trademarks.

 

We currently market our products using the Saleen name and logo, as well as the name and likeness of Steve Saleen, through a royalty free license from Steve Saleen.

 

We also have a license to use Steve Saleen’s image, signature, full name, voice, biographical materials, likeness, and goodwill associated with the “Saleen” brand in connection with our business. The aforementioned license may only be terminated in the event we file a petition for relief under Chapter 7 of the U.S. Bankruptcy Code, or a petition for relief is converted to a Chapter 7 proceeding under the U.S. Bankruptcy Code.

 

Seasonality

 

Sales of our high performance cars have fluctuated on a seasonal basis with increased sales during the spring and summer months in our second and third fiscal quarters relative to our fourth and first fiscal quarters. We note that, in general, automotive sales tend to decline over the winter season and we anticipate that our sales of Saleen 302, 570 and 620 vehicles, and other vehicles we introduce in the future may have similar seasonality.

 

Employees

 

As of June 30, 2015, we had 22 employees all of whom were full-time employees. Since inception, we have never had a work stoppage, and our employees are not represented by labor unions. We consider our relationship with our employees to be positive.

 

Description of Property

 

Our principal executive office is located at 2735 Wardlow Road, Corona, California 92882. Our principal engineering office is located across from our executive office at 2755 Wardlow Road, Corona California 92882. We operate out of leased facilities comprised of a two building campus that constitutes approximately four acres of industrial and office space. We believe our facilities are adequate to meet our current and near-term needs.

 

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ITEM 1A. RISK FACTORS

 

Investing in our Common Stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing shares of our Common Stock. If any of the following risks occur, our business, financial condition and/or results of operations could be materially and adversely affected. In that case, the trading price of our Common Stock could decline, and you may lose some or all of your investment.

 

Risks Related to Our Business

 

We have a history of losses and negative cash from operations and our current cash resources and revenue levels are insufficient to meet our planned business objectives, production and operational needs and debt obligations without additional financing. In addition, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. We may be unable to obtain additional capital required to implement our business plan, which could restrict our ability to grow and increase stockholder value.

 

We have a history of operating losses and may not achieve or sustain profitability. During the year ended March 31, 2015, we incurred a net loss of $8,508,758 and utilized $2,549,895 of cash in operations. We also had a stockholders’ and working capital deficit of $9,669,225 and $7,050,664 as of March 31, 2015 and as of that date, we owed $745,503 in unpaid payroll and other taxes, $933,271 of outstanding notes payable were in default, $1,204,840 of payables were greater than 90 days past due and we are $326,059 behind in rent payments as of the date of the filing of this Form 10-K. Our cash on hand as of March 31, 2015 and June 30, 2015 was $143,083 and approximately $21,000, respectively. In addition, in May 2015, we received a complaint from Citizens Business Bank alleging breach of our loan agreement with the bank and breach of a commercial guaranty by Steve Saleen and demanding full payment of principal, interest and fees of $369,302. A default under the loan agreement triggers a cross default under our 3% Senior Secured Convertible Notes and 7% Convertible Notes (see Note 5 to our consolidated financial statements) enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of that indebtedness. As such, our cash resources are insufficient to meet our planned business objectives, operational and production needs and debt obligations without additional financing.

 

These and other factors raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm issued a report on our March 31, 2015 financial statements that raised substantial doubt about our ability to continue as a going concern. Our 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 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. Since inception, we have raised funds primarily through the receipt of customer deposits in advance of shipment; issuance of secured and unsecured notes payable and convertible notes payable and sale of equity securities. We will need and are currently seeking additional funds, primarily through the issuance of debt or equity securities for cash to operate our business through and beyond the date of the filing of this Form 10-K and to continue planned product development. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case or equity financing. If we are unable to obtain additional funds, our ability to carry out and implement our planned business objectives and strategies will be significantly delayed, limited or may not occur. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the competitive and evolving nature of the industry in which we operate and obligations outstanding, we may not be able to sustain or increase profitability and our failure to do so would adversely affect our business, including our ability to raise additional funds.

 

We may be unable to sustain our current level of production or deliveries of our high performance cars both of which could harm our business and prospects.

 

High performance car production and deliveries will continue to require significant resources and we may experience unexpected delays or difficulties that could harm our ability to maintain full manufacturing capacity, or cause us to miss planned production targets, any of which could have a material adverse effect on our business, prospects, operating results and financial condition. Additionally, sustaining high volume production and doing so in a manner that avoids significant cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors, may be difficult.

 

Our ability to sustain volume production and deliveries is subject to certain risks and uncertainties, including:

 

  that our suppliers will be able to deliver components on a timely basis and in the necessary quantities, quality and at acceptable prices to produce our cars in volume and reach our financial targets;
  that we will be able to complete any necessary adjustments to the vehicle design or manufacturing processes of our cars in a timely manner that meets our production plan and allows for high quality vehicles;
  that we will not encounter parts quality issues before, during or after production of high performance cars;
  that we will be able to schedule and complete deliveries at our planned volume production;
  that the equipment or tooling which we have purchased or which we select will be able to accurately manufacture the vehicle within specified design tolerances and will not suffer from unexpected breakdowns or damage which could negatively affect the rate needed to produce vehicles in volume;
  that we will be able to comply with environmental, workplace safety and similar regulations to operate our manufacturing facilities and our business on our projected timeline;
  that we will be able to maintain high quality controls as we transition to a higher level of in-house manufacturing process; and
  that the information technology systems that we are currently expanding and improving upon will be effective to manage high volume production.

 

Finally, detailed long-term testing of systems integration, performance and safety as well as long-term quality, reliability and durability testing are ongoing and any negative results from such testing could cause production delays in high performance cars, cost increases or lower quality vehicles.

 

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We are dependent on our suppliers, the vast majority of which are single source suppliers, and the inability of these suppliers to continue to deliver, or their refusal to deliver, necessary components of our vehicles in a timely manner at prices, quality levels, and volumes acceptable to us would have a material adverse effect on our business, prospects and operating results.

 

We use over 1,000 purchased parts, which we source globally from over 100 suppliers, many of whom are currently our single source suppliers for these components. We have developed close relationships with several key suppliers particularly in the procurement of body components and certain other key system parts. While we obtain components from multiple sources whenever possible, similar to other automobile manufacturers, many of the components used in our vehicles are purchased by us from a single source. We are currently expanding our supplier sources to reduce the risk of a single source supplier adversely affecting our operations.

 

While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components for our single source components, we may be unable to do so in the short term, or at all, at prices or costs that are favorable to us. In particular, while we believe that we will be able to secure alternate sources of supply for most of our single sourced components in a relatively short time frame, qualifying alternate suppliers or developing our own replacements for certain highly customized components of our vehicles may be time consuming, costly and may force us to make additional modifications to a vehicle’s design.

 

This supply chain exposes us to multiple potential sources of delivery failure or component shortages for our high performance cars. We may experience additional delays in the future with respect to high performance cars, supercars and any other future vehicle we may produce. In addition, because we do not have written agreements in place with all our suppliers, this may create uncertainty regarding certain suppliers’ obligations to us, including but not limited to, those regarding warranty and product liability. Changes in business conditions, wars, governmental changes and other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis. Furthermore, if we experience significant increased demand, or need to replace certain existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are favorable to us, at all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner. In the past, we have replaced certain suppliers because of their failure to provide components that met our quality control standards. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to delays in vehicle deliveries to our customers, which could hurt our relationships with our customers and also materially adversely affect our business, prospects and operating results.

 

Changes in our supply chain have resulted in the past, and may result in the future, in increased cost and delay. We have also experienced cost increases from certain of our suppliers in order to meet our quality targets and development timelines as well as due to design changes that we made, and we may experience similar cost increases in the future. Additionally, we are negotiating with existing suppliers for cost reductions, seeking new and less expensive suppliers for certain parts, and attempting to redesign certain parts to make them cheaper to produce. If we are unsuccessful in our efforts to control and reduce supplier costs, our operating results will suffer. Additionally, cost reduction efforts may interrupt or harm our normal production processes, thereby harming high performance car and supercar quality or reducing production output.

 

Furthermore, a failure by our suppliers to provide the components in a timely manner or at the level of quality necessary to manufacture our high performance vehicles could prevent us from fulfilling customer orders in a timely fashion which could result in negative publicity, damage our brand and have a material adverse effect on our business, prospects, financial condition and operating results.

 

We are dependent on Ford Mustang, Chevrolet Camaro and Dodge Challenger platform vehicles for our muscle and high performance vehicle products.

 

We utilize automobile manufacturers Ford, Chevrolet and Dodge platform vehicles for our Mustang, Camaro and Challenger muscle and high performance vehicles. Generally, we procure these vehicles directly from dealers. While we do enter into sourcing agreements with certain of our dealers, we do not have a supply agreement with Ford, Chevrolet or Dodge and we are limited to the allocation allotted to our source dealers. Further, all production parts are engineered and manufactured exclusively by us and are designed specifically for current and past models of these platform vehicles. Automotive manufactures generally make minor model changes each year and a major model change approximately every four years. Minor model changes are generally small in nature and normally consist of minor changes. Major model changes generally contain significant changes to the model line, which could include a complete re-design of the vehicle. Minor and major model changes by Ford, Chevrolet and Dodge require us to re-design, re-tool and change our production, which could result in us incurring significant costs and production interruptions. Further, during a major model year change, the availability of current models may become difficult to obtain the new major model due to the automotive manufacture production delays and high demand for the new model. For example, during the year ended March 31, 2015, Ford made a major model change to the Ford Mustang and discontinued the 2014 Mustang model in May 2014. As a result, it was difficult to obtain the 2014 chassis starting in September 2014, which was coupled with the shipment of 2015 Mustang models not starting until early December 2015 and the availability of such model was limited due to our sourcing dealers allotment. Any discontinuation of these vehicles, disruption in production or significant major model changes in these platform vehicles could have a material impact on our sales and ultimately on our business. Further, we may experience lower sales volume and difficulties in obtaining current year platform vehicles during the period from when the current year model stops production by the manufacturer to when the new major model year vehicle is released.

 

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If we are unable to adequately reduce the manufacturing costs of high performance cars and supercars or otherwise control the costs associated with operating our business, our business, financial condition, operating results and prospects will suffer.

 

Our production costs for high performance cars have been high due to start-up costs at our factory, manufacturing inefficiencies including low absorption of fixed manufacturing costs, limited ability to build high-quality production tooling used to manufacture parts due to cash constraints, higher logistics costs due to the immaturity of our supply chain, and higher initial prices for component parts during the initial period after the launch and ramp of the business. As we are now producing cars at our steady state production volume, manufacturing costs for certain components used in production have started to fall while others have increased. While we expect further cost reduction efforts undertaken by both us and our suppliers will result in reduction of costs during our fiscal year 2016, there is no guarantee that we will be able to achieve planned cost reductions from our various cost savings initiatives, and the failure to achieve such savings would negatively affect our ability to reach our gross margin and profitability goals. Our planned cost reductions include reducing our production costs by negotiating discounts from our suppliers as we increase our purchasing volume, reducing our engineering and production costs through more effective hiring practices, and reducing our general & administrative expenses by reducing reliance on outside services providers. There is no guarantee that our planned cost reductions will be achieved.

 

We incur significant costs related to procuring the raw materials required to manufacture our high performance cars, assembling vehicles and compensating our personnel. We may also incur substantial costs in increasing the production capability of our high performance cars manufacturing facilities, each of which could potentially face cost overruns. If high performance cars tooling, production equipment and parts are insufficient for use in supercars, perhaps as a result of a lower level of commonality between the two vehicles than we currently anticipate, our costs related to the production of supercars may exceed our expectations.

 

If we are unable to keep our operating costs aligned with the level of revenues we generate, our operating results, business and prospects will be harmed. Furthermore, many of the factors that impact our operating costs are beyond our control. For example, the costs of our raw materials and components could increase due to shortages as global demand for these products increases.

 

Our long-term success will be dependent upon our ability to design and achieve market acceptance of new vehicle models, specifically our high-performance muscle cars and supercars.

 

Our long-term success is dependent on market acceptance of our high performance cars and supercars. There is no guarantee that the general public in the long-term will successfully accept these new vehicles. Additionally, there can be no assurance that we will be able to design future vehicles that will meet the expectations of our customers or that our future models will become commercially viable. To the extent that we are not able to build future high-performance muscle cars and supercars to the expectations created by the early prototype and our announced specifications, customers may cancel their reservations, our future sales could be harmed and investors may lose confidence in us. Furthermore, historically, automobile customers have come to expect new and improved vehicle models to be introduced frequently. In order to meet these expectations, we may in the future be required to introduce on a regular basis new vehicle models as well as enhanced versions of existing vehicle models. As technologies change in the future for automobiles in general and high performance vehicles specifically, we will be expected to upgrade or adapt our vehicles and introduce new models in order to continue to provide vehicles with the latest technology and meet customer expectations. Notwithstanding Saleen’s prior experience in the automotive industry, our management team, as a whole, has limited experience simultaneously designing, testing, manufacturing, upgrading, adapting and selling our vehicles.

 

Our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of your investment.

 

You must consider the risks and difficulties we face as an early stage company with a limited operating history. If we do not successfully address these risks, our business, prospects, operating results and financial condition will be materially and adversely harmed. Saleen Automotive was formed in July 2011. While our volume of vehicles has increased since 2011, our volume of vehicles for fiscal year ended March 31, 2015 declined comparable to fiscal year ended March 31, 2014 with vehicle sales decreasing by $1,185,336 from prior fiscal year ended March 31, 2014. As such, it is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business and we are reliant on the trends and models related to Ford Mustangs, Chevrolet Camaro, Dodge Challengers and Tesla Model S. In the event that actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position could be materially affected.

 

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Increases in costs, disruption of supply or shortage of raw materials could harm our business.

 

We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials. Any such increase or supply interruption could materially negatively impact our business, prospects, financial condition and operating results. We use various raw materials in our business including aluminum, steel, nickel and copper. The prices for these raw materials fluctuate depending on market conditions and global demand for these materials and could adversely affect our business and operating results. Substantial increases in the prices for our raw materials or prices charged to us, such as those charged by our supercharger manufacturers, would increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased vehicle prices. There can be no assurance that we will be able to recoup increasing costs of raw materials by increasing vehicle prices.

 

Our distribution model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating our business, operating results and future prospects difficult.

 

Our distribution model is not common in the automobile industry today, particularly in the United States. We plan to sell our high performance vehicles in company-owned Saleen stores and over the Internet. This model of vehicle distribution is relatively new and unproven, especially in the United States, and subjects us to substantial risk as it requires, in the aggregate, a significant expenditure and provides for slower expansion of our distribution and sales systems than may be possible by utilizing a more traditional dealer franchise system. For example, we will not be able to utilize long-established sales channels developed through a franchise system to increase our sales volume, which may harm our business, prospects, financial condition and operating results. Moreover, we will be competing with companies with well-established distribution channels.

 

We plan to open Saleen stores in the United States initially, and expand internationally as opportunities arise. We have only limited experience distributing and selling our high performance vehicles through our Saleen stores. Our success will depend in large part on our ability to effectively develop our own sales channels and marketing strategies. Implementing our business model is subject to numerous significant challenges, including obtaining permits and approvals from local and state authorities, and we may not be successful in addressing these challenges. The concept and layout of these new stores, which are located in high profile retail centers, is different than what has previously been used in automotive sales. We do not know whether our new store strategy will be successful, if consumers will be willing to purchase vehicles in this manner or if these locations will be deemed to comply with applicable zoning restrictions as well as approval and acceptance from the specific high profile retail centers in which we seek to locate our stores. As a result, we may incur additional costs in order to improve or change our retail strategy.

 

You must consider our business and prospects in light of the risks, uncertainties and difficulties we encounter as we implement our business model. For instance, we will need to persuade customers, suppliers and regulators of the validity and sustainability of our business model. We cannot be certain that we will be able to do so, or to successfully address the risks, uncertainties and difficulties that our business strategy faces. Any failure to successfully address any of the risks, uncertainties and difficulties related to our business model would have a material adverse effect on our business and prospects.

 

We may face regulatory limitations on our ability to sell vehicles directly or over the Internet, which could materially and adversely affect our ability to sell our vehicles.

 

We plan to sell our vehicles from our Saleen stores as well as over the Internet. We may not be able to sell our vehicles through this sales model in each state in the United States as many states have laws that may be interpreted to prohibit Internet sales by manufacturers to residents of the state or to impose other limitations on this sales model, including laws that prohibit manufacturers from selling vehicles directly to consumers without the use of an independent dealership or without a physical presence in the state. For example, some states provide that a manufacturer cannot deliver a vehicle to a resident of their state except through a dealer licensed to do business in such state, which may be interpreted to require us to open a store in that state in order to sell vehicles to their residents. In some states where we have opened a gallery, which is a location where potential customers can view our vehicles but is not a full retail location, it is possible that a state regulator could take the position that activities at our gallery constitute an unlicensed motor vehicle dealership and thereby violates applicable manufacturer-dealer laws. In addition, some states have requirements that service facilities be available with respect to vehicles sold in the state, which may be interpreted to also require that service facilities be available with respect to vehicles sold over the Internet to residents of the state thereby limiting our ability to sell vehicles in states where we do not maintain service facilities.

 

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The foregoing examples of state laws governing the sale of motor vehicles are just some of the regulations we will face as we sell our vehicles. In many states, the application of state motor vehicle laws to our specific sales model is largely untested under state motor vehicle industry laws, particularly with respect to sales over the Internet, and would be determined by a fact-specific analysis of numerous factors, including whether we have a physical presence or employees in the applicable state, whether we advertise or conduct other activities in the applicable state, how the sale transaction is structured, the volume of sales into the state, and whether the state in question prohibits manufacturers from acting as dealers. As a result of the fact-specific and untested nature of these issues, and the fact that applying these laws intended for the traditional automobile distribution model to our sales model allows for some interpretation and discretion by the regulators, the manner in which the applicable authorities will apply their state laws to our distribution model is difficult to predict. Such laws, as well as other laws governing the motor vehicle industry, may subject us to potential inquiries and investigations from state motor vehicle regulators who may question whether our sales model complies with applicable state motor vehicle industry laws and who may require us to change our sales model or may prohibit our ability to sell our vehicles to residents in such states. In addition, decisions by regulators permitting us to sell vehicles may be subject to challenges as to whether such decisions comply with applicable state motor vehicle industry laws.

 

The automotive market is highly competitive, and we may not be successful in competing in this industry. We currently face competition from new and established competitors and expect to face competition from others in the future.

 

The worldwide automotive market is highly competitive today and we expect it will become even more so in the future. With respect to high-performance muscle cars, we face competition from high-end Mustangs, Camaros and Challengers produced by Ford, Chevrolet and Dodge along with other Ford Mustangs, Chevrolet Camaros and Dodge Challengers variants such as Roush, Callaway and Shelby. With respect to our supercars, we face competition from existing and future automobile manufacturers in the extremely competitive premium sedan market, including Audi, BMW, Lexus and Mercedes.

 

Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. In addition, most of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.

 

Furthermore, certain large automobile manufacturers offer financing and leasing options on their vehicles and also have the ability to market vehicles at a substantial discount, provided that the vehicles are financed through their affiliated financing company.

 

The electric vehicle market is highly competitive, and we may not be successful in competing in this industry. We currently face competition from new and established competitors and expect to face competition from others in the future.

 

The worldwide electric vehicle automotive market is highly competitive today and we expect it will become even more so in the future. There are numerous obstacles for electric vehicle manufacturers, including the absence of a well-developed supply chain, capacity constraints, high initial fixed and variable costs, and dependence on large commercial customers who may exert substantial pricing pressures.

 

Tesla and many established and new automobile manufacturers have entered or have announced plans to enter the alternative fuel vehicle market. Major manufacturers, including General Motors, Toyota, Ford and Honda, are each selling hybrid vehicles, and certain of these manufacturers have announced plug-in versions of their hybrid vehicles. We do not have the significant financial and manufacturing resources of these major players in the electric vehicle industry.

 

Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.

 

Furthermore, certain large electric vehicle manufacturers offer financing and leasing options on their vehicles and also have the ability to market vehicles at a substantial discount, provided that the vehicles are financed through their affiliated financing company.

 

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Demand in the automobile industry is highly volatile, which may lead to lower vehicle unit sales and adversely affect our operating results.

 

Volatility of demand in the automobile industry may materially and adversely affect our business, prospects, operating results and financial condition. The markets in which we currently compete and plan to compete in the future have been subject to considerable volatility in demand in recent periods. Demand for automobile sales depends to a large extent on general, economic, political and social conditions in a given market and the introduction of new vehicles and technologies. As a new automobile manufacturer and low volume producer, we have less financial resources than more established automobile manufacturers to withstand changes in the market and disruptions in demand. As our business grows, economic conditions and trends in other countries and regions where we sell our high performance vehicles will impact our business, prospects and operating results as well. Demand for our high performance vehicles may also be affected by factors directly impacting automobile price or the cost of purchasing and operating automobiles such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect our business, prospects, financial condition and operating results. These effects may have a more pronounced impact on our business given our relatively smaller scale and financial resources as compared to many incumbent automobile manufacturers.

 

Difficult economic conditions may negatively affect consumer purchases of luxury items, such as our high performance vehicles.

 

In the past, the deterioration in the global financial markets and continued challenging condition of the macroeconomic environment has negatively impacted consumer spending and we believe has adversely affected the sales of high performance vehicles. The automobile industry in particular was severely impacted by the poor economic conditions and several vehicle manufacturing companies, including General Motors and Chrysler, were forced to file for bankruptcy. Sales of new automobiles generally have dropped during this recessionary period. Sales of high-end and luxury consumer products, such as our high performance vehicles, depend in part on discretionary consumer spending and are even more exposed to adverse changes in general economic conditions. Difficult economic conditions could therefore temporarily reduce the market for vehicles in our price range. Discretionary consumer spending also is affected by other factors, including changes in tax rates and tax credits, interest rates and the availability and terms of consumer credit. Accordingly, any events that have a negative effect on the United States economy or on foreign economies or that negatively affect consumer confidence in the economy, including disruptions in credit and stock markets, and actual or perceived economic slowdowns, may harm our business, prospects, financial condition and operating results.

 

Our financial results may vary significantly from period-to-period due to the seasonality of our business and fluctuations in our operating costs.

 

Our operating results may vary significantly from period-to-period due to many factors, including seasonal factors that may have an effect on the demand for our high performance vehicles. Generally, sales of our high performance cars have fluctuated on a seasonal basis with increased sales during the spring and summer months in our second and third fiscal quarters relative to our fourth and first fiscal quarters. In addition, traditionally from November through mid-January, auto industry production slows due to the holidays and the subsequent temporary shutdown of plants and shipping for several weeks causing delivery of cars to be interrupted which has had an effect on our sales. We note that, in general, automotive sales tend to decline over the winter season, especially in snow driven states, and we anticipate that our sales of high performance vehicles and other models we introduce may have similar seasonality. Also, any unusually severe weather conditions in some markets may impact demand for our vehicles. Our operating results could also suffer if we do not achieve revenue consistent with our expectations for this seasonal demand because many of our expenses are based on anticipated levels of annual revenue.

 

In addition, we expect our period-to-period operating results to vary based on our operating costs which we anticipate will increase significantly in future periods as we, among other things, design, develop and manufacture our supercars, increase the production capacity at our manufacturing facilities to produce our supercars, incur costs for warranty repairs or product recalls, if any, increase our sales and marketing activities, and increase our general and administrative functions to support our growing operations. As a result of these factors, we believe that quarter-to-quarter comparisons of our operating results, especially in the short-term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, our operating results may not meet expectations of equity research analysts or investors. If any of this occurs, the trading price of our Common Stock could fall substantially, either suddenly or over time.

 

If we are unable to establish and maintain confidence in our long-term business prospects among consumers, analysts and within our industry, then our financial condition, operating results, business prospects and stock price may suffer materially.

 

Our vehicles are highly technical products that require maintenance and support. If we were to cease or cut back operations, even years from now, buyers of our vehicles from years earlier might have much more difficulty in maintaining their vehicles and obtaining satisfactory support. As a result, consumers may be less likely to purchase our vehicles now if they are not convinced that our business will succeed or that our operations will continue for many years. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed.

 

17
 

  

Accordingly, in order to build and maintain our business, we must maintain confidence among customers, suppliers, analysts and other parties in our liquidity and long-term business prospects. In contrast to some more established automakers, we believe that, in our case, the task of maintaining such confidence may be particularly complicated by factors such as the following:

 

  our limited operating history;
  our limited revenues and lack of profitability to date;
  unfamiliarity with or uncertainty about the our high performance vehicles and supercars;
  uncertainty about the long-term marketplace acceptance of alternative fuel vehicles generally, or electric vehicles specifically;
  the prospect that we will need ongoing infusions of external capital to fund our planned operations;
  the size of our expansion plans in comparison to our existing capital base and scope and history of operations; and
  the prospect or actual emergence of direct, sustained competitive pressure from more established automakers, which may be more likely if our initial efforts are perceived to be commercially successful.

 

Many of these factors are largely outside our control, and any negative perceptions about our long-term business prospects, even if exaggerated or unfounded, would likely harm our business and make it more difficult to raise additional funds when needed.

 

We may not succeed in maintaining and strengthening the Saleen brand, which would materially and adversely affect customer acceptance of our vehicles and our business, revenues and prospects including our ability to raise capital.

 

Our business and prospects are heavily dependent on our ability to develop, maintain and strengthen the Saleen brand. Any failure to develop, maintain and strengthen our brand may materially and adversely affect our ability to sell our high performance vehicles and future planned supercars. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high quality high performance vehicles and we have very limited experience in these areas.

 

In addition, we expect that our ability to develop, maintain and strengthen the Saleen brand will also depend heavily on the success of our marketing efforts. To date, we have limited experience with marketing activities as we have relied primarily on the Internet, word of mouth and attendance at industry trade shows to promote our brand. To further promote our brand, we may be required to change our marketing practices, which could result in substantially increased advertising expenses, including the need to use traditional media such as television, radio and print. The automobile industry is intensely competitive, and we may not be successful in building, maintaining and strengthening our brand. Many of our current and potential competitors, particularly automobile manufacturers headquartered in Detroit, Japan and the European Union, have greater name recognition, broader customer relationships and substantially greater marketing resources than we do. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.

 

Our plan to develop our network of Saleen stores will require significant cash investments and management resources and may not meet our expectations with respect to additional sales of our high performance vehicles. In addition, we may not be able to open stores in certain states.

 

Our plan to develop our network of Saleen stores will require significant cash investments and management resources and may not meet our expectations with respect to additional sales of our vehicles. This planned U.S. expansion of Saleen stores may not have the desired effect of increasing sales and expanding our brand presence to the degree we are anticipating. Furthermore there can be no assurances that we will be able to construct additional storefronts on the budget or timeline we have established. We will also need to ensure we are in compliance with any regulatory requirements applicable to the sale of our vehicles in those jurisdictions, which could take considerable time and expense. If we experience any delays in expanding our network of Saleen stores, this could lead to a decrease in sales of our vehicles and could negatively impact our business, prospects, financial condition and operating results. We plan to open Saleen stores with a goal of establishing approximately 12 U.S. stores within the next several years. However, we may not be able to expand our network at such rate and our planned expansion of our network of Saleen stores will require significant cash investment and management resources, as well as efficiency in the execution of establishing these storefronts and in hiring and training the necessary employees to effectively sell our vehicles. Such additional investments may not be available to us or may not be available on terms reasonably acceptable to us.

 

Furthermore, certain states and foreign jurisdictions may have permit requirements, franchise dealer laws or similar laws or regulations that may preclude or restrict our ability to open stores or sell vehicles out of such states and jurisdictions. Any such prohibition or restriction may lead to decreased sales in such jurisdictions, which could harm our business, prospects and operating results. See Risk Factor “We may face regulatory limitations on our ability to sell vehicles directly or over the Internet which could materially and adversely affect our ability to sell our vehicles.”

 

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If we fail to manage future growth effectively as we rapidly grow our company, we may not be able to produce, market, sell and service our vehicles successfully.

 

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We continue to expand our operations significantly, and additional significant expansion will be required, especially in connection with the expansion of our network of Saleen stores. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:

 

  finding and training new personnel;
  forecasting production and revenue;
  controlling expenses and investments in anticipation of expanded operations;
  establishing or expanding design, manufacturing, sales and service facilities;
  implementing and enhancing manufacturing and administrative infrastructure, systems and processes;
  addressing new markets; and
  expanding international operations.

 

We intend to continue to hire a significant number of additional personnel, including manufacturing personnel, design personnel, engineers and service technicians for our high performance vehicles. Because our high performance vehicles are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in high performance vehicles may not be available to hire, and we will need to expend significant time and expense training the employees we do hire. Competition for individuals with experience designing, manufacturing and servicing high performance vehicles are intense, and we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future. The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business and prospects.

 

If we are unable to attract and/or retain key employees and hire qualified management, technical vehicle engineering, and manufacturing personnel, our ability to compete could be harmed and our stock price may decline.

 

The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our vehicles and services, and negatively impact our business, prospects and operating results as well as cause our stock price to decline. In particular, we are highly dependent on the services of Steve Saleen, our Chief Executive Officer and Chairman of our Board of Directors. There can be no assurance that we will be able to successfully attract and retain senior leadership necessary to grow our business. Our future success depends upon our ability to attract and retain our executive officers and other key technology, sales, marketing, engineering, manufacturing and support personnel and any failure to do so could adversely impact our business, prospects, financial condition and operating results. We have in the past and may in the future experience difficulty in retaining members of our senior management team as well as technical, vehicle engineering and manufacturing personnel due to various factors, such as a very competitive labor market for talented individuals with automotive experience. In addition, we do not have “key person” life insurance policies covering any of our officers or other key employees. Currently in Southern California, there is increasing competition for talented individuals with the specialized knowledge of high performance vehicles, software engineers and other skilled employees and this competition affects both our ability to retain key employees and hire new ones. Our continued success depends upon our continued ability to hire and retain employees. Additionally, we compete with many mature and prosperous companies in Southern California that have far greater financial resources than we do and thus can offer current or perspective employees more lucrative incentive packages than we can. Any difficulties in retaining current employees or recruiting new ones would have an adverse effect on our performance.

 

Many members of our management team are new to the Company or to the automobile industry, and execution of our business plan and development strategy could be seriously harmed if integration of our management team into our company is not successful.

 

Our business could be seriously harmed if integration of our management team into our company is not successful. We expect that it will take time for our new management team to integrate into our company and it is too early to predict whether this integration will be successful. We have recently experienced significant changes in our management team and expect to continue to experience significant growth in our management team. Our senior management team has only limited experience working together as a group. This lack of long-term experience working together may impact the team’s ability to collectively quickly and efficiently respond to problems and effectively manage our business. Although we are taking steps to add senior management personnel that have significant automotive experience, some members of our current senior management team have limited experience in the automobile industry.

 

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We are subject to various environmental and safety laws and regulations that could impose substantial costs upon us and negatively impact our ability to operate our manufacturing facilities.

 

As an automobile manufacturer, we and our operations, both in the United States and abroad, are subject to national, state, provincial and/or local environmental, health and safety laws and regulations, including laws relating to the use, handling, storage, disposal and human exposure to hazardous materials. Environmental and health and safety laws and regulations can be complex, and we expect that our business and operations will be affected by future amendments to such laws or other new environmental and health and safety laws which may require us to change our operations, potentially resulting in a material adverse effect on our business. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury and fines and penalties. Capital and operating expenses needed to comply with environmental, health and safety laws and regulations can be significant, and violations may result in substantial fines and penalties, third party damages, suspension of production or a cessation of our operations.

 

Contamination at properties formerly owned or operated by us, as well as at properties we will own and operate, and properties to which hazardous substances were sent by us, may result in liability for us under environmental laws and regulations, including, but not limited to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which can impose liability for the full amount of remediation-related costs without regard to fault, for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future, could have a material adverse effect on our financial condition or operating results. We may face unexpected delays in obtaining the necessary permits and approvals required by environmental laws in connection with our manufacturing facilities that could require significant time and financial resources and negatively impact our ability to operate these facilities, which would adversely impact our business prospects and operating results.

 

Our business may be adversely affected by union activities.

 

Although none of our employees are currently represented by a labor union, it is common throughout the automobile industry generally for many employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. Our employees may join or seek recognition to form a labor union, or we may be required to become a union signatory. Additionally, disgruntled ex-employees may actively encourage unionization of our employees. We are also directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. If a work stoppage occurs, it could delay the manufacture and sale of our high performance vehicles and have a material adverse effect on our business, prospects, operating results or financial condition. The mere fact that our labor force could be unionized may harm our reputation in the eyes of some investors and thereby negatively affect our stock price. Additionally, the unionization of our labor force could increase our employee costs and decrease our profitability, both of which could adversely affect our business, prospects, financial condition and results of operations.

 

Changes in employment laws or regulation could harm our performance.

 

Various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws include minimum wage requirements, overtime pay, healthcare reform and the implementation of the Patient Protection and Affordable Care Act, and unemployment tax rates. A number of factors could adversely affect our operating results, including additional government-imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits, mandated training for employees, increased tax reporting and tax payment requirements, changing regulations from the National Labor Relations Board and increased employee litigation including claims relating to the Fair Labor Standards Act.

 

We currently do not maintain workers’ compensation or general liability insurance.

 

Due to our cash constraints, we currently do no maintain insurance ordinarily customary for businesses our size and type such as workers’ compensation, garage and general liability insurance. As such, we may incur losses against us such as employee worker accidents, losses due to natural disasters or other business risks for which we currently are not insured. Such damages could have a material adverse effect on our business and results of operations. While we do anticipate in the future purchasing adequate insurance against our potential risks, there can be no assurance that we will be able to obtain, afford or qualify for insurance to address such potential risks or if such insurance will adequately cover any potential matters encountered.

 

20
 

 

We are subject to substantial regulation, which is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and operating results.

 

Our high performance vehicles, and the sale of motor vehicles in general, are subject to substantial regulation under international, federal, state and local laws. We have incurred, and expect to incur in the future, significant costs in complying with these regulations. Regulations related to the automobile industry are currently evolving and we face risks associated with changes to these regulations such as:

 

  the amendment or rescission of the federal law and regulations mandating increased fuel economy in the United States, referred to as the Corporate Average Fuel Economy (CAFE) standards, could reduce new business opportunities for our development activities;
  the amendment or rescission of federal greenhouse gas tailpipe emission regulations administered by the EPA under the authority of the Clean Air Act could reduce new business opportunities for our development activities;
  increased sensitivity by regulators to the needs of established automobile manufacturers with large employment bases, high fixed costs and business models based on the internal combustion engine could lead them to pass regulations that could reduce the compliance costs of such established manufacturers or mitigate the effects of government efforts to promote alternative fuel vehicles; and
  changes to regulations governing the export of our products could increase our costs incurred to deliver products outside the United States or force us to charge a higher price for our vehicles in such jurisdictions.

 

To the extent the laws change, some or all of our vehicles may not comply with applicable international, federal, state or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition and operating results will be adversely affected.

 

We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

 

We may become subject to product liability claims, which could harm our business, prospects, operating results and financial condition. The automobile industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected or malfunction resulting in personal injury or death. Our risks in this area are particularly pronounced given the limited number of vehicles delivered to date and limited field experience of those vehicles. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our vehicles and business and inhibit or prevent commercialization of other future vehicle candidates, which would have a material adverse effect on our brand, business, prospects and operating results. We currently do not maintain product liability or other related insurance and as such, any lawsuit seeking significant monetary damages may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make a claim under our policy.

 

We may be compelled to undertake product recalls, which could adversely affect our brand image and financial performance.

 

Any product recall in the future may result in adverse publicity, damage our brand and adversely affect our business, prospects, operating results and financial condition. In the future, we may at various times, voluntarily or involuntarily, initiate a recall if any of our vehicles prove to be defective or noncompliant with applicable federal motor vehicle safety standards. Such recalls, voluntary or involuntary, involve significant expense and diversion of management attention and other resources, which could adversely affect our brand image in our target markets and could adversely affect our business, prospects, financial condition and results of operations.

 

Our current and future warranty reserves may be insufficient to cover future warranty claims, which could adversely affect our financial performance.

 

If our warranty reserves are inadequate to cover future warranty claims on our vehicles, our business, prospects, financial condition and operating results could be materially and adversely affected. We provide a three-year or 36,000 miles New Vehicle Limited Warranty with every Saleen 302 Mustang, Saleen 570 Challenger, Saleen 620 Camaro and Saleen GTX high performance vehicle. The vehicle limited warranty applies to installed parts and/or assemblies in new high performance vehicles. All of the unaltered parts are covered under the original full warranty of the OEM manufacturer of the base vehicles (Ford, Chevrolet, Dodge, and Tesla). Although unaltered parts are covered by the original full warranty of the OEM manufacturer, such OEM manufacturers could deny any warranty claims due to our work, which could adversely impact us if we cannot successfully overturn such claims.

 

We have limited operating experience with our vehicles, and therefore little experience with warranty claims for these vehicles or with estimating warranty reserves. Our warranty claims to date have been negligible and we currently do not have reserves recorded for warranty claims.

 

We could in the future become subject to a significant and unexpected warranty expense. There can be no assurances that our currently existing or future warranty reserves will be sufficient to cover all claims or that our limited experience with warranty claims will adequately address the needs of our customers to their satisfaction.

 

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We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.

 

Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop or sell our vehicles or components, which could make it more difficult for us to operate our business. From time to time, we may receive inquiries from holders of patents or trademarks inquiring whether we infringe their proprietary rights. Companies holding patents or other intellectual property rights relating to our base vehicles may bring suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses. In addition, if we are determined to have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following:

 

  cease selling, incorporating or using vehicles that incorporate the challenged intellectual property;
  pay substantial damages;
  obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or
  redesign our vehicles.

 

In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology, our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources and management attention.

 

We also license patents and other intellectual property from third parties, and we may face claims that our use of this in-licensed technology infringes the rights of others. In that case, we may seek indemnification from our licensors under our license contracts with them. However, our rights to indemnification may be unavailable or insufficient to cover our costs and losses, depending on our use of the technology, whether we choose to retain control over conduct of the litigation, and other factors.

 

Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.

 

Any failure to protect our proprietary rights adequately could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects, financial condition and operating results. Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents, patent applications, trade secrets, including know-how, employee and third party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. We have also received from third parties patent licenses related to manufacturing our vehicles.

 

The protection provided by the patent laws is and will be important to our future opportunities. However, such patents and agreements and various other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:

 

  our pending patent applications may not result in the issuance of patents;
  our patents, if issued, may not be broad enough to protect our proprietary rights;
  the patents we have been granted may be challenged, invalidated or circumvented because of the pre-existence of similar patented or unpatented intellectual property rights or for other reasons;
  the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement impracticable;
  current and future competitors may independently develop similar technology, duplicate our vehicles or design new vehicles in a way that circumvents our patents; and
  our in-licensed patents may be invalidated or the holders of these patents may seek to breach our license arrangements.

 

Existing trademark and trade secret laws and confidentiality agreements afford only limited protection. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States, and policing the unauthorized use of our intellectual property is difficult.

 

22
 

  

Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.

 

We cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions, nor can we be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will result in issued foreign patents. Furthermore, even if these patent applications do result in issued patents, some foreign countries provide significantly less effective patent enforcement than in the United States.

 

The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the near future will afford protection against competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects, financial condition and operating results.

 

Intellectual property litigation would be costly and could adversely impact our business operations, and our current cash constraints may prevent us from taking action.

 

We may have to take legal action in the future to protect our technology, trade name or to assert our intellectual property rights against others. Any legal action could be costly and time consuming and could require significant funds that may not be available to us, and no assurances can be made that any action will be successful. The invalidation of any intellectual property rights that we may own, or an unsuccessful outcome in lawsuits to protect our technology, could have a material adverse affect on our business, financial position, or results of operations.

 

Intellectual property litigation can be expensive, complex, and protracted. Because of such complexity, and the vagaries of the jury system, intellectual property litigation may result in significant damage awards and/or injunctions that could prevent the manufacture, use, distribution, importation, exportation, and sale of products or require us to pay significant royalties in order to continue to manufacture, use, distribute, import, export, or sell products. Furthermore, in the event that our right to license or to market our technology is successfully challenged, and if we fail to obtain a required license or are unable to design around a patent held by a third party, our business, financial condition, or results of operations could be materially adversely affected.

 

Our facilities or operations could be damaged or adversely affected as a result of disasters or unpredictable events.

 

Our corporate headquarters and factory in Corona are located in southern California, a region known for seismic activity. If major disasters such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics or other events occur, or our information system or communications network breaks down or operates improperly, our headquarters and production facilities may be seriously damaged, or we may have to stop or delay production and shipment of our products. In addition, our lease for our Corona facility permits the landlord to terminate the lease following a casualty event if the needed repairs are in excess of certain thresholds and we do not agree to pay for any uninsured amounts. We may incur expenses relating to such damages, which could have a material adverse impact on our business, operating results and financial condition.

 

If our suppliers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity.

 

Our core values, which include developing quality high performance vehicles while operating with integrity, are an important component of our brand image, which makes our reputation particularly sensitive to allegations of unethical business practices. We do not control our independent suppliers or their business practices. Accordingly, we cannot guarantee their compliance with ethical business practices, such as environmental responsibility, fair wage practices, appropriate sourcing of raw materials, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.

 

Violation of labor or other laws by our suppliers or the divergence of an independent supplier’s labor or other practices from those generally accepted as ethical in the United States or other markets in which we do business could also attract negative publicity for us and our brand. This could diminish the value of our brand image and reduce demand for our high performance vehicles if, as a result of such violation, we were to attract negative publicity. If we, or other manufacturers in our industry, encounter similar problems in the future, it could harm our brand image, business, prospects, financial condition and operating results.

 

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We may not be able to effectively manage our growth.

 

Our strategy envisions growing our business. We plan to expand our technology, sales, administrative and marketing organizations. Any growth in or expansion of our business is likely to continue to place a strain on our management and administrative resources, infrastructure and systems. As with other growing businesses, we expect that we will need to further refine and expand our business development capabilities, our systems and processes and our access to financing sources. We also will need to hire, train, supervise and manage new employees. These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. We cannot assure you that we will be able to:

 

  expand our systems effectively or efficiently or in a timely manner;
  allocate our human resources optimally;
  meet our capital needs;
  identify and hire qualified employees or retain valued employees; or
  incorporate effectively the components of any business or product line that we may acquire in our effort to achieve growth.

 

Our inability or failure to manage our growth and expansion effectively could harm our business and materially and adversely affect our operating results and financial condition.

 

We will be required to attract and retain top quality talent to compete in the marketplace.

 

We believe our future growth and success will depend in part on our abilities to attract and retain highly skilled managerial, product development, sales and marketing, and finance personnel. There can be no assurance of success in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability to increase sales of existing products and services and launch new product and service offerings.

 

Our forecasts are highly speculative in nature and we cannot predict results in a development stage company with a high degree of accuracy.

 

Any financial projections, especially those based on ventures with minimal operating history, are inherently subject to a high degree of uncertainty, and their ultimate achievement depends on the timing and occurrence of a complex series of future events, both internal and external to the enterprise. There can be no assurance that potential revenues or expenses we project will, in fact, be received or incurred.

 

We will be subject to evolving and expensive corporate governance regulations and requirements. Our failure to adequately adhere to these requirements or the failure or circumvention of our controls and procedures could seriously harm our business.

 

As a publicly traded company, we are subject to various federal, state and other rules and regulations, including applicable requirements of the Sarbanes-Oxley Act of 2002. Compliance with these evolving regulations is costly and requires a significant diversion of management time and attention, particularly with regard to our disclosure controls and procedures and our internal control over financial reporting. Our internal controls and procedures may not be able to prevent errors or fraud in the future. Faulty judgments, simple errors or mistakes, or the failure of our personnel to adhere to established controls and procedures, may make it difficult for us to ensure that the objectives of the control system are met. A failure of our controls and procedures to detect other than inconsequential errors or fraud could seriously harm our business and results of operations.

 

We are obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our stock.

 

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting.

 

Complying with Section 404 requires a rigorous compliance program as well as adequate time and resources. As a result of developing, improving and expanding our core information technology systems as well as implementing new systems to support our sales, engineering, supply chain and manufacturing activities, all of which require significant management time and support, we may not be able to complete our internal control evaluation, testing and any required remediation in a timely fashion. Additionally, if we identify one or more material weaknesses in our internal control over financial reporting, we may be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our stock.

 

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Our limited senior management team size may hamper our ability to effectively manage a publicly traded company while developing our products and harm our business.

 

Our management team has experience in the management of publicly traded companies and complying with federal securities laws, including compliance with recently adopted disclosure requirements on a timely basis. They realize it will take significant resources to meet these requirements while simultaneously working on licensing, developing and protecting our products and intellectual property. Our management will be required to design and implement appropriate programs and policies in responding to increased legal, regulatory compliance and reporting requirements, and any failure to do so could lead to the imposition of fines and penalties and harm our business.

 

The global economy may continue to experience soft growth over the next several years, reducing demand for our products.

 

The global economy continues to experience difficulty in its recovery from the 2008 global recession. In light of the current global economic environment, there can be no guarantees that the United States, or its trading partners abroad, with whom it is largely interdependent, will experience a return to pre-recessionary growth and economic performance. Continued lackluster growth and economic figures would serve to further quell economic demand, and subsequently, growth of the automotive market, reducing demand for our products.

 

Risks Related to our Common Stock

 

We currently have secured and unsecured convertible notes payable with conversion rates that vary depending on the market price of our stock, which have and may continue to have a significant dilutive impact to stockholders. The conversion of debt has adversely impacted the market price of our stock, which may continue.

 

As of March 31, 2015, we had outstanding 3% secured and 7% unsecured convertible notes in the amount of $2,617,160 and $2,346,295, respectively, including accrued interest, with conversion prices that are based on a discount to the market price of our stock, but in no case lower than $0.02 and $0.03, respectively. As of March 31, 2015, these notes were convertible into 209,069,936 shares of our Common Stock.

 

As of March 31, 2015, we had outstanding unsecured convertible notes in the amount of $641,435, including accrued interest, convertible into our Common Stock at prices per share ranging from discounts between 42% to 38% of our Common Stock trading market price during a certain time period, subject to conversion floor prices ranging from $0.001 to $0.00005 per share. As of March 31, 2015, the notes were convertible into approximately 106,214,457 shares of our Common Stock. From March 31, 2015 to the filing of date of this Form 10-K, $285,920 of principal and $16,594 of accrued and unpaid interest had been converted into 355,303,951 shares of our Common Stock. Based on the closing price of our stock as of July 13, 2015, the notes were convertible into approximately 314,000,000 shares of our Common Stock.

 

The note agreements related to convertible notes issued during September 2014 to December 2014 require us to maintain a reserve of Common Stock, as determined based on a formula stated in the note agreements, which, upon request by the note holder, can be adjusted based on the formula and the then share price of our Common Stock as of the date of request. The note holder can convert up to the number of the shares then reserved for conversion of their related note. As of March 31, 2015, we were in compliance with the Common Stock reserve provisions; however, as of the date of this filing of Form 10-K, we are in default of such reserve requirements due to insufficient availability of authorized shares to fulfill the note holders’ reserve requests. Under the provisions of default, the holders of such notes could demand that the amount we owe be increased by amounts ranging from 135% to 150% depending on the event of default and may demand that we pay such amount in cash. In addition, the interest rates could increase to between 20% and 25% per annum from the date due until cured or paid.

 

Our Common Stock is currently quoted on the OTC Bulletin Board (OTCBB). As such, our securities may be less liquid, be thinly traded, receive less coverage by security analysts, market makers and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange. Our stock price is likely to be highly volatile.

 

Although prices for shares of our Common Stock are quoted on the OTCBB, no assurance can be given that an active public trading market will develop or, if developed, that it will be sustained. The OTCBB is generally regarded as a less efficient and less prestigious trading market than other national markets. There is no assurance if or when our Common Stock will be quoted on another more prestigious exchange or market. The market price of our Common Stock is likely to be highly volatile because for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of stock to have a significant impact on the stock price.

 

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Because our Common Stock is a “penny stock,” trading therein will be subject to regulatory restrictions.

 

Our Common Stock is currently, and in the near future will likely continue to be, considered a “penny stock.” The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure and other requirements may adversely affect the trading activity in the secondary market for our Common Stock.

 

We have not paid dividends in the past and, except for the dividend paid to our existing stockholders at the closing of the Merger, do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our Common Stock.

 

While we declared a dividend to holders of record of our Common Stock as of May 23, 2013, we do not anticipate paying dividends in the foreseeable future and currently intend to retain any future earnings to support the development and expansion of our business. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including without limitation, the our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent the stock price appreciates, which may never occur. In addition, stockholders must generally rely on sales of the shares they own after price appreciation as the only way to realize their investment, and if the price of our Common Stock does not appreciate, then there will be no return on investment.

 

Our officers, directors and principal stockholders can exert significant influence over our business and may make decisions that are not in the best interests of all stockholders.

 

As of March 31, 2015, our officers, directors and principal stockholders (greater than 5% stockholders) collectively owned approximately 47% of our fully-diluted Common Stock. In addition, Saleen owns approximately 47% of our fully-diluted Common Stock. Our directors will be determined pursuant to the Voting Agreement entered into by Saleen and the purchasers of our 3% Senior Secured Convertible Notes. Pursuant to the Voting Agreement, the parties signatory thereto are obligated to vote to set the number of directors at five, and to vote for three directors designated by Saleen (currently Steve Saleen and Jeffrey Kraws, with one vacancy), one director designated by the holders of a majority of the outstanding shares held by purchasers of our 3% Senior Secured Convertible Notes (currently vacant) and one director designated jointly by the holders of a majority of the outstanding shares held by Saleen and by the holders of a majority of the outstanding shares held by purchasers of our 3% Senior Secured Convertible Notes (currently Joe Amato).

 

As a result of the Voting Agreement, these stockholders will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our Common Stock could have the effect of delaying or preventing a change of control of our company or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of our company. This, in turn, could have a negative effect on the market price of our Common Stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of our Common Stock. Moreover, the interests of this concentration of ownership may not always coincide with the combined company’s interests or the interests of other stockholders, and accordingly, they could cause the combined company to enter into transactions or agreements that it would not otherwise consider.

 

Anti-takeover provisions may limit the ability of another party to acquire our company, which could cause our stock price to decline.

 

Our articles of incorporation, as amended, bylaws and Nevada law contain provisions that could discourage, delay or prevent a third party from acquiring our company, even if doing so may be beneficial to our stockholders. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our Common Stock.

 

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The requirements of being a public company, including compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, and the requirements of the Sarbanes-Oxley Act of 2002, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

 

As a public company, we need to comply with laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of 2002, related regulations of the SEC, and requirements of the principal trading market upon which our Common Stock may trade, with which we are not required to comply as a private company. As a result, we will incur significant legal, accounting and other expenses that a private company would not incur. Complying with these statutes, regulations and requirements will occupy a significant amount of the time of our board of directors and management, will require us to have additional finance and accounting staff, may make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on the audit committee, and may make some activities more difficult, time consuming and costly. We will need to:

 

  institute a more comprehensive compliance function;
  establish new internal policies, such as those relating to disclosure controls and procedures and insider trading;
  design, establish, evaluate and maintain a system of internal control over financial reporting in compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
  prepare and distribute periodic reports in compliance with its obligations under the federal securities laws including the Securities Exchange Act of 1934, as amended (the “Exchange Act”);
  involve and retain to a greater degree outside counsel and accountants in the above activities; and
  establish an investor relations function.

 

If we are unable to accomplish these objectives in a timely and effective fashion for our business, our ability to comply with financial reporting requirements and other rules that apply to reporting companies could be impaired. If our finance and accounting personnel insufficiently support our business in fulfilling these public-company compliance obligations, or if we are unable to hire adequate finance and accounting personnel, we could face significant legal liability, which could have a material adverse effect on our financial condition and results of operations. Furthermore, if we identify any issues in complying with those requirements (for example, if our company or the independent registered public accountants identified a material weakness or significant deficiency in our company’s internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect, our reputation or investor perceptions of our company.

 

We are an emerging growth company within the meaning of the Securities Act, and as a consequence of taking advantage of certain exemptions from reporting requirements that are available to emerging growth companies, our financial statements may not be comparable to companies that comply with public company effective dates.

 

We are an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to Section 107 of the Jumpstart Our Business Startups Act, we may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, meaning that we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen to take advantage of the extended transition period for complying with new or revised accounting standards applicable to public companies to delay adoption of such standards until such standards are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our principal corporate office and production facility is located at 2735 Wardlow Road, Corona, California 92882 and our design, engineering and paint facility is located at 2755 Wardlow Road, Corona, California 92882. We operate out of leased facilities comprised of a two building campus that constitutes approximately four acres of industrial and office space. Our telephone number is (714) 400-2121. We believe our facilities are adequate to meet our current and near-term needs.

 

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ITEM 3. LEGAL PROCEEDINGS

 

We are involved in certain legal proceedings that arise from time to time in the ordinary course of our business. We are currently a party to several legal proceedings related to claims for payment that are currently accrued for in our financial statements as accounts or notes payable. Except for income tax contingencies, we record accruals for contingencies to the extent that our 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 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. We filed a cross complaint against MSY Trading, Inc. for breach of warranty, negligence, and indemnification. On January 10, 2014, we settled this claim by agreeing to pay $112,500 over a period of 18 months of which we paid $45,500 through August 2014. Subsequent to this date we have defaulted on payments. On October 30, 2014, a judgment was entered against SSC in the amount of $68,950, which we have accrued for in accounts payable.

 

In December 2014, Saleen Automotive, Inc. (formerly Saleen Electric Automotive, Inc.), our wholly-owned subsidiary, received a complaint from Green Global Automotive B.V. (“GGA”) alleging causes of action for breach of contract and breach of the covenant of good faith and fair dealing, related to a European Distribution Agreement entered into in December 2011 between GGA and Saleen Automotive. The suit seeks contract and economic damages of $50,000 along with compensatory damages, restoration, lost profits and attorneys’ fees. We are currently evaluating the merits of this case, if any, and are working to ascertain the impact on our financial statements, if any.

 

In December 2014, we received a complaint from Ford of Escondido for 1) claim and delivery of personal property, 2) money due on a contract, and 3) common count. Home Heller Ford, which was merged into Ford of Escondido, is a party to a supply agreement with us entered into in May 2013. Specifically, Ford of Escondido seeks payment of seven (7) Ford Mustangs for a total of $222,871 plus interest and attorneys’ fees, less any amounts to be credited to us pursuant to proceeds of sale. As of March 31, 2015, we have included in accounts payable the amount owed for vehicles, which we believe are owed to Ford of Escondido. As such, we believe Ford of Escondido’s claims are without merit and have responded to the Complaint including claims that Ford of Escondido breached its supply agreement with us. There has been no response received from Ford of Escondido to our position and the outcome is uncertain; however, we believe this matter will not have a material impact, if any, on our financial statements.

 

In February 2014, SSC received a Complaint from Citizens Business Bank (the “Bank”) alleging, among other matters, breach of contract due to non-timely payment of November and December 2013 principal amounts owed, which we paid in December 31, 2013, and the occurrence of a change in control as a result of the Merger. In April 2014, the Bank agreed to dismiss the suit in exchange for payment of $124,000 that was applied towards principal and unpaid fees along with advance loan principal and interest for May, June and July 2014, and the agreement to pay the remaining recorded balance due of $443,000 to the Bank in August 2014. From August 2014 to March 31, 2015, in exchange for payments totaling $90,000, the Bank agreed to extend this arrangement through various dates with the last date being March 2015. We did not pay the then outstanding principal and interest in March 2015 and the Bank has not agreed to an additional extension in connection with the default due to the Bank’s belief that a change in control occurred. On May 14, 2015, we were notified of a lawsuit filed by the Bank in the Superior Court of the State of California, County of Riverside, alleging breach of the Loan Agreement with the Bank (“Loan Agreement”), breach of a commercial guaranty by Steve Saleen and indebtedness for principal and interest of at least $369,302, and seeking appointment, which has not been granted by the court as of the date of this filing, of a limited purpose receiver and a temporary restraining order enjoining us from transferring the SSC collateral securing loan. The main complaint by the Bank stems from our reverse merger that occurred in June 2013 whereby the Bank deemed this event to constitute a change in control, as defined in the loan agreement. Although we currently believe that resolving claims against us, individually or in aggregate, will not have a material adverse impact on the our financial statements, these matters are subject to inherent uncertainties and our views of these matters may change in the future.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Common Stock

 

Our Common Stock is currently quoted on the OTCBB. Our Common Stock has been quoted on the OTCBB since August 9, 2012 under the symbol “WSTY.” On July 5, 2013, the trading symbol for our Common Stock changed to “SLNN.” Historical closing prices for shares of our Common Stock are as follows:

 

Quarter Ended  June 30, 2014   September 30, 2014   December 31, 2014   March 31, 2015 
Fiscal Year 2015                
High  $0.23   $0.15   $0.06   $0.03 
Low  $0.13   $0.06   $0.03   $0.01 

 

Stockholders of Record

 

As of July 13, 2015, an aggregate of 460,556,796 shares of our Common Stock were issued and outstanding and were owned by 264 stockholders of record.

 

Dividends

 

On May 23, 2013, our board of directors declared, for stockholders of record of our Common Stock as of May 23, 2013, a per share dividend of $0.035 in cash, subject to (a) the closing of the Merger, (b) our compliance with the applicable requirements of the Nevada Revised Statutes and (c) our notification to the Financial Industry Regulatory Authority (“FINRA”) of the dividend and FINRA’s confirmation that it has received the necessary documentation to process the dividend. On June 26, 2013, we satisfied all of the conditions to payment of the dividend and paid the dividend on June 27, 2013.

 

Other than the aforementioned dividend, we do not anticipate paying dividends in the foreseeable future and currently intend to retain any future earnings to support the development and expansion of our business. The declaration and payment of dividends is subject to the discretion of our board of directors and to certain limitations imposed under Nevada statutes. The timing, amount and form of dividends, if any, will depend upon, among other things, our results of operation, financial condition, cash requirements, and other factors deemed relevant by our board of directors.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

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ITEM 7. MANAGEMENTS’ 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 our company for the years ended March 31, 2015 and 2014. You should read this discussion together with the consolidated financial statements, related notes and other financial information included in this Annual Report. 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, including those discussed under Part I, Item 1A—“Risk Factors” and elsewhere in this Annual Report, and are based upon judgments concerning various factors that are beyond our control. These risks could cause our actual results to differ materially from any future performance suggested below.

 

We are an emerging growth company as defined in Section 2(a)(19) of the Securities Act. Pursuant to Section 107 of the Jumpstart Our Business Startups Act, we may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, meaning that we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen to take advantage of the extended transition period for complying with new or revised accounting standards applicable to public companies to delay adoption of such standards until such standards are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

 

General Overview

 

We design, develop, manufacture and sell high performance cars built from base chassis’ of Ford Mustangs, Chevrolet Camaros, Dodge Challengers and Tesla Model S vehicles. We are a low volume specialist vehicle design, engineering and manufacturing company focusing on the mass customization (the process of customizing automobiles that are mass produced by manufacturers (Ford, Chevrolet, Dodge and Tesla)) of OEM American sports and electric vehicles and the production of high performance USA-engineered sports cars. Saleen-branded products include a line of high performance and upgraded muscle and electric cars, automotive aftermarket specialty parts and lifestyle accessories. A high performance car is an automobile that is designed and constructed specifically for speed. The design and construction of a high performance car involves not only providing a capable power train but also providing the handling and braking systems to support it. Muscle cars are any of a group of American-made 2-door sports coupes with powerful engines designed for high performance driving. We are also planning to develop an American supercar. The term supercar describes an expensive (approximately $250,000 or more), limited production, fast or powerful (capable of reaching speeds in excess of 180 miles per hour) sports car with a centrally located engine.

 

Our customers worldwide include muscle and high performance car enthusiasts, collectors, automotive dealers, exotic car retail dealers, television and motion picture production, and consumers in the luxury supercar and motorsports market. We plan to develop a network of company-owned branded stores to complement our existing retail dealer locations.

 

We utilize automobile manufacturers Ford, Chevrolet, Dodge and Tesla platform vehicles for our high performance and electric vehicle production. All aftermarket parts and accessory products are engineered and manufactured exclusively by us. Our main retail outlets for our products are authorized Ford, Chevrolet, Dodge and exotic car dealers.

 

We plan to operate as a global high performance automotive brand and expand our production, sales and marketing operations extensively within the markets of the USA and into multiple international markets. In March 2014, we entered into an agreement to distribute the full collection of Saleen automobiles in China. We also plan to open our own retail outlets, market our expertise in specialist engineering and design services to third party clients, and introduce our next generation American supercar.

 

Merger

 

On May 23, 2013, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with Saleen California Merger Corporation, our wholly-owned subsidiary, Saleen Florida Merger Corporation, our wholly-owned subsidiary, Saleen Automotive, Inc. (“Saleen Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive, the “Saleen Entities”) and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”). The closing (the “Closing”) of the transactions (the “Merger”) occurred on June 26, 2013. At the Closing (a) Saleen California Merger Corporation was merged with and into SMS with SMS surviving as one of our wholly-owned subsidiaries; (b) Saleen Florida Merger Corporation was merged with and into Saleen Automotive with Saleen Automotive surviving as one of our wholly-owned subsidiaries; (c) holders of the then outstanding capital stock of Saleen Automotive received an aggregate of 554,057 shares of our Super Voting Preferred Stock, which was subsequently converted into 69,257,125 shares of our Common Stock and holders of the outstanding capital stock of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of our Common Stock (on a fully-diluted basis) was owned, collectively, by Saleen (including 341,943 shares of our Super Voting Preferred Stock, which was subsequently converted into 42,742,875 shares of our Common Stock, issued to Saleen pursuant to an Assignment and License Agreement) and the former holders of the outstanding capital stock of Saleen Automotive. As a result of the Merger we are solely engaged in the Saleen Entities’ business, Saleen Automotive’s officers became our officers and Saleen Automotive’s three directors became members of our five-member board of directors. On June 17, 2013, we consummated a merger with WSTY Subsidiary Corporation, our wholly-owned subsidiary, pursuant to which we amended our articles of incorporation to change our name to Saleen Automotive, Inc. In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars. In January 2014, we effected an increase in the number of our common shares authorized to 500,000,000 and all the remaining shares of Super Voting Preferred Stock were converted into our Common Stock and the Super Voting Preferred Stock ceased to be a designated series of our preferred stock.

 

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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 consolidated financial statements are prepared as if we will continue as a going concern. Accordingly, the 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

 

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosures. On an ongoing basis, we evaluate our estimates, including, but not limited to, those related to inventories, income taxes, accounts receivable allowance, fair value derivatives, and reserve for warranty claims. We base our estimates on historical experience, performance metrics and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results will differ from these estimates under different assumptions or conditions. We apply the following critical accounting policies in the preparation of our consolidated financial statements:

 

Inventories

 

Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventories consist primarily of parts for both resale and production of high performance vehicles. We will typically buy the base automobile chassis from dealers and then modify the vehicle as ordered, using our developed parts. Other than parts for resale, we typically have no finished goods inventory, as we build to order.

 

Intangible and Long-Lived Assets

 

In accordance with ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), we evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. We had no such asset impairments at March 31, 2015 or 2014. There can be no assurance, however, that market conditions will not change or demand for our products under development will continue. Either of these could result in future impairment of long-lived assets.

 

Revenue Recognition

 

We generate revenues primarily from the sale of high performance vehicles and parts. We recognize revenue from the sale of completed high performance vehicles and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably assured, all of which generally occurs upon shipment or delivery of our product to the destination specified by the customer. In cases where we are the primary obligor related to the purchase of base Ford Mustang, Chevrolet Camaro and Dodge Challenger vehicles, we recognize revenue related to the cost of the chassis plus markup, if any.

 

We determine whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when our high performance vehicles and retail parts leave our dock. Except for warranties related to our high performance vehicles, we have no post-sales obligations.

 

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Warranty Reserves

 

We provide a three-year or 36,000 miles New Vehicle Limited Warranty with every Saleen 302 Mustang, Saleen 570 Challenger, Saleen 620 Camaro high performance vehicle and Saleen GTX. The vehicle limited warranty applies to our installed parts and/or assemblies in new Saleen high performance cars. All of the unaltered parts are covered under the original full warranty of the OEM manufacturer of the base vehicles (Ford, Chevrolet, Dodge and Tesla). We provide a warranty reserve for estimated product warranty costs at the time the revenues are recognized. While we engage in quality programs and processes, up to and including the final product, our warranty obligation is affected by product failure rates, the cost of the failed product and the inbound and outbound freight costs incurred and the OEM manufacturer’s honoring of their warranty. We continuously monitor and analyze product returns for warranty and maintain a reserve for the related warranty costs based on historical experience and assumptions. If actual failure rates and the resulting cost of replacement vary from our historically based estimates, revisions to the estimated warranty reserve would be required.

 

Derivative Financial instruments

 

We evaluate all of our 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 re-valued at each reporting date, with changes in fair value reported in the consolidated statement of operations. For stock-based derivative financial instruments, we use a weighted-average Black-Scholes-Merton pricing model to value the derivatives instruments at inception and on subsequent valuation dates. 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.

 

Share-Based Compensation

 

We use the fair value recognition provision of ASC 718, “Stock Compensation,” which requires us 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. We use the Black-Scholes option pricing model to calculate the fair value of any equity instruments on the grant date.

 

We also use 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.

 

Litigation

 

We are involved in disputes, litigation and other legal proceedings. We prosecute and defend these matters aggressively. However, there are many uncertainties associated with any litigation, and we cannot provide assurance that these actions or other third party claims against us will be resolved without costly litigation and/or substantial settlement costs. Any litigation may require us to pay damages whereby our business, financial condition and results of operations could be materially and adversely affected. We continually evaluate the uncertainties associated with litigation and record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether a liability can be reasonably estimated. Accordingly, the outcomes of legal proceedings and/or our ability to settle disputes on terms acceptable to us are subject to significant uncertainty. Should we choose to pay significant sums in settling a dispute or should material legal matters be resolved against us, the operating results of a particular reporting period could be materially adversely affected.

 

See Note 1 of Notes to Consolidated Financial Statements for additional information regarding our critical and significant accounting policies.

 

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Recent Accounting Pronouncements

 

On May 28, 2014, the Financial Accounting Standards Board (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. We will apply the new revenue recognition standard in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are currently evaluating the impact, if any, on adopting ASU 2014-09 on our results of operations and 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 our operations and financial results should be presented as discontinued operations. This new accounting guidance is effective for annual periods beginning after December 15, 2014. We are currently evaluating the impact, if any, of adopting ASU 2014-08 on our results of operations and financial condition.

 

In November 2014, the FASB issued Accounting Standards Update No. 2014-16 (ASU 2014-16), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in this ASU do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. The ASU applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact, if any, of adopting ASU 2014-16 on our results of operations and financial condition.

 

In January 2015, the FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), as part of its initiative to reduce complexity in accounting standards. ASU No. 2015-01 eliminates from generally accepted accounting principles the concept of extraordinary items. ASU No. 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with earlier adoption permitted. A reporting entity may apply the provisions of ASU No. 2015-01 prospectively or retrospectively to all prior periods presented in the financial statements. We do not expect the adoption of ASU No. 2015-01 to have a material effect on our consolidated financial statements.

 

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 our present or future consolidated financial statements.

 

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Year Ended March 31, 2015 Compared to Year Ended March 31, 2014

 

Our revenue, operating expenses, and net loss from operations for the year ended March 31, 2015 as compared to the year ended March 31, 2014 were as follows – some balances on the prior period’s consolidated financial statements have been reclassified to conform to the current period presentation:

 

   For the Year ended       Percentage 
   March 31,       Change 
   2015   2014   Change   Inc (Dec) 
Revenue                    
Vehicles and parts  $3,800,390   $4,985,726   $(1,185,336)   (24%)
Design Services       121,500    (121,500)   (100%)
Total revenue   3,800,390    5,107,226    (1,306,836)   (26%)
                    
Costs of goods sold   3,366,437    4,227,039    (910,602)   (22%)
Gross profit   433,953    830,187    (396,234)   (48%)
Operating expenses                    
Research and development   747,833    766,996    (19,163)   (2%)
Sales and marketing   1,656,797    1,537,228    119,569    8%
General and administrative   3,181,542    4,261,612    (1,080,070)   (25%)
Settlement (gain) costs (including $385,785 from related parties)   (12,273)   945,401    (957,674)   (101%)
Depreciation and amortization   181,983    97,061    84,992    88%
Total operating expenses   5,755,882    7,608,298    (1,852,416)   (24%)
Loss from operations   (5,321,929)   (6,778,111)   1,456,182    (21%)
Other income (expenses)                    
Interest expense   (2,310,774)   (606,194)   (1,704,580)   281%
Costs of reverse merger transaction       (365,547)   365,547    (100%)
Private placement costs   (780,290)       (780,290)    
Loss on extinguishment of convertible debt   (1,257,468)       (1,257,468)    
Gain on extinguishment of derivative liability   50,314    236,158    (185,844)   (79)%
Change in fair value of derivative liabilities   1,111,389    (3,608,288)   4,719,677    (131%)
Net Loss  $(8,508,758)  $(11,121,982)  $2,613,224    (24%)

 

Revenues: Revenue consists of sales of high performance vehicles and aftermarket retail parts. Our revenue from high performance muscle car vehicles generally includes the base chassis (Mustang, Camaro or Challenger), on which we normally obtain a small margin, and production conversion of the base Mustang, Camaro, Challenger and Tesla Model S chassis into a Saleen high performance vehicle. Parts represent aftermarket retail sales of Saleen lifestyle accessories and Saleen-branded products and automotive aftermarket specialty parts sold to our base of Saleen automotive vehicle enthusiasts in the U.S. and overseas. Additionally, many of these parts and accessories are marketed and sold to the owners of Ford Mustangs, Chevrolet Camaros and Dodge Challengers.

 

Total revenues for the year ended March 31, 2015 were $3,800,390, a decrease of $1,306,836 or 26% from $5,107,226 for the year ended March 31, 2014. Vehicle and parts declined $1,185,336 or 24% to $3,800,390 from $4,985,726 for the same period in the prior year. The decrease in vehicle and parts was primarily driven by customer preference for the 2015 Mustang model along with the availability of 2014 Ford Mustang chassis, which negatively impacted revenues starting in May 2014, as Ford discontinued production of the 2014 Mustang model in order to switch to the new 2015 model. The 2015 Mustang model did not start shipping to us until late 2014 and starting in September 2014, the 2014 Mustang chassis was difficult to obtain. The new 2015 model represented a major model change requiring us to make significant design and tooling modifications to our Saleen Mustang. Further, due to the change in Mustang models, several customers opted to wait for the new 2015 model thereby delaying placing orders. During the same period in the prior year, Ford’s change from the 2013 to 2014 Mustang model year was minimal requiring little change and the supply of vehicles was not disruptive nor did customers opt to wait for the newer model. Based on current orders for the 2015 Saleen Mustang models, we anticipate an increase in volume for the Saleen Mustang, on a year over year basis. We recently started shipping our 2015 Saleen Mustang White Label models in February 2015 and the Yellow and Black Labels in late April 2015.

 

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During the year ended March 31, 2014 revenues of $121,500 were realized from a contract with a major Hollywood movie producer to design and build replica supercar racing automobiles for the Need for Speed movie, which was released in March 2014. We did not have any other design contracts during the year ended March 31, 2015 and 2014.

 

Cost of Goods Sold: Cost of goods sold consists of five major categories: base chassis, material, overhead, labor and purchased process services. Chassis costs relate to the purchased Ford Mustang, Chevrolet Camaro or Dodge Challenger vehicles in which we are the primary obligor. Material cost relates to the purchase of conversion parts used in the production of our high performance vehicles, and procurement of aftermarket parts, which are manufactured by third party suppliers using our proprietary tools and molds developed by us. Overhead costs include costs associated with manufacturing support, shop and warehouse supplies and expenses, small tools and equipment and other related warehouse and production costs. Our labor costs include the cost of personnel related to the production of our high performance vehicles and logistics of warehousing and shipping our aftermarket parts. Purchased process services related to the subcontracting of specific manufacturing processes to outside contractors, such as paint.

 

Total costs of goods sold for the year ended March 31, 2015 were $3,366,437, a decrease of $910,602 or 22% from $4,227,039 of costs of goods sold for the year ended March 31, 2014. The decrease was primarily attributable to lower volume of sales during the year ended March 31, 2015 as compared to the same period in the prior year.

 

Gross Margin: Gross Margin from the sale of vehicles and parts decreased by $396,234 to $433,953, or 22%, for a gross margin of 11% for the year ended March 31, 2015 from a gross margin of $830,187, or 16%, for the year ended March 31, 2014. The decrease in gross margin was primarily driven by lower volume of sales coupled with higher costs to obtain the 2014 Mustang chassis due to short supply of such vehicles, as Ford discontinued production of the 2014 Mustang in May 2014 to switch to the 2015 model.

 

Research and Development Expenses: Research and development expenses are expensed as incurred and represent engineering and design salaries and benefits and costs incurred in the development of new products and processes, including significant improvements and refinements to existing products and processes.

 

Research and development expenses decreased slightly by $19,193, or 2%, to $747,833 during the year ended March 31, 2015 from $766,996 for the year ended March 31, 2014. Excluding non-cash stock based compensation of $66,068, research and development expenses decreased $85,231 or 11%. The decrease was primarily related to a decline in salaries along with a decline in materials used in R&D. There were no stock options granted during the year ended March 31, 2014.

 

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 $119,569, or 8%, to $1,656,797 for the year ended March 31, 2015 from $1,537,228 for the year ended March 31, 2014. Excluding non-cash stock based compensation of $268,609 incurred during the year ended March 31, 2015, sales and marketing expenses decreased by $149,040 or 10% driven primarily by $325,700 of stock compensation expense related to our issuance of Common Stock in exchange for investor relation services during the year ended March 31, 2014, which did not occur during the year ended March 31, 2015. This decrease was slightly offset by higher new car sales and marketing expenses related to expansion of our sales team and marketing efforts related to the launch of our 2015 Saleen Mustang. There were no employee stock options issued during the year ended March 31, 2014.

 

General and Administrative Expense: General and administrative expenses include expenses for administrative salaries, including executive, finance/accounting, information personnel and administrative support staff and benefits. Other general and administrative costs also include occupancy costs of our facilities, travel and entertainment, auto, insurance, stock compensation, other office support costs and professional fees, including outside accounting/audit, legal, and investor fund raising advisory services.

 

General and administrative expenses decreased by $1,080,070, or 25%, to $3,181,983 for the year ended March 31, 2015 from $4,261,612 for the year ended March 31, 2014. The decrease is primarily comprised of $873,701 of lower professional fees primarily related to merger activity during the year ended March 31, 2014 that was not incurred during the year ended March 31, 2015 as we did not have a comparable expense of this type; $136,882 of lower general and administrative salaries as a result of headcount reduction; and $69,487 decrease in other expenses primarily due to lower general and administrative expenses resulting from our efforts to reduce costs due to the decline in revenue. General and administrative expenses included non-cash stock based compensation of $650,354 for the year ended March 31, 2015 as compared to $504,481 for the year ended March 31, 2014.

 

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Depreciation and Amortization Expense: Depreciation and amortization expense relates to our depreciating and amortizing costs incurred for leasehold improvements, equipment and tooling. Depreciation and amortization expense increased by $84,992, or 88%, to $181,983 for the year ended March 31, 2015 from $97,061 for the year ended March 31, 2014.

 

Interest Expense: Interest expense increased by $1,704,580 or 281% to $2,310,774 for the year ended March 31, 2015 from $606,194 for the year ended March 31, 2014. The increase is primarily attributable to an increase of $1,519,176 of non-cash interest expense during the year ended March 31, 2015 along with $185,404 of interest incurred on loans outstanding primarily due to our increase in notes issued along with interest incurred on flooring of chassis. Non-cash interest relates to the amortization of the convertible debt discount on our convertible notes.

 

Expenses of Reverse Merger Transaction: During the year ended March 31, 2014, 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 year ended March 31, 2015.

 

Private Placement Costs: In conjunction with the issuance of convertible notes from September to December 2014, the conversion features of such notes was bifurcated from the notes and recorded as derivative liability. We recorded $1,306,456 as a derivative liability with an offsetting charge to valuation discount of $638,225 with the remainder of $668,231 recorded as private placement costs during the year ended March 31, 2015. In addition, as a result of our issuance of our Second Amendment to our 3% Senior Secured Convertible Notes in January 2015, we recorded $112,060 as private placement costs (see Note 5 to our consolidated financial statements). We incurred no similar expense during the year ended March 31, 2014.

 

Loss on extinguishment of convertible debt: On January 23, 2015, we entered into a Second Amendment to 3% Senior Secured Convertible Notes (“3% Notes”) whereby the conversion price of the 3% Notes were amended to be the lesser of (a) $0.075 and (b) 70% of the average of the three lowest VWAPs occurring during the twenty consecutive trading days immediately preceding the applicable conversion date on which the note holders elects to convert all or part of the note. However, in no event shall the conversion price be less than $0.02. As a result of this amendment, we recognized a loss of $1,257,468, which was comprised of $684,975 of debt discount previously included as an offset to the 3% debt on our balance sheet and $572,493 related to the incremental change in the potential shares of common stock to be issued and the conversion price.

 

Gain on Extinguishment of Derivative Liability: Gain on the extinguishment of derivative liability related to gains of $50,314 and $236,158 during the year ended March 31, 2015 and 2014, respectively, as a result of the extinguishment of derivative liabilities resulting from certain note holders’ request to convert their convertible debt to stock in accordance with the terms of their convertible notes.

 

Change in Fair Value of Derivative Liability: In accordance with the FASB authoritative guidance, the conversion feature of certain convertible notes issued by us was separated from the host contract (i.e., the notes) and recognized as a derivative instrument. The conversion feature of these notes are characterized as a derivative liability, which is re-measured at the end of every reporting period with the change in value recognized as a gain or loss in our statement of operations. During the year ended March 31, 2015, we recorded $1,111,389 gain due to the change in the fair value of the derivative liability which was mainly driven by a gain recognized of $1,123,836 related to our extinguishment of a derivative in conjunction with the June 2014 First Amendment to our 3% Senior Convertible Notes as compared to an expense of $3,608,288 for the year ended March 31, 2014.

 

Net Loss: Net loss decreased by $2,613,224, or 24%, to a net loss of $8,508,758 for the year ended March 31, 2015 from a net loss of $11,121,982 for the year ended March 31, 2014. The decrease in net loss was primarily attributable to $1,456,182 decrease in loss from operations comprised of $1,852,416 decline in operating expenses offset by $396,234 decrease in gross profit; decrease of $4,719,677 in gain on extinguishment of derivative liability to a gain of $1,111,389 for the year ended March 31, 2015 compared to a loss of $3,608,288 during the same period in the prior year; and costs of $367,547 related to our reverse merger transaction that did not occur during the year ended March 31, 2015. This decrease was somewhat offset by the increase in interest expense of $1,704,580 primarily attributable to $1,519,176 increase in non-cash interest expense related to our convertible notes; $1,257,468 loss related to our amendment of our 3% Notes; $780,290 of private placement costs incurred related to convertible notes issued during the year ended March 31, 2015; and $185,844 decrease in gain on extinguishment of derivative liability.

 

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Liquidity and Capital Resources

 

Our working capital deficiency as of March 31, 2015 and March 31, 2014 was as follows:

 

   As of   As of 
   March 31, 2015   March 31, 2014 
Current Assets  $910,794   $2,230,294 
Current Liabilities   (7,961,458)   (5,280,580)
Net Working Capital Deficiency  $(7,050,664)  $(3,050,286)

 

The following summarizes our cash flow activity for the fiscal years ended March 31, 2015 and March 31, 2014:

 

Cash Flows            
    Year Ended     Year Ended  
    March 31, 2015     March 31, 2014  
Net cash used in Operating Activities   $ (2,549,895 )   $ (4,316,575 )
Net cash used in Investing Activities     (227,277 )     (303,666 )
Net cash provided by Financing Activities     1,420,366       6,115,697  
(Decrease) Increase in Cash during the twelve month period     (1,356,806 )     1,495,455  
Cash, Beginning of Period     1,499,889       4,434  
Cash, End of Period     143,083       1,499,889  

 

For the fiscal years ended March 31, 2015 and 2014, our principal sources of liquidity have been obtained from cash provided by financing, including through the private issuance of notes and sale of equity securities, along with customer deposits received in advance of shipment and gross margin achieved from the sales of high performance vehicles and aftermarket parts. Our principal uses of cash have been primarily to finance operations; expand our staff; develop new products and improve existing products; expand marketing efforts to promote our products and company; and capital expenditures primarily for tooling. We anticipate that significant additional expenditures will be necessary to develop and expand our automotive assets before sufficient and consistent positive operating cash flows will be achieved including sufficient cash flows to service existing debt. Additional funds will be needed in order to continue production and operations, obtain profitability and to achieve our objectives. As such, our cash resources are insufficient to meet our current operating expense and production requirements and planned business objectives beyond the date of this Form 10-K filing without additional financing.

 

As further presented in our consolidated financial statements and related notes, during the year ended March 31, 2015, we incurred a loss from operations of $5,321,929 and utilized $2,549,895 of cash in operations. We also had a stockholders’ deficit and working capital deficit of $9,669,225 and $7,050,664, respectively as of March 31, 2015, and as of that date, we owed $745,503 in past unpaid payroll and other taxes; $933,271 of outstanding notes payable were in default; $1,204,840 of accounts payable was greater than 90 days past due; and $288,900 is owed on past due rent. In addition, in May 2015, we received a complaint from Citizens Business Bank alleging breach of our loan agreement with the bank and breach of a commercial guaranty by Steve Saleen and demanding full payment of principal, interest and fees of $369,302. A default under the loan agreement triggers a cross default under our 3% Senior Secured Convertible Notes and 7% Convertible Notes (see Note 5 to our consolidated financial statements) enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of our indebtedness. In addition, we currently do not maintain workers’ compensation, product liability and other general insurance. These factors raise substantial doubt about our ability to continue as a going concern.

 

Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to ultimately achieve revenues at a level that will achieve profitably and generate positive cash flows from operations. At March 31 and July 13, 2015, we had cash on hand in the amount of $143,803 and approximately $21,000, respectively, and we are not generating funds from operations to cover current production and operating expenses and we will have to obtain additional financing. We have utilized funding to operate the business during the year ended March 31, 2015 with funds obtained from $1,702,656 of customer deposits received in advance of shipment from orders placed by customers; received $500,000 in advance royalties from an Intellectual License Agreement; raised $1,289,409 through the issuance of convertible notes; received $295,000 through the issuance of notes payable of which $195,000 came from related parties; and obtained cash from sales of Common Stock through entering 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, we will need and are currently seeking additional funds, primarily through the issuance of debt or equity securities for production and to operate our business through and beyond the date of this Form 10-K filing. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions and covenants on our operations, in the case of debt financing or cause substantial dilution for our stockholders (including the issuance of securities sufficient to result in a change in control of our Company), in the case of convertible debt and equity financing.

 

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At March 31, 2015, we had a working capital deficit of $7,050,664 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 of $1,356,806 to $143,083 as of March 31, 2015 from $1,499,889 as of March 31, 2014. In addition, current liabilities increased by $2,680,878 to $7,961,458 as of March 31, 2015 from $5,280,580 as of March 31, 2014 primarily due to a derivative liability of $1,268,588, which we recorded in conjunction with convertible notes issued from September to December 2014; $1,702,656 increase in customer deposits received during the fiscal year ended March 31, 2015, primarily related to 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 $153,978 increase in due to related parities. The decrease in working capital was offset partially by the decrease in accounts payable of $347,421 primarily due to payments on account and $279,144 decrease in notes payable.

 

Net cash used in operating activities for the fiscal year ended March 31, 2015 totaled $2,549,895 after the net loss of $8,508,758 was decreased by $3,809,037 in non-cash charges and decreased by $2,149,826 in net changes to the working capital accounts. This compares to cash used in operating activities for the fiscal year ended March 31, 2014 of $4,316,576 after the net loss for the period of $11,121,982 was decreased by $5,344,019 in non-cash charges and by $1,461,387 in changes to the working capital accounts.

 

Net cash used in investing activities was $227,277 for fiscal year ended March 31, 2015 as compared to $303,666 of cash used in investing activities for fiscal year ended March 31, 2014.

 

Net cash provided by financing activities for the fiscal year ended March 31, 2015 was $1,420,366. Of this amount, $1,289,409 came through the issuance of our convertible notes, $177,500 came from the issuance of 1,183,344 shares of our Common Stock; $295,000 came from issuances of notes payable including $195,000 from related parties; and $7,500 came from the exercise of a warrant. Cash of $349,043 was used to pay principal on long-term notes. This compares to cash provided by financing activities for the fiscal year ended March 31, 2014 of $6,115,697. Of this amount, $5,250,000 came from the issuance of our senior secured and unsecured convertible notes; $575,000 came from the issuance of note payable to a stockholder; and $1,312,500 came from the issuance of 8,793,337 shares of Common Stock. Cash of $318,558 was used to pay principal on long term notes and cash of $703,245 was used to pay principal on notes payable to related parties.

 

Secured Convertible Notes

 

On January 23, 2015, we entered into a First Amendment to Securities Purchase Agreement dated June 26, 2013 by and among us and the related June 26, 2013 note holders (“June 2013 Notes”) whereby the note holders agreed to amend the Securities Purchase Agreement entered into on June 26, 2013 to provide for the issuance of up to $600,000 in additional Notes for a period up to June 26, 2015 under the same terms as the June 2013 Notes. In addition, we entered into a Second Amendment to 3% Senior Secured Convertible Notes whereby the conversion price of the June 2013 Notes was amended to be the lesser of (a) $0.075 and (b) 70% of the average of the three lowest VWAPs occurring during the twenty consecutive trading days immediately preceding the applicable conversion date on which the note holders elects to convert all or part of the note. However, in no event shall the conversion price be less than $0.02.

 

In conjunction with these amendments, on January 26, 2015 we entered into two 3% Senior Secured Convertible Notes in the principal amount of $499,892 with two accredited investors who participated in the June 26, 2013 offering of which $98,708 was converted from a revolver entered into in November 2013.

 

Unsecured convertible notes

 

From September 2014 to December 2014, we issued Convertible Promissory Notes (“Notes”) in the aggregate principal amount of $638,225 to eight separate accredited investors. During the three months ended March 31, 2015 and through the date of our filing of this Form 10-K, note holders converted $20,000 and $285,920 of principal, respectively, and $828 and $16,594 of accrued and unpaid interest, respectively, into 1,785,714 and 355,303,951 shares of the our Common Stock, respectively. The Notes bear interest ranging from 8% to 12% per annum and mature on various dates from April 2015 to December 2016. We may not prepay the Notes. Further, the Notes contain provisions that under certain events of default, as defined in the agreements, the amount owed could increase by amounts ranging from 135% to 150% depending on the event of default. In addition, in the event of non-payment when due, the interest rates would increase to between 20% and 25% per annum from the date due until paid.

 

The Notes are convertible into shares of our Common Stock at the option of the holder commencing on the various dates following the date of the Notes and ending on the later of the maturity date or date of full payment of principal and interest. The principal amount of the Notes along with, at the holder’s option, any unpaid interest and penalties, are convertible at price per share discounts ranging from 42% to 38% our Common Stock trading market price during a certain time period, as defined in the agreement. Further, the conversion prices are subject to a floor such that the conversion prices will not be less than a certain price, as defined in the agreement, with such floor prices ranging from $0.001 to $0.00005 per share. In addition, the conversion prices are subject to adjustment in certain events, such as in conjunction with any sale, conveyance or disposition of all or substantially all of our assets or consummation of a transaction or series of related transactions in which we are not the surviving entity. As of the March 31, 2015, the notes were convertible into approximately 106,214,457 shares of our Common Stock. Per the terms of the notes, we reserved approximately 153,000,000 shares of our Common Stock for the conversion of these Notes. Based on the closing price of our stock as of the date of this Form 10-K filing and the current principal and accrued interest outstanding of $345,795, the notes were convertible into approximately 314,000,000 shares of our Common Stock.

 

38
 

 

Private Placement Stock Subscriptions

 

During the year ended March 31, 2015, we 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 our 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 our Common Stock at an exercise price of $0.15 per share.

 

Off Balance Sheet Arrangements

 

As of March 31, 2015, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.

 

Commitments

 

The following summarizes our contractual obligations, excluding amounts already recorded on the Consolidated Balance Sheet at March 31, 2015, and the effect those obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

 

Lease Obligation

 

We rent two buildings totaling approximately 76,000 square feet on triple net leases through January, 2018. The current lease amendment provides for an annual escalation of 3% in the rent each February.

 

The future minimum rental payments required under the non-cancelable operating leases described above as of March 31, 2015 are as follows:

 

Years ending March 31:  Lease Commitment 
2016  $583,671 
2017   599,689 
2018   512,172 

 

Purchase Obligations

 

In April 2014, we 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, we are 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 our exclusive use of BASF’s products and fulfilling this purchase commitment, BASF paid us $250,000, which was recorded as deferred vendor consideration in our consolidated financial statements. 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, we entered into an agreement with FinishMaster, Inc. (“FinishMaster”) to exclusively use FinishMaster’s paint material supplies. The agreement continues from May 2014 until we purchase in aggregate $1,555,000 of FinishMaster products. In consideration of our exclusive use of FinishMaster’s products and fulfilling this purchase commitment, FinishMaster paid us $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 we not complete a set purchase level milestone, we 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.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

39
 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets as of March 31, 2015 and 2014 F-2
   
Consolidated Statements of Operations for the years ended March 31, 2015 and 2014 F-3
   
Consolidated Statement of Stockholders Deficit for the years ended March 31, 2015 and 2014 F-4
   
Consolidated Statements of Cash Flows for the years ended March 31, 2015 and 2014 F-5
   
Notes to Consolidated Financial Statements F-7

 

40
 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders

Saleen Automotive, Inc.

 

We have audited the accompanying consolidated balance sheets of Saleen Automotive, Inc. and subsidiaries (the “Company”), as of March 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Saleen Automotive, Inc. and subsidiaries as of March 31, 2015 and 2014, and the results of their consolidated operations and cash flows the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has suffered recurring losses, utilized significant cash in operations, and has a stockholders’ deficit. In addition, as of March 31, 2015, the Company is delinquent in payment of its payroll taxes and a significant amount of the Company’s notes payable are in default. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

Weinberg & Company, P.A.  
Los Angeles, California  
July 14, 2015  

 

F-1
 


 

Saleen Automotive, Inc. and Subsidiaries

Consolidated Balance Sheets

 

   March 31, 2015    March 31, 2014  
         
ASSETS          
Current Assets          
Cash  $143,083   $1,499,889 
Accounts receivable, net of allowance for doubtful accounts of $271,658 as of March 31, 2014   4,945    198,538 
Inventory   725,687    433,941 
Prepaid expenses and other current assets   37,079    97,926 
Total Current Assets   910,794    2,230,294 
           
Property and equipment, net   592,116    546,824 
Other assets   5,000    47,904 
TOTAL ASSETS  $1,507,910   $2,825,022 
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current Liabilities          
Accounts payable  $1,677,309   $2,024,730 
Due to related parties   326,512    172,534 
Notes payable   671,750    1,275,774 
Current portion of convertible notes, net of discount of $250,892 at March 31, 2015   267,332     
Notes payable to related parties   267,000    209,452 
Payroll and other taxes payable   745,503    808,875 
Accrued interest on notes payable   387,005    380,257 
Customer deposits   1,896,568    193,912 
Deferred vendor consideration   275,000     
Derivative liability   1,268,588     
Other current liabilities   178,891    215,046 
Total Current Liabilities   7,961,458    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 $1,585,935 and $3,498,981 at March 31, 2015 and 2014, respectively   3,215,677    1,337,751 
Total Liabilities   11,177,135    12,121,651 
Commitments and Contingencies        
Stockholders’ Deficit          
Common Stock; $0.001 par value; 500,000,000 shares authorized; 174,857,028 and 137,710,501 issued and outstanding as of March 31, 2015 and 2014, respectively   174,856    137,710 
Preferred stock; $0.001 par value; 1,000,000 shares authorized; none issued and outstanding        
Additional paid in capital   18,530,191    10,431,175 
Accumulated deficit   (28,374,272)   (19,865,514)
Total Stockholders’ Deficit   (9,669,225)   (9,296,629)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $1,507,910   $2,825,022 

 

See accompanying notes which are an integral part of these consolidated financial statements.

 

F-2
 

 

Saleen Automotive, Inc. and Subsidiaries

Consolidated Statements of Operations

 

   For the fiscal year ended  
   March 31,  
   2015    2014  
Revenue          
Vehicles and parts  $3,800,390   $4,985,726 
Design Services       121,500 
Total revenue   3,800,390    5,107,226 
           
Costs of goods sold   3,366,437    4,277,039 
Gross profit   433,953    830,187 
Operating expenses          
Research and development   747,833    766,996 
Sales and marketing   1,656,797    1,537,228 
General and administrative   3,181,542    4,261,612 
Settlement (gain) costs (including $385,785 from related parties during the year ended March 31, 2014)   (12,273)   945,401 
Depreciation and amortization   181,983    97,061 
Total operating expenses   5,755,882    7,608,298 
Loss from operations   (5,321,929)   (6,778,111)
Other income (expenses)          
Interest expense   (2,310,774)   (606,194)
Costs of reverse merger transaction       (365,547)
Private placement costs   (780,290)    
Loss on extinguishment of convertible debt   (1,257,468)    
Gain on extinguishment of derivative liability   50,314    236,158 
Change in fair value of derivative liabilities   1,111,389    (3,608,288)
Net Loss  $(8,508,758)  $(11,121,982)
Net loss per share:          
Basic and diluted  $(0.05)  $(0.09)
Shares used in computing net loss per share:          
Basic and diluted   158,673,334    123,377,666 

 

See accompanying notes which are an integral part of these consolidated financial statements.

 

F-3
 

 

Saleen Automotive, Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Deficit

For the fiscal years ended March 31, 2015 and 2014

 

   Common Stock $0.001 Par   Preferred Stock $0.001 Par   Additional Paid In   Accumulated   Stockholders’ 
   Number   Amount   Number   Amount   Capital   Deficit   Deficit 
Balance, March 31, 2013      $    883,822   $10,269   $4,584,976   $(8,743,532)  $(4,148,287)
Shares issued upon reverse merger   8,000,000    8,000         (8,000)              
Shares issued for director fees             5,277    5    249,995         250,000 
Shares issued for services to related parties             923    1    43,749         43,750 
Shares issued for services   530,000    530    4,976    5    429,296         429,831 
Shares issued as principal payments on notes payable             481         22,803         22,803 
Shares issued as interest on notes payable             521    1    24,696         24,697 
Shares issued for payment of accounts payable   325,128    325              102,866         103,191 
Shares and warrants issued for payment of accounts payable – related parties   2,508,908    2,509              1,117,873         1,120,382 
Shares issued for cash   8,793,337    8,793              1,303,707         1,312,500 
Adjustment of Super Voting Preferred                  (1,385)   1,385          
Conversion of Super Voting Preferred to Common Stock   112,000,000    112,000    (896,000)   (896)   (111,104)         
Conversion of convertible debt to Common Stock   5,553,128    5,553              410,933         416,486 
Beneficial conversion feature associated with convertible debt financing                       2,250,000         2,250,000 
Net loss for the period                            (11,121,982)   (11,121,982)
Balance, March 31, 2014   137,710,501    137,710            10,431,175    (19,865,514)   (9,296,629)
Fair value of shares issued for services   1,000,000    1,000              169,000         170,000 
Amounts payable 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   19,817,900    19,818              913,105         932,923 
Fair value of shares issued as payments on notes payable and accrued interest   5,494,787    5,495              577,196         582,691 
Fair value of shares issued upon settlement of accounts payable   7,567,980    7,568              216,110         223,678 
Fair value of beneficial conversion feature associated with convertible debt financing                       327,483         327,483 
Fair value of conversion feature associated with debt extinguishment                       572,493         572,493 
Fair value of derivative liability extinguished upon modification of convertible note                       3,908,950         3,908,950 
Fair value of stock-based compensation                       650,351         650,351 
Net loss                            (8,508,758)   (8,508,758)
Balance, March 31, 2015   174,857,028   $174,856       $   $18,530,191   $(28,374,272)  $(9,669,225)

 

See accompanying notes which are an integral part of these consolidated financial statements.

 

F-4
 

 

Saleen Automotive Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

   For the fiscal year ended March 31,  
   2015    2014  
Cash flows from operating activities          
Net loss  $(8,508,758)  $(11,121,982)
Adjustments to reconcile net (loss) to net cash used in operating activities          
Depreciation and amortization   181,983    97,061 
Change in fair value of derivative liabilities   (1,111,389)   3,608,288 
Gain on extinguishment of derivative liability   (50,314)   (236,158)
Loss (gain) on settlement of notes payable and accounts payable, related party   (12,237)   739,572 
Loss on extinguishment of debt   1,257,468     
Amortization of discount on convertible notes   1,942,885    411,675 
Fair value of share based compensation   650,351     
Private placement costs   780,290     
Fair value of shares issued for directors fees to related parties       250,000 
Fair value of shares issued for services   170,000    473,581 
Changes in working capital:          
(Increase) Decrease in:          
Cash held in trust account       175,000 
Accounts receivable   193,593    (193,186)
Inventory   (291,746)   104,283 
Prepaid expenses and other assets   103,751    (84,989)
Increase (Decrease) in:          
Accounts payable   (176,538)   1,484,769 
Due to related parties   153,978    (179,553)
Payroll and taxes payable   (63,372)   562,800 
Accrued interest   288,657    89,335 
Customer deposits   1,702,656    (748,947)
Deferred vendor consideration   275,000     
Other liabilities   (36,153)   (218,660)
Accounts to be settled by issuance of equity securities       470,535 
Net cash used in operating activities   (2,549,895)   (4,316,576)
Cash flows from investing activities          
Purchases of property and equipment   (227,277)   (303,666)
Net cash used in investing activities   (227,277)   (303,666)
Cash flows from financing activities          
Proceeds from senior secured notes payable   401,184    3,000,000 
Proceeds from unsecured convertible notes   638,225    250,000 
Proceeds from unsecured convertible notes - related parties   250,000    2,000,000 
Proceeds from notes payable – related parties   195,000    575,000 
Proceeds from issuance of notes payable   100,000     
Principal payments on notes payable – related parties       (703,245)
Principal payments on notes payable   (349,043)   (318,558)
Proceeds from issuance of Common Stock   185,000    1,312,500 
Net cash provided by financing activities   1,420,366    6,115,697 
Net (decrease) increase in cash   (1,356,806)   1,495,455 
Cash at beginning of period   1,499,889    4,434 
Cash at end of period  $143,083   $1,499,889 

 

(continued)

 

F-5
 

 

Saleen Automotive Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(continued)

 

   For fiscal year ended March 31, 
   2015   2014 
Supplemental schedule of non-cash financing activities:          
Derivative liability related to conversion feature  $1,306,455   $1,660,056 
Fair value of derivative liability extinguished upon modification   3,908,950     
Issuance of Common Stock on conversion of secured convertible Notes Payable and accrued interest   932,923    416,485 
Issuance of Common Stock on conversion of unsecured convertible Notes payable and accrued interest   582,691    24,697 
Issuance of Common Stock as principal on Notes Payable to related parties        22,803 
Beneficial conversion feature associated with convertible debt financing        2,250,000 
Issuance of Common Stock as settlement of accounts payable   223,678    103,241 
Fair value of beneficial conversion feature recorded as note discount   327,483     
Amounts payable settled through the issuance of equity securities   470,534     
           
Supplemental disclosures of cash flow information:          
Cash paid during the year for          
Interest  $34,114   $36,412 
Income taxes  $   $ 

 

See accompanying notes which are an integral part of these consolidated financial statements.

 

F-6
 

 

Saleen Automotive Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Fiscal Years Ended March 31, 2015 and 2014

 

NOTE 1 – NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Description of the Company

 

Saleen Automotive, Inc. (formerly W270, Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on June 24, 2011. The Company designs, develops, manufactures and sells high performance vehicles built from base chassis’ of Ford Mustangs, Chevrolet Camaros, Dodge Challengers and Tesla Model S vehicles. The Company is a low volume vehicle design, engineering and manufacturing company focusing on the mass customization (the process of customizing automobiles that are mass produced by the manufacturers (Ford, Chevrolet, Dodge and Tesla) of OEM American sports and electric vehicles. A high performance car is an automobile that is designed and constructed specifically for speed and performance. The design and construction of a high performance car involves not only providing a capable power train but also providing the handling, aerodynamics and braking systems to support it. The Company’s Saleen-branded products include a complete line of upgraded high performance vehicles, automotive aftermarket specialty parts and lifestyle accessories.

 

Merger

 

On May 23, 2013, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Saleen California Merger Corporation, its wholly-owned subsidiary, Saleen Florida Merger Corporation, its wholly-owned subsidiary, Saleen Automotive, Inc. (“Saleen Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive, the “Saleen Entities”) and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”). The closing (the “Closing”) of the transactions contemplated by the Merger Agreement (the “Merger”) occurred on June 26, 2013. At the Closing (a) Saleen California Merger Corporation was merged with and into SMS with SMS surviving as one of the Company’s wholly-owned subsidiaries; (b) Saleen Florida Merger Corporation was merged with and into Saleen Automotive with Saleen Automotive surviving as one of the Company’s wholly-owned subsidiaries; (c) holders of the outstanding capital stock of Saleen Automotive received an aggregate of 554,057 shares of the Company’s Super Voting Preferred Stock, which was subsequently converted into 69,257,125 shares of the Company’s Common Stock and holders of the outstanding capital stock of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of the Company’s Common Stock (on a fully-diluted basis) was owned, collectively, by Saleen (including 341,943 shares of the Company’s Super Voting Preferred Stock, which was subsequently converted into 42,742,875 shares of the Company’s Common Stock, issued to Saleen pursuant to the Assignment and License Agreement) and the former holders of the outstanding capital stock of Saleen Automotive. As a result of the Merger the Company is solely engaged in the Saleen Entities’ business, Saleen Automotive’s then officers became the Company’s officers and Saleen Automotive’s then three directors became members of the Company’s five-member board of directors. On June 17, 2013, the Company consummated a merger with WSTY Subsidiary Corporation, its wholly-owned subsidiary, pursuant to which the Company amended its articles of incorporation to change its name to Saleen Automotive, Inc. In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars. In January 2014, the Company effected an increase in the number of its common shares authorized to 500,000,000 and all the remaining shares of Super Voting Preferred Stock were converted into Common Stock of the Company and the Super Voting Preferred Stock ceased to be a designated series of the Company’s preferred stock.

 

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 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 reverse merger transaction in the accompanying Statement of Operations for the year ended March 31, 2014.

 

Consolidation Policy

 

The 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.

 

F-7
 

 

Reclassification of Certain Prior Year Information

 

The Company has reclassified certain prior year amounts to conform to the current year presentation. This included reclassification of promotional trade discount expenses of $172,661 for the twelve month period ended March 31, 2014 to revenue from sales and marketing expenses. The Company has also reclassified $23,580 of accounts payable owed to Molly Saleen Inc. as of March 31, 2014 from Accounts Payable to Due to Related Parties and has reclassified $139,300 of taxes payable as of March 31, 2014 from Other current liabilities to Payroll and other taxes payable. The reclassification of these amounts had no impact on consolidated net loss or cash flows.

 

Going Concern

 

The Company’s 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 year ended March 31, 2015, the Company incurred an operating loss of $5,321,929 and utilized $2,549,895 of cash in operations. The Company also had a stockholders’ deficit and working capital deficit of $9,669,225 and $7,050,644, respectively, as of March 31, 2015, and as of that date, the Company owed $745,503 in past unpaid payroll and other taxes; $933,271 of outstanding notes payable were in default; $1,204,840 of accounts payable was greater than 90 days past due; and $288,900 is owed on past due rent. In addition, in May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanding full payment of principal, interest and fees of $369,302. A default under the loan agreement triggers a cross default under the Company’s 3% Senior Secured Convertible Notes and 7% Convertible Notes (see Note 5) enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of the Company’s indebtedness. In addition, the Company does not currently maintain workers’ compensation, product liability and other general insurance.

 

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve sustainable revenues and profit from operations. At March 31, 2015 and July 13, 2015 the Company had cash on hand in the amount of $143,083 and approximately $21,000, respectively, and is not generating sufficient funds to cover current production and operations. The Company has utilized funding to operate the business during the year ended March 31, 2015 with funds obtained from customer deposits received in advance of shipment of $1,702,656; received $500,000 in advance royalties from an Intellectual Property Agreement (Note 11) raised $1,289,409 through the issuance of convertible notes; received $295,000 through the issuance of notes payable of which $195,000 came from related parties; and obtained cash from sales of Common Stock through entering into Subscription Agreements with individual accredited investors (the “Subscribers”) pursuant to which the Subscribers purchased from the Company an aggregate of 1,183,334 restricted common shares at a per share price of $0.15 for aggregate proceeds of $177,500. The Company will need and is currently seeking additional funds, primarily through the issuance of debt or equity securities for production and to operate its business through and beyond the date of this Form 10-K filing. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions and covenants on its operations, in the case of debt financing or cause substantial dilution for its stockholders in the case of convertible debt and equity financing.

 

Use of Estimates

 

Financial statements prepared in accordance with accounting principles generally accepted in the United States require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management estimates include the estimated collectability of its accounts receivable, the valuation of long lived assets, warranty reserves, the assumptions used to calculate derivative liabilities, and equity instruments issued for financing and compensation. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company accounts for the fair value of financial instruments in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements”. ASC 820 defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

 

F-8
 

 

Authoritative guidance provided by the FASB defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

 

Level 1 Quoted prices in active markets for identical assets or liabilities.

 

Level 2 Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly.

 

Level 3 Unobservable inputs based on the Company’s assumptions.

 

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, accrued liabilities, customer deposits, and notes payable. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

As of March 31, 2015 and 2014, the Company’s consolidated balance sheets included the fair value of derivative liabilities of $1,268,588 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 March 31, 2015 and 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 consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

To determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, the Company uses a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, the Company reviews its convertible securities to determine their classification is appropriate.

 

Allowance for Doubtful Accounts

 

The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding.

 

The Company recognizes an allowance for doubtful accounts to ensure trade receivables are not overstated due to uncollectability. For the most part, the Company generally requires advance payments for cars and credit card payments for parts. As of March 31, 2014 the Company had an allowance for doubtful accounts of $271,658. There was no such allowance at March 31, 2015.

 

Inventories

 

Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventories consist primarily of parts for both resale and conversion of automotive chassis. The Company will typically buy the automobile chassis of the vehicle to be converted from the Ford, Chevrolet and Dodge dealers and then modify the vehicle as ordered. The Company typically has no finished goods inventory, as the Company builds to order, other than parts held for resale.

 

   March 31, 2015    March 31, 2014  
         
Parts and chassis  $176,718   $183,941 
Work in process   298,969    - 
S7 Supercar held for sale   250,000    250,000 
Total inventories  $725,687   $433,941 

 

F-9
 

 

Long-lived Assets

 

In accordance with ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.

 

The Company had no such asset impairments at March 31, 2015 or March 31, 2014. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets.

 

Revenue Recognition

 

Sales of High Performance Cars and Parts

 

The Company generates revenues primarily from the sale of high performance automobiles and parts. The Company recognizes revenue from the sale of completed high performance cars and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably assured, all of which generally occurs upon shipment of the Company’s product or delivery of the product to the destination specified by the customer. In cases where the Company is the primary obligor related to the purchase of base Ford Mustang, Chevrolet Camaro and Dodge Challenger vehicles, the Company recognizes revenue related to the cost of the chassis plus markup, if any.

 

The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the cars or products on the carrier. The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured and generally collects before shipment. Except for warranties, the Company has no post-sales obligations nor does the Company accept returns.

 

Contract Revenue and Cost Recognition on Design Services

 

During the year ended March 31, 2014, the Company realized revenue from a contract with a major Hollywood movie producer of $121,500 for the design and replica production of supercar racing automobiles for the Need for Speed movie, which was released in March 2014. The Company did not have any design contracts during the year ended March 31, 2015.

 

Customer Deposits

 

The Company’s sales orders generally require customers to put deposits on vehicles at the time of signing a sales order. Typically, the Company receives either partial or full deposits related to such sales orders in advance of shipment and is generally paid in full prior to shipment of customers’ orders. Customer deposits as of March 31, 2015 and 2014 comprised of funds received in advance of shipment and were $1,896,568 and $193,912, respectively, which will be recorded as revenue upon shipment of related customers’ orders and satisfaction of the revenue recognition requirements discussed above.

 

Warranty Policy

 

The Company provides a three-year or 36,000 miles New Vehicle Limited Warranty with every Saleen 302 Mustang, Saleen 570 Challenger, Saleen 620 Camaro high performance vehicle and Saleen GTX. The vehicle limited warranty applies to installed parts and/or assemblies in new Saleen high performance cars. All of the unaltered parts are covered under the original full warranty of the OEM manufacturer of the base vehicles (Ford, Chevrolet, and Dodge). Changes in the product warranty accrual for the fiscal years ended March 31, 2015 and 2014 were as follows:

 

   Balance at
Beginning
of Fiscal Year
   Warranty
Expenditures
   Provision for
Estimated
Warranty Cost
   Balance at End
of Fiscal Year
 
Fiscal 2015  $-   $(7,077)  $27,077   $20,000 
Fiscal 2014  $-   $(16,763)  $36,763   $20,000 

 

Business Segments

 

The Company currently has one operating business segment that is converting automobiles into high performance vehicles and selling related parts.

 

F-10
 

 

Research and Development Costs

 

Research and development costs consist of expenditures for the research and development of new products and technology and are expensed as incurred. Research and development costs were $747,833 and $766,996 during the years ended March 31, 2015 and 2014, respectively.

 

Advertising, Sales and Marketing Costs

 

Advertising, sales and marketing costs are expensed as incurred and are included in sales and marketing expenses. During the year ended March 31, 2015, advertising, sales and marketing expenses were $3,679, $126,185, and $472,969, respectively. During the year ended March 31, 2014, advertising, sales and marketing expenses were $59,993, $110,275, and $414,555, respectively.

 

Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“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 the related deferred tax asset. Any change in the valuation allowance will 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.

 

The Company also uses the provisions of ASC 505-50, “Equity Based Payments to Non-Employees,” to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50.

 

Loss per Share

 

The basic EPS is calculated by dividing the Company’s net loss available to Common Stockholders by the weighted average number of common shares during the period. The diluted EPS is calculated by dividing the Company’s net loss available to Common Stockholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity securities unless the effects thereof are anti-dilutive, that is inclusion of such shares would reduce the net loss or increase the net income. For the years ended March 31, 2015 and 2014, the basic and diluted shares outstanding were the same, as potentially dilutive shares were considered anti-dilutive.

 

As of March 31, 2015, stock options and warrants exercisable for 13,459,000, and 13,313,099, shares of Common Stock, respectively, have been excluded from diluted loss per share because they are anti-dilutive.

 

As of March 31, 2014, warrants exercisable for 11,252,245 shares of Common Stock, and Notes convertible into 66,632,617 shares of Common Stock have been excluded from diluted loss per share because they are anti-dilutive.

 

Significant Concentrations

 

Sales to one customer comprised 11% of revenues for the year ended March 31, 2015. No customers comprised revenues in excess of 10% during the year ended March 31, 2014 and no customers comprised accounts receivable in excess of 10% at March 31, 2015 and 2014.

 

F-11
 

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash, to the extent balances exceeded limits that were insured by the Federal Deposit Insurance Corporation and accounts receivable. The Company does not require collateral and maintains reserves for potential credit losses. Such losses have historically been immaterial and have been within management’s expectations.

 

Property and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized on the straight-line method over the following estimated useful lives:

 

Computer equipment and software   3 years
Furniture   3 years
Machinery   3-10 years
Tooling   10 years

 

Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term.

 

Recently Issued Accounting Standards

 

On May 28, 2014, the Financial Accounting Standards Board (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. We will apply the new revenue recognition standard in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. 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 November 2014, the FASB issued Accounting Standards Update No. 2014-16 (ASU 2014-16), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in this ASU do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. The ASU applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. Management is currently evaluating the impact, if any, of adopting ASU 2014-16 on the Company’s results of operations or financial condition.

 

In January 2015, the FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), as part of its initiative to reduce complexity in accounting standards. ASU No. 2015-01 eliminates from generally accepted accounting principles the concept of extraordinary items. ASU No. 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with earlier adoption permitted. A reporting entity may apply the provisions of ASU No. 2015-01 prospectively or retrospectively to all prior periods presented in the financial statements. The Company does not expect the adoption of ASU No. 2015-01 to have a material effect on it results of operations or financial condition.

 

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 consolidated financial statements.

 

F-12
 

 

NOTE 2 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following at March 31, 2015 and March 31, 2014:

 

   March 31, 2015    March 31, 2014  
Tooling  $641,324   $470,399 
Equipment   321,189    264,837 
Leasehold improvements   203,310    203,312 
Total, cost   1,165,823    938,548 
Accumulated depreciation and amortization   (573,707)   (391,724)
Total Property and Equipment  $592,116   $546,824 

 

Depreciation and amortization expense for the years ended March 31, 2015 and 2014 was $181,983 and $97,061, respectively.

 

NOTE 3 – NOTES PAYABLE

 

Notes payable are comprised as follows:

 

   March 31, 2015    March 31, 2014  
Senior secured note payable to a bank, secured by all assets of Saleen Signature Cars, guaranteed by the U.S. Small Business Administration and personally guaranteed by the Company’s CEO, payable in full in March 2015 (1)  $358,704   $442,479 
Subordinated secured bonds payable, interest at 6% per annum payable at various maturity dates, currently in default (2)    97,000    97,000 
Subordinated secured note payable, interest at 6% per annum, payable March 16, 2010, currently in default (3)   61,046    61,046 
Subordinated secured note payable for legal services rendered, non-interest bearing, payable on October 25, 2013, in default at March 31, 2014 (4)   -    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 
Promissory note, interest at 6%, secured by a vehicle (7)   100,000    - 
Total notes payable  $671,750   $1,275,774 

 

(1) On February 6, 2014, Saleen Signature Cars received a Complaint from the bank filed in California Superior Court, Riverside County alleging, among other matters, breach of contract due to non-timely payment of November and December 2013 principal amounts owed, which were paid as of March 31, 2014, and the occurrence of a change in control as a result of the Merger. The bank sought full payment of principal and interest owed. In April 2014, the Company entered into a settlement arrangement with the bank whereby the bank dismissed this case in exchange for payment of $124,000 that was applied towards principal and unpaid fees along with advance loan principal and interest through July 2014. From August 2014 to March 31, 2015, in exchange for payments totaling $90,000, the bank agreed to extend this arrangement through various dates with the last date being March 2015. The bank has not agreed to an additional extension in conjunction with the bank’s claim of default. On April 29, 2015, the bank filed a claim against the Company alleging breach of the loan agreement, breach of a commercial guaranty by Steve Saleen, Chairman and CEO, and the bank demanded full payment of principal and interest outstanding (see Note 10).
   
(2) Bonds and notes issued on March 1, 2008, 2009 and 2010, payable in full upon one year from issuance. The Bonds accrue interest at 6% per annum and are secured by the personal property of Saleen Signature Cars. As of March 31, 2015 and 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 March 31, 2015 and 2014 due to non-payment.
   
(4) Non-interest bearing note payable dated January 25, 2013 due in full on October 25, 2013 or earlier upon the occurrence of certain events. The note is secured by certain intellectual property of the Company. The note was in default as of March 31, 2014 due to non-payment. In February 2015, the Company entered into a Settlement Agreement and Mutual General Release with this note holder whereby the Company agreed to issue 2,272,727 shares of its Common Stock at a price of $0.022 per share, or $50,000, in exchange for cancellation of all amounts owed and a mutual general release. The Company recognized a loss on settlement of $7,235 that is reflected in the Statement of Operations during the year ended March 31, 2015 to account for the difference between the fair value of the common shares issued and the amount recorded owed as of the date of settlement.

 

F-13
 

 

(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, Chairman and CEO, 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/share. 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 on settlement of $72,265 in the Statement of Operations during the year ended March 31, 2015 to account for the difference between the fair value of the common shares issued 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 March 31, 2015. In addition, another separate note for $20,000 remains outstanding as of March 31, 2015 and is in default due to non-payment.
   
(7) Note payable issued on March 25, 2015 bearing interest at a rate of 6% per annum. The note was secured by a vehicle provided to the borrower by the Company and was due on demand after 60 days following the date the secured vehicle was returned to the Company. In May 2015, the borrower agreed to cancel this note and convert the then principal and interest outstanding into a convertible note under the same terms as the 3% Senior secured convertible notes discussed in Note 5. In June 2015, the Company entered into an intellectual property agreement with the note holder. In connection with this agreement, the note was cancelled. See Note 11 for further discussion.

 

NOTE 4 – NOTES PAYABLE TO RELATED PARTIES

 

Notes payable to related parties are as follows:

 

   March 31, 2015    March 31, 2014  
Unsecured note payable to a stockholder, due on April 1, 2014, currently in default.  $102,000   $102,000 
Unsecured note payable to a stockholder, interest at 10% per annum payable at various maturity dates, settled in April 2014. (1)       32,452 
Unsecured payable to a stockholder at 10% per annum, payable on demand   165,000     
Unsecured $100,000 revolving promissory note to a stockholder, interest at 10% per annum payable in full in November 2014. (2)       75,000 
Total notes payable, related parties  $267,000   $209,452 

 

F-14
 

 

(1) 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 issued 172,060 shares of its Common Stock with a fair value of $38,191 as settlement of the note payable of $32,452 and unpaid interest of $1,960. In addition, the Company also granted the note holder 355,460 shares of common stock with a fair value of along with a five-year warrant to purchase 527,520 shares of its Common Stock at an exercise price of $0.15 per share. The loss on the settlement of this note of $153,754 was provided for and accrued for as of March 31, 2014 as part of Accounts to be settled by issuance of equity securities in the accompanying balance sheet.
   
(2) In January 2015, the note holder and the Company agreed to cancel this revolver and role the then principal and interest outstanding of $98,708 into a convertible note under the same terms as the 3% Senior secured convertible notes discussed in Note 5.

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes are comprised as follows:

 

   March 31, 2015    March 31, 2014  
3% Senior secured convertible notes payable to a private accredited investor group, convertible at $0.075 per share, subject to adjustment, $2,001,720 due in June 2017 and $499,892 due in January 2019.  $2,501,612   $2,586,732 
           
7% Unsecured convertible notes payable to private accredited investor group, convertible into 82,484,267 shares of Common Stock (including accrued interest) as of March 31, 2015, interest accrued at 7% per annum, notes mature in March 2017   2,200,000    2,250,000 
           
Unsecured convertible notes payable to eight separate private accredited investors, convertible into 35,782,732 shares of Common Stock (including accrued interest) as of March 31, 2015, interest accrued at 8% to 12% per annum, notes mature on various dates from April 2015 to December 2016, in default   618,225     
    5,319,837    4,836,732 
Less: discount on notes payable   (1,836,828)   (3,498,981)
Notes payable, net of discount   3,483,009    1,337,751 
Less: notes payable, current   (267,332)    
Notes payable, long-term  $3,215,677   $1,337,751 

 

3% Senior secured convertible notes

 

On June 26, 2013, pursuant to a Securities Purchase Agreement, as amended, the Company issued senior secured convertible notes, as amended, having a total principal amount of $3,000,000, to 12 accredited investors (“2013 Notes). The 3% Notes pay 3.0% interest per annum with a maturity of 4 years from the date of issuance (June 2017 and January 2019) and are secured by all assets and intellectual property of the Company. No cash interest payments will be required, except that accrued and unconverted interest shall be due on the maturity date and on each conversion date with respect to the principal amount being converted, provided that such interest may be added to and included with the principal amount being converted.

 

Each 3% Note is convertible at any time into Common Stock at a specified conversion price, which initially was $0.075 per share. Prior to June 2014, the 2013 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 of such and the agreements included an anti-dilution provisions that allows for the automatic reset of the conversion or exercise price upon any future sale of Common Stock instruments at or below the current exercise price. If the Company’s shares are issued, except in specified exempt issuances, for consideration which is less than the then existing 2013 Note conversion price, then such conversion price would be reduced by full ratchet anti-dilution adjustments that would reduce the conversion price to equal the price in the dilutive issuance, regardless of the size of the dilutive issuance.

 

Pursuant to FASB guidance on “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock, the Company determined that the conversion prices of the 2013 Notes were not a fixed amount because they were subject to fluctuation 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. See Note 6 for further discussion.

 

In June 2014, the Company entered into a First Amendment to Saleen Automotive, Inc. 3.0% Secured Convertible Note (“3% First Amendment”) and removed all specified adjustments to the conversion price except for standard anti-dilution provisions whereby if the Company consummates a reorganization transaction pays dividends or enters into a stock split of its common shares the conversion price would adjust proportionally. In addition, if a Fundamental Transaction, as defined in the 2013 Note agreement, were to occur the potential liquidated damage was set to a fixed amount. As an inducement for the amendment, the Company issued an aggregate of 389,923 shares of Common Stock with a fair value of $58,488. The Company recorded $58,488 as private placement costs determined based on the market value of the Company’s Common Stock of $0.15 as of the date of issuance.

 

F-15
 

 

The Company determined that the amendment of the Saleen Automotive, Inc. 3.0% Secured Convertible Note resulted in a modification for accounting purposes, and as such, the derivative liability recorded when the note was originally issued was deemed extinguished (see Note 6).

 

On January 23, 2015, the Company entered into a Second Amendment to 3% Senior Secured Convertible Notes whereby the conversion price of the 2013 Notes was amended to be the lesser of (a) $0.075 and (b) 70% of the average of the three lowest VWAPs occurring during the twenty consecutive trading days immediately preceding the applicable conversion date on which the note holders elects to convert all or part of the note. However, in no event shall the conversion price be less than $0.02. As a result of this amendment, the Company considered this to be an extinguishment of debt for accounting purposes, and recognized a loss on the extinguishment of $1,257,468, which comprised of $684,975 of expensing the remaining debt discount and $572,493 related to the beneficial conversion feature that resulted from the incremental change in the potential shares of common stock to be issued and the conversion price.

 

On January 26, 2015 the Company entered into two additional 3% Senior Secured Convertible Notes in the principal amount of $499,892 with two accredited investors who participated in the June 26, 2013 offering (“2015 Notes” and collectively “3% Notes”) of which $98,708 was converted from note payable previously entered into with one investor in November 2013. The Company determined that 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 2015 Notes. As such, the Company determined that there was deemed a beneficial conversion feature of $77,483 at the issuance date of the 2015 Notes and recorded such amount as valuation discount and as additional paid-in capital. The value of the beneficial conversion feature is being amortized as additional interest expense over the term of the 2015 Notes.

 

In May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanded full payment of principal, interest and fees of $369,302 (see Note 3). A default under the loan agreement triggers a cross default under the 2013 Notes and 2015 Notes enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of the indebtedness under the 3% Notes requiring the Company to pay, upon such acceleration, the sum of (1) 120% of the outstanding principal plus (2) 100% of all accrued and unpaid interest plus (3) all other amounts due under the 3% Notes. Upon the occurrence of an event of default under the 3% Notes interest accrues at the rate of 12% per annum.

 

During the years ended March 31, 2015 and 2014, the Company amortized $517,524 and $411,675, respectively, of the valuation discount, and the remaining unamortized valuation discount of $74,021 and $1,248,984 as of March 31, 2015 and 2014, respectively, has been offset against the face amount of the notes for financial statement purposes.

 

During the year ended March 31, 2015, certain note holders converted $585,012 of principal and $11,942 of interest into 8,032,186 shares the Common Stock. As of March 31, 2015, the principal balance of the convertible Notes outstanding was $2,501,612.

 

7% Unsecured convertible notes

 

In March and April 2014, as amended in June 2014, the Company issued 7% Unsecured Convertible Notes (the “7% Notes”), having a total principal amount of $2,250,000 and $250,000, respectively, to 5 accredited investors of which $2,000,000 was received from 3 investors who participated in the June 26, 2013 offering above. The 7% Notes pay interest at 7% per annum with a maturity of 3 years (March and April, 2017). No cash payments are required, except that unconverted outstanding principal and accrued interest shall be due and payable on the maturity date. Each 7% Note is initially convertible at any time into the Company’s Common Stock at a conversion price, which is adjustable to the lower of $0.07 or the three lowest daily volume weighted average prices of the Company’s Common Stock during the twenty consecutive trading days immediately preceding any conversion date. However, in no event shall the conversion price be lower than $0.03 per share. In addition, the conversion price adjusts for standard anti-dilution provisions whereby if the Company consummates a reorganization transaction, pays dividends or enters into a stock split of its common shares the conversion price would adjust proportionally.

 

In June 2014, the Company entered into a First Amendment to Saleen Automotive, Inc. 7% Convertible Note whereby effective as of March 31, 2014 or the applicable issuance date for notes issued thereafter, the conversion price would in no event adjust below $0.03 per share. In addition, if a Fundamental Transaction, as defined, were to occur the potential liquidated damages was set to a fixed amount. As an inducement, the Company issued an aggregate of 357,143 shares of its Common Stock with a fair value of $53,571 based on the market value of the Company’s Common Stock of $0.15 as of the date of issuance and was recorded as part of private placement costs in the accompanying Statement of Operations.

 

F-16
 

 

As the initial conversion price of $0.07 reflected a price discount below the fair market value of the Company’s Common Stock as of the issuance date of the 7% Notes, the Company determined that there was deemed a beneficial conversion feature associated with these 7% Notes. As such, the Company recorded $2,250,000 and $250,000 in March 2014 and April 2014, respectively, representing the intrinsic value of the beneficial conversion feature at the issuance date of the 7% Notes in additional paid-in capital. The value of the beneficial conversion feature is being amortized as additional interest expense over the term of the 7% Notes, which totaled $1,050,700 for the year ended March 31, 2015. As of March 31, 2015 and 2014, the remaining unamortized valuation discount of $1,449,300 and $2,250,000, respectively, has been offset against the face amount of the notes for financial statement purposes.

 

In May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanded full payment of principal, interest and fees of $369,302 (see Note 3). If the bank is successful in their claim of default, such default would trigger a cross default under the 7.0% Notes enabling the holders thereof to, at their election, accelerate the maturity of the outstanding indebtedness under the 7% Notes requiring the Company to pay, upon such acceleration, the greater of (1) 120% of the outstanding principal (plus all accrued and unpaid interest) and (2) the product of (a) the highest closing price for the five trading immediately preceding the holder’s acceleration and (b) a fraction, of which the numerator is the entire outstanding principal, and of which the denominator is the then applicable conversion price. Upon the occurrence of an event of default under the 7% Notes interest accrues at the rate of 24% per annum.

 

During the year ended March 31, 2015, one note holder converted $300,000 of principal and $15,808 of accrued interest into 10,000,000 shares of the Company’s Common Stock. As of March 31, 2015, the principal balance of the convertible Notes outstanding was $2,200,000.

 

Unsecured convertible notes

 

From September 2014 to December 2014, the Company issued Convertible Promissory Notes (“Notes”) in the aggregate principal amount of $638,225 to eight separate accredited investors. The Notes bear interest ranging from 8% to 12% per annum and mature on various dates from April 2015 to December 2016. The Company is currently in default of payment for a Note that matured in April 2015 in the principal amount outstanding of $10,600. The Company may not prepay the Notes without the Note holder’s consent. Further, the Notes contain provisions that under certain events of default, as defined in the agreements, the amount owed could increase by amounts ranging from 135% to 150% depending on the event of default. In addition, in the event of non-payment when due, the interest rates would increase to between 20% and 25% per annum from the date due until paid.

 

The Notes are convertible into shares of Common Stock of the Company at the option of the holder commencing on various dates following the issuance date of the Notes and ending on the later of the maturity date or date of full payment of principal and interest. The principal amount of the Notes along with, at the holder’s option, any unpaid interest and penalties, are convertible at price per share discounts ranging from 42% to 38% of the Company’s Common Stock trading market price during a certain time period, as defined in the agreement. Further, the conversion prices are subject to a floor such that the conversion prices will not be less than a certain price, as defined in the agreement, with such floor prices ranging from $0.001 to $0.00005 per share. In addition, the conversion prices are subject to adjustment in certain events, such as in conjunction with any sale, conveyance or disposition of all or substantially all of the Company’s assets or consummation of a transaction or series of related transactions in which the Company is not the surviving entity. The note agreements also require the Company to maintain a reserve of Common Stock, as determined based on a formula stated in the note agreements, which, upon request by the note holder, can be adjusted based on the formula and the then share price of the Company’s Common Stock as of the date of request. The note holder can convert up to the number of the then shares reserved for conversion of their related note. As of March 31, 2015, the Company was in compliance with the Common Stock reserve provisions; however, as of the date of this filing, the Company is in default of such reserve requirements due to insufficient availability of authorized shares to fulfill the note holders’ reserve requests.

 

The Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. In addition, the Company determined that instruments with floor prices ranging from $0.001 to $0.00001 were de minimis and in substance not indexed to the Company’s own stock. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded conversion feature was $1,306,455. As such, the Company recorded a $1,306,455 derivative liability, of which $638,225 was recorded as debt discount offsetting the fair value of the Notes and the remainder of $668,230 recorded as private placement costs in the Consolidated Statement of Operations for the year ended March 31, 2015. As of March 31, 2015, the Company amortized $374,661 of the valuation discount, and the remaining unamortized valuation discount of $313,507 as of March 31, 2015 has been offset against the face amount of the Notes for financial statement purposes. The remainder of the valuation discount will be amortized as interest expense over the remaining term of the Notes. The derivative liability is re-measured at the end of every reporting period with the change in value reported in the statement of operations (see Note 6).

 

F-17
 

 

During the year ended March 31, 2015, one Note holder converted $20,000 of principal and $161 of accrued interest into 1,785,714 shares of the Company’s Common Stock. As of March 31, 2015, the principal balance of the convertible Notes outstanding was $618,225.

 

The aggregate future obligations under the Convertible Notes Payable herein and notes payable described in Notes 3 and 4 are as follows:

 

Year Ending March 31,  Amount 
2016  $1,556,974 
2017   4,201,720 
2018   - 
2019   499,893 
2020     
   $6,258,587 

 

NOTE 6 – DERIVATIVE LIABILITY

 

Pursuant to FASB authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments, which do not have fixed settlement provisions, are deemed to be derivative instruments. The conversion feature of the Company’s senior secured convertible notes and unsecured convertible notes (described in Note 5 above), did not have fixed settlement provisions because their conversion prices could be lowered if the Company issues securities at lower prices in the future or the ultimate determination of shares to be issued could exceed current available authorized shares. In accordance with the FASB authoritative guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and recognized as a derivative instrument. The conversion feature of the notes had been characterized as a derivative liability and was re-measured at the end of every reporting period with the change in value reported in the statement of operations.

 

The derivative liabilities were valued at the following dates using a probability weighted-average Black-Scholes-Merton model with the following assumptions:

 

   March 31, 2015   September to
December, 2014
(Dates of Inception)
   June 17, 2014
(Note Amendment
and
Restatement Date)
   March 31, 2014 
Conversion feature:                    
Risk-free interest rate   0.04 – 1.33 %   0.02%   0.02%   0.05%
Expected volatility   179%   124 – 139 %   106%   100%
Expected life (in years)   .2 – 1.6 years    .75 to 2.0 years    3 years    .25 years 
Expected dividend yield                
                     
Fair Value:                    
Conversion feature  $1,268,588   $1,306,455   $3,908,950   $5,032,786 

 

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company used its own stock’s volatility as the estimated volatility. The expected life of the conversion feature of the notes was based on the remaining terms of the notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its holders of Common Stock in the past and does not expect to pay dividends to holders of its Common Stock in the future.

 

In June 2014, pursuant to the First Amendment to Saleen Automotive, Inc. 3.0% Secured Convertible Note as discussed in Note 5, the Company determined the conversion features of the note was no longer required to be accounted for as a derivative liability due to the elimination of the price-based anti-dilution provisions contained in the note. As a result, the Company recognized the fair value of the derivative liability at the date of extinguishment of $3,908,950 an addition to contributed paid in capital.

 

F-18
 

 

From September 2014 to December 2014, in conjunction with the issuance of the Company’s Unsecured Convertible Note as discussed in Note 5, the Company recognized derivative liability of $1,306,455.

 

During the year ended March 31, 2015, the Company recognized a gain of $1,111,389 to account for the change in fair value of the derivative liability and gain of $50,314 due to extinguishment of the derivative liability upon conversion of a note to equity. At March 31, 2015, the fair value of the derivative liability amounted to $1,268,588.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

The amounts of accounts payable to related parties as of March 31, 2015 and 2014 are as follows:

 

Related Party:  March 31, 2015    March 31, 2014  
Steve Saleen (a)  $223,455   $100,000 
Michaels Law Group (b)       23,954 
Top Hat Capital (c)   62,500    25,000 
Crystal Research (d)   6,343     
Molly Saleen, Inc. (e)   34,214    23,580 
   $326,512   $172,534 

 

(a) During the year ended March 31, 2015, the Company incurred $125,654 in officers’ salary expense that is due and payable to its Director, Chairman and CEO, Mr. Steve Saleen. As of March 31, 2015 and 2014 the Company owed $223,455 and $100,000, respectively, to Mr. Saleen for his unpaid officers’ salary. In March 2014, Mr. Saleen agreed to forgive $353,787 of amounts owed for loans given by Mr. Saleen to the Company and unpaid salary, which the Company recognized as a gain and offset to settlement expenses in the Statement of Operations. In June 2015, the Company issued 220,000 shares of Super Voting Preferred Stock for payment of $220,000 owed to Mr. Saleen (see Note 11).
   
(b)

During the year ended March 31, 2015 and 2014, the Company incurred $69,418 and $365,251, respectively, in General Counsel Services and legal fees expense with Michaels Law Group, a firm owned by a former Director and General Counsel, Mr. Jonathan Michaels. In January 2015, the Company entered into a Fee Reduction Agreement with Michaels Law Group whereby Michaels Law Group reduced the amount owed to $75,000 and the Company issued 2,500,000 shares of Common Stock to Michaels Law Group as full payment. The value of the Common Stock issued of $75,000 was based on a fair value of $0.03 per share. During the year ended March 31, 2015 the Company paid $550 to Michaels Law Group.

 

In March 2014, the Company entered into a Retainer Agreement whereby the Company issued 1,447,500 shares of Common Stock and five year warrants to purchase 1,447,500 shares of Common Stock at an exercise price of $0.15 per share along with cash of $36,459 in exchange for amounts owed through February 2014. The value of the Common Stock issued was $405,300 based on a stock price of $0.28 on date of settlement. The Company valued the warrants at $332,491 using the Black-Scholes option pricing model using the following assumptions: (i) fair market value of stock of $0.28; (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 Company recognized a loss of $521,558 included in settlement expenses in the Statement of Operations for the year ended March 31, 2014 based on the difference between the value of the common shares and stock warrants issued plus $36,459 cash paid and the amount owed of $252,692. During the year ended March 31, 2014, the Company paid $110,000 to Michaels Law Group. As of March 31, 2014, $23,954 was payable to Michaels Law Group services for rendered.

   
(c) During the year ended March 31, 2015 and 2014, the Company incurred $50,000 and $35,000, respectively, of which the Company paid $12,500 and $10,000, respectively, during the years ended March 31, 2015 and 2014, 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 March 31, 2015 and 2014, $62,500 and $25,000, respectively, was payable to TopHat Capital for these services.
   
(d) During the year ended March 31 2015, 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 March 31, 2015, $6,343 was payable to Crystal Research Associates for these services.
   
(e) During the year ended March 31, 2015 and 2014, the Company purchased $12,650 and $43,325, respectively, of which the Company paid $2,016 and $12,650, respectively, during the years ended March 31, 2015 and 2014, in purchases of apparel and accessories from Molly Saleen, Inc. dba Mollypop. Molly Saleen, the Chief Executive Officer of Mollypop, is the daughter of Steve Saleen, the Company’s Chief Executive Officer and President. As of March 31, 2015 and 2014, $34,214 and $23,580, respectively, was outstanding. On June 22, 2015, the Company issued 19,077.777 shares of Super Voting Preferred Stock for payment of $34,214 outstanding (see Note 11).

 

F-19
 

 

Other Transactions

 

During the year ended March 31, 2014, the Company incurred and paid $259,534 and $252,663, respectively, in accounting advisory and CFO services with Miranda & Associates, a firm owned by its former Chief Financial Officer, Mr. Robert Miranda. In March 2014, the Company entered into a Separation Agreement and General Release whereby in settlement of all remaining amounts due him, the Company issued 1,061,408 shares of Common Stock and five year warrants to purchase 1,061,408 shares of Common Stock at an exercise price of $0.15 per share along with cash of $10,000 in exchange for amounts owed as of March 31, 2014. The value of the Common Stock issued was $212,282 based on a stock price of $0.20 on date of settlement. The Company valued the warrants at $169,825 using the Black-Scholes option pricing model using the following assumptions: (i) fair market value of stock of $0.20; (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 Company recognized a loss of $218,014 in the Statement of Operations for the year ended March 31, 2014 based on the difference between the value of the common shares and stock warrants issued plus $10,000 cash paid and the amount owed of $174,093.

 

During the year ended March 31, 2014, 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 – INCOME TAXES

 

As of March 31, 2015, the Company had net operating loss carry forwards for income tax reporting purposes of approximately $19,000,000 that may be offset against future taxable income. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs or a change in the nature of the business. The utilization of the losses is also limited by the fact that the combined companies prior to the reverse merger file on a separate basis and losses on one cannot offset profits on the other. Therefore, the amount available to offset future taxable income may be limited.

 

No tax benefit has been reported in the financial statements for the realization of loss carry forwards, as the Company believes based on the Company’s past operations that there is no evidence or assurance that the carry forwards will be utilized. Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation allowance of the same amount.

 

   March 31, 2015   March 31, 2014 
Deferred income tax asset:          
Net operating loss carry forward  $5,800,000   $4,773,000 
Valuation allowance   (5,800,000)   (4,773,000)
Net deferred income tax asset  $   $ 

 

Reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:

 

   March 31, 2015   March 31, 2014 
Tax expense at the U.S. statutory income tax   (34.00)%   (34.00)%
State tax net of federal tax benefit   (5.80)%   (5.80)%
Increase in the valuation allowance   39.8%   39.8%
Effective tax rate   %   %

 

The Company is primarily subject to U.S. federal and state income tax. As a result of the implementation of certain provisions of ASC 740, Income Taxes, (formerly FIN 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109), the Company performed an analysis of its tax liabilities and determined that there were no positions taken that it considered uncertain. Therefore, there were no unrecognized tax benefits as of March 31, 2015 and March 31, 2014, respectively.

 

F-20
 

 

Future changes in the unrecognized tax benefit are not expected to have an impact on the effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change within the next twelve months. The Company will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in its statements of operations. The Company has incurred no interest or penalties as of March 31, 2015 and March 31, 2014.

 

NOTE 9 – STOCKHOLDERS’ EQUITY

 

The Company is authorized under its articles of incorporation, as amended, to issue 500,000,000 shares of Common Stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share. Under the terms of the Merger Agreement, all of the outstanding shares of capital stock held by Saleen Automotive’s former shareholders were exchanged for 554,057 shares of the Company’s Super Voting Preferred Stock, and under the terms of the Assignment and License Agreement, as amended, the Company issued to Saleen 341,943 shares of its Super Voting Preferred Stock. Each share of the Company’s Super Voting Preferred Stock was convertible into 125 shares of its Common Stock.

 

On July 9, 2013, holders of a majority of the outstanding shares of the Company’s Super Voting Preferred Stock voted to convert, 696,000 shares of its Super Voting Preferred Stock into 87,000,000 shares of its Common Stock. Such conversion became effective on July 18, 2013, upon the filing of the amendment to the Certificate of Designations.

 

On January 13, 2014, pursuant to an amendment to the Company’s articles of incorporation increasing the authorized shares of its Common Stock to 500,000,000, all of the remaining outstanding shares of its Super Voting Preferred Stock automatically converted into shares of its Common Stock, and the Super Voting Preferred Stock ceased to be a designated series of preferred stock.

 

During the year ended March 31, 2014, 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.

 

Issuance of Common Stock

 

Shares Issued During Year Ended March 31, 2014

 

During the year ended March 31, 2014, we issued 5,277 shares of Super Voting Preferred Stock to Jonathan Michaels, a former board member and general counsel for the company, and Robert Miranda, a form board member and chief financial officer of the Company. The shares issued were valued at $250,000, which was based on the trading price at the date of agreement.

 

During the year ended March 31, 2014, we issued 5,899 shares of Super Voting Preferred Stock, of which 923 were issued to related parties, valued at $473,581 in exchange for services. The shares issued were valued based on the trading price at the date of agreement.

 

During the year ended March 31, 2014, we issued 481 and 521 shares of Super Voting Preferred Stock for shares issued as principal of $22,803 and interest of $24,697, respectively, related to notes payable. The shares issued were valued based on the trading price at the date of agreement.

 

During the year ended March 31, 2014, we issued 325,128 shares of Common Stock as payment of accounts payable. The shares issued were valued at $103,191, which was based on the trading price at the date of agreement.

 

During the year ended March 31, 2014, we issued 2,508,908 shares of Common Stock and warrants for payment of accounts payable owed to related parties. The shares and warrants issued were valued at $1,120,382, which was based on the trading price at the date of agreement for the shares, and using the fair market value for the warrants based on the Black-Scholes option pricing model (see Note 7).

 

During the year ended March 31, 2014, the Company entered into Subscription Agreements with individual accredited investors (the “Subscribers”) pursuant to which the Subscribers purchased an aggregate of 8,793,337 restricted shares of the Company’s Common Stock at a per share price of $0.15 for aggregate proceeds of $1,312,500, and also received five year, fully vested Common Stock Purchase Warrants to purchase 8,793,337 shares of the Company’s Common Stock at an exercise price of $0.15 per share. The warrants were valued based on the Black-Scholes option pricing model noted below.

 

F-21
 

 

In conjunction with the Company’s increase in its common shares authorized in January 2014 to 500,000,000 shares, all then remaining shares of Super Voting Preferred Stock of 896,000 shares were converted into 112,000,000 shares of Common Stock of the Company and the Super Voting Preferred Stock ceased to be a designated series of the Company’s preferred stock.

 

During the year ended March 31, 2014, the Company issued an aggregate of 5,553,128 shares of common stock upon conversion of the Company’s convertible notes payable and accrued interest amounting to $416,486 (see Note 5).

 

Shares Issued During Year Ended March 31, 2015

 

During the year ended March 31, 2015, the Company issued 1,000,000 shares of Common Stock valued at $170,000 in in exchange for services. The shares issued were valued based on the trading price at the date of the agreement.

 

During the year ended March 31, 2015, the Company issued 1,285,460 shares of Common Stock and warrants to purchase 527,520 shares of common stock with an aggregate fair value of $470,534 to settle 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 year ended March 31, 2015.

 

During the year ended March 31, 2015, the Company entered into Subscription Agreements with individual accredited investors 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 five year, fully vested 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. The warrants were valued based on the Black-Scholes option pricing model noted below.

 

During the year ended March 31, 2015, the Company issued 50,000 shares of common stock upon exercise of warrants which resulted in net proceeds of $7,500.

 

During the year ended March 31, 2015, the Company issued an aggregate of 747,066 shares of common stock with a fair value of $112,059 to induce amendments of the Company’s convertible notes (see Note 5). The shares issued were valued based on the trading price at the date of the agreement.

 

During the year ended March 31, 2015, the Company issued an aggregate of 19,817,900 shares of common stock upon conversion of the Company’s convertible notes payable and accrued interest amounting to $932,923 (see Note 5).

 

During the year ended March 31, 2015, the Company issued an aggregate of 5,494,787 shares of common stock with a fair value of $582,691 as settlement of notes payable and a note payable to a related party (see Note 3 and Note 4). The shares issued were valued based on the trading price at the date of the settlement.

 

During the year ended March 31, 2015, the Company entered into Settlement Agreement and Mutual Release agreements with three separate vendors whereby the Company issued and aggregate of 7,567,980 shares of Common Stock with a fair value of $223,678 in exchange for extinguishment of amount owed of $168,154. The value of the Common Stock was based on the market price of the Company’s Common Stock as of the date of agreements. As a result, the Company recorded a loss on settlement of $55,524 to account the fair value of the shares issued.

 

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.

 

F-22
 

 

Stock option activity is set forth below:

 

   Number of
Shares
   Weighted
Average
Exercise Price
per Share
   Aggregate
Intrinsic
Value
   Weighted-Average
Remaining
Contractual Term
(in years)
 
Balance at March 31, 2014      $   $     
Options granted during the period   14,104,000    0.10         
Options cancelled during the period   645,000    0.10         
Options exercised during the period                
Balance at March 31, 2015   13,459,000    0.10   $0    9.67 
Exercisable at March 31, 2015   7,271,333    0.10   $0    9.47 
Expected to vest after March 31, 2015   5,826,793    0.10   $0    9.47 

 

The aggregate intrinsic value shown in the table above represents the difference between the fair market value of the Company’s Common Stock of $0.01 on March 31, 2015 and the exercise price of each option.

 

During the year ended March 31, 2015, the Company granted options to purchase a total of 14,104,000 shares of common stock to employees and non-employees. The stock options are exercisable at $0.03/share up to $0.10/share, vest over a period of three years, expire in ten years and with a fair value of $1,028,417. As a result, the Company recorded stock compensation expense of $650,351 of which $66,067, $268,610, and $315,674 was included in research and development, sales and marketing, and general and administrative expenses, respectively based upon the vesting of these stock options.

 

Unearned compensation of approximately $345,000 at March 31, 2015, related to non-vested stock options, will be recognized into expense over a weighted average period of 1.02 years.

 

Warrants

 

The following summarizes warrant activity for the Company during the year ended March 31, 2015:

 

   Warrants   Weighted Average
Exercise Price
   Weighted Average
Remaining
Contractual Term
 
Outstanding March 31, 2013            
Issued during the period   11,252,245    0.15    4.8 
Outstanding March 31, 2014   11,252,245   $0.15    4.8 
Issued during the period   2,110,854    0.15    4.1 
Exercised during the period   (50,000)   0.15     
Outstanding March 31, 2015   13,313,099   $0.15    3.9 

 

During the year ended March 31, 2015, the Company granted warrants to purchase total of 1,183,334 shares of common stock pursuant to the sale of the Company’s common stock for cash.

 

During the year ended March 31, 2015, the Company granted warrants to purchase 527,520 shares of common stock pursuant to settlement agreement with a fair value of $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 fair value of the warrants was included as part of amounts payable settled through the issuance of equity securities in the accompanying Statement of Stockholders’ Deficit.

 

During the year ended March 31, 2015 warrants to purchase 50,000 shares of the Company’s Common Stock were exercised for total proceeds of $7,500.

 

As of March 31, 2015, 13,313,099 warrants were exercisable and the intrinsic value of the warrants was nil.

 

F-23
 

 

NOTE 10 – COMMITMENTS AND CONTINGINCIES

 

Facilities Leases

 

The Company rents two buildings totaling approximately 76,000 square feet on triple net leases through January, 2018. Rent expense during the year ended March 31, 2015 and 2014 was $524,339 and $508,802, respectively.

 

The current lease provides for an annual escalation of 3% in the rent each February and provides for one option to extend beyond January 2018 for periods from 36 to 60 months. Past rent will be made up with the payment of an additional $5,300 for 20 months starting in June, 2014, which expired in February 2015.

 

The future minimum rental payments required under the non-cancelable operating leases described above as of March 31, 2015 are as follows:

 

Years ending March 31:   Lease Commitment 
2016   $583,671 
2017    599,689 
2018    512,172 
    $1,695,532 

 

Purchase Commitments

 

In April 2014, the Company entered into an agreement with BASF to exclusively use BASF’s products for paint work. The agreement continues from May 2014 until the Company purchases in aggregate $4,131,000 of BASF products. If the aggregate purchases of BASF products are less than $1,697,000 over a period of 36 consecutive months, the Company is required to repay BASF 6.1% of the shortfall between $1,697,000 and the amount it actually purchased over this period. In consideration for the Company’s exclusive use of BASF’s products and fulfilling this purchase commitment, BASF paid the Company $250,000, which was recorded as deferred vendor consideration. This amount will be recorded as a reduction of cost of services based on a systematic and rational allocation of the cash consideration offered to the underlying transaction.

 

In May 2014, the Company entered into an agreement with FinishMaster, Inc. (“FinishMaster”) to exclusively use FinishMaster’s paint material supplies. The agreement continues from May 2014 until the Company purchases in aggregate $1,555,000 of FinishMaster products. In consideration for the Company’s exclusive use of FinishMaster’s products and fulfilling this purchase commitment, FinishMaster paid the Company $25,000, which was recorded as deferred vendor consideration, and FinishMaster will pay an additional $25,000 upon the achievement of purchase level milestones, as outlined in the agreement. Should the Company not complete a set purchase level milestone, the Company would be required to re-pay the $25,000 along with $11,475 compensation to FinishMaster. This initial amount paid will be recorded as a reduction of cost of services based on a systematic and rational allocation of the cash consideration offered to the underlying transaction.

 

Litigation

 

The Company is involved in certain legal proceedings that arise from time to time in the ordinary course of its business. The Company is currently a party to several legal proceedings related to claims for payment that are currently accrued for in its financial statements as accrued liabilities, accounts or notes payable. Except for income tax contingencies (commencing April 1, 2009), the Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. Material legal proceedings that are currently pending are as follows:

 

The Company is a defendant in a case filed by MSY Trading, Inc. on April 13, 2012 in the California Superior Court, Riverside County, that claimed breach of contract related to an engine installed by a third party vendor. The suit claimed $200,000 in damages plus interest, legal fees and costs of litigation. SSC filed a cross complaint against MSY Trading, Inc. for breach of warranty, negligence, and indemnification. On January 10, 2014, the Company settled this claim by agreeing to pay of $112,500 over a period of 18 months of which we paid $45,500 through August 2014. Subsequent to this date the Company defaulted on payments. On October 30, 2014, a judgment was entered against SSC in the amount of $68,950, which the Company accrued for in accounts payable.

 

F-24
 

 

In December 2014, the Saleen Automotive, Inc. (formerly Saleen Electric Automotive, Inc.), our wholly-owned subsidiary, received a Complaint from Green Global Automotive B.V. (“GAA”) alleging causes of action for breach of contract and breach of the covenant of good faith and fair dealing, related to a European Distribution Agreement entered into in December 2011 between GAA and Saleen Automotive. The suit seeks contract and economic damages of $50,000 along with compensatory damages, restoration, lost profits and attorneys’ fees. The Company is currently evaluating the merits of this case, if any, and is working to ascertain the impact on its financial statements.

 

In December 2014, the Company received a Complaint from Ford of Escondido for 1) claim and delivery of personal property, 2) money due on a contract, and 3) common count. Home Heller Ford, which was merged into Ford of Escondido, is a party to a supply agreement with us entered into in May 2013. Specifically, Ford of Escondido seeks payment of seven (7) Ford Mustangs for a total of $222,871 plus interest and attorneys’ fees, less any amounts to be credited pursuant to proceeds of sale. As of March 31, 2015, the Company has included in accounts payable the amount owed for four (4) vehicles which the Company believes are owed to Ford of Escondido. As such, the Company believes that Ford of Escondido’s claims with respect to the remaining three (3) vehicles are without merit and have responded to the Complaint including claims that Ford of Escondido breached the supply agreement with the Company. There has been no response received from Ford of Escondido to the Company’s position and the outcome is uncertain; however, the Company believes this matter will not have a material impact, if any, on its financial statements.

 

In February 2014, SSC received a Complaint from a Citizens Business Bank (the “Bank”) alleging, among other matters, breach of contract due to non-timely payment of November and December 2013 principal amounts owed, which were paid as of December 31, 2013, and the occurrence of a change in control as a result of the Merger. In April 2014, the Bank agreed to dismiss the suit in exchange for payment of $124,000 that was applied towards principal and unpaid fees along with advance loan principal and interest for May, June and July 2014, and the agreement to pay the remaining recorded balance due of $443,000 to the Bank in August 2014. From August 2014 to March 31, 2015, in exchange for payments totaling $90,000, the Bank agreed to extend this arrangement through various dates with the last date being March 2015. The Company did not pay the then outstanding principal and interest in March 2015 and the Bank did not agree to an additional extension. In May 2015, the Company was notified of a lawsuit filed by the Bank in the Superior Court of the State of California, County of Riverside, alleging breach of the Loan Agreement with the Bank (“Loan Agreement”), breach of a commercial guaranty by Steve Saleen and indebtedness for principal and interest of at least $369,302, and seeking appointment, which has not been granted by the court as of the date of this filing, of a limited purpose receiver and a temporary restraining order enjoining the Company from transferring the collateral securing the loan, which related to SSC. The main complaint by the Bank stems from the Company’s reverse merger that occurred in June 2013 whereby the Bank deemed this event to constitute a change in control, as defined in the loan agreement. The Company disagrees with the Bank’s interpretation and believes the claims by the bank are without merit. Although the Company currently believes that resolving claims against the Company, individually or in aggregate, will not have a material adverse impact on the Company’s financial statements, these matters are subject to inherent uncertainties and management’s views of these matters may change in the future. See Note 3

 

Insurance

 

Due to the Company’s cash constraints, the Company currently does not maintain insurance ordinarily customary for businesses it’s size and type such as workers’ compensation, garage and general liability insurance. As such, the Company may incur losses against it such as employee worker accidents, losses due to natural disasters or other business risks for which the Company is not insured. Such damages could have a material adverse effect on its business and results of operations. There can be no assurance that the Company will be able to obtain, afford or qualify for insurance to address such potential risks or if such insurance will adequately cover any potential matters encountered.

 

F-25
 

 

NOTE 11 – SUBSEQUENT EVENTS

 

10% Senior Secured Convertible Notes

 

On May 13, 2015, the Company entered into a 10.0% First Lien Convertible Note (“10% Note”) and Securities Purchase Agreement (“SPA”) by and among the Company and GreenTech Automotive, Inc. (“GTA”), whereby GreenTech agreed to provide for the issuance of up to $500,000 under the 10% Note for a period up to August 17, 2015 under the same terms as the June 2013 Notes (see note 5). In conjunction with this 10% Note, $100,000 was converted from a note entered into in March 2015 with GreenTech (see Note 3). These Notes have subsequently been converted to a license agreement as described below.

 

Intellectual Property License Agreement

 

In June 2015, the Company entered into an Intellectual Property License Agreement (the “License Agreement”) with Saleen Motors International, LLC, a Delaware limited liability company (“SMI”) and a wholly owned subsidiary of GTA and non-affiliated subsidiary of the Company. Pursuant to the License Agreement, the Company granted to SMI an irrevocable, fully paid-up (subject to certain royalty fees), sublicensable license during the term of the License Agreement to use all of the Company’s intellectual property on an exclusive basis worldwide other than in North America, Europe, Middle East and Australia (as applicable, the “Territory”), to make, promote, sell and otherwise exploit the Company’s intellectual property in the Territory. The License Agreement has an initial term of 10 years, with automatic renewal for periods of five years at SMI’s election provided that the number of Saleen branded vehicles sold by SMI in the prior 12-month period is not less than the average number of Saleen-branded vehicles sold by the Company and subsidiaries in the most recently available three-year period. The License Agreement may be terminated by mutual written agreement, upon a material breach, which remains uncured (with SMI having the right to cure no more than 3 breaches of its obligation to pay royalties) for 15 days after written notice of such breach, or in the event of SMI’s bankruptcy.

 

In consideration of the license SMI shall pay royalties, within 15 days after the product shipment date and in all events at least quarterly, based on a fee per Saleen-branded vehicle sold by SMI depending on its sales volume as set forth in the License Agreement, and shall pay royalties based on a percentage of SMI’s gross revenues for parts and merchandise (in each case net of discounts, returns, taxes and similar amounts) received on Saleen-branded non-vehicle products.

 

The parties to the License Agreement, along with GTA, agreed that the $500,000 10% Notes made by GTA pursuant to the SPA and the 10.0% First Lien Convertible Note entered into in May 2015, was deemed satisfied upon the execution of the License Agreement.

 

Except for the transactions under the agreements described above and the Company’s Joint Branding, Marketing, and Distribution Agreement with WM Industries Corp. (an affiliate of SMI and GTA) dated March 2014, none of the Company or its subsidiaries had any material relationship with SMI, GTA and its affiliates.

 

Authorized Shares

 

In June 2015, the board of directors approved an increase in our authorized shares from 500,000,000 to 2,500,000,000. The increase in authorized shares is pending our filing and approval of an Information Statement.

 

Super Voting Preferred

 

On June 12, 2015, the Company filed a Certificate of Designation designating the rights and restrictions of 1,000,000 shares of Super Voting Preferred Stock, par value $0.001 per share, pursuant to resolutions approved by the Company’s Board of Directors on June 11, 2015.

 

The holders of Super Voting Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class, upon all matters submitted to holders of Common Stock for a vote. Each share of Super Voting Preferred Stock is entitled to a number of votes equal to the number of shares of our Common Stock into which it is convertible at the applicable record date. Each share of our Super Voting Preferred Stock will immediately and automatically convert into 1,000 shares (subject to adjustment for splits, dividends and similar transaction) of Common Stock at such time that the Company files, at such time as determined by the Company’s board of directors, an amendment to its articles of incorporation effecting a reverse stock split of Common Stock or effecting an increase in the authorized shares of Common Stock, in each case so that the Company has a sufficient number of authorized and unissued shares of Common Stock to permit the conversion of all then outstanding shares of Super Voting Preferred Stock into Common Stock.

 

F-26
 

 

In the event of any liquidation, dissolution or winding up of the Company, the assets available for distribution to the stockholders will be distributed among the holders of the Super Voting Preferred Stock and the holders of Common Stock, pro rata, on an as-converted-to-common-stock basis. The holders of Super Voting Preferred Stock are entitled to dividends in the event that the Company pays cash or other dividends in property to holders of outstanding shares of Common Stock, which dividends would be made pro rata, on an as-converted-to-common-stock basis.

 

On June 16, 2015, in order to make available additional shares of Common Stock to facilitate the conversion of outstanding debt, the Company issued to Steve Saleen, the Company’s Chief Executive Officer and President, 82,133.875 shares of Super Voting Preferred Stock in exchange for 82,133,875 shares of Common Stock held by Mr. Saleen.

 

On June 16, 2015, the Company issued 220,000 shares of Super Voting Preferred Stock to Mr. Saleen in satisfaction of $220,000 of debt owed to Mr. Saleen. The per share price of Super Voting Preferred Stock issued to Mr. Saleen was based on the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by the per share closing price ($0.001) of Common Stock as of June 11, 2015, the date the issuance was approved by the Company’s Board of Directors.

 

On June 22, 2015, the Company issued to Molly Saleen, Inc., dba Mollypop, 19,007.777 shares of Super Voting Preferred Stock to reimburse Mollypop for $34,214 of merchandise purchased by Mollypop on the Company’s behalf. Molly Saleen, the Chief Executive Officer of Mollypop, is the daughter of Steve Saleen. On June 22, 2015, the Company also issued 63,000 shares of Super Voting Preferred Stock to Michaels Law Group, APLC (“MLG”) as a retainer for legal services to be provided by MLG in connection with various outstanding claims and suits in which the Company is plaintiff, and for other legal matters. Jonathan Michaels, the founding member of MLG, previously served as a member of the Company’s Board of Directors and as our general counsel.

 

The per share price of Super Voting Preferred Stock issued to Mollypop and MLG was based on the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by the per share closing price ($0.0018) of Common Stock as of June 19, 2015, the date the issuance was approved by the Board of Directors.

 

Common Stock Issued in Conjunction with Unsecured Convertible Notes

 

From April 1, 2015 to the date of this Form 10-K filing, unsecured convertible note holders (see note 5) converted $372,514 of principal and unpaid interest into 367,751,194 shares of Common Stock. As discussed in Note 5, the note agreements require the Company to maintain a reserve of Common Stock, as determined based on a formula stated in the note agreements, which, upon request by the note holder, can be adjusted based on the formula and the then share price of the Company’s Common Stock as of the date of request. The note holder can convert up to the number of the then shares reserved for conversion of their related note. As of the date of this filing of Form 10-K, the Company is in default of the Common Stock reserve requirements due to insufficient availability of authorized shares to fulfill the note holders’ reserve requests.

 

F-27
 

 

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

Item 9A. Controls and Procedures

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (the “Exchange Act”) as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel 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 and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2015. In making this assessment, management used the criteria set forth in the 1992 framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) entitled “Internal Control—Integrated Framework.” Based on the results of this assessment, management has concluded that our internal control over financial reporting was not effective as of March 31, 2015 primarily due to the limited size of our staff and budget.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we engaged our independent registered public accounting firm to perform, an audit on our internal control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during the year ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Evaluation of Disclosure Controls and Procedures

 

As of March 31, 2015, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, and notwithstanding that there were no accounting errors with respect to our financial statements, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of that date to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

 

41
 

 

Our disclosure controls or internal controls over financial reporting were designed to provide only reasonable assurance that such disclosure controls or internal controls 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.

 

Limitations on the Effectiveness of Controls

 

Our management believes that a control system, no matter how well designed and operated can provide only reasonable assurance and cannot provide absolute assurance that the objectives of the internal control system are met, and no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Further, the design of an internal 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 in all internal control systems, no evaluation of controls can provide absolute assurance that all control issuers and instances of fraud, if any, within our company have been detected.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

42
 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

The following table sets forth the names, positions and ages of our current executive officers and directors. All directors serve until the next annual meeting of stockholders or until their successors are elected and qualified. Officers are appointed by our board of directors and their terms of office are, except to the extent governed by an employment contract, at the discretion of our board of directors.

 

Name   Age   Title
Steve Saleen (1)   66   Chief Executive Officer, President and Director
David Fiene   44   Chief Financial Officer and Secretary
Jeffrey Kraws (2)   50   Director
Joe Amato (3)   70   Director

 

  (1) Appointed effective June 26, 2013
  (2) Appointed effective December 11, 2013
  (3) Appointed effective May 9, 2014

 

Steve Saleen, our founder, Chief Executive Officer, President and one of our directors, has been president and CEO of SMS since its formation in July 2008. He has been board chairman and CEO of Saleen Automotive since its formation in July 2011. Mr. Saleen is considered one of the most successful and well known automotive icons in the country, making him a well-qualified candidate to serve as our CEO and director. Mr. Saleen’s entrepreneurial business plan laid the groundwork for an entire new industry of design, engineering, manufacturing and sales of high performance vehicles that were race proven and marketed for sales through new car dealership showrooms nationwide. This included very successful racing programs featuring himself as a lead driver in vehicles of his design that went on to win numerous national championships. Mr. Saleen is generally recognized for his expertise in small volume vehicle manufacturing, vehicle transformation processes and mass customization – creating customized products in an efficient mass – production manner. Mr. Saleen has a bachelor’s degree in business from the University of Southern California.

 

David Fiene joined us in June 2013 as Vice President of Finance and was later appointed Chief Financial Officer and Secretary in December 2013. Mr. Fiene has more than 18 years of experience in finance and accounting including with both public and private entities. He previously served as Managing Director for Advantage Sales and Marketing, as $1 billion consumer products company. Prior to Advantage Sales and Marketing, he served as Director of Accounting at Multi-Fineline Electronix, Inc., a $750 million manufacturer of flexible printed circuit boards. Mr. Fiene also spent ten years with PricewaterhouseCoopers LLP in a variety of roles, where he participated in numerous audits, corporate finance transactions, IPOs, merger and acquisition transactions, carve outs, spinoffs, and many different types of public filings for Fortune 100 companies. Mr. Fiene is a licensed Certified Public Accountant in California and has a bachelor’s degree in Business from Benedictine University.

 

Jeffrey Kraws was appointed as a director in December 2013. Since 2003, Mr. Kraws has served as Chief Executive Officer and co-founder of Crystal Research Associates, and since February 2012, he has served as partner and co-founder of TopHat Capital, LLC. Prior to founding Crystal Research Associates, Mr. Kraws served as co-president of The Investor Relations Group (IRG), a firm representing primarily under-followed, small-capitalization companies. Previously, Mr. Kraws served as a managing director of healthcare research for Ryan Beck & Co. and as director of research/senior pharmaceutical analyst and managing director at Gruntal & Co., LLC (prior to its merger with Ryan Beck & Company). Mr. Kraws served as managing director of the healthcare research group and senior pharmaceutical analyst at First Union Securities (formerly EVEREN Securities); as senior U.S. pharmaceutical analyst for the Swedish-Swiss conglomerate Asea Brown Boveri; and as managing director and president of the Brokerage/Investment Banking operation of ABB Aros Securities, Inc. He also served as senior pharmaceutical analyst at Nationsbanc Montgomery Securities, BT Alex Brown & Sons, and Buckingham Research. Mr. Kraws also serves on the board of directors of Synthetic Biologics, Inc. (NYSE: SYN). Mr. Kraws brings to our board of directors significant strategic, business and financial expertise. He holds an M.B.A. from Cornell University and a B.S. degree from State University of New York-Buffalo. Mr. Kraws is an independent board member and also serves on our audit and compensation committees.

 

43
 

 

Joe Amato was appointed as a director in May 2014. In 24 years of competition as an owner and driver in the National Hot Rod Association’s (NHRA) Top Fuel category, Mr. Amato has achieved immense success behind the wheel of a dragster. Mr. Amato began racing cars as a teenager, when he worked at his family’s auto parts store. He eventually built the business into Keystone Automotive, a large and successful automotive wholesaler and distributor. His racing career spans from 1983 to 2001 and in that time he set drag racing records that are so far unparalleled in the 54-year history of the NHRA. Between 1982 and 2000, he finished in the Top 10 every year. Eye surgery forced him to retire from competitive driving at the end of the 2000 season. He then participated as a team owner with Amato Racing until selling the business and retiring permanently in 2005. Since 2005, Mr. Amato currently owns and operates multiple commercial real estate properties through Joe Amato Properties, comprising over 400,000 square feet of rental space, vacant land destined for further commercial development and local housing developments. Mr. Amato’s experience in the automotive aftermarket parts and racing industry makes him a valuable addition to our board of directors. Mr. Amato is an independent board member.

 

Our directors will be determined pursuant to a Voting Agreement we entered into on June 26, 2013 by Saleen and the Purchasers in the Capital Raise. Together, such parties hold a majority of our outstanding shares of Common Stock and, under the Voting Agreement, are obligated to vote for the directors determined as described below. The authorized number of our directors is five. Those directors will consist of three directors—Messrs. Saleen, Kraws and one currently open—whose replacements will be determined under the terms of the Voting Agreement by Saleen, one director—currently open—whose replacement will be determined under the terms of the Voting Agreement by the holders of a majority of the outstanding shares held by purchasers of our June 2013 Notes, and one director—Mr. Amato—whose replacement will be determined under the terms of the Voting Agreement jointly by the holders of a majority of the outstanding shares held by Saleen and by the holders of a majority of the outstanding shares held by purchasers of our June 2013 Notes. The obligations of the parties signatory to the Voting Agreement to vote to set the number of directors constituting our board of directors at 5 and to vote to elect the directors as designated thereunder terminates on the 4th anniversary of the date of the Voting Agreement.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires that our executive officers and directors, and persons who own more than ten percent of a registered class of our equity securities, file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater-than-ten percent stockholders are required by SEC regulations to furnish us with all Section 16(a) forms they file. Based solely on our review of the copies of the forms received by us and written representations from certain reporting persons that they have complied with the relevant filing requirements, we believe that, during the year ended March 31, 2015, all of our executive officers, directors and greater-than-ten percent stockholders complied with all Section 16(a) filing requirements other than Messrs. Amato and Kraws, who each did not timely file a Form 3.

 

Director Independence

 

Our board of directors currently consists of three members – Messrs. Saleen, Kraws and Amato – with two vacancies. We are not a “listed issuer” under SEC rules and are therefore not required to have an audit committee comprised of independent directors. Currently, Messrs. Kraws and Amato are “independent” as that term is defined in the applicable rules for companies traded on the NASDAQ Stock Market. In addition, Messrs. Kraws and Amato serve on our audit and compensation committees.

 

Our board of directors is responsible for selecting and engaging our independent accountant, establishing procedures for the confidential, anonymous submission by our employees of, and receipt, retention and treatment of concerns regarding accounting, internal controls and auditing matters, reviewing the scope of the audit to be conducted by our independent public accountants, and periodically meeting with our independent public accountants and our chief financial officer to review matters relating to our financial statements, our accounting principles and our system of internal accounting controls. Our board of directors also approves our financial statements. Our board has established audit and compensation committees, whose duties are as follows:

 

  The Audit Committee has oversight responsibilities regarding risk related to our financial statements and auditing, accounting and related reporting processes, and systems of internal controls regarding finance, accounting, financial reporting, and business practices. In addition, the Audit Committee has oversight over any material financial risks as designated by management or the independent auditors. Our board of directors has determined that we do not have an audit committee financial expert serving on our audit committee as a result of the resignation from our board of directors of the former chairman of our audit committee. We will seek to nominate an audit committee financial expert when we select candidates to fill the vacancies on our board of directors.
     
  The Compensation Committee has oversight regarding the effect of compensation policies and structure on our risk profile. In addition, the Compensation Committee oversees and advises our board of directors on risks related to executive officer and director compensation as well as incentive, equity-based, and other compensatory plans.

 

We do not have a nominating committee for persons to be proposed as directors for election to our board of directors. The duties and functions performed by such committee are performed by our board of directors. We do not have any restrictions on stockholder nominations under our articles of incorporation, however, our bylaws do contain advance notice requirements for stockholder nominations for directors. Other restrictions are those applicable generally under the Nevada Revised Statutes and the federal proxy rules. Currently, our entire board of directors decides on nominees, on the recommendation of one or more members of our board of directors. We are not a “listed issuer” under SEC rules and are therefore not required to have a nominating committee comprised of independent directors.

 

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Indemnification

 

We are a Nevada corporation. The Nevada Revised Statutes and certain provisions of our articles of incorporation, as amended, and bylaws under certain circumstances provide for indemnification of our officers, directors and controlling persons against liabilities which they may incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained herein, but this description is qualified in its entirety by reference to our bylaws and to the statutory provisions.

 

In general, any officer, director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising in connection with a legal proceeding to which such person is a party, if that person is not liable due to conduct that constituted a breach of his or her fiduciary duties and such breach involved intentional misconduct, fraud or a knowing violation of law, and that person’s actions were in good faith, were believed to be in our best interest, and were not unlawful. Indemnification may not be made for any claim as to which the person seeking indemnity has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals, to be liable to our company unless the court in which the action or suit was brought or another court of competent jurisdiction determines that in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court deems proper. Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by independent decision of our board of directors, by legal counsel, or by a vote of our stockholders, that the person to be indemnified met the applicable standard of conduct. Under our articles of incorporation, as amended, and bylaws we will advance expenses incurred by officers, directors, employees or agents who are parties to or are threatened to made parties to any threatened, pending or completed action by reason of the fact that such person was serving in such capacity, prior to the disposition of such action and promptly following request therefor, upon receipt of an undertaking by or on behalf of such person to repay such advances if it should be determined ultimately that such person is not entitled to indemnification.

 

The circumstances under which indemnification is granted in connection with an action brought on our behalf is generally the same as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually incurred in connection with the defense or settlement of the action. Indemnification may also be granted pursuant to the terms of agreements that may be entered in the future or pursuant to a vote of stockholders or directors. The Nevada Revised Statutes also grant us the power to purchase and maintain insurance which protects our officers and directors against any liabilities incurred in connection with their service in such a position, and we have obtained such a policy.

 

A stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, except for the legal proceedings described above to which Steve Saleen is a party, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

Code of Ethics

 

We have not adopted a formal written corporate code of ethics that applies throughout our Company and may consider adopting a Code of Ethics in the near future.

 

Meetings of the Board of Directors and Committees

 

Our board of directors held three general meetings during our fiscal year ended March 31, 2015. Each director attended all the meetings of our board of directors.

 

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ITEM 11. EXECUTIVE COMPENSATION

 

The following table and related footnotes show the compensation paid to our Chief Executive Officer and to each of our other two most highly compensated executive officers whose compensation exceeded $100,000 during the last fiscal year, and information concerning all compensation paid for services rendered to us in all capacities for our last two fiscal years.

 

Name and Principal Position  Year   Salary($)   Option
Awards($)(2)
   All Other
Compensation($)
   Total($) 
Steve Saleen(1)   2015    269,023    -    -    269,023 
CEO, President & Chairman
   2014    335,628    -    -    335,628 
                          
David Fiene   2015    171,154    142,350(3)   -    313,504 
Chief Financial Officer   2014    117,289    35,500    26,000    180,789 

 

(1) Of this amount, $123,455 was unpaid as of March 31, 2014. Mr. Saleen did not have any equity awards issued or outstanding during the fiscal years ended March 31, 2015 and 2014.
   
(2) The amount shown in the table above does not reflect dollar amounts actually received. Instead, this amount reflects the grant date fair value for the award granted, which was determined pursuant to Accounting Standards Codification Topic 718 and does not reflect the value actually realized or that could be realized from the award. See Note 9 to the Company’s consolidated financial statements in this Form 10-K for a description of the assumptions we used to determine the fair value of stock option awards.
   
(3) In August 2014, Mr. Fiene was granted a stock option exercisable for 1,500,000 shares of Common Stock at an exercise price of $0.10 per share of which one-third, or 500,000 shares, vested immediately and the remainder to vest one-third over the following two years with the award and expiring in August 2024. None of these shares were exercised during the year ended March 31, 2015.

 

Employee Contracts

 

On August 1, 2011, Saleen Automotive entered into an Employment Agreement with Saleen under which he is currently compensated at the rate of $20,000 per month, which shall not be reduced. The Employment Agreement provides for increased compensation of $27,500 per month, $32,500 per month and $37,500 per month if Saleen Automotive is successful in raising a cumulative gross amount of $5 million, $7.5 million and $10 million in capital, respectively. The Employment Agreement also provides that Saleen Automotive will establish and maintain on or before September 30, 2013, a bonus program for Saleen that will compensate Saleen in amounts up to his annual base salary, based on objective criteria. Saleen Automotive and Saleen are currently determining the parameters of that bonus plan. The Employment Agreement provides for Saleen’s service as Saleen Automotive’s Chief Executive Officer, and provides that Saleen Automotive is disallowed from changing the title of Saleen’s position or from diminishing his responsibilities of overseeing the operations of Saleen Automotive. The Employment Agreement has a term of eight years, and will automatically continue thereafter for successive 12 month periods unless and until either party gives the other party written notice of termination prior to the end of a term. In the event Saleen Automotive terminates the Employment Agreement without cause (as defined in the Employment Agreement), or otherwise materially breaches the Employment Agreement and such material breach remains uncured after 15 days’ written notice, Saleen will be entitled to a severance payment of 1.50 times his then-current annual salary plus $2 million, payable in cash or cash-equivalents within 30 days of the date of termination.

 

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Outstanding Equity Awards at Fiscal Year End

 

The following table presents information regarding outstanding options held by our named executive officers as of the end of our fiscal year ended March 31, 2015.

 

Name

 

Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

   

Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

  

Option Exercise
Price ($)

  

Option
Expiration Date

 
David Fiene   -(1)    1,500,000    0.10    8/11/24

 

(1) Mr. Fiene was granted options to purchase 1,500,000 shares on August 12, 2014, 1/3rd of which vested on the first anniversary of the effective date of grant and on each anniversary thereof until fully vested.
   
  None of the executive officers listed above exercised options during the fiscal year ended March 31, 2015.

 

Compensation of Directors

 

The following table provides information with respect to all compensation awarded to, earned by or paid to each person who served as a director for some portion or all of our fiscal year ended March 31, 2015.

 

Name  Fees Earned or
Paid in Cash($)
  
Stock
Awards($)(2)
  
Total($)
 
Jeffrey Kraws (1)   15,000    47,450    62,450 
Joe Amato (1)   15,000    47,450    62,450 
Jonathan Michaels (3)   550    75,000    75,550 

 

(1) In August 2014, we granted options to purchase 500,000 shares each of our Common Stock at an exercise price of $0.10 to our directors Jeffrey Kraws and Joe Amato of which 166,667 shares, each, are fully vested with the reminder to vest one-third equally over the following two years with the award expiring in August 2024.
   
(2) Except for the award issued to Mr. Michaels (see (3) below), amount represents the grant date fair value of the award calculated in accordance with ASC Topic 718. See Note 9 to our consolidated financial statements in this Form 10-K for details as to the assumptions used to determine the fair value of the awards.
   
(3) Mr. Michaels served as our board member from October 31, 2013 to February 28, 2015. During the fiscal year ended March 31, 2015, we incurred $69,418 in General Counsel Services and legal fees expense with Michaels Law Group, a firm owned by Mr. Michaels. In January 2015, the Company entered into a Fee Reduction Agreement with Michaels Law Group whereby Michaels Law Group reduced the amount owed to $75,000 and the Company agreed to issue 2,500,000 shares of Common Stock as full payment. The value of the Common Stock issued of $75,000 was based on a fair value of $0.03 per share.

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding our Common Stock beneficially owned as of July 13, 2015 for (i) each stockholder known to be the beneficial owner of more than 5% of our outstanding Common Stock, (ii) each executive officer and director and (iii) all executive officers and directors as a group.

 

In general, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within 60 days, through the exercise of a warrant or stock option, conversion of a convertible security or otherwise. Unless otherwise indicated, each person in the table will have sole voting and investment power with respect to the shares shown. For purposes of this table, shares not outstanding which are subject to issuance on exercises of stock options or conversion of a Note that are held by one or more person(s) are deemed to be outstanding for the purpose of computing the percentage(s) of outstanding shares beneficially owned by such person(s) but are not deemed to be outstanding for the purpose of computing the percentage for any other person. The table assumes a total of 460,556,796 shares of our Common Stock outstanding as of July 13, 2015. Unless otherwise indicated, the address of each of the executive officers and directors and greater than 5% stockholders named below is c/o Saleen Automotive, Inc., 2735 Wardlow Road, Corona, CA 92882.

 

Name of Beneficial Owner  Number of Shares Beneficially Owned   Percentage of Shares Outstanding 
         
Executive Officers and Directors:          
Steve Saleen   302,133,875    39.6%
Jeffrey Kraws (1)   166,667    * 
Joe Amato (2)   166,667    * 
David Fiene   98,939    * 
All directors and executive officers as a group(3)   302,566,148    39.7%

 

  * Less than 1% ownership
     
  (1) Consists of shares of Common Stock that may be acquired in the event of the conversion of 302,133.875 shares of Super Voting Common Stock within 60 days of July 13, 2015. Assuming the conversion of the remaining outstanding shares of Super Voting Common Stock, which are convertible into 384,211,645 shares of Common Stock, Mr. Saleen owns 35.8% of our outstanding voting securities
     
  (2) Consists of shares of Common Stock issuable upon the exercise of stock options which are currently exercisable or will become exercisable within 60 days of July 13, 2015.
     
  (3) Includes of 302,133,875 shares of Common Stock that may be acquired in the event of the conversion of 302,133.875 shares of Super Voting Common Stock within 60 days of July 13, 2015, and 333,334 shares of Common Stock issuable upon the exercise of stock options which are currently exercisable or will become exercisable with 60 days of July 13, 2015.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Other than the transactions described below, since April 1, 2012, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:

 

  in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years; and
     
  in which any director, executive officer, stockholders who beneficially owns more than 5% of our Common Stock or any member of their immediate family had or will have a direct or indirect material interest.

 

During the year ended March 31, 2015 and 2014, we incurred $131,787 and $340,000, respectively, in officers’ salary expense due our Director, Chairman and CEO, Mr. Steve Saleen of which $300,000 was unpaid as of March 31, 2013. In addition, during the year ended March 31, 2014, Mr. Saleen loaned the Company $20,500 payable on demand. In March 2014, Mr. Saleen agreed to forgive $352,287 of salary owed, which the Company recognized as a gain in the Statement of Operations. As of March 31, 2015 and 2014, the balances of $223,455 and $100,000, respectively, were payable to Mr. Saleen for his unpaid officers’ salary, and is included in Accounts Payable – related parties.

 

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During the year ended March 31, 2015 and 2014, we incurred $69,418 and $365,251, respectively, in General Counsel Services and legal fees expense with Michaels Law Group, a firm owned by our former Director and General Counsel, Mr. Jonathan Michaels. During the years ended March 31, 2015 and 2014, we paid $550 and $110,000, respectively, to Michaels Law Group. In March 2014, we entered into a Retainer Agreement with Michaels Law Group whereby we issued 1,447,500 shares of our Common Stock and five year warrants to purchase 1,447,500 shares of our Common Stock at an exercise price of $0.15 per share along with cash of $36,459 in exchange for amounts owed through February 2014. The value of the Common Stock issued was $405,300 based on a stock price of $0.28 on date of settlement and the value of the warrants was determined to be $332,491. As of March 31, 2014, $23,954 was payable to Michaels Law Group for March 2014 services. In January 2015, we entered into a Fee Reduction Agreement with Michaels Law Group whereby Michaels Law Group reduced the amount we owed to $75,000 and we agreed to issue 2,500,000 shares of Common Stock to Michaels Law Group as full payment. The value of the Common Stock issued of $75,000 was based on a fair value of $0.03 per share.

 

On January 23, 2015, we entered into a First Amendment to Securities Purchase Agreement dated June 26, 2013 by and among us and W-Net and Europa, our two largest stock and note holders (“June 2013 Notes”), whereby the note holders agreed to amend the Securities Purchase Agreement entered into on June 26, 2013 to provide for the issuance of up to $600,000 in additional Notes for a period up to June 26, 2015 under the same terms as the June 2013 Notes. In addition, we entered into a Second Amendment to 3% Senior Secured Convertible Notes whereby the conversion price of the June 2013 Notes was amended to be the lesser of (a) $0.075 and (b) 70% of the average of the three lowest VWAPs occurring during the twenty consecutive trading days immediately preceding the applicable conversion date on which the note holders elects to convert all or part of the note. However, in no event shall the conversion price be less than $0.02. In conjunction with these amendments, on January 26, 2015 we issued two 3% Senior Secured Convertible Notes in the principal amount of $499,892 with W-Net and Europa of which $98,708 was converted from a revolver entered into with W-Net in November 2013.

 

During the year ended March 31, 2015 and 2014, we incurred $50,000 and $35,000, respectively, of which we paid $12,500 and $10,000, 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 March 31, 2015 and 2014, $62,500 and $25,000, respectively, was payable to TopHat Capital for these services.

 

During the year ended March 31 2015, we 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 March 31, 2015, $6,343 was payable to Crystal Research Associates for these services.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES\

 

The following table presents the fees for professional audit services rendered by Weinberg & Company, P.A. for the audit of our annual financial statements for the year ended March 31, 2015 and 2014. All services reflected in the following fee table for 2015 and 2014 were pre-approved, respectively, in accordance with the policy of the Audit Committee of our board of directors.

 

   Fiscal Year Ended March 31, 
Nature of Services  2015   2014 
Audit Fees (1)  $120,880   $100,670 
Audit-Related Fees        
Tax Fees        
Other Fees        
Total Fees  $120,880   $100,670 

 

NOTES:

 

(1) Audit fees consist of audit and review services, consents and review of documents filed with the SEC.

 

The Audit Committee of our board of directors pre-approves all audit (including audit-related) and permitted non-audit services to be performed by our independent auditors. Our Audit Committee will annually approve the scope and fee estimates for the year-end audit to be performed by our independent auditors for the fiscal year. With respect to other permitted services, our Audit Committee pre-approves specific engagements, projects and categories of services on a fiscal year basis, subject to individual project and annual maximums. To date, we have not engaged our auditors to perform any non-audit related services.

 

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PART IV

 

ITEM 15. EXHIBITS

 

(a) The following documents are filed as part of this report:

 

(1) Financial Statements:

 

All financial statements as set forth under Item 8 of this report.

 

(2) Exhibits

 

See Item 15(b) below.

 

(b) Exhibits:

 

The exhibit list required by this Item is incorporated by reference to the Exhibit Index immediately following the signature page of this report.

 

(c) Financial Statement Schedules: None

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Saleen Automotive, Inc.
  a Nevada Corporation
   
Date: July 14, 2015 /S/ Steve Saleen
  Steve Saleen
  Chief Executive Officer

 

POWER OF ATTORNEY

 

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steve Saleen his true and lawful attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or his substitute or substitutes may do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Title   Date
         
/S/ Steve Saleen   Chief Executive Officer and Director   July 14, 2015
Steve Saleen      
         
/S/ David J. Fiene   Chief Financial Officer & Secretary   July 14, 2015
David J. Fiene        
         
/S/ Jeffrey Kraws   Director   July 14, 2015
Jeffrey Kraws        
         
/S/ Joe Amato   Director   July 14, 2015
Joe Amato        

 

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Saleen Automotive, Inc.

 

EXHIBIT INDEX

 

Exhibit Number

 

Description of Exhibit

     
2.1  

Agreement and Plan of Merger dated May 23, 2013, among the Registrant, Saleen California Merger Corporation, Saleen Florida Merger Corporation, SMS Signature Cars, Saleen Automotive, Inc. and Steve Saleen. Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on May 30, 2013.

     
3.1.1  

Articles of Incorporation. Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 333-176388) filed with the Securities and Exchange Commission on August 18, 2011.

     
3.1.2  

Certificate of Designations, Preferences, Limitations, Restrictions and Relative Rights of Super Voting Preferred Stock. Incorporated by reference to Exhibit 3.1.2 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

     
3.1.3  

Articles of Merger effective June 17, 2013. Incorporated by reference to Exhibit 3.1.3 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

     
3.1.4  

Amendment to Certificate of Designation After Issuance of Class or Series. Incorporated by reference to Exhibit 3.1.1 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on July 24, 2013.

     
3.1.5  

Certificate of Amendment of Articles of Incorporation. Incorporated by reference to Exhibit A to the Preliminary Information Statement on Schedule 14C (File No. 333-176388) filed with the Securities and Exchange Commission on December 13, 2013.

     
3.1.6  

Certificate of Designations, Preferences, Limitations, Restrictions and Relative Rights of Super Voting Preferred Stock.

     
3.2  

Bylaws. Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (File No. 333-176388) filed with the Securities and Exchange Commission on August 18, 2011.

     
4.1  

2013 Omnibus Incentive Plan. Incorporated by reference to Exhibit B to the Preliminary Information Statement on Schedule 14C (File No. 333-176388) filed with the Securities and Exchange Commission on December 13, 2013.

     
10.1  

Registration Rights Agreement dated March 13, 2013, among the Registrant, W-Net Fund I, L.P. and Verdad Telecom, Inc. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on March 18, 2013.

     
10.2  

Securities Purchase Agreement dated June 26, 2013, among the Registrant and the purchasers signatory thereto. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

     
10.3  

Registration Rights Agreement dated June 26, 2013, among the Registrant and the investors signatory thereto.

Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

     
10.4  

Security Agreement dated June 26, 2013, among the Registrant, Saleen Automotive, Inc., SMS Signature Cars and the purchasers signatory thereto. Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

 

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10.5  

Intellectual Property Security Agreement dated June 26, 2013, among the Registrant, Saleen Automotive, Inc., SMS Signature Cars and the purchasers signatory thereto. Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

     
10.6  

Form of 3.0% Senior Secured Convertible Note. Incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

     
10.7  

Commercial Lease dated December 2, 2008, between Larry R. Haupert dba Rexco and SMS Signature Cars. Incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

     
10.8†  

Employment Agreement dated August 1, 2011, between Saleen Automotive, Inc. and Steve Saleen. Incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

     
10.9  

Commercial Lease dated September 1, 2012, between Larry R. Haupert dba Rexco and Saleen Automotive, Inc. Incorporated by reference to Exhibit 10.9 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on June 27, 2013.

     
10.10  

Assignment and License Agreement dated May 23, 2013, between W270, Inc. and Steve Saleen. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on May 30, 2013.

     
10.11  

Secured Promissory Note entered into on October 8, 2013 by Saleen Automotive, Inc. in favor of W-Net Fund I, L.P. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on October 15, 2013.

     
10.12  

Form of Subscription Agreement. Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on October 15, 2013.

     
10.13  

Form of Warrant. Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on October 15, 2013.

     
10.14  

Letter Agreement dated September 27, 2013, between Saleen Automotive, Inc. and Ascendiant Capital Markets, LLC. Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K (File No. 333-176388) filed with the Securities and Exchange Commission on October 15, 2013.

     
10.15  

Form of 7.0% Convertible Note.

     
10.16  

Form of Securities Purchase Agreement between Saleen Automotive, Inc. and KBM Worldwide, Inc. Incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.17  

Form of Convertible Promissory Note issued by Saleen Automotive, Inc. to KBM Worldwide, Inc. Incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

 

53
 

 

10.18  

Securities Purchase Agreement dated October 14, 2014, between Saleen Automotive, Inc. and LG Capital Funding, LLC. Incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.19  

Form of Convertible Note issued by Saleen Automotive, Inc. to LG Capital Funding, LLC. Incorporated by reference to Exhibit 10.4 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.20  

Form of Securities Purchase Agreement between Saleen Automotive, Inc. and JSJ Investments Inc. Incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.21  

Form of 10% Convertible Note issued by Saleen Automotive, Inc. to JSJ Investments Inc. Incorporated by reference to Exhibit 10.6 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.22  

Securities Purchase Agreement dated December 3, 2014, between Saleen Automotive, Inc. Rock Capital, LLC. Incorporated by reference to Exhibit 10.7 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.23  

Form of Convertible Note issued by Saleen Automotive, Inc. to Rock Capital, LLC. Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.24  

Convertible Note dated December 3, 2014, issued by Saleen Automotive, Inc. to Vista Capital Investments, LLC. Incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.25  

Securities Purchase Agreement dated December 3, 2014, between Saleen Automotive, Inc. and Coventry Enterprises, LLC. Incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.26  

Form of Convertible Note issued by Saleen Automotive, Inc. to Coventry Enterprises, LLC. Incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.27  

Securities Purchase Agreement dated October 28, 2014, between Saleen Automotive, Inc. and Typenex Co-Investment, LLC. Incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.28  

Convertible Note dated October 28, 2014, issued by Saleen Automotive, Inc. to Typenex Co-Investment, LLC. Incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.29  

Convertible Note dated November 6, 2014, issued by Saleen Automotive, Inc. to JMJ Financial. Incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Quarterly Report on Form 10-Q (File No. 000-55236) filed with the Securities and Exchange Commission on February 19, 2015.

     
10.30  

Securities Purchase Agreement dated April 17, 2015, between Saleen Automotive, Inc. and GreenTech Automotive, Inc.

     
10.31  

Form of 10.0% First Lien Convertible Note issued by Saleen Automotive, Inc. to GreenTech Automotive, Inc.

 

54
 

 

10.32   Supplemental Agreement dated April 17, 2015, among Saleen Automotive, Inc., Steve Saleen, GreenTech Automotive, Inc. and WM Industries Corp.
     
10.33  

Security Agreement dated April 17, 2015, among Saleen Automotive, Inc., Saleen Automotive, Inc. (the Registrant’s wholly-owned subsidiary), Saleen Signature Cars, Saleen Sales Corporation and GreenTech Automotive, Inc.

     
10.34  

Intellectual Property Security Agreement dated April 17, 2015, among Saleen Automotive, Inc., Saleen Automotive, Inc. (the Registrant’s wholly-owned subsidiary), Saleen Signature Cars, Saleen Sales Corporation and GreenTech Automotive, Inc.

     
21.1  

Subsidiaries of the Registrant.

     
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.

 

Each a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report on Form 10-K.
** Furnished herewith

 

55
 

 

 

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SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of April 17, 2015 between Saleen Automotive, Inc., a Nevada corporation (the “Company”), each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”), and GreenTech Automotive, Inc., which will serve as the representative of the Purchasers, and is referred to herein from time to time as the “Purchaser Representative”.

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLE I. DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Notes (as defined herein), and (b) the following terms have the meanings set forth in this Section 1.1:

 

Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.


Board of Directors” means the board of directors of the Company.

 

Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of California are authorized or required by law or other governmental action to close.

 

Closing” shall have the meaning ascribed to such term in Section 2.1(a). “Closing Date” shall have the meaning ascribed to such term in Section 2.1(a). “Commission” means the Securities and Exchange Commission.

 

Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

 

Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

Company Counsel” means _________________.

 

 
 

 

Conversion Price” shall have the meaning ascribed to such term in the Notes.

 

Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

Discussion Time” shall have the meaning ascribed to such term in Section 3.2(f).

 

Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(q).

 

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

IP Security Agreement” means the Intellectual Property Security Agreement, dated the date hereof, by the Company in favor of the Purchasers, in the form of Exhibit C attached hereto, securing the obligations of the Company under the Notes and other Transaction Documents.

 

Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c).

 

Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

 

2
 

 

Notes” means the 10.0% First Lien Secured Convertible Notes due, subject to the terms therein, niney (90) days from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A attached hereto.

 

Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

Purchaser Party” shall have the meaning ascribed to such term in Section 4.10.(iii).

 

Purchaser Representative” shall have the meaning ascribed to such term in Section 2.1(c)(i).

 

Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise or conversion in full of all Notes (including Underlying Shares issuable as payment of interest), ignoring any conversion or exercise limits set forth therein, and assuming that the Conversion Price is at all times on and after the date of determination 75% of the then Conversion Price on the Trading Day immediately prior to the date of determination.

 

Regulation 13D-G” means Regulation 13D-G promulgated by the Commission pursuant to the Exchange Act, as such Regulation and the Rules thereunder may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Regulation.

 

Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

Saleen Entities” shall have the meaning ascribed to such term in the recitals hereto.

 

3
 

 

Saleen Entities Financial Statements” shall have the meaning ascribed to such term in Section 3.1(h).

 

Saleen Parties Intellectual Property” shall have the meaning ascribed to such term in Section 3.1(n).

 

SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

Securities” means the Notes and the Underlying Shares.

 

Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Security Agreement” means the Security Agreement, dated the date hereof, by the Company in favor of the Purchasers, in the form of Exhibit B attached hereto, securing the obligations of the Company under the Notes and other Transaction Documents.

 

Security Documents” means any and all means any and all security agreements, pledge agreements, hypothecation agreements, collateral assignments, mortgages, deeds of trust, control agreements and similar such agreements, executed and delivered by the Company, any of its Subsidiaries and/or any third party in favor of the Purchasers pursuant to the Transaction Documents which secures the Company’s obligations under the Transaction Documents and/or any of the Securities, and other documents executed, delivered and/or filed by the Company, any of its Subsidiaries, any third party and/or the Purchasers as permitted or required under any of the foregoing, including without limitation the Security Agreement and the IP Security Agreement.

 

Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).

 

Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Notes purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds. The initial principal amount of each Purchaser’s Note shall be equal to such Purchaser’s Subscription Amount.

 

Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

Subsidiary Guarantee” means the Subsidiary Guarantee, in the form attached hereto as Exhibit E, executed by each Subsidiary in favor of the Purchasers, guaranteeing the Company’s obligations under the Notes.

 

Supplemental Agreement” means the Supplemental Agreement between the Company, Steve Saleen and GreenTech Automotive, Inc. dated of even date herewith.

 

Trading Day” means a day on which the Nasdaq Capital Market is open for trading.

 

4
 

 

 

Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

 

Transaction Documents” means this Agreement, the Notes, the Security Documents, the Registration Rights Agreement, the Voting Agreement and all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer Agent” means Action Stock Transfer, the current transfer agent of the Company with a mailing address of 2469 E. Fort Union Blvd., Suite 214, Salt Lake City, UT 84121, and a facsimile number of (801) 274-1099, and any successor transfer agent of the Company.

 

Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Notes and issued and issuable in lieu of the cash payment of interest on the Notes in accordance with the terms of the Notes.

 

VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. New York City time to 4:02 p.m. New York City time); (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then listed or quoted on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority-in-interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

 

5
 

 

ARTICLE II. PURCHASE AND SALE

 

2.1Closing.

 

The purchase and sale of the Notes (the “Closing”) shall take place on March _, 2015, at 10:00 a.m., Pacific Time (“Closing Date”), at the offices of Company or at such other location or time or on such other date mutually agreed upon by the Company and all of the Purchasers, subject to the conditions precedent for the Closing as set forth in Section 2.3, and to each party’s obligations hereunder having been satisfied or waived. At the Closing, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Purchasers, severally and not jointly, agree to purchase, in the aggregate, $500,000 in principal amount of the Notes. On or prior to the Closing, each Purchaser participating in the Closing shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to its Subscription Amount and the Company shall deliver to each Purchaser its respective Note, as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing.

 

(a)Purchaser Representative.

 

(i) By virtue of the execution of this Agreement by each Purchaser, each of the Purchasers shall be deemed to have agreed to appoint GreenTech Automotive, Inc. as its agent and attorney-in-fact, as the purchaser representative (the “Purchaser Representative”) for and on behalf of the Purchasers to give and receive notices and communications, to agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts with respect to any indemnification claims, to assert, negotiate, enter into settlements and compromises of, and comply with orders of courts with respect to, any other claim by the Company against any Purchaser or by any such Purchaser against the Company, in each case relating to this Agreement or the transactions contemplated hereby, and to take all other actions that are either (A) necessary or appropriate in the judgment of the Purchaser Representative for the accomplishment of the foregoing or (B) specifically mandated by the terms of this Agreement. Such agency may be changed by the Purchasers from time to time upon not less than thirty (30) days prior written notice to the Company; provided, however, that the Purchaser Representative may not be removed unless Purchasers holding at least two-thirds (2/3) of the outstanding principal amount of the Notes agree to such removal and to the identity of the substituted agent. A vacancy in the position of Purchaser Representative, whether due to the resignation, removal or dissolution of the Purchaser Representative or for any other reason, may be filled by the recipients of a majority in interest of the outstanding principal amount of the Notes. No bond shall be required of the Purchaser Representative, and the Purchaser Representative shall not receive any compensation for its services. Notices or communications to or from the Purchaser Representative shall constitute notice to or from the Purchasers.

 

(ii) The Purchaser Representative shall not be liable for any act done or omitted hereunder as Purchaser Representative while acting (A) in good faith or (B) with the consent of the holders of a majority in interest of the outstanding principal amount of the Notes.. A decision, act, consent or instruction of the Purchaser Representative, including, but not limited to, an amendment, extension or waiver of this Agreement, shall constitute a decision of the Purchasers and shall be final, binding and conclusive upon the Purchasers; and the Company may rely upon any such decision, act, consent or instruction of the Purchaser Representative as being the decision, act, consent or instruction of the Purchasers.

 

  2.2Deliveries.

 

(a) On the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

(i) this Agreement, duly executed by the Company;

 

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(ii) a Note with a principal amount equal to such Purchaser’s Subscription Amount, registered in the name of such Purchaser;

 

(iii) the Security Documents, including, without limitation, the Security Agreement and the IP Security Agreement, duly executed by the Company and each Subsidiary;

 

(iv) the Subsidiary Guarantee, duly executed by each Subsidiary of the Company; and

 

(v) the Supplemental Agreement, duly executed by the Company.

 

(b) On the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

 

(i) this Agreement, duly executed by such Purchaser;

 

(ii) such Purchaser’s Subscription Amount by wire transfer to the account as specified in writing by the;

 

(iii) the Security Documents to which each Purchaser is a party and required by law to be signed by such Party in order to be binding;

 

(iv) the Supplemental Agreement, duly executed by such Purchaser.

 

  2.3Closing Conditions.

 

(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects on the Closing Date of the representations and warranties of the Purchasers contained herein;

 

(ii) all obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

 

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(iii) at the Closing, the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

 

(b) The respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following conditions being met:

 

(i) the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Company contained herein;

 

(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

 

(iii) at the Closing, the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

 

(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

(v) from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the applicable Trading Market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

 

ARTICLE III. REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. The Company hereby makes the following representations and warranties to each Purchaser. However, it is understood and agreed that,.

 

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are accurately disclosed in the Company’s filings with the Securities Exchange Commission (the “SEC”). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens (other than Liens in respect of the Second Lien Obligations, as defined in the Intercreditor Agreement of even date herewith), and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

 

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(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. The Company’s SEC Reports (as hereinafter defined) contain true and correct copies of the Company’s articles of incorporation and the Company’s bylaws, as each is currently in effect.

 

(c) Authorization; Enforcement. The Company and the Subsidiaries have the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out their obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the Subsidiaries and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and the Subsidiaries and no further action is required by the Company, the Subsidiaries, their board of directors or their stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and the Subsidiaries, as applicable, and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company and the Subsidiaries enforceable against the Company and the Subsidiaries in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

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(d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the Subsidiaries and the consummation by the Company and the Subsidiaries of the other transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, loan or credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected (other than Liens in favor of the Purchasers), or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company and the Subsidiaries of the Transaction Documents, other than (i) filings required pursuant to Section 4.6, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby, (iii) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws, and (iv) filings required under the terms of the Security Documents (collectively, the “Required Approvals”).

 

(f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Underlying Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.

 

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(g) Capitalization. The Company has furnished to the Purchases the shareholder list from its transfer agent and DTC nominee accounts, which comprises the capitalization of the Company as of the most recent date set forth therein, which includes the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth in the Company’s SEC Reports and a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

 

(h) SEC Reports; Financial Statements.

 

(i) The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

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(ii) On Schedule 3.1(h) are set forth the following financial statements of the Saleen Entities (collectively the “Saleen Entities Financial Statements”): audited consolidated balance sheets and statements of income, changes in stockholders’ equity, and cash flow as of and for the fiscal years ended March 31, 2013 and 2012. The Saleen Entities Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of the Saleen Entities as of such dates and the results of operations of the Saleen Entities for such periods, are correct and complete, and are consistent with the books and records of the Saleen Entities. Since March 31, 2013, the Saleen Entities have not effected any change in any method of accounting or accounting practice, except for any such change required because of a concurrent change in GAAP.

 

(i) Material Changes. Since the date of the latest audited financial statements included within the SEC Reports and/or the Saleen Entities Financial Statements, except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof or disclosed on Schedule 3.1(i), (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company and the Subsidiaries have not incurred any liabilities (contingent or otherwise) other than (A) that have been incurred since the date of the most recent balance sheet included in the SEC Reports or the Saleen Entities Financial Statements in the ordinary course of business and are not (singly or in the aggregate) material to the Company’s business, and (B) not due and payable or to be performed or satisfied after the date hereof under the Company and the Subsidiaries’ material contracts in accordance with their terms, in each case which are not (singly or in the aggregate) material to the Company’s business, (iii) the Company and the Subsidiaries have not altered their method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed on or prior to the date that this representation is made.

 

(j) Litigation. There is no suit, action, claim, arbitration, proceeding or investigation pending or, to the knowledge of the Company, threatened against, relating to or involving the Company, any Subsidiary, or real or personal property of the Company or any Subsidiary, before any Governmental Entity (as such term is defined in the Merger Agreement) or other third party. To the knowledge of the Company, there is no basis for any such suit, action, proceeding or investigation. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

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(k) Labor; Benefits. Schedule 3.1(k) contains a true and complete list of each benefit plan currently sponsored, maintained or contributed to by the Company and the Subsidiaries. The Company’s records accurately reflect the service histories of the Company and the Subsidiaries’ employees, contractors and consultants, including their hours of service, and all such data is maintained in a usable form. Neither the Company nor any Subsidiary is a party to any employment, contractor or consultant agreement which could result in the payment to any current, former or future director, employee, contractor or consultant of the Company or the Subsidiaries of any money or other property or rights or accelerate or provide any other rights or benefits to any such director, employee, contractor or consultant as a result of the transactions contemplated by the Merger or this Agreement, whether or not (i) such payment, acceleration or provision would constitute a “parachute payment” (within the meaning of Section 280G of the Code), or (ii) some other subsequent action or event would be required to cause such payment, acceleration or provision to be triggered.

 

(l) Compliance. To the knowledge of the Company, the Company and the Subsidiaries are in compliance in all material respects with all applicable laws (including, without limitation, applicable laws relating to zoning, environmental matters and the safety and health of employees), ordinances, regulations and orders of all Governmental Entities. Neither the Company nor any of the Subsidiaries has been charged with and, to the knowledge of the Company, is not now under investigation with respect to, a violation of any applicable law, regulation, ordinance, order or other requirement of a Governmental Entity. Neither the Company nor any of its Subsidiaries is a party to or bound by any order, judgment, decree or injunction of any Governmental Entity.

 

(m) Title to Assets. The Company and the Subsidiaries have good, clear and marketable title to all the tangible properties and tangible assets reflected in their latest balance sheet as being owned by them or acquired after the date thereof which are, individually or in the aggregate, material to the Company’s business (except properties sold or otherwise disposed of since the date thereof in the ordinary course of business), free and clear of all Liens. All equipment and other items of tangible personal property and assets of the Company and the Subsidiaries (i) are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, and (ii) are usable in the regular and ordinary course of the Company’s business. The Company and the Subsidiaries do not own any real property. The Company has provided to the Purchasers true and complete copies of all real property leases to which the Company and the Subsidiaries are a party. The Company and/or the Subsidiaries, as applicable, have a valid leasehold interest in such leased real property, and such leases are in full force and effect. The improvements and fixtures on such real property leased by the Company and/or the Subsidiaries are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted.

 

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(n) Intellectual Property.

 

(i) Saleen and/or the Saleen Entities own or have the right to use pursuant to an enforceable contract all Intellectual Property necessary or desirable to operate the Saleen businesses as currently conducted and as currently proposed to be conducted (the “Saleen Parties Intellectual Property”). Other than the Saleen Parties Intellectual Property, the Company has no Intellectual Property. The Saleen Parties have taken all necessary and desirable action to maintain and protect each item of Saleen Parties Intellectual Property.

 

(ii) The Company has delivered to the Purchasers correct and complete copies of all written documentation evidencing ownership and prosecution (if applicable) of each item of any Saleen Parties Intellectual Property. With respect to each such item of Saleen Parties Intellectual Property:

 

(A) The Saleen Parties possess all right, title, and interest in and to the item, free and clear of any Lien;

 

(B) the item is not subject to any order, judgment, decree or injunction of any Governmental Entity;

 

(C) no action or proceeding is pending or, to the Company’s best knowledge, threatened (and, to the Company’s best knowledge, there is no basis therefor) which challenges the enforceability, use, or ownership of the item; and

 

(D) neither the Company nor any Subsidiary has ever agreed to indemnify any Person for or against any interference, infringement, misappropriation, or other conflict with respect to the item.

 

(iii) The Saleen Parties Intellectual Property does not interfere with, infringe upon, misappropriate, or otherwise violate or come into conflict with any other Person’s Intellectual Property, and neither the Company nor any Subsidiary has received any notice alleging any such interference, infringement, misappropriation, violation, or conflict (including any claim that the Company or any Subsidiary must license or refrain from using any other Person’s Intellectual Property). No third Person has any Intellectual Property that interferes or would be likely to interfere with the Company’s use of any Saleen Parties Intellectual Property. The Saleen Parties Intellectual Property will not interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any Intellectual Property rights of any other Person as a result of the continued operation by the Company or the Subsidiaries of their businesses as currently conducted and as currently proposed to be conducted. No other Person has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Saleen Parties Intellectual Property.

 

(iv) The Company has furnished to the Purchasers correct and complete copies of all contracts with respect to which the Company or any Subsidiary has granted to a third party rights under or with respect to any Saleen Parties Intellectual Property (together with any exceptions). With respect to the Contracts (1) related to each item of Saleen Parties Intellectual Property, the statements in clauses (A) through (G) below are true and correct, and (2) in Schedule 3.1(n), the statements in clauses (A) through (D) below are true and correct:

 

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(A) the contract is enforceable against each of the parties thereto in accordance with its terms;

 

(B) The Saleen Entities are not (and no counter-party is) in breach of such contract, and no event has occurred that with notice or lapse of time would constitute a breach thereunder;

 

(C) no party to the contract has repudiated any provision thereof;

 

(D) with respect to each sublicense contract, the representations and warranties set forth in (A) – (D) are true and correct with respect to the underlying license contract;

 

(E) the underlying item of Saleen Parties Intellectual Property is not subject to any outstanding order, judgment, decree or injunction of any Governmental Entity;

 

(F) no action or proceeding is pending or threatened (and there is no basis therefor) that challenges the enforceability of the underlying item of Intellectual Property; and

 

(G) neither the Company nor any Subsidiary has granted any sublicense or similar contract with respect to the contract.

 

(v) All former and current employees, contractors and consultants of the Saleen Entities have executed written contracts with the Saleen Entities that assign to the Saleen Entities all rights to any inventions, improvements, discoveries or information relating to the Saleen Entities’ business. No employee, contractor or consultant of the Saleen Entities has entered into any contract that restricts or limits in any way the scope or type of work in which the employee, contractor or consultant may be engaged or requires the employee, contractor or consultant to transfer, assign, or disclose information concerning his or her work to any Person other than Saleen Entities.

 

(vi) To the Company’s knowledge, there are no new products, inventions, procedures, or methods of manufacturing or processing that any competitors or other Person have developed which reasonably could be expected to supersede or make obsolete any, or any planned, product or process of the Saleen Entities.

 

(o) Insurance. The Company and the Subsidiaries maintain insurance policies with coverage from carriers and in amounts reasonably adequate for the business conducted by such Persons.

 

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(p) Transactions with Affiliates and Employees. The Company and the Subsidiaries are not a party to any contract, lease, license, commitment or arrangement, written or oral, which, were the Saleen Entities “registrants” under the Exchange Act, would be required to be disclosed pursuant to Item 404(a) or (c) of Regulation S-K as promulgated by the SEC, and there are no loans outstanding to or from any Person specified in Item 404(a) of Regulation S-K from or to the Company or the Subsidiaries.

 

(q) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

(r) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(s) Private Placement. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

 

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(t) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

 

(u) Registration Rights. Except as provided in those certain Registration Rights Agreements disclosed in the SEC Reports, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

 

(v) Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. Except as set forth in the SEC Reports, the Company has not, in the twelve (12) months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. Except as set forth in the SEC Reports, the Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

 

(w) Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s articles of incorporation or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including, without limitation, as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

(x) Disclosure. None of the Transaction Documents, nor any Schedule or Exhibit thereto, nor any other statements, documents or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein and therein not misleading in light of the circumstances under which such statements were made.

 

(y) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

 

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(z) Solvency. Based on the consolidated financial condition of the Company as of the Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The SEC Reports disclose all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

 

(aa) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

 

(bb) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

 

(cc) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

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(dd) Accountants. The Company’s accounting firm is Weinberg & Company. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the year ending March 31, 2013.

 

(ee) Seniority. As of the Closing Date, no Indebtedness or other claim against the Company is senior to the Notes in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

 

(ff) No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

 

(gg) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

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(hh) Acknowledgment Regarding Purchasers’ Trading Activity. Notwithstanding anything in this Agreement or elsewhere herein to the contrary (except for Section 3.2(f)), it is understood and acknowledged by the Company that (i) none of the Purchasers has been asked to agree by the Company, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities, (iii) any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, may presently have a “short” position in the Common Stock, and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (a) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Underlying Shares deliverable with respect to Securities are being determined and (b) such hedging activities (if any) could reduce the value of the existing stockholders’ equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents.

 

(ii) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the securities of the Company or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities.

 

(jj) Significant Shareholders. Except for Steve Saleen and except as disclosed in the SEC Reports, no Person has any direct or indirect beneficial ownership (as determined in accordance with Regulation 13D-G) of shares of Common Stock which exceeds in the aggregate (together with other Persons which would constitute a “group” under Regulation 13D-G) five percent (5%) of the total number of outstanding shares of Common Stock as of the date hereof and the Closing Date, including, without limitation, as a result of any Person’s beneficial interest in a trust. For purposes of the calculations under this paragraph, any limitations on beneficial ownership contained in any instrument directly or indirectly convertible, exchangeable or exercisable into or for Common Stock shall be ignored and any such instruments shall be deemed to be currently convertible, exchangeable or exercisable in full.

 

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3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

 

(a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to any registration statement filed under the Securities Act or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

(c) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it or its permitted assignee converts any Notes it or such permitted assignee, as the case may be, will be an “accredited investor” as defined in Rule 501 under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

 

(d) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

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(f) Short Sales and Confidentiality Prior To The Date Hereof. Other than consummating the transactions contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1Transfer Restrictions.

 

(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement.

 

(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY [AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

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The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501 under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to a registration statement filed under the Securities Act, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of selling stockholders thereunder.

 

(c) Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof), except for any legend reasonably referring to any applicable transfer restrictions under state securities laws: (i) while a registration statement covering the resale of such security is effective under the Securities Act, or (ii) if such Underlying Shares are eligible for resale under Rule 144 and the holder thereof is not an Affiliate of the Company, or (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). If required by the Transfer Agent to effect the removal of the legend hereunder, the Company shall cause its counsel to issue a legal opinion to the Transfer Agent promptly after the date which is six (6) months following the Closing Date (if the Company has been subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for the then preceding ninety (90) days and has filed all reports required to be filed thereunder during the then preceding twelve (12) months (or such shorter period that the Company was required to file such reports) and the holder thereof is not an Affiliate of the Company). If all or any portion of a Note is converted or exercised (as applicable) at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission) then such Underlying Shares shall be issued free of all legends, except for any legend reasonably referring to any applicable transfer restrictions under state securities laws. The Company agrees that at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section. Certificates for Underlying Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.

 

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(d) In addition to such Purchaser’s other available remedies, the Company shall be subject to the liquidated damage provisions and other remedies for failing timely to provide proper certificates to a Purchaser which are set forth in such Purchaser’s Note. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

 

(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees that such Purchaser will sell any Securities pursuant to either Rule 144 or the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a registration statement filed under the Securities Act, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

 

(f) The Company represents and warrants that, except as may otherwise be set forth in the Disclosure Schedules, none of the Purchasers is currently nor has been, nor upon consummation of the Closing will become, an affiliate of the Company for purposes of Rule 144. With respect to each Purchaser, the Company covenants and agrees to take the position at all times in the future that such Purchaser is not an affiliate of the Company for purposes of Rule 144 solely as result of such Purchaser’s ownership of the Securities, except that this covenant shall not apply if such Purchaser beneficially owns (as determined in accordance with Regulation 13D-G of the Exchange Act) in excess of ten percent (10%) of the outstanding shares of Common Stock.

 

4.2 Acknowledgment of Dilution. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligations under the Transaction Documents, including, without limitation, its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

 

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4.3 Furnishing of Information. Until the time that no Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as would be required if the Purchasers were able to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144 if such exemption becomes available. So long as any Securities are outstanding, the Company shall cause itself to be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and timely file all reports required to be filed thereunder.
   
4.4 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities to the Purchasers in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.
   
4.5 Conversion Procedures. The form of Notice of Conversion included in the Notes set forth the totality of the procedures required of the Purchasers in order to convert the Notes. No additional legal opinion or other information or instructions shall be required of the Purchasers to convert their Notes. The Company shall honor conversions of the Notes and shall deliver Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.
   
4.6 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New York City time) on the Trading Day following the date hereof, issue a Current Report on Form 8-K disclosing the material terms of the transactions contemplated hereby and attaching the Transaction Documents as exhibits thereto. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities law in connection with (i) any registration statement filed under the Securities Act covering the resale of the Securities, and (ii) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (b) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this clause (b).

 

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4.7 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers.
   
4.8 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
   
4.9 Use of Proceeds. Except as set forth on Schedule 4.9 attached hereto or as provide in Section 5.2 hereof, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds for (a) the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) the redemption of any Common Stock or Common Stock Equivalents or (c) the settlement of any outstanding litigation.
   
4.10 Indemnification of Purchasers. Subject to the provisions of this Section 4.10, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

 

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4.11 Reservation and Listing of Securities.

 

(a) The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents.

 

(b) If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors shall use commercially reasonable efforts to amend the Company’s articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the seventy-fifth (75th) day after such date.

 

(c) If applicable, the Company shall (i) in the time and manner required by the principal Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps necessary to cause such shares of Common Stock to be approved for listing on such Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing, and (iv) maintain the listing of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.

 

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4.12 Corporate Structure. For a period of twelve (12) months following the Closing, the Company and its Subsidiaries shall maintain and conduct its business at a physical office or offices, hire and retain key employees and other personnel, and otherwise operate its business in a reasonable and customary manner similar to other public reporting companies engaged in similar businesses.

 

4.13 Bank Account Signatures. So long as any Notes remain outstanding, any check written against or other withdrawal from the Company or any of its Subsidiaries’ bank account(s) in an amount greater than $5,000.00 shall require the signature of two executive officers.

 

4.14 Equal Treatment of Purchasers. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. Further, the Company shall not make any payment of principal or interest on the Notes in amounts which are disproportionate to the respective principal amounts outstanding on the Notes at any applicable time. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.15 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser.

 

4.16 Security. The Company’s and any Subsidiaries’ obligations under the Notes and other Transaction Documents shall be secured by all the assets of the Company and its Subsidiaries. As of the Closing, the Purchasers participating therein shall be granted a security interest in all the assets of the Company, including, without limitation, all of its Intellectual Property Rights and its ownership of any and all Subsidiaries, and in the assets of any such Subsidiaries, to be memorialized in the Security Documents. The Company shall execute such other agreements, documents and financing statements reasonably requested by Purchasers, which will be filed at the Company’s expense with the applicable jurisdictions and authorities. The Company shall also execute all such documents reasonably necessary in the opinion of the Purchasers to memorialize and further protect the security interests described herein. The Purchasers may appoint a collateral agent to represent them collectively in connection with the security interests being granted to the Purchasers.

 

4.17 Additional Guarantors. The Company shall cause each of its Subsidiaries, including those formed or acquired on or after the date hereof, to execute and deliver to the Purchasers a Subsidiary Guarantee and a Security Agreement in conformity with those executed and delivered at the Closing.

 

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ARTICLE V. MISCELLANEOUS

 

5.1 Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated on or before April 30, 2015; provided, however, that such termination will not affect the right of any party to sue for any breach by the other party (or parties).

 

5.2 Fees and Expenses. The Company shall pay all fees and expenses incurred by the Purchasers in connection with the preparation, negotiation and execution and delivery of the Transaction documents and the consummation of the transactions contemplated hereby and thereby. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers. The amounts set forth in this paragraph as payable by the Company shall be so payable regardless of whether the Closing occurs.

 

5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission or delivery, if such notice or communication is delivered via facsimile at the facsimile number, or delivered by a U.S. nationally recognized overnight courier service to the address, set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number, or delivered by such courier service to the address, set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, or (c) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

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5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchasers of at least a majority in interest of the Securities still held by Purchasers or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

 

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.10.

 

5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the County of Los Angeles. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the County of Los Angeles for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

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5.10 Survival. The representations and warranties shall survive the Closing and the delivery of the Securities for the applicable statute of limitations.

 

5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” or other document image format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” or other document image format data file signature page were an original thereof.

 

5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then, until the earlier of sixty (60) days after such failure by the Company or the Company performs such obligations, such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, in the case of a rescission of a conversion of a Note, the Purchaser shall be required to return any shares of Common Stock delivered in connection with any such rescinded conversion or exercise notice.

 

5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

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5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

5.17 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

 

5.18 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. In furtherance of the foregoing, the signature page of the Company and each Purchaser to each Transaction Document shall evidence the binding agreement of the Company and such Purchaser to such Transaction Document, and no Purchaser shall be entitled to receive a copy of the signature page of any other Purchaser to any other Transaction Document. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through W-Net. W-Net does not represent all of the Purchasers but only W-Net. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

 

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5.19 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

5.20 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.21 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.

 

5.22 Waiver of Jury Trial. In any action, suit or proceeding in any jurisdiction brought by any party against any other party, the parties each knowingly and intentionally, to the greatest extent permitted by applicable law, hereby absolutely, unconditionally, irrevocably and expressly waives forever trial by jury.

 

(Signature Pages Follow)

 

 
 

 

IN WITNESS WHEREOF, the parties have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above:

 

SALEEN AUTOMOTIVE, INC.

 

By:    
Name:    
Title:    

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES FOR PURCHASERS FOLLOWS]

 

 
 

 

PURCHASER:

 

GREENTECH AUTOMOTIVE, INC.

 

By:  
  Gary Y. Tang  
  Executive Vice President – Finance  

 

1600 Tysons Boulevard, Suite 1150

McLean Virginia 22102

 

 
 

 

 

EX-10.31 4 ex10-31.htm

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: April 17, 2015

 

$500,000.00

 

SALEEN AUTOMOTIVE, INC.

10.0% FIRST LIEN CONVERTIBLE NOTE

 

THIS NOTE is issued for 10.0% First Lien Secured Convertible Notes of Saleen Automotive, Inc., a Nevada corporation (the “Company”), having its principal place of business at 2735 Wardlow Road, Corona, CA 92882, designated as its 10.0% First Lien Convertible Notes (this Note, the “Note” and, collectively with the other Notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, the Company promises to pay to GreenTech Automotive, Inc.., or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $500,000.00 on August 17, 2015 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, or such later date as may be permitted by the Holder as set forth in Section 2 hereof, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

 

The Company’s and its Subsidiaries’ obligations under this Note and the other Transaction Documents are secured by the Collateral (as defined in the Intercreditor Agreement) pursuant to the terms of the Intercreditor Agreement and the obligations under this Note and are guaranteed by the Subsidiaries pursuant to the Intercreditor Agreement.

 

 
 

 

This Note is subject to the following additional provisions:

 

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof; (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within sixty (60) days after commencement; (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60) calendar days after such appointment; (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

Base Conversion Price” shall have the meaning set forth in Section 5(b).

 

Business Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of California are authorized or required by law or other governmental action to close.

 

Buy-In” shall have the meaning set forth in Section 4(d)(v).

 

Common Stock Equivalents” means any securities of the Company or its subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

Conversion Date” shall have the meaning set forth in Section 4(a).

 

Conversion Price” shall have the meaning set forth in Section 4(b).

 

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Conversion Shares” means, collectively, the shares of Common Stock issued or issuable upon conversion or redemption of this Note in accordance with the terms hereof, including without limitation shares of Common Stock issued or issuable as interest hereunder or as damages under the Transaction Documents.

 

Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

Event of Default” shall have the meaning set forth in Section 7(a).

 

Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

Fundamental Transaction Cash Amount” means the sum of (a) two hundred percent (200%) of the then outstanding principal amount of this Note, plus one hundred percent (100%) of accrued and unpaid interest thereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

 

Los Angeles Courts” shall have the meaning set forth in Section 8(d).

 

Mandatory Default Amount” means the sum of (a) one hundred twenty percent (120%) of the then outstanding principal amount of this Note, (b) plus one hundred percent (100%) of accrued and unpaid interest hereon, and (c) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

 

Note Register” shall have the meaning set forth in Section 2(c).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

Original Issue Date” means the date of the first issuance of this Note, regardless of any transfers of this Note and regardless of the number of instruments which may be issued to evidence this Note.

 

Permitted Indebtedness” means (a) the indebtedness evidenced by the Notes, (b) the indebtedness existing on the initial Closing Date and disclosed in the SEC Reports, (c) lease obligations and purchase money indebtedness incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, (d) loans previously provided to Saleen Automotive, Inc., SMS Signature Cars and/or Steve Saleen by the Small Business Administration and (e) indebtedness that is expressly subordinate to the Notes pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion; provided that such Permitted

 

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Indebtedness shall not exceed seventy-five percent (75%) of the aggregate principal amount of all Notes then outstanding.

 

Permitted Lien” means the individual and collective reference to the following:

 

(a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien; and (c) Liens incurred in connection with Permitted Indebtedness and disclosed in the SEC Reports.

 

Purchase Agreement” means the Securities Purchase Agreement, dated as of March 25, 2015, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

  

Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Share Delivery Date” shall have the meaning set forth in Section 4(d)(ii).

 

Subsidiary” shall have the meaning set forth in the Purchase Agreement.

 

Trading Day” means a day on which the principal Trading Market is open for business.

 

Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: NYSE Amex, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

 

Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

 

VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading

 

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Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b) if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board;

 

(c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company.

 

Section 2. Interest; No Prepayment.

 

a) Interest Rate. Interest shall accrue daily on the outstanding principal amount of this Note at a rate per annum equal to 10.0%, subject to Section 2(d) below.

 

b) Payment of Interest. On the Maturity Date, the Company shall pay to the Holder any accrued but unpaid and unconverted interest hereunder on the aggregate unconverted and then outstanding principal amount of this Note, and on each Conversion Date the Company shall pay to the Holder any accrued but unpaid and unconverted interest hereunder on that portion of the principal amount then being converted. The amount of interest payable on each Conversion Date and the Maturity Date (“Interest Amount”) may be added to and included with the principal amount being so converted or redeemed on such date.

 

c) Interest Calculations. Interest shall be calculated on the basis of a three hundred sixty (360)-day year, consisting of twelve (12) thirty (30) calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “Note Register”). Except as otherwise provided herein, if at any time the Company pays interest partially in cash and partially in shares of Common Stock to the holders of the Notes, then such payment of cash shall be distributed ratably among the holders of the then-outstanding Notes based on their (or their predecessor’s) initial purchases of Notes pursuant to the Purchase Agreement.

 

d) Default Interest. After the occurrence and during the continuance of any Event of Default, the interest rate on this Note shall accrue at an interest rate equal to the lesser of twelve percent (12%) per annum, compounded daily, or the maximum rate permitted under applicable law.

 

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e) Prepayment. This Note may not be prepaid except with the consent of the holder hereof.

 

Section 3Registration of Transfers and Exchanges.

 

a) Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such exchange.

 

b) Investment Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c) Reliance on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

d) Transfer Restrictions. Any transfer of this Note shall also be subject to the applicable restrictions and requirements of Sections 3.2 and 4.1 of the Purchase Agreement and other provisions of the Transaction Documents.

 

Section 4Conversion.

 

a) Voluntary Conversion. At any time after the Original Issue Date until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (a “Notice of Conversion”), specifying therein the principal amount of this Note and any accrued but unpaid interest thereon to be converted and the future date (which may be the same date as the date such notice is deemed effective pursuant to Section 8(a)) on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s). In the event of any dispute or discrepancy, the records of the Company shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

 

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b) Conversion Price. The conversion price shall equal the lesser of (A) $0.075 (subject to adjustment as provided in this Note) and (B) seventy percent (70%) of the average of the three (3) lowest VWAPs occurring during the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note (as applicable, the “Conversion Price”); provided, however, that in no event shall the Conversion Price be less than $0.02 (the “Conversion Price”).

 

c) Conversion Limitations.

 

i. Holder’s Restriction on Conversion. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this paragraph applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this paragraph, in determining the number of

 

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outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (A) the Company’s most recent periodic or annual report, as the case may be; (B) a more recent public announcement by the Company; or (C) a more recent notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within three (3) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be four and nine-tenths percent (4.9%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. By written notice to the Company, the Holder may at any time and from time to time increase or decrease the Beneficial Ownership Limitation to any other percentage specified in such notice (or specify that the Beneficial Ownership Limitation shall no longer be applicable), provided, however, that (A) any such increase (or inapplicability) shall not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (B) any such increase or decrease shall apply only to the Holder and not to any other holder of Notes. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.

 

ii. Unless otherwise approved in writing by the Company, any individual conversion under Section 4(a) must be for at least 10,000 Conversion Shares (such number to be appropriately adjusted for any stock splits, stock dividends and similar events).

 

d)  Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (a) the outstanding principal amount of this Note to be converted plus any accrued but unpaid interest thereon, by (b) the Conversion Price.

 

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ii. Delivery of Certificate Upon Conversion. Not later than two (2) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the Legend Removal Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Note. On or after the date which is six (6) months following the Original Issue Date on which this Note is issued, the Company shall use commercially reasonable efforts to deliver any certificate(s) or shares required to be delivered by the Company under this Section 4 electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

iii. Failure to Deliver Certificates. If in the case of any Notice of Conversion such certificate(s) or shares are not delivered to or as directed by the applicable Holder by the second (2nd) Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Note unsuccessfully tendered for conversion to the Company.

 

iv. Obligation Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of one hundred percent (100%) of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or,

 

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if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate(s) or shares pursuant to Section 4(d)(ii) by the third (3rd) Trading Day after the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $7.00 per Trading Day (increasing to $13.00 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such third (3rd) Trading Day after the Share Delivery Date until such certificates are delivered. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 7 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. Notwithstanding any portion of the foregoing to the contrary, if the Company fails to deliver to the Holder such certificate(s) or shares by the Share Delivery Date pursuant to Section 4(d)(ii) because (A) the conversion by the Holder is delivered in connection with a proposed sale by the Holder of the Conversion Shares under Rule 144 promulgated under the Securities Act, and (B) in connection with such sale, the Holder has failed to deliver customary representation letters, as prepared by the brokerage firm of Holder in the ordinary course of its business, appropriate to evidence compliance with such rule, then the liquidated damages provisions herein shall not begin to accrue until the Trading Day immediately following the date that the Holder has delivered such representation letters.

 

v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate(s) or shares by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have

 

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been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

 

vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Note and payment of interest on this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Notes), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments of Section 5) upon the conversion of the outstanding principal amount of this Note and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

 

vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii. Transfer Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

 

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Section 5. Certain Adjustments.

 

a) Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Notes); (ii) subdivides outstanding shares of Common Stock into a larger number of shares; (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

b) [RESERVED].

 

c) Subsequent Rights Offerings. The Company shall not, at any time while the Note is outstanding, issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below.

 

d) Pro Rata Distributions. The Company shall not, at any time while this Note is outstanding, distribute to all holders of Common Stock (and not to Holders of the Notes) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock.

 

e) Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each, a “Fundamental Transaction”), then upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new Note consistent with the foregoing provisions and evidencing the Holder’s right to convert such Note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 5(e) and insuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. In the event of a Fundamental Transaction the Holder may elect, by giving written notice of such election to the Company at least five (5) Trading Days before the closing of such Fundamental Transaction, to sell this Note to the Company or its designated assignee, concurrently with such closing, for a cash payment equal to the Fundamental Transaction Cash Amount at the time of the closing. Notice of any such proposed Fundamental Transaction and of such election shall be given to the Holder at least fifteen (15) calendar days before such closing. In connection with such purchase, the Holder shall assign this Note to the Company or its assignee, free and clear of any liens, claims or encumbrances other than transfer restrictions under applicable securities laws.

 

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f) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g)  Notice to the Holder.

 

i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Note during the twenty (20)-day period commencing on the date of such notice through the effective date of the event triggering such notice.

 

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Section 6. Negative Covenants. As long as any portion of this Note remains outstanding, unless the holders of at least a majority in principal amount of the then outstanding Notes shall have otherwise given prior written consent, the Company shall not, and shall not permit any of its subsidiaries (whether or not a Subsidiary on any Closing Date) to, directly or indirectly:

 

a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

c) repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock Equivalents other than as to (i) the Conversion Shares as permitted or required under the Transaction Documents and (ii) repurchases of Common Stock or Common Stock Equivalents of departing employees of the Company, provided that such repurchases shall not exceed an aggregate of $150,000 for all employees during the term of this Note;

 

d) pay cash dividends or distributions on Common Stock of the Company;

 

e) enter into any transaction with any Affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is expressly approved by a majority of the disinterested directors of the Company (even if less than a quorum otherwise required for board approval); or

 

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f) enter into any agreement with respect to any of the foregoing.

 

For the avoidance of doubt, subject to the express provisions of the Transaction Documents, the Company shall be entitled to seek and obtain additional debt or equity financing from parties other than the purchasers of the Notes, as approved by its board of directors.

 

Section 7. Events of Default.

 

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body), provided that an event specified in item i, ii, iii, or viii below will not become an Event of Default unless and until it is not cured, if possible to cure, within the earlier to occur of (i) five (5) Trading Days after notice of such failure sent by the Holder or by any other Holder and (ii) ten (10) Trading Days after the Company has become or should have become aware of such failure:

 

i. any default in the payment of (A) the principal amount of any Note or (B) interest, liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise);

 

ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Notes (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below);

 

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

 

iv. any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v. the Company or any Significant Subsidiary shall be subject to a Bankruptcy Event;

 

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vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (A) involves an obligation greater than $100,000, whether such indebtedness now exists or shall hereafter be created, and (B) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. if the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within ten (10) Trading Days;

 

viii. if at any time after three (3) months following the Closing Date the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or has failed to file all reports required to be filed thereunder during the then preceding twelve (12) months (or such shorter period that the Company was required to file such reports);

 

ix. if any of the Security Documents or Subsidiary Guaranties ceases to be in full force and effect (including failure to create, to the extent reasonably feasible, a valid and perfected first priority lien (subject to the Permitted Liens) on and security interest in all the Collateral (as defined in the Security Agreement) and Intellectual Property Rights of the Company and its Subsidiaries) at any time for any reason;

 

x. if Steve Saleen ceases to serve full time as the President and Chief Executive Officer of the Company and perform the duties consistent with such positions for similarly situated companies, provided that if such cessation is due to Steve Saleen’s death, permanent disability, voluntary termination or termination by the Company for cause, then (A) an Event of Default shall not be deemed to have occurred unless and until the Company shall have failed to retain a full-time replacement reasonably acceptable to the Holder within ninety (90) days following such death, permanent disability, voluntary termination or termination by the Company for cause, and (B) following any such acceptable replacement this clause shall apply to such replacement in lieu of Steve Saleen;

 

xi. the Company shall fail for any reason to deliver certificates to a Holder prior to the tenth (10th) Trading Day after a Conversion Date or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Notes in accordance with the terms hereof; or

 

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xii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days; provided, however, that any judgment which is covered by insurance or an indemnity from a creditworthy party (such creditworthiness as reasonably determined by the Holder) shall not be included in calculating the amount of such judgment, writ or final process so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company will receive the proceeds of such insurance or indemnity within forty- five (45) calendar days of the issuance of such judgment.

 

b) Acceleration Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election (which the Holder shall not make more than the later of thirty (30) calendar days after the date (a) such Event of Default is cured or otherwise resolved and (b) the Holder is aware of such cure or resolution), immediately due and payable in cash at the Mandatory Default Amount. After the occurrence and during the continuance of any Event of Default, the interest rate on this Note shall accrue as set forth in Section 2(d). If there is such an acceleration, then upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 7(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

Section 8. Miscellaneous.

 

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section 8. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission or delivery, if such notice or communication is delivered via facsimile at the facsimile number, or delivered by such courier service to the address, specified in this Section 8 prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date of transmission or delivery, if such notice or communication is delivered via facsimile at the facsimile number, or delivered by such courier to the address, specified in this Section 8 between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City time) on any date, or (iii) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached to the Purchase Agreement.

 

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b) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.

 

c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.

 

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the County of Los Angeles (the “Los Angeles Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Los Angeles Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such Los Angeles Courts, or such Los Angeles Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses reasonably incurred in the investigation, preparation and prosecution of such action or proceeding.

 

18
 

 

e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver by the Company or the Holder must be in writing.

 

f) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

 

i) Assumption. Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction, all of the obligations of the Company under this Note and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the Holder a new Note of such successor entity evidenced by a written instrument substantially similar in form and substance to this Note, including, without limitation, having a principal amount and interest rate equal to the principal amount and the interest rate of this Note and having similar ranking to this Note, which shall be satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed). The provisions of this Section 8(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Note.

 

j) Usury. This Note shall be subject to the anti-usury limitations contained in the Purchase Agreement.

 

19
 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.

 

SALEEN AUTOMOTIVE, INC.

 

By:  

 

Steve Saleen, Chief Executive Officer

 

Facsimile No. for delivery of Notices: (888) 729-4827

 

20
 

 

ANNEX A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the 3.0% Senior Secured Convertible Note due June 25, 2017 of Saleen Automotive, Inc., a Nevada corporation (the Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock pursuant to any prospectus.

  

Conversion calculations:

 

  Date to Effect Conversion:                                                               
   
  Principal Amount of Note to be Converted:                                   
   
  Interest Accrued on Account of Conversion at Issue:                                                                                                                
   
  Number of shares of Common Stock to be issued (not less than 10,000 shares):                                     
                                                                                                                 
   
  Signature:                                                                                             
   
  Name:                                                                                                    
   
  Address for Delivery of Common Stock Certificates:
                                                                                                                 
                                                                                                                 
  Or
   
  DWAC Instructions:
   
  Broker No:                          
  Account No:                      

 

 
 

 

EX-10.32 5 ex10-32.htm

 

Supplemental Agreement dated as of April 17, 2015 among Steve Saleen (“SS”), Saleen Automotive, Inc (“SAI”), WM Industries Corp. (f/k/a WM GreenTech Automotive,Corp.) (WMIC”), and GreenTech Automotive, Inc. (“GTA”).

 

RECITALS:

 

Concurrently herewith, GTA is entering into a Securities Purchase Agreement (the “Securities Purchase Agreement”) and related documents dated on or about the date hereof pursuant to which GTA is acquiring $500,000 principal amount of 10.0% First Lien Convertible Notes (“Notes”).

 

As further consideration for the purchase of the Notes and the mutual undertakings of the parties in connection with the transactions contemplated by the Securities Purchase Agreement and related documents the parties agree as follows:

 

1.SS and SAI (as successor to W270, Inc.) agree Section 3.5 of the Assignment and License Agreement dated May 23, 2013 between W270, Inc. and SS, hereby is deleted and of no further force or effect.

 

2.SAI and WMIC agree that Section 3 “Exclusivity” of the parties’ Joint Branding, Marketing, and Distribution Agreement is hereby amended (i) by deleting in the first sentence the clause “in the first two-year period beginning February 1, 2014” and inserting in lieu thereof the clause “for the period until February 1, 2018”, and (ii) by deleting in the second sentence the clause “Starting year three (3)”, and inserting in lieu thereof the clause, “For each one year period commencing February 1, 2018”.

 

3.SAI and GTA agree that the proceeds of the $500,000 issuance of Notes shall be disbursed promptly over the next three weeks directly for the acquisition of vehicle chassis, vehicle parts and to pay rent obligations, the timing and recipients of which shall be specifically discussed and mutually agreed in the reasonable discretion of the parties in connection with each funding.

 

IN WITNESS WHEREOF, the undersigned parties have entered into this Supplemental Agreement as of the date and year first above written.

 

  SALEEN AUTOMOTIVE, INC.  
       
  By:    
       
  WM INDUSTRIES CORP.  
       
  By:    
       
  GREENTECH AUTOMOTIVE, INC.  
       
  By:    
       
       
     
  STEVE SALEEN  

 

 
 

EX-10.33 6 ex10-33.htm

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT, dated as of April 17, 2015(this “Agreement”), is among Saleen Automotive, Inc., a Nevada corporation (the “Company”), all of the Subsidiaries of the Company (such Subsidiaries, the “Guarantors”, and together with the Company, the “Debtors”), and the holders, each signatory hereto, of the Company’s 10.0% First Lien Convertible Notes issued or to be issued in the original aggregate principal amount of up to

$500,000 (the “Notes”) pursuant to the Purchase Agreement (as defined below) (collectively, together with their endorsees, transferees and assigns, the “Secured Parties”, and each individually, a “Secured Party”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Securities Purchase Agreement dated on or about April 17, 2015 between the Company and the Secured Parties (the “Purchase Agreement”), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Notes;

 

WHEREAS, pursuant to that certain Subsidiary Guarantee, dated as of the date hereof (“Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Notes;

 

WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Notes, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Notes and other Transaction Documents and the Guarantors’ obligations under the Guarantee; and

 

WHEREAS, the rights of each Secured Party hereunder shall be pari passu with each other Secured Party and enforced through the agent for the Secured Parties appointed pursuant to Section 18 hereunder.

 

NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.

 

 
 

 

(a) “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):

 

(i) All goods, including without limitation (A) all machinery, equipment, computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture, special and general tools, fixtures, test and quality control devices and other equipment of every kind and nature and wherever situated, together with all documents of title and documents representing the same, all additions and accessions thereto, replacements therefor, all parts therefor, and all substitutes for any of the foregoing and all other items used and useful in connection with any Debtor’s businesses and all improvements thereto; and (B) all inventory;

 

(ii) All contract rights and other general intangibles, including without limitation, all partnership interests, membership interests, stock or other securities, rights under any of the Organizational Documents, agreements related to the Pledged Securities, licenses, distribution and other agreements, computer software (whether “off-the-shelf”, licensed from any third party or developed by any Debtor), computer software development rights, leases, franchises, customer lists, quality control procedures, grants and rights, goodwill, trademarks, service marks, trade styles, trade names, patents, patent applications, copyrights, and income tax refunds;

 

(iii) All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;

 

(iv) All documents, letter-of-credit rights, instruments and chattel paper;

 

(v) All commercial tort claims;

 

(vi) All deposit accounts and all cash (whether or not deposited in such deposit accounts);

 

(vii) All investment property;

 

(viii) All supporting obligations;

 

(ix) All files, records, books of account, business papers, and computer programs, including without limitation and all files, records, books, ledger cards, correspondence, computer programs, tapes, disks, digital storage media and related data processing software that at any time evidence or contain information relating to any of the Collateral set forth in clauses (i)-(viii) above or are otherwise necessary or helpful in the collection thereof or realization thereupon; and 

 

 
 

 

(x) the products, profits and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above, and all payments under insurance (whether or not the Secured Party is the loss payee thereof) or under any indemnity, warranty or guaranty, payable by reason or loss or damage to, or otherwise with respect to, any of the foregoing Collateral set forth in clauses (i)-(ix) above.

 

Without limiting the generality of the foregoing, the “Collateral” shall include all investment property and general intangibles respecting ownership and/or other equity interests in each Guarantor, including, without limitation, the shares of capital stock and the other equity interests listed on Schedule H hereto (as the same may be modified from time to time pursuant to the terms hereof), and any other shares of capital stock and/or other equity interests of any other direct or indirect subsidiary of any Debtor obtained in the future, and, in each case, all certificates representing such shares and/or equity interests and, in each case, all rights, options, warrants, stock, other securities and/or equity interests that may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing and all rights arising under or in connection with the Pledged Securities, including, but not limited to, all dividends, interest and cash.

 

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.

 

(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including without limitation all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi)  all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.

 

 
 

 

(c) “Majority in Interest” means, at any time of determination, at least a majority in interest (based on then-outstanding principal amounts of Notes at the time of such determination) of the Secured Parties.

 

(d) “Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.

 

(e) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties either (i) under this Agreement, the Notes, the Guarantee, the other Transaction Documents and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, or (ii) related to any other liabilities or obligations associated with any indebtedness for borrowed money from any Secured Party to any Debtor, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of and interest on the Notes and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Notes, the Guarantee, the other Transaction Documents and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.

 

(f) “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as articles of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).

 

(g) “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).

 

(h) “Transaction Documents” shall have the meaning ascribed to such term in the Purchase Agreement. 

 

 
 

 

(i) “UCC” means the Uniform Commercial Code of the State of California and/or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.

 

2. Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Notes and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties, subject to Permitted Liens (as defined in the Notes), a first priority security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a “Security Interest” and, collectively, the “Security Interests”).

 

3. Delivery of Certain Collateral. Contemporaneously or prior to the execution of this Agreement, each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, together with all Necessary Endorsements, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements. The Debtors are, contemporaneously with the execution hereof, delivering to the Agent, or have previously delivered to the Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.

 

4. Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:

 

(a) Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor. This Agreement has been duly executed by each Debtor. This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms.

 

(b) The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. Except as specifically set forth on Schedule A, each Debtor is the record owner of the real property where such Collateral is located, and there exist no mortgages or other liens on any such real property except for Permitted Liens. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.

 

 
 

 

(c) Except for Permitted Liens and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral, free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule B attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule B attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement).

 

(d) Except as set forth on Schedule 4(d) hereto, no written claim has been received that any Collateral or Debtor’s use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor's claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor's right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.

 

(e) Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing second priority lien in all the Collateral.

 

(f) This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens securing the payment and performance of the Obligations. Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected. Except for the execution and delivery of this Agreement, the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined below) with the United States Copyright Office or the United States Patent and Trademark Office with respect to copyrights, patents and trademarks (and applications relating each of the foregoing) as described in paragraph 4(mm), the execution and delivery of deposit account control agreements satisfying the requirements of Section 9- 104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no further action is necessary to create, perfect or protect the security interests created hereunder. Without limiting the generality of the foregoing, except for the execution and delivery of this Agreement by all (100%) of the Secured Parties, the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, except as set forth on Schedule 4(f), no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral, or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder (except that the Secured Parties shall have a second priority security interest with respect to the Collateral).

 

 
 

  

(g) Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.

 

(h) The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor's debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. All required consents (including without limitation from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.

 

(i) The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company. All of the Pledged Securities are validly issued, fully paid and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens.

 

(j) The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.

 

(k) Except for Permitted Liens, until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof, each Debtor shall at all times maintain in favor of the Secured Parties the liens and Security Interests provided for hereunder as valid and perfected first priority liens and security interests in all the Collateral. Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties. At the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.

 

 
 

  

(l) Except as listed on Schedule I, no Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for licenses granted by a Debtor in its ordinary course of business and sales of inventory and other unused or outdated assets by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.

 

(m) Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.

 

(n) Each Debtor shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. Each Debtor shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (i) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (ii) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (iii) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Notes) exists, loss payments in each instance will be applied by the applicable Debtor to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable Debtor; provided, however, that payments received by any Debtor after an Event of Default occurs and is continuing shall be paid to the Agent on behalf of the Secured Parties and, if received by such Debtor, shall be held in trust for the Secured Parties and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.

 

(o) Each Debtor shall promptly, but no later than ten (10) days after obtaining knowledge thereof, advise the Secured Parties, through the Agent, in sufficient detail of any change in the Collateral and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest therein.

 

 
 

 

(p) Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.

 

(q) Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

 

(r) Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.

 

(s) Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interests or the rights and remedies of the Secured Parties hereunder.

 

(t) All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is and will be accurate and complete in all material respects as of the date furnished.

 

(u) The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.

 

(v) No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least thirty (30) days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

 

(w) Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.

 

 
 

 

(x) No Debtor may relocate its chief executive office to a new location without providing thirty (30) days’ prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.

 

(y) Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.

 

(z) (i) The actual name of each Debtor is the name set forth in Schedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five (5) years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five (5) years except as set forth on Schedule E.

 

(aa) At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the Security Interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.

 

(bb) Each Debtor, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of the Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of any Debtor as contemplated by Section 8-106 (or any successor section) of the UCC. Further, each Debtor agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.

 

(cc) Each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement. To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).

 

(dd) If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall, promptly upon written request of the Agent following the occurrence of an Event of Default, cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties.

 

(ee) To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall, promptly upon written request of the Agent following the occurrence of an Event of Default, cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties.

 

 
 

 

(ff) To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.

 

(gg) If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Agent.

 

(hh) Each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.

 

(ii) Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors. Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect. The Additional Debtor shall also deliver such authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request. Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.

 

(jj) Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Notes.

 

 
 

 

(kk) Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor. Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer. Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to the Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that:

 

(i)it has registered the pledge on its books and records; and (ii) at any time directed by the Agent during the continuation of an Event of Default, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of the Agent, will take such steps as may be necessary to effect the transfer, and will comply with all other instructions of the Agent regarding such Pledged Securities without the further consent of the applicable Debtor.

 

(ll) In the event that, upon an occurrence of an Event of Default, the Agent shall sell all or any of the Pledged Securities to another party or parties (herein called the “Transferee”) or shall purchase or retain all or any of the Pledged Securities, each Debtor shall, to the extent applicable: (i) deliver to the Agent or the Transferee, as the case may be, the articles of incorporation, bylaws, minute books, stock certificate books, corporate seals, deeds, leases, indentures, agreements, evidences of indebtedness, books of account, financial records and all other Organizational Documents and records of the Debtors and their direct and indirect subsidiaries; (ii) use commercially reasonable efforts to obtain resignations of the persons then serving as officers and directors of the Debtors and their direct and indirect subsidiaries, if so requested; and (iii) use its best efforts to obtain any approvals that are required by any governmental or regulatory body in order to permit the sale of the Pledged Securities to the Transferee or the purchase or retention of the Pledged Securities by the Agent and allow the Transferee or the Agent to continue the business of the Debtors and their direct and indirect subsidiaries.

 

(mm) Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.

 

(nn) Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.

 

(oo) Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof. Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof. All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.

 

(pp) Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.

 

 
 

 

5. Effect of Pledge on Certain Rights. If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of the Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.

 

6. Defaults. The following events shall be “Events of Default”:

 

Notes;

 

(a) The occurrence of an Event of Default (as defined in the Notes) under the

  

(b) Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;

 

(c) The failure by any Debtor to observe or perform any of its obligations hereunder for five (5) business days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or

 

(d) If any material provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any material liability or obligation purported to be created under this Agreement.

 

7. Duty to Hold in Trust.

 

(a) Upon the occurrence and continuation of any Event of Default, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Notes or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro- rata in proportion to their respective then-currently outstanding principal amount of Notes for application to the satisfaction of the Obligations.

 

 
 

  

(b) If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties;

 

(ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) deliver any and all certificates or instruments evidencing the same to the Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by the Agent subject to the terms of this Agreement as Collateral.

 

8. Rights and Remedies Upon Default.

 

(a) Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Notes and other Transaction Documents, and the Secured Parties, acting through the Agent, shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:

 

(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor's premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.

 

(ii) Upon notice to the Debtors by the Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, the Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of the Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, the Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including without limitation to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.

 

(iii) The Agent shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.

 

 
 

 

(iv) The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.

 

(v) The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.

 

(vi) The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.

 

(b) The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Debtors will only be credited with payments actually made by the purchaser. In addition, each Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including without limitation the Agent’s right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.

 

(c) For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.

 

 
 

 

9. Inter Secured Party Rights; Transaction/Applications of Proceeds.

 

(a) All Obligations owed to the Secured Parties shall rank in the order of priority pari passu and pro-rata in proportion to each Secured Party’s outstanding principal amount of Notes at any given time that a determination needs to be made of pro-rata holdings. If an Event of Default occurs and any party hereto collects proceeds pursuant to its rights under any Obligations, the Agent shall be immediately notified and such payment shall be shared with all of the other Secured Parties as set forth above. Notwithstanding anything to the contrary contained in the Purchase Agreement or any document executed in connection with the Obligations and irrespective of: (i) the time, order or method of attachment or perfection of the security interests created in favor of Secured Parties; (ii) the time or order of filing or recording of financing statements or other documents filed or recorded to perfect security interests in any Collateral; (iii) anything contained in any filing or agreement to which any Secured Party now or hereafter may be a party; and (iv) the rules for determining perfection or priority under the Uniform Commercial Code or any other law governing the relative priorities of secured creditors, each of the Secured Parties acknowledges that (x) all other Secured Parties have a valid security interest in the Collateral and (y) the security interests of the Secured Parties in any Collateral pursuant to any outstanding Obligations shall be pari passu with each other and enforced pursuant to the terms of this Agreement through the Agent. Each Secured Party, severally and not jointly with the other Secured Parties, shall indemnify, defend, and hold harmless the other Secured Parties against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including interest, penalties, and reasonable professional and attorneys’ fees, including those arising from settlement negotiations, that the other Secured Parties shall incur or suffer, which arise, result from, or relate to a breach of, or failure by such Secured Party to perform under this Agreement.

 

(b) The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including without limitation any taxes, fees and other costs incurred in connection therewith) of the Collateral, then to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Notes at the time of any such determination), and then to the payment of any other amounts required by applicable law. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of twelve percent (12%) per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency. To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.

 

10. Securities Law Provision. Each Debtor recognizes that the Agent may be limited in its ability to effect a sale to the public of all or part of the Pledged Securities by reason of certain prohibitions in the Securities Act of 1933, as amended, or other federal or state securities laws (collectively, the “Securities Laws”), and may be compelled to resort to one or more sales to a restricted group of purchasers who may be required to agree to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof. Each Debtor agrees that sales so made may be at prices and on terms less favorable than if the Pledged Securities were sold to the public and that the Agent has no obligation to delay the sale of any Pledged Securities for the period of time necessary to register the Pledged Securities for sale to the public under the Securities Laws. Each Debtor shall cooperate with the Agent in its attempt to satisfy any requirements under the Securities Laws applicable to the sale of the Pledged Securities by the Agent.

 

 
 

 

11. Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including, without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with (a) the enforcement of this Agreement, (b) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (c) the exercise or enforcement of any of the rights of the Secured Parties under the Notes. Until so paid, any fees payable hereunder shall be added to the principal amount of the Notes and shall bear interest at the Default Rate.

 

12. Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.

 

13. Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Notes, any other Transaction Documents or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Notes, any other Transaction Documents or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including without limitation the running of the statute of limitations or bankruptcy. Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.

 

 
 

 

 14. Term of Agreement. This Agreement and the Security Interests shall terminate, automatically and without any action on the part of the Agent or Secured Parties, on the date on which all payments under the Notes have been indefeasibly paid or otherwise discharged in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the parties hereto contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement. The Agent and Secured Parties shall, at Debtor’s request and expense, take any and all action required to discharge any and all security interests and release to Debtor any and all Collateral in the Agent’s or Secured Parties’ possession or control. The Secured Parties hereby agree that the Debtor shall have the right, and the Debtor is hereby authorized, to take all necessary action to cause the termination and release of all security interests granted hereunder upon termination of this Agreement, including the filing of one or more UCC termination statements or amendments relating to the Collateral.

 

15. Power of Attorney; Further Assurances.

 

(a) Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) demand, collect, receive, compromise, settle and sue for monies due in respect of the Collateral; (v) transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, execute and deliver any and all documents and instruments and do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement, the Notes and other Transaction Documents all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.

 

(b) On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including without limitation the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.

 

(c) Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement.

 

16. Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement.

 

17. Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.

 

 
 

 

18. Appointment of Agent. The Secured Parties hereby appoint W-Net Fund I, L.P. or its appointed agent to act as their agent (“Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto. The Debtors shall be entitled to rely, without independent verification and irrespective of contrary instructions from any Secured Party, on any action or decision of the Agent as the act or decision of the Secured Parties.

 

19. Miscellaneous.

 

(a) No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Notes shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

(b) All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Notes or by any other agreements, instruments or documents or by law, shall be cumulative and may be exercised singly or concurrently.

 

(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and a Majority in Interest or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

 

(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

 
 

 

(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person to whom such Secured Party assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of this Agreement that apply to the “Secured Parties.”

 

(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.

 

(h) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflicts of law thereof. Each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Notes (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the County of Los Angeles. Each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the County of Los Angeles for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court or that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If any party shall commence a proceeding to enforce any provisions of this Agreement, then the prevailing party in such proceeding shall be reimbursed by the other party for its reasonable attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such proceeding.

 

(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission or e-mail transmission, such signature shall create a valid binding obligation of the party executing the same (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature were the original thereof.

 

(j) All Debtors shall be jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.

 

 
 

 

(k) Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from any violation of the terms or provisions of this Agreement or the agreements underlying the Obligations or the negligence or willful misconduct of the Indemnitee. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Notes, the Purchase Agreement or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.

 

(l) Nothing in this Agreement shall be construed to subject the Agent or any Secured Party to liability as a partner or member in or of any Debtor or any of its direct or indirect subsidiaries, nor shall the Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any of its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.

 

(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.

 

 
 

 

IN WITNESS WHEREOF, each of the Grantors have caused this Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.

 

SALEEN AUTOMOTIVE, INC.  
By:  
  Steve Saleen  
  Chief Executive Officer  

  Saleen Automotive, Inc.
  By:
    Steve Saleen
    Chief Executive Officer

 

  SMS Signature Cars
  By:
    Steve Saleen
    Chief Executive Officer
     

 

ACCEPTED:

 

GREENTECH AUTOMOTIVE, INC.  
     
By:  
  Gary Tang  
  Executive Vice President - Finance  

 

 

 
 

 

SCHEDULE A

 

Principal Place of Business of Debtors:

 

2735 Wardlow Road

Corona, CA 92882

 

Locations Where Collateral is Located or Stored:

 

2735 Wardlow Road

Corona, CA 92882

 

SCHEDULE B

Exceptions

 

UCC-1 Financing Statement regarding State tax lien filed by Employment Development Department on February 19, 2013 against SMS Signature Cars.

 

UCC-1 Financing Statement regarding judgment lien filed by Chapman Ford, L.L.C. on August 13, 2012 against SMS Signature Cars.

 

UCC-1 Financing Statement regarding State tax lien filed by Employment Development Department on April 25, 2012 against SMS Signature Cars.

 

UCC-1 Financing Statement filed by Strategic Funding Source, Inc. on May 2, 2011 against SMS Signature Cars.

 

UCC-1 Financing Statement filed by Pawnee Leasing Corporation on June 24, 2009 against SMS Signature Cars.

 

 

SCHEDULE C

Recording Jurisdictions

 

California Florida

 

 
 

 

SCHEDULE D

Legal Names, Organizational Jurisdictions and Identification Numbers

 

Name   Jurisdiction   ID Number   Address
             

Saleen Automotive, Inc.

 

Nevada

 

NV20111422852

 

2735 Wardlow Road

            Corona, CA 92882
             
Saleen Automotive, Inc.   Florida   P11000065963  

2735 Wardlow Road

Corona, CA 92882

             
SMS Signature Cars   California   C3155834  

2735 Wardlow Road

Corona, CA 92882

 

SCHEDULE E

Names; Mergers and Acquisitions

 

On June 26, 2013, Saleen California Merger Corporation was merged with and into SMS Signature Cars, and Saleen Florida Merger Corporation was merged with and into Saleen Automotive, Inc.

 

 
 

 

SCHEDULE F

Intellectual Property

 

Mark   No.   Owner
         

Registered Trademarks

 
Saleen   2407911   Steve Saleen
[Stylized "S"]   2007476   Steve Saleen
Saleen   2005539   Steve Saleen
Speedlab   3593081   Steve Saleen
Supershaker   3706317   Steve Saleen

 

Trademarks - Applications Pending

 
SMS Supercars   85551574   SMS Signature Cars, Inc.
SMS Supercars   85551743   SMS Signature Cars, Inc.
SMS Supercars   85551715   SMS Signature Cars, Inc.
Power in the Hands of a Few   85551696   Saleen Automotive, Inc.
Power in the Hands of a Few   85551645   Saleen Automotive, Inc.

 

Trademarks - Common Law

 
Saleen Performance Vehicles   n/a   SMS Signature Cars, Inc.
The Science of Speed   n/a   SMS Signature Cars, Inc.
Speed Science Style   n/a   SMS Signature Cars, Inc.
SMS Limited   n/a   SMS Signature Cars, Inc.
Racecraft   n/a   SMS Signature Cars, Inc.
Powerflash   n/a   SMS Signature Cars, Inc.

 

 
 

 

No.   Description   Owner
         

Patents - Issued

 
D399,465   Side skirt for customized automobile body   Steve Saleen
D418,468   Vehicle sideskirt set   Steve Saleen, Phil Frank
D437,271   Mustang car brake and/or clutch pedal   Saleen Inc.*
D443,570   Mustang car brake/clutch pedal   Saleen Inc.*
D444,114   Pair of car pillar inserts   Saleen Inc.*
D444,436   Vehicle brake pedal   Saleen Inc.*
D444,435   Set of pedals for vehicle   Saleen Inc.*
D447,102   Vehicle gas pedal   Saleen Inc.*
D472,861   Automobile side skirt   Saleen Inc.*
D472,855   Automobile front bumper   Saleen Inc.*
D473,831   Automobile wing   Saleen Inc.*
D476,605   Automobile rear bumper   Saleen Inc.*
D482,995   Automobile flares   Saleen Inc.*
D483,312   Automobile front flares   Saleen Inc.*
7,597,088   Apparatus for boosting engine performance   MJ Acquisitions*
         

Patents - Applications Pending

 
463864   Transparent Vehicle Roof   Saleen Inc.*
384838   Intercooler cartridge assembly   SMS Signature Cars, Inc.

 

Domains

 

saleen.com

 

Licenses

 

February 15, 2012 License Agreement between Steve Saleen and Roadwire, LLC (for the manufacture of Saleen seats)

 

February 7, 2011 License Agreement between Steve Saleen and Molly Saleen (for t-shirts and hats)

 

 
 

 

SCHEDULE G

Government Account Debtors

 

None.

 

SCHEDULE H

Pledged Securities

 

SMS Signature Cars   100 shares of Common Stock
Saleen Automotive, Inc.   100 shares of Common Stock

 

SCHEDULE I

Permitted Licenses and Dispositions

 

None.

 

 
 

 

ANNEX A

to

SECURITY AGREEMENT

 

FORM OF ADDITIONAL DEBTOR JOINDER

 

Security Agreement dated as of June 26, 2013 made by

Saleen Automotive, Inc.

and its subsidiaries party thereto from time to time, as Debtors to and in favor of

the Secured Parties identified therein (the “Security Agreement”)

 

Reference is made to the Security Agreement as defined above; capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in, or by reference in, the Security Agreement.

 

The undersigned hereby agrees that upon delivery of this Additional Debtor Joinder to the Secured Parties referred to above (or the Agent on their behalf), the undersigned shall (a) be an Additional Debtor under the Security Agreement, (b) have all the rights and obligations of the Debtors under the Security Agreement as fully and to the same extent as if the undersigned was an original signatory thereto, and (c) be deemed to have made the representations and warranties set forth therein as of the date of execution and delivery of this Additional Debtor Joinder. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A SECURITY INTEREST IN THE COLLATERAL OWNED BY IT AS MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

 

Attached hereto are supplemental and/or replacement Schedules to the Security Agreement, as applicable. An executed copy of this Joinder shall be delivered to the Secured Parties (or the Agent on their behalf), and the Secured Parties may rely on the matters set forth herein on or after the date hereof. This Joinder shall not be modified, amended or terminated without the prior written consent of the Secured Parties.

 

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in the name and on behalf of the undersigned.

 

[Name of Additional Debtor]  
     
By:  
Name:  
Title:  
Address:  
     
Dated:    

 

 
 

 

ANNEX B

to

SECURITY AGREEMENT THE AGENT

 

1. Appointment. The Secured Parties (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the “Agreement”)), by their acceptance of the benefits of the Agreement, hereby designate W-Net Fund I, L.P. (“Agent”) as the Agent to act as specified herein and in the Agreement. Each Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and any other Transaction Document (as such term is defined in the Notes) and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.

 

2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of any Debtor or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.

 

3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (a) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Debtors, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (b) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Debtors or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Debtors or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Debtors, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Notes or any of the other Transaction Documents.

 

 
 

 

4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Parties. To the extent practical, the Agent shall request instructions from the Secured Parties with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of Secured Parties holding a majority in principal amount of Notes (based on then-outstanding principal amounts of Notes at the time of any such determination); if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Parties in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Debtors shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing, and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.

 

5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it, and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Debtors or is cared for, protected or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.

 

 
 

 

6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Debtors, the Secured Parties will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Notes, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent's own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.

 

7. Resignation by the Agent.

 

(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving thirty (30) days’ prior written notice (as provided in the Agreement) to the Debtors and the Secured Parties. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.

 

(b) Upon any such notice of resignation, the Secured Parties, acting by a Majority in Interest, shall appoint a successor Agent hereunder.

 

(c) If a successor Agent shall not have been so appointed within said thirty (30)-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Parties appoint a successor Agent as provided above. If a successor Agent has not been appointed within such thirty (30)-day period, the Agent may petition any court of competent jurisdiction or may interplead the Debtors and the Secured Parties in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Debtors on demand.

 

(d) Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.

 

8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Parties and the Agent (a) that it shall not, and shall not attempt to, exerciseany rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Parties in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (b) that such Secured Party has no other rights with respect to the

 

 
 

 

EX-10.34 7 ex10-34.htm

 

INTERCREDITOR AGREEMENT

 

Dated as of

 

April 17, 2015

 

Preamble

 

Parties

 

GreenTech Automotive, Inc., as the holder of the First Lien Obligations defined below (in such capacity, First Lien Claimholder)
  
The parties set forth on the signature pages hereto under the heading Senior Secured Convertible Noteholders, as the holders of the Second Lien Obligations defined below (in such capacity, Second Lien Claimholders)
  
Saleen Automotive, Inc. (Borrower)
  
The Guarantor Subsidiaries (as defined below).

 

Background

 

Borrower and the First Lien Claimholder have entered into a Securities Purchase Agreement dated on or about the date hereof (the First Lien Securities Purchase Agreement) providing for the purchase of 10.0% First Lien Convertible Notes.

 

Borrower and the Second Lien Claimholders have entered into a Securities Purchase Agreement dated as of June 26, 2013 (the Second Lien Securities Purchase Agreement) pursuant to which the Borrower has issued 3.0% Senior Secured Convertible Notes to the holders and in the outstanding principal amounts set forth on Schedule A hereto (the “Second Lien Obligations”).

 

The Subsidiaries of the Borrower (the “Guarantor Subsidiaries”) have guaranteed the First Lien Obligations and the Second Lien Obligations.

 

Each of Borrower and each Guarantor Subsidiary, and each other Person that executes and delivers a First Lien Collateral Document or a Second Lien Collateral Document as a “grantor” or “pledgor” (or the equivalent) is a Grantor.

 

The First Lien Obligations and the Second Lien Obligations are secured by Liens on substantially all the assets of Borrower and the Guarantor Subsidiaries.

 

The Parties desire to set forth in this Intercreditor Agreement (this Agreement) their rights and remedies with respect to the Collateral securing the First Lien Obligations and the Second Lien Obligations.

 

 
 

 

Agreement

 

1Lien Priorities

 

1.1Seniority Of Liens Securing First Lien Obligations

 

(a)A Lien on Collateral securing any First Lien Obligation will at all times be senior and prior in all respects to a Lien on such Collateral securing any Second Lien Obligation, and a Lien on Collateral securing any Second Lien Obligation will at all times be junior and subordinate in all respects to a Lien on such Collateral securing any First Lien Obligation.
   
(b)Except as otherwise expressly provided herein, the priority of the Liens securing First Lien Obligations and the rights and obligations of the Parties will remain in full force and effect irrespective of

 

  (1)how a Lien was acquired (whether by grant, possession, statute, operation of law, subrogation, or otherwise),
    
  (2)the time, manner, or order of the grant, attachment, or perfection of a Lien,
    
  (3)any conflicting provision of the U.C.C. or other applicable law,
    
  (4)any defect in, or non-perfection, setting aside, or avoidance of, a Lien or a First Lien Note Document or a Second Lien Note Document,
    
  (5)the modification of a First Lien Obligation or a Second Lien Obligation,
    
  (6)the modification of a First Lien Note Document or a Second Lien Note Document,
    
  (7)the subordination of a Lien on Collateral securing a First Lien Obligation to a Lien securing another obligation of a Grantor or other Person that is permitted under the First Lien Note Documents as in effect on the date hereof or secures a DIP Financing deemed consented to by the Second Lien Claimholders pursuant to section 5.1, “Use of Collateral and DIP Financing,”
    
  (8)the exchange of a security interest in any Collateral for a security interest in other Collateral,
    
  (9)the commencement of an Insolvency Proceeding, or
    
  (10)any other circumstance whatsoever, including a circumstance that might be a defense available to, or a discharge of, a Grantor in respect of a First Lien Obligation or a Second Lien Obligation or holder of such Obligation.

 

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1.2First Lien Obligations And Second Lien Obligations

 

(a)First Lien Obligations means all Obligations of the Grantors under

 

  (1) the First Lien Securities Purchase Agreement and the other First Lien Note Documents,
   
  (2) the guaranties by the Guarantor Subsidiaries of the Borrower’s Obligations under the First Lien Note Documents, or
   
  (3) any other agreement or instrument granting or providing for the perfection of a Lien securing any of the foregoing.

 

Notwithstanding any other provision hereof, the term “First Lien Obligations” will include accrued interest, fees, costs, and other charges incurred under the First Lien Securities Purchase Agreement and the other First Lien Note Documents, whether incurred before or after commencement of an Insolvency Proceeding, and whether or not allowable in an Insolvency Proceeding. To the extent that any payment with respect to the First Lien Obligations (whether by or on behalf of any Grantor, as proceeds of security, enforcement of any right of set-off, or otherwise) is declared to be fraudulent or preferential in any respect, set aside, or required to be paid to a debtor in possession, trustee, receiver, or similar Person, then the obligation or part thereof originally intended to be satisfied will be deemed to be reinstated and outstanding as if such payment had not occurred.

 

(b)Second Lien Obligations means all Obligations of the Grantors under

 

(1)the Second Lien Securities Purchase Agreement and the other Second Lien Note Documents,
   
(2)the guaranties by Holdings and the Guarantor Subsidiaries of Borrower’s Obligations under the Second Lien Note Documents, or
   
(3)any agreement or instrument granting or providing for the perfection of a Lien securing any of the foregoing.

 

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Notwithstanding any other provision hereof, the term “Second Lien Obligations” will include accrued interest, fees, costs, and other charges incurred under the Second Lien Securities Purchase Agreement and the other Second Lien Note Documents, whether incurred before or after commencement of an Insolvency Proceeding. To the extent that any payment with respect to the Second Lien Obligations (whether by or on behalf of any Grantor, as proceeds of security, enforcement of any right of set-off, or otherwise) is declared to be fraudulent or preferential in any respect, set aside, or required to be paid to a debtor in possession, trustee, receiver, or similar Person, then the obligation or part thereof originally intended to be satisfied will be deemed to be reinstated and outstanding as if such payment had not occurred.

 

1.3First And Second Lien Collateral To Be Identical

 

(a)The Parties intend that the First Lien Collateral and the Second Lien Collateral be identical, except with respect to any motor vehicles for which security interests are perfected for the benefit of the First Lien Obligations under the First Lien Note Documents. Accordingly, subject to the other provisions of this Agreement, the Parties will cooperate

 

(1)to determine the specific items included in the First Lien Collateral and the Second Lien Collateral, the steps taken to perfect the Liens thereon, and the identity of the Persons having First Lien Obligations or Second Lien Obligations, and
   
(2)to make the forms, documents, and agreements creating or evidencing the First Lien Collateral and Second Lien Collateral and the guaranties of the First Lien Obligations and the Second Lien Obligations materially the same, other than with respect to the first and second lien nature of the Liens.

 

(b)Until the Discharge of First Lien Obligations, and whether or not an Insolvency Proceeding has commenced, Borrower will not grant, and will use their best efforts to prevent any other Person from granting, a Lien on any property in favor of a Second Lien Claimholder to secure the Second Lien Obligations unless Borrower, Holdings, or such other Person grants (or offers to grant with a reasonable opportunity for the Lien to be accepted) First Lien Agent a senior Lien on such property to secure the First Lien Obligations.
   
(c)Subject to section 1.1, “Seniority of Liens Securing First Lien Obligations,” if a Second Lien Claimholder hereafter acquires a Lien on property to secure a Second Lien Obligation where the property is not also subject to a Lien securing the First Lien Obligations, then such Second Lien Claimholder will give First Lien Agent written notice of such Lien no later than five Business Days after acquiring such Lien.

 

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1.4Pledged Collateral

 

(a)If any Second Lien Claimholder has any Pledged Collateral in its possession or control, then, subject to section 1.1, “Seniority of Liens Securing First Lien Obligations,” and this section 1.4, Second Lien Agent will possess or control the Pledged Collateral as gratuitous bailee and/or gratuitous agent for perfection for the benefit of First Lien Claimholder as secured party, so as to satisfy the requirements of sections 8-106(d)(3), 8-301(a)(2), and 9-313(c) of the U.C.C.
   
(b)Upon the Discharge of Second Lien Obligations, the Second Lien Claimholders will deliver or transfer control of any Pledged Collateral in their possession or control, together with any necessary endorsements (which endorsements will be without recourse and without any representation or warranty),

 

(1)first, to First Lien Claimholder if any First Lien Obligations remain outstanding, and
   
(2)second, to Borrower,and will take any other action reasonably requested by the First Lien Claimholder (at the expense of the Borrower) in connection with the First Lien Claimholder obtaining a first-priority interest in the Pledged Collateral.

 

1.5Prohibition On Contesting Liens; No Marshaling

 

(a)The First Lien Claimholder will not contest in any proceeding (including an Insolvency Proceeding) the validity, enforceability, perfection, or priority of any Lien securing a Second Lien Obligation, but nothing in this section 1.5 will impair the rights of any First Lien Claimholder to enforce this Agreement, including the priority of the Liens securing the First Lien Obligations or the provisions for exercise of remedies.
   
(b)The Second Lien Claimholders will not contest in any proceeding (including an Insolvency Proceeding) the validity, enforceability, perfection, or priority of any Lien securing a First Lien Obligation , but nothing in this section 1.5 will impair the rights of any Second Lien Claimholder to enforce this Agreement, including the priority of the Liens securing the Second Lien Obligations or the provisions for exercise of remedies.
   
(c)Until the Discharge of First Lien Obligations, Second Lien Claimholders will not assert any marshaling, appraisal, valuation, or other similar right that may otherwise be available to a junior secured creditor.

 

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2Modification Of Obligations

 

2.1Permitted Modifications

 

Except as otherwise expressly provided in this section 2, the First Lien Obligations may be amended, supplemented or modified in accordance with their terms, and their aggregate amount increased or Refinanced, without notice to or consent by any Second Lien Claimholder

 

3Enforcement

 

3.1Who May Exercise Remedies

 

(a)Subject to subsections (b) and (c) below, until the Discharge of First Lien Obligations, the First Lien Claimholder will have the exclusive right to

 

(1)commence and maintain an Enforcement Action (including the rights to set off or credit bid their debt),
   
(2)make determinations regarding the release or disposition of, or restrictions with respect to, the Collateral, and
   
(3)otherwise enforce the rights and remedies of a secured creditor under the U.C.C. and the Bankruptcy Laws of any applicable jurisdiction.

 

(b)Notwithstanding the preceding section 3.1(a), Second Lien Claimholders may commence an Enforcement Action or exercise rights with respect to a Lien securing a Second Lien Obligation if

 

(1)180 days have elapsed since Second Lien Claimholders notified the First Lien Claimholder that the Second Lien Obligations were due in full as a result of acceleration or otherwise (the Standstill Period),
   
(2)The First Lien Claimholder is not then diligently pursuing an Enforcement Action with respect to all or a material portion of the Collateral or diligently attempting to vacate any stay or prohibition against such exercise,
   
(3)any acceleration of the Second Lien Obligations has not been rescinded, and
   
(4)the applicable Grantor is not then a debtor in an Insolvency Proceeding.

 

(c)Notwithstanding section 3.1(a), but subject to section 1.3, “First and Second Lien Collateral to Be Identical,” a Second Lien Claimholder may

 

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(1)file a proof of claim or statement of interest, vote on a plan of reorganization (including a vote to accept or reject a plan of partial or complete liquidation, reorganization, arrangement, composition, or extension), and make other filings, arguments, and motions, with respect to the Second Lien Obligations and the Collateral in any Insolvency Proceeding commenced by or against any Grantor, in each case in accordance with this Agreement,
   
(2)take action to create, perfect, preserve, or protect its Lien on the Collateral, so long as such actions are not adverse to the priority status in accordance with this Agreement of Liens on the Collateral securing the First Lien Obligations or the First Lien Claimholder’s rights to exercise remedies,
   
(3)file necessary pleadings in opposition to a claim objecting to or otherwise seeking the disallowance of a Second Lien Obligation or a Lien securing the Second Lien Obligation,
   
(4)join (but not exercise any control over) a judicial foreclosure or Lien enforcement proceeding with respect to the Collateral initiated by the First Lien Claimholder, to the extent that such action could not reasonably be expected to interfere materially with the Enforcement Action, but no Second Lien Claimholder may receive any Proceeds thereof unless expressly permitted herein, and
   
(5)bid for or purchase Collateral at any public, private, or judicial foreclosure upon such Collateral initiated by the First Lien Claimholder, or any sale of Collateral during an Insolvency Proceeding; provided that such bid may not include a “credit bid” in respect of any Second Lien Obligations unless the proceeds of such bid are otherwise sufficient to cause the Discharge of First Lien Obligations.

 

  3.2Manner Of Exercise

 

(a)The First Lien Claimholder may take any Enforcement Action

 

  (1)in any manner in its sole discretion in compliance with applicable law,
    
  (2)without consultation with or the consent of any Second Lien Claimholder,
    
  (3)regardless of whether an Insolvency Proceeding has been commenced,
    
  (4)regardless of any provision of any Second Lien Note Document (other than this Agreement), and
    
  (5)regardless of whether such exercise is adverse to the interest of any Second Lien Claimholder.

 

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(b)The rights of the First Lien Claimholder to enforce any provision of this Agreement or any First Lien Note Document will not be prejudiced or impaired by

 

(1)any act or failure to act of any Grantor, or
   
(2)noncompliance by any Person other than the First Lien Claimholder with any provision of this Agreement, any First Lien Note Document, or any Second Lien Note Document, regardless of any knowledge thereof that the First Lien Claimholder may have or otherwise be charged with.

 

(c)No Second Lien Claimholder will contest, protest, object to, or take any action to hinder, and each waives any and all claims with respect to, any Enforcement Action by the First Lien Claimholder in compliance with this Agreement and applicable law.

 

  3.3Specific Performance

 

The First Lien Claimholder and the Second Lien Claimholders may each demand specific performance of this Agreement, and each waives any defense based on the adequacy of a remedy at law and any other defense that might be asserted to bar the remedy of specific performance in any action brought by a Second Lien Claimholder or the First Lien Claimholder, respectively.

 

4.Payments

 

  4.1Application Of Proceeds

 

Until the Discharge of First Lien Obligations and the Discharge of Second Lien Obligations, and regardless of whether an Insolvency Proceeding has been commenced, Collateral or Proceeds received in connection with an Enforcement Action or subject to section 6.7, “Reorganization Securities,” received in connection with any Insolvency Proceeding involving a Grantor will be applied

 

  (a)first, to the payment in full or cash collateralization of all First Lien Obligations,
    
  (b)second, to the payment in full of the Second Lien Obligations, and
    
  (c)third, to the applicable Grantor or as otherwise required by applicable law. in each case as specified in the First Lien Note Documents or the Second Lien Note Documents, or as otherwise determined by the First Lien Claimholders or the Second Lien Claimholders, as applicable.

 

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  4.2Payment Turnover

 

Until the Discharge of First Lien Obligations, whether or not an Insolvency Proceeding has commenced, Collateral or Proceeds (including insurance proceeds) received by a Second Lien Claimholder in connection with an Enforcement Action or, subject to section 5.7, “Reorganization Securities,” received in connection with any Insolvency Proceeding, will be

 

  (a)segregated and held in trust, and
    
  (b)promptly paid over to the First Lien Claimholder in the form received, with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. The First Lien Claimholder is authorized to make such endorsements as agent for the Second Lien Claimholders. This authorization is coupled with an interest and is irrevocable until the Discharge of First Lien Obligations.

 

5.Insolvency Proceedings

 

  5.1Use Of Cash Collateral And Dip Financing

 

  (a)Until the Discharge of First Lien Obligations, if an Insolvency Proceeding has commenced, the Second Lien Claimholders, as holders of a Lien on the Collateral, will not contest, protest, or object to, and will be deemed to have consented to,

 

  (1)any use, sale, or lease of “cash collateral” (as defined in section 363(a) of the Bankruptcy Code), and
    
  (2)Borrower or any other Grantor obtaining DIP Financing if the First Lien Claimholder consents in writing to such use, sale, or lease, or DIP Financing, provided that

 

  (A)the Second Lien Claimholders otherwise retains their Lien on the Collateral, and
    
  (B)any Second Lien Claimholder may seek adequate protection as permitted by section 5.4, “Adequate Protection,” and, if such adequate protection is not granted, Second Lien Agent may object under this section 5.1 solely on such basis.

 

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Upon written request from the First Lien Claimholder, the Second Lien Claimholders will join any objection by First Lien Claimholder to the use, sale, or lease of cash collateral for any purpose other than adequate protection payments to Second Lien Claimholders.

 

  (b)Any customary “carve-out” or other similar administrative priority expense or claim consented to in writing by First Lien Claimholder to be paid prior to the Discharge of First Lien Obligations will be deemed for purposes of section 6.1(a)

 

  (3)to be a use of cash collateral, and
    
  (4)not to be a principal amount of DIP Financing at the time of such consent.

 

No Second Lien Claimholder may provide DIP Financing to a Borrower or other Grantor secured by Liens equal or senior in priority to the Liens securing any First Lien Obligations.

 

  5.2Sale Of Collateral

 

The Second Lien Claimholders will not contest, protest, or object, and will be deemed to have consented pursuant to section 363(f) of the Bankruptcy Code, to a Disposition of Collateral free and clear of its Liens or other interests under section 363 of the Bankruptcy Code if the First Lien Claimholder consents in writing to the Disposition, provided that either (i) pursuant to court order, the Liens of the Second Lien Claimholders attach to the net Proceeds of the Disposition with the same priority and validity as the Liens held by Second Lien Claimholders on such Collateral, and the Liens remain subject to the terms of this Agreement, or (ii) the Proceeds of a Disposition of Collateral received by the First Lien Claimholder in excess of those necessary to achieve the Discharge of First Lien Obligations are distributed in accordance with the U.C.C. and applicable law.

 

Upon the First Lien Claimholder’s request, the Second Lien Claimholders will join any objection asserted by the First Lien Claimholder to any Disposition of Collateral during an Insolvency Proceeding.

 

  5.3Relief From The Automatic Stay. Until the Discharge of First Lien Obligations, no Second Lien Claimholder may seek relief from the automatic stay or any other stay in an Insolvency Proceeding in respect of the Collateral without the First Lien Claimholder’s prior written consent or oppose any request by the First Lien Claimholder for relief from such stay

 

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  5.4Adequate Protection

 

  (a)No Second Lien Claimholder will contest, protest, or object to

 

  (1)a request by the First Lien Claimholder for “adequate protection” under any Bankruptcy Law, or
    
  (2)an objection by the First Lien Claimholder to a motion, relief, action, or proceeding based on the First Lien Claimholder claiming a lack of adequate protection.

 

  (b)Notwithstanding the preceding section 5.4(a), in an Insolvency Proceeding:

 

  (1)Except as permitted in this section 5.4, no Second Lien Claimholders may seek or request adequate protection or relief from the automatic stay imposed by section 362 of the Bankruptcy Code or other relief.
    
  (2)Any claim by a Second Lien Claimholder under section 507(b) of the Bankruptcy Code will be subordinate in right of payment to any claim

 

  5.6First Lien Objections To Second Lien Actions

 

Subject to section 3.1, “Who May Exercise Remedies,” nothing in this section 5 limits the First Lien Claimholder from objecting in an Insolvency Proceeding or otherwise to any action taken by a Second Lien Claimholder, including the Second Lien Claimholder’s seeking adequate protection or asserting any of its rights and remedies under the Second Lien Loan Documents or otherwise.

 

  5.7Avoidance; Reinstatement Of Obligations

 

If a First Lien Claimholder or a Second Lien Claimholder receives payment or property on account of a First Lien Obligation or Second Lien Obligation, and the payment is subsequently invalidated, avoided, declared to be fraudulent or preferential, set aside, or otherwise required to be transferred to a trustee, receiver, or the estate of Borrower or other Grantor (a Recovery) , then, to the extent of the Recovery, the First Lien Obligations or Second Lien Obligations intended to have been satisfied by the payment will be reinstated as First Lien Obligations or Second Lien Obligations, as applicable, on the date of the Recovery, and no Discharge of First Lien Obligations or Discharge of Second Lien Obligations, as applicable, will be deemed to have occurred for all purposes hereunder. If this Agreement is terminated prior to a Recovery, this Agreement will be reinstated in full force and effect, and such prior termination will not diminish, release, discharge, impair, or otherwise affect the obligations of the Parties from the date of reinstatement. Upon any such reinstatement of First Lien Obligations, each Second Lien Claimholder will deliver to First Lien Agent any Collateral or Proceeds thereof received between the Discharge of First Lien Obligations and their reinstatement in accordance with section 4.2, “Payment Turnover.” No Second Lien Claimholder may benefit from a Recovery, and any distribution made to a Second Lien Claimholder as a result of a Recovery will be paid over to First Lien Claimholder for application to the First Lien Obligations in accordance with section 4.1, “Application of Proceeds.”

 

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  5.8Reorganization Securities

 

Nothing in this Agreement prohibits or limits the right of a Second Lien Claimholder to receive and retain any debt or equity securities that are issued by a reorganized debtor pursuant to a plan of reorganization or similar dispositive restructuring plan in connection with an Insolvency Proceeding, provided that any debt securities received by a Second Lien Claimholder on account of a Second Lien Obligation that constitutes a “secured claim” within the meaning of section 506(b) of the Bankruptcy Code will be paid over or otherwise transferred to the First Lien Claimholder for application in accordance with section 4.1, “Application of Proceeds,” unless such distribution is made under a plan that is consented to by the affirmative vote of all classes composed of the secured claims of the First Lien Claimholders.

 

If, in an Insolvency Proceeding, debt Obligations of the reorganized debtor secured by Liens upon any property of the reorganized debtor are distributed pursuant to a plan of reorganization or similar dispositive restructuring plan, both on account of First Lien Obligations and on account of Second Lien Obligations, then, to the extent the debt Obligations distributed on account of the First Lien Obligations and on account of the Second Lien Obligations are secured by Liens upon the same property, the provisions of this Agreement will survive the distribution of such debt Obligations pursuant to such plan and will apply with like effect to the Liens securing such debt Obligations.

 

  5.9Post-Petition Claims

 

No Second Lien Claimholder may oppose or seek to challenge any claim by the First Lien Claimholder for allowance or payment in any Insolvency Proceeding of First Lien Obligations consisting of Post-Petition Claims.

 

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  5.10Waivers

 

Second Lien Agent waives

 

  (a)any claim it may hereafter have against the First Lien Claimholder arising out of any cash collateral or financing arrangement or out of any grant of a security interest in connection with the Collateral in an Insolvency Proceeding, so long as such actions are not in express contravention of the terms of this Agreement;
    
  (b)any right to assert or enforce any claim under section 506(c) or 552 of the Bankruptcy Code as against the First Lien Claimholder or any of the Collateral to the extent securing the First Lien Obligations ; and
    
  (c)solely in its capacity as a holder of a Lien on Collateral, any claim or cause of action that any Grantor may have against the First Lien Claimholder, except to the extent arising from a breach by the First Lien Claimholder of the provisions of this Agreement.

 

  5.11Separate Grants Of Security And Separate Classification

 

The grants of Liens pursuant to the First Lien Collateral Documents and the Second Lien Collateral Documents constitute two separate and distinct grants. Because of, among other things, their differing rights in the Collateral, the Second Lien Obligations, to the extent deemed to be “secured claims” within the meaning of section 506(b) of the Bankruptcy Code, are fundamentally different from the First Lien Obligations and must be separately classified in any plan of reorganization in an Insolvency Proceeding. Second Lien Claimholders will not seek in an Insolvency Proceeding to be treated as part of the same class of creditors as First Lien Claimholder and will not oppose or contest any pleading by First Lien Claimholder seeking separate classification of their respective secured claims.

 

  5.12Effectiveness In Insolvency Proceedings

 

The Parties acknowledge that this Agreement is a “subordination agreement” under section 510(a) of the Bankruptcy Code, which will be effective before, during, and after the commencement of an Insolvency Proceeding. All references in this Agreement to any Grantor will include such Person as a debtor-in-possession and any receiver or trustee for such Person in an Insolvency Proceeding.

 

6Miscellaneous

 

  6.1Conflicts

 

If this Agreement conflicts with the First Lien Note Documents or the Second Lien Note Documents, this Agreement will control.

 

  6.2no waivers; remedies cumulative; integration

 

A Party’s failure or delay in exercising a right under this Agreement will not waive the right, nor will a Party’s single or partial exercise of a right preclude it from any other or further exercise of that or any other right.

 

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The rights and remedies provided in this Agreement will be cumulative and not exclusive of other rights or remedies provided by law.

 

This Agreement constitutes the entire agreement between the Parties and supersedes all prior agreements, oral or written, relating to its subject matter.

 

  6.3Effectiveness; Severability; Termination

 

This Agreement will become effective when executed and delivered by the Parties.

 

The First Lien Claimholder and each Second Lien Claimholder waives any right it may have under applicable law to revoke this Agreement or any provision thereunder or consent by it thereto.

 

This Agreement will survive, and continue in full force and effect, in any Insolvency Proceeding.

 

If a provision of this Agreement is prohibited or unenforceable in a jurisdiction, the prohibition or unenforceability will not invalidate the remaining provisions hereof, or invalidate or render unenforceable that provision in any other jurisdiction.

 

  6.4Modifications of this agreement

 

A modification or waiver of any provision of this Agreement will only be effective if in writing signed on behalf of each Party or its authorized agent, and a waiver will be a waiver only for the specific instance involved and will not impair the rights of the Parties making the waiver or the obligations of the other Parties to such Party in any other respect or at any other time. Notwithstanding the foregoing, neither Borrower nor Holdings will have a right to consent to or approve a modification of this Agreement except to the extent its rights are directly affected.

 

  6.5Information Concerning Financial Condition of Borrower and its Subsidiaries

 

The First Lien Claimholder and the Second Lien Claimholders will each be responsible for keeping themselves informed of

 

  (a)the financial condition of the Grantors, and
    
  (b)all other circumstances bearing upon the risk of nonpayment of the First Lien Obligations or the Second Lien Obligations.

 

The First Lien Claimholder will not have any duty to advise any Second Lien Claimholder, and no Second Lien Claimholder will have any duty to advise the First Lien Claimholder, of information known to it regarding any such condition or circumstances or otherwise.

 

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If the First Lien Claimholder provides any such information to a Second Lien Claimholder, or a Second Lien Claimholder provides any such information to the First Lien Claimholder, the First Lien Claimholder, or Second Lien Claimholder, respectively, will have no obligation to:

 

  (c)make, and it does not make, any express or implied representation or warranty, including as to accuracy, completeness, truthfulness, or validity,
    
  (d)provide additional information on that or any subsequent occasion,
    
  (e)undertake any investigation, or
    
  (f)disclose information that, pursuant to applicable law or accepted or reasonable commercial finance practices, it desires or is required to maintain as confidential.
    
  6.6No Reliance
    
  (a)The First Lien Claimholder acknowledges that it has, independently and without reliance on any Second Lien Claimholder, and based on documents and information the First Lien Claimholder deemed appropriate, made its own credit analysis and decision to enter into the First Lien Note Documents and this Agreement, and will continue to make its own credit decisions in taking or not taking any action under the First Lien Note Documents or this Agreement.
    
  (b)Each Second Lien Claimholder acknowledges that it and each other Second Lien Claimholder has, independently and without reliance on the First Lien Claimholder, and based on documents and information the Second Lien Claimholder deemed appropriate, made its own credit analysis and decision to enter into the Second Lien Note Documents and this Agreement, and will continue to make its own credit decisions in taking or not taking any action under the Second Lien Note Documents or this Agreement.
    
  6.7No Warranties; Independent Action
    
  (a)Except as otherwise expressly provided herein,
    
  (1)

no Second Lien Claimholder has made any express or implied representation or warranty to the First Lien Claimholder, including with respect to the execution, validity, legality, completeness, collectability, or enforceability of any Second Lien Note Document, the ownership of any Collateral, or the perfection or priority of any Liens thereon, and

    
  (2)each Second Lien Claimholder may manage and supervise its loans and extensions of credit under the Second Lien Note Documents in accordance with applicable law and as it may otherwise, in its sole discretion, deem appropriate.

 

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  (b)Except as otherwise expressly provided herein,

 

  (1)the First Lien Claimholder has made any express or implied representation or warranty to any Second Lien Claimholder, including with respect to the execution, validity, legality, completeness, collectability, or enforceability of any First Lien Note Document, the ownership of any Collateral, or the perfection or priority of any Liens thereon, and
    
  (2)the First Lien Claimholder may manage and supervise its loans and extensions of credit under the First Lien Note Documents in accordance with law and as it may otherwise, in its sole discretion, deem appropriate.

 

No Second Lien Claimholder will have any duty to the First Lien Claimholder, and the First Lien Claimholder will not have any duty to any Second Lien Claimholder, to act or refrain from acting in a manner that allows, or results in, the occurrence or continuance of an event of default or default under any agreements with Borrower or any other Grantor (including the First Lien Note Documents and the Second Lien Note Documents), regardless of any knowledge thereof that it may have or be charged with.

 

  6.8Subrogation

 

If a Second Lien Claimholder pays or distributes cash, property, or other assets to the First Lien Claimholder under this Agreement, the Second Lien Claimholder will be subrogated to the rights of the First Lien Claimholder with respect to the value of the payment or distribution, provided that the Second Lien Claimholder waives such right of subrogation until the Discharge of First Lien Obligations. Such payment or distribution will not reduce the Second Lien Obligations.

 

  6.9Applicable Law; Jurisdiction; Service

 

This Agreement, and any claim or controversy relating to the subject matter hereof, will be governed by the law of the State of New York.

 

All judicial proceedings brought against a Party arising out of or relating hereto may be brought in any state or federal court of competent jurisdiction in the state, county, and city of New York. Each Party irrevocably

 

  (a)accepts generally and unconditionally the nonexclusive personal jurisdiction and venue of such courts,
    
  (b)waives any defense of forum nonconveniens, and
    
  (c)agrees that service of process in such proceeding may be made by registered or certified mail, return receipt requested, to the Party at its address provided in accordance with section 6.11, “Notices,” and that such service will confer personal jurisdiction over the Party in such proceeding and otherwise constitutes effective and binding service in every respect.
    
  6.10Waiver Of Jury Trial

 

Each Party waives its right to jury trial of any claim or cause of action based upon or arising hereunder. The scope of this waiver is intended to encompass any and all disputes that may be filed in any court and that relate to the subject matter hereof, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Party acknowledges that this waiver is a material inducement to enter into a business relationship, that it has already relied on this waiver in entering into this Agreement, and that it will continue to rely on this waiver in its related future dealings. Each Party further represents and warrants that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. This waiver is irrevocable, meaning that it may not be modified either orally or in writing (other than by a mutual written waiver specifically referring to this section 6.10 and executed by each of the Parties), and will apply to any subsequent modification hereof. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court.

 

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  6.11Notices

 

Unless otherwise expressly provided herein, notices and consents must be in writing and will be deemed to have been given (i) when delivered in person or by courier service and signed for against receipt thereof, (ii) upon receipt of facsimile, and (iii) three Business Days after deposit in the United States mail with first-class postage prepaid and properly addressed. For the purposes hereof, the address of each Party will be as set forth below the Party’s name on the signature pages hereto, or at such other address as the Party may designate by notice to the other Parties.

 

  6.12Further Assurances

 

The First Lien Claimholder, the Second Lien Claimholders, and Borrower will each take such further action and will execute and deliver such additional documents and instruments (in recordable form, if requested) as the First Lien Claimholder or any Second Lien Claimholder may reasonably request to effectuate the terms of and the Lien priorities contemplated by this Agreement.

 

  6.13Successors And Assigns

 

This Agreement is binding upon and inures to the benefit of the First Lien Claimholder, each Second Lien Claimholder, and their respective successors and assigns. However, no provision of this Agreement will inure to the benefit of a trustee, debtor-in-possession, creditor trust or other representative of an estate or creditor of Borrower, or other Grantor, including where such estate or creditor representative is the beneficiary of a Lien securing Collateral by virtue of the avoidance of such Lien in an Insolvency Proceeding.

 

Notwithstanding any other provision of this Agreement, this Agreement may not be assigned to any Person except as expressly contemplated herein.

 

  6.14Authorization

 

By its signature hereto, each Person signing this Agreement on behalf of a Party represents and warrants to the other Parties that it is duly authorized to execute this Agreement.

 

  6.15No Third-Party Beneficiaries

 

No Person is a third-party beneficiary of this Agreement and no trustee in bankruptcy for, or bankruptcy estate of, or unsecured creditor of, any Grantor will have or acquire or be entitled to exercise any right of the First Lien Claimholder or a Second Lien Claimholder under this Agreement, whether upon an avoidance or equitable subordination of a Lien of the First Lien Claimholder or the Second Lien Claimholders, or otherwise. None of Borrower, any other Grantor, or any other creditor thereof has any rights hereunder, and neither Borrower nor any Grantor may rely on the terms hereof. Nothing in this Agreement impairs the Obligations of Borrower and the other Grantors to pay principal, interest, fees, and other amounts as provided in the First Lien Note Documents and the Second Lien Note Documents. Except to the extent expressly provided in this Agreement, no Person will have a right to notice of a modification to, or action taken under, this Agreement or any First Lien Collateral Document (including the release or impairment of any Collateral) other than as a lender under the First Lien Note Agreement, and then only to the extent expressly provided in the First Lien Note Documents. Except to the extent expressly provided in this Agreement, no Person will have a right to notice of a modification to or action taken under, this Agreement or any Second Lien Collateral Document (including the release or impairment of any Collateral) other than as a lender under the Second Lien Securities Purchase Agreement, and then only to the extent expressly provided in the Second Lien Note Documents.

 

17
 

 

  6.16No Indirect Actions

 

Unless otherwise expressly stated, if a Party may not take an action under this Agreement, then it may not take that action indirectly, or assist or support any other Person in taking that action directly or indirectly. “Taking an action indirectly” means taking an action that is not expressly prohibited for the Party but is intended to have substantially the same effects as the prohibited action.

 

  6.17Counterparts

 

This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which will constitute an original, but all of whicvh when taken together will constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement or any document or instrument delivered in connection herewith by telecopy or electronic facsimile or other electronic means will be effective as delivery of a manually executed counterpart of this Agreement or such other document or instrument, as applicable, and each Party utilizing telecopy, electronic facsimile, or other electronic means for delivery will deliver a manually executed original counterpart to each other Party on request.

 

  6.18Original Grantors; Additional Grantors

 

Borrower and each other Grantor on the date of this Agreement will constitute the original Grantors party hereto. The original Grantors will cause each Subsidiary of Borrower that becomes a Grantor after the date hereof to contemporaneously become a party hereto (as a Guarantor Subsidiary) by executing and delivering a joinder agreement (in form and substance satisfactory to the First Lien Claimholder) the to First Lien Claimholder. The Parties further agree that, notwithstanding any failure to take the actions required by the immediately preceding sentence, each Person that becomes a Grantor at any time (and any security granted by any such Person) will be subject to the provisions hereof as fully as if it constituted a Guarantor Subsidiary party hereto and had complied with the requirements of the immediately preceding sentence.

 

7 Definitions

 

  7.1Defined Terms

 

Unless otherwise stated or the context otherwise clearly requires, the following terms have the following meanings:

 

Affiliate means, for a specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the specified Person. For these purposes, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and “controlled” has a correlative meaning.

 

Agreement is defined in the Preamble.

 

Bankruptcy Code means the federal Bankruptcy Code.

 

Bankruptcy Law means the Bankruptcy Code and any similar federal, state, or foreign bankruptcy, insolvency, receivership, or similar law affecting creditors’ rights generally.

 

18
 

 

Borrower is defined in the Preamble.

 

Business Day means a day other than a Saturday, Sunday, or other day on which commercial banks in New York City are authorized or required by law to close.

 

Collateral means all of the property of any Grantor, whether real, personal, or mixed, that is (or is required to be) both First Lien Collateral and Second Lien Collateral, including any property subject to Liens granted pursuant to section 5, “Insolvency Proceedings,” to secure both First Lien Obligations and Second Lien Obligations.

 

DIP Financing means the obtaining of credit or incurring debt secured by Liens on the Collateral pursuant to section 364 of the Bankruptcy Code (or similar Bankruptcy Law).

 

Discharge of First Lien Obligations means

 

  (a)payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of an Insolvency Proceeding, whether or not such interest would be allowed in the proceeding) on all outstanding Indebtedness included in the First Lien Obligations, and
    
  (b)payment in full in cash of all other First Lien Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid (other than indemnification Obligations for which no claim or demand for payment, whether oral or written, has been made at such time).

 

Discharge of Second Lien Obligations means

 

  (c)payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of an Insolvency Proceeding, whether or not such interest would be allowed in the proceeding) on all outstanding Indebtedness included in the Second Lien Obligations, and
    
  (d)payment in full in cash of all other Second Lien Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid (other than indemnification Obligations for which no claim or demand for payment, whether oral or written, has been made at such time).

 

Disposition means an asset sale or other sale, lease, exchange, transfer, or other disposition of any kind.

 

Enforcement Action means an action under applicable law to

 

  (e)foreclose, execute, levy, or collect on, take possession or control of, sell or otherwise realize upon (judicially or non-judicially), or lease, license, or otherwise dispose of (whether publicly or privately), Collateral, or otherwise exercise or enforce remedial rights with respect to Collateral under the First Lien Note Documents or the Second LienNote Documents (including by way of set-off, recoupment notification of a public or private sale or other disposition pursuant to the U.C.C. or other applicable law, notification to account debtors, notification to depositary banks under deposit account control agreements, or exercise of rights under landlord consents, if applicable),
    
  (f)solicit bids from third Persons to conduct the liquidation or disposition of Collateral or to engage or retain sales brokers, marketing agents, investment bankers, accountants, appraisers, auctioneers, or other third Persons for the purposes of valuing, marketing, promoting, and selling Collateral,
    
  (g)to receive a transfer of Collateral in satisfaction of Indebtedness or any other Obligation secured thereby,
    
  (h)to otherwise enforce a security interest or exercise another right or remedy, as a secured creditor or otherwise, pertaining to the Collateral at law, in equity, or pursuant to the First Lien Loan Documents or Second Lien Loan Documents (including the commencement of applicable legal proceedings or other actions with respect to all or any portion of the Collateral to facilitate the actions described in the preceding clauses, and exercising voting rights in respect of equity interests comprising Collateral), [or
    
  (i)effect the Disposition of Collateral by any Grantor after the occurrence and during the continuation of an event of default under the First Lien Note Documents or the Second Lien Loan Documents with the consent of the First Lien Claimholder or the Second Lien Claimholders, as applicable, provided that “Enforcement Action” will be deemed to include the commencement of, or joinder in filing of a petition for commencement of, an Insolvency Proceeding against the owner of Collateral.

 

19
 

 

Equity Interest means, for any Person, any and all shares, interests, participations, or other equivalents, including membership interests (however designated, whether voting or non-voting) of equity of the Person, including, if the Person is a partnership, partnership interests (whether general or limited) or any other interest or participation that confers on a holder the right to receive a share of the profits and losses of, or distributions of assets of, the partnership, but not including debt securities convertible or exchangeable into equity unless and until actually converted or exchanged.

 

First Lien Claimholder is defined in the Preamble.

 

First Lien Collateral means the assets of any Grantor, whether real, personal, or mixed, as to which a Lien is granted as security for a First Lien Obligation.

 

First Lien Collateral Documents means the security documents defined in the First Lien Securities Purchase Agreement, and any other documents or instruments granting a Lien on real or personal property to secure a First Lien Obligation or granting rights or remedies with respect to such Liens.

 

First Lien Securities Purchase Agreement is defined in the Preamble.

 

First Lien Note Documents means

 

  (j)the First Lien Securities Purchase Agreement and the “Transaction Documents” defined in the First Lien Securities Purchase Agreement,
    
  (k)each other agreement, document, or instrument providing for, evidencing, guaranteeing, or securing an Obligation under the First Lien Securities Purchase Agreement,
    
  (l)any other document or instrument executed or delivered at any time in connection with Borrower’s Obligations under the First Lien Securities Purchase Agreement, including any guaranty of or grant of Collateral to secure such Obligations, and any intercreditor or joinder agreement to which holders of First Lien Obligations are parties, and
    
  (m)each other agreement, document, or instrument providing for, evidencing, guaranteeing, or securing any DIP Financing provided by or consented to in writing by the First Lien Claimholder and deemed consented to by the Second Lien Claimholders pursuant to section 6.1, “Use of Cash Collateral and DIP Financing,” to the extent effective at the relevant time.

 

First Lien Obligations is defined in section 1.3(a).

 

Governmental Authority means any federal, state, municipal, national, or other government, governmental department, commission, board, bureau, court, agency, or instrumentality, or political subdivision thereof, or any entity or officer exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.

 

Grantor is defined in the Preamble.

 

Guarantor Subsidiaries is defined in the Preamble.

 

Indebtedness means and includes all Obligations that constitute “Indebtedness” under the First Lien Securities Purchase Agreement or the Second Lien Securities Purchase Agreement, as applicable.

 

20
 

 

Insolvency Proceeding means

 

  (n)a voluntary or involuntary case or proceeding under the Bankruptcy Code with respect to a Grantor,
    
  (o)any other voluntary or involuntary insolvency, reorganization, or bankruptcy case or proceeding, or any receivership, liquidation, reorganization, or other similar case or proceeding with respect to a Grantor or a material portion of its property,
    
  (p)a liquidation, dissolution, reorganization, or winding up of a Grantor, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or
    
  (q)an assignment for the benefit of creditors or other marshaling of assets and liabilities of a Grantor.

 

Lien means any lien (including, without limitation, judgment liens and liens arising by operation of law, subrogation, or otherwise), mortgage or deed of trust, pledge, hypothecation, assignment, security interest, charge, or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof), and any option, call, trust, U.C.C. financing statement, or other preferential arrangement having the practical effect of any of the foregoing, including any right of set-off or recoupment.

 

Modify, as applied to any document or obligation, includes

 

  (r)modification by amendment, supplement, termination, or replacement of the document or obligation,
    
  (s)any waiver of a provision (including waivers by course of conduct), and
    
  (t)the settlement or release of any claim, whether oral or written, and regardless of whether the modification is in conformity with the provisions of the document or obligation governing modifications.

 

Obligations means all obligations of every nature of a Person owed to any obligee under an agreement, whether for principal, interest, or payments for early termination, fees, expenses, indemnification, or otherwise, and all guaranties of any of the foregoing, whether absolute or contingent, due or to become due, now existing or hereafter arising, and including interest and fees that accrue after the commencement by or against any Person of any proceeding under any Bankruptcy Law naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

 

Party means a party to this Agreement.

 

Person means any natural person, corporation, limited liability company, trust, business trust, joint venture, association, company, partnership, Governmental Authority, or other entity.

 

Pledged Collateral is defined in section 1.4(a).

 

Post-Petition Claims means interest, fees, costs, expenses, and other charges that pursuant to the First Lien Securities Purchase Agreement or the Second Lien Securities Purchase Agreement continue to accrue after the commencement of an Insolvency Proceeding, to the extent such interest, fees, expenses, and other charges are allowed or allowable under Bankruptcy Law or in the Insolvency Proceeding.

 

21
 

 

Proceeds means

 

  (u)all “proceeds,” as defined in Article 9 of the U.C.C., of the Collateral, and
    
  (v)whatever is recovered when Collateral is sold, exchanged, collected, or disposed of, whether voluntarily or involuntarily, including any additional or replacement Collateral provided during any Insolvency Proceeding and any payment or property received in an Insolvency Proceeding on account of any “secured claim” (within the meaning of section 506(b) of the Bankruptcy Code or similar Bankruptcy Law).

 

Recovery is defined in section 5.6.

 

Refinance means, for any Indebtedness, to refinance, replace, refund, or repay, or to issue other Indebtedness in exchange or replacement for such Indebtedness in whole or in part, whether with the same or different lenders, agents, or arrangers. “Refinanced” and “Refinancing” have correlative meanings.

 

Second Lien Adequate Protection Payments is defined in section 5.4(b)(4). Second Lien Agent is defined in the Preamble.

 

Second Lien Claimholders is defined in the Preamble.

 

Second Lien Collateral means all of the property of any Grantor, whether real, personal, or mixed, as to which a Lien is granted as security for a Second Lien Obligation.

 

Second Lien Collateral Documents means the security documents defined in the Second Lien Securities Purchase Agreement, and any other documents or instruments granting a Lien on real or personal property to secure a Second Lien Obligation or granting rights or remedies with respect to such Liens.

 

Second Lien Securities Purchase Agreement is defined in the Preamble.

 

Second Lien Loan Documents means

 

  (w)the Second Lien Securities Purchase Agreement and the “Transaction Documents” defined in the Second Lien Securities Purchase Agreement,
    
  (x)each other agreement, document, or instrument providing for, evidencing, guaranteeing, or securing an Obligation under the Second Lien Securities Purchase Agreement, and
    
  (y)any other document or instrument executed or delivered at any time in connection with Borrower’s Obligations under the Second Lien Securities Purchase Agreement, including any guaranty of or grant of Collateral to secure such Obligations, and any intercreditor or joinder agreement to which holders of Second Lien Obligations are parties, to the extent effective at the relevant time.

 

Second Lien Obligations is defined in section 1.3(b).

 

Standstill Period is defined in section 3. 1(b)(1).

 

Subsidiary of a Person means a corporation or other entity a majority of whose voting stock is directly or indirectly owned or controlled by the Person. For these purposes, “voting stock” of a Person means securities or other ownership interests of the Person having general power under ordinary circumstances to vote in the election of the directors, or other persons performing similar functions, of the Person. References to a percentage or proportion of voting stock refer to the relevant percentage or proportion of the votes entitled to be cast by the voting stock.

 

22
 

 

U.C.C. means the Uniform Commercial Code (or any similar legislation) as in effect in any applicable jurisdiction.

 

7.2 Usages

 

Unless otherwise stated or the context clearly requires otherwise:

 

Singular and plural. Definitions of terms apply equally to the singular and plural forms.

 

Masculine and feminine. Pronouns will include the corresponding masculine, feminine, and neuter forms.

 

Will and shall. “Will” and “shall” have the same meaning.

 

Time periods. In computing periods from a specified date to a later specified date, the words “from” and “commencing on” (and the like) mean “from and including,” and the words “to,” “until,” and “ending on” (and the like) mean “to but excluding.”

 

When action may be taken. Any action permitted under this Agreement may be taken at any time and from time to time.

 

Time of day. All indications of time of day mean New York City time.

 

Including. “Including” means “including, but not limited to.”

 

Or. “A or B” means “A or B or both.”

 

Statutes and regulations. References to a statute refer to the statute and all regulations promulgated under or implementing the statute as in effect at the relevant time. References to a specific provision of a statute or regulation include successor provisions. References to a section of the Bankruptcy Code also refer to any similar provision of Bankruptcy Law.

 

Agreements. References to an agreement (including this Agreement) refer to the agreement as amended at the relevant time.

 

Governmental agencies and self-regulatory organizations. References to a governmental or quasi-governmental agency or authority or a self-regulatory organization include any successor agency, authority, or self-regulatory organization.

 

Section references. Section references refer to sections of this Agreement. References to numbered sections refer to all included sections. For example, a reference to section 6 also refers to sections 6.1, 6.1(a), etc. References to a section or article in an agreement, statute, or regulation include successor and renumbered sections and articles of that or any successor agreement, statute, or regulation.

 

Successors and assigns. References to a Person include the Person’s permitted successors and assigns.

 

Herein, etc. “Herein,” “hereof,” “hereunder,” and words of similar import refer to this Agreement in its entirety and not to any particular provision.

 

Assets and property. “Asset” and “property” have the same meaning and refer to both real and personal, tangible and intangible assets and property, including cash, securities, accounts, and general intangibles.

 

23
 

 

SIGNATURES:

 

  Saleen Automotive, Inc.
     
  By:  
    Steve Saleen, Chief Executive Officer
     
  Address: 2735 Wardlow Road
    Corona, CA 92882
  Attn: Chief Executive Officer

 

  SMS Signature Cars
     
  By:  
    Steve Saleen, Chief Executive Officer
     
  Address:  
    2735 Wardlow Road
    Corona, CA 92882
  Attn: Chief Executive Officer

 

  Saleen Automotive, Inc.
     
  By:  
    Steve Saleen, Chief Executive Officer
  Address: 2735 Wardlow Road
    Corona, CA 92882
  Attn: Chief Executive Officer

 

  GreenTech Automotive, Inc.
     
  By:  
    Gary Y. Tang, EVP Finance
     
  Address: 1600 Tysons Boulevard, Suite 1150
    McLean VA 22102
  Attn: EVP Finance

 

24
 

 

 

 

SENIOR SECURED CONVERTIBLE NOTEHOLDERS:

     
  W-Net Fund I, L.P.
   
  By: W-Net Fund GP I LLC
  Its: General Partner
     
  By:  
    David Weiner, Manager
    :
     
  Address:  
   
   
  Attn:

 

  Europa International, Inc.
   
  By: Knoll capital Management, L.P.
  Its: Investment Manager
     
  By:
    Fred Knoll, Manager
  Address:
   
  Attn:

 

25
 

 

EX-21.1 8 ex21-1.htm

 

Exhibit 21.1

 

SUBSIDIARIES OF THE REGISTRANT

 

Saleen Automotive, Inc., a Florida corporation

Saleen Signature Cars, a California corporation

Saleen Sales Corporation, a California corporation

 

 
 

 

EX-31.1 9 ex31-1.htm

 

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Steve Saleen, certify that:

 

1. I have reviewed this annual report on Form 10-K 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: July 14, 2015

 

/s/ Steve Saleen  
Steve Saleen  
Chief Executive Officer  

 

 
 

 

EX-31.2 10 ex31-2.htm

 

Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, David Fiene, certify that:

 

1. I have reviewed this annual report on Form 10-K 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: July 14, 2015

 

/s/ David Fiene  
David Fiene  
Chief Financial Officer  

 

 
 

 

EX-32.1 11 ex32-1.htm

 

Exhibit 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

 

I, Steve Saleen, certify, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Saleen Automotive, Inc. on Form 10-K for the year ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Saleen Automotive, Inc.

 

Dated: July 14, 2015

 

/s/ Steve Saleen  
Steve Saleen  
Chief Executive Officer  

 

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or the Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange Ace. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

 

 
 

 

EX-32.2 12 ex32-2.htm

 

Exhibit 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

 

I, David Fiene, certify, pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Saleen Automotive, Inc. on Form 10-K for the year ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Saleen Automotive, Inc.

 

Dated: July 14, 2015

 

/s/ David Fiene  
David Fiene  
Chief Financial Officer  

 

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or the Exchange Act, or otherwise subject to the liability of Section 18 of the Exchange Ace. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

 

 
 

 

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The bank sought full payment of principal and interest owed. In April 2014, the Company entered into a settlement arrangement with the bank whereby the bank dismissed this case in exchange for payment of $124,000 that was applied towards principal and unpaid fees along with advance loan principal and interest through July 2014. From August 2014 to March 31, 2015, in exchange for payments totaling $90,000, the bank agreed to extend this arrangement through various dates with the last date being March 2015. The bank has not agreed to an additional extension in conjunction with the bank's claim of default. On April 29, 2015, the bank filed a claim against the Company alleging breach of the loan agreement, breach of a commercial guaranty by Steve Saleen, Chairman and CEO, and the bank demanded full payment of principal and interest outstanding (see Note 10). 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 March 31, 2015 and 2014, respectively, the Bonds were in default due to non-payment. 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 March 31, 2015 and 2014 due to non-payment. As of March 31, 2014, the Company had outstanding $100,000 and $20,000 unsecured 10% notes payable. 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Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Issued Outstanding Weighted Average Remaining Contractual Terms. Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Outstanding Weighted Average Remaining Contractual Terms1. Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Outstanding Weighted Average Remaining Contractual Terms2. Share Based Compensation Arrangement By Share Based Payment Award Equity Instruments Other Than Options Vested In Period Exercised Weighted Average Exercise Price Fair Value. Share Based Compensation Arrangement By Share Based Payment Award Non Option Outstanding Weighted Average Number Of Share. Shareholder [Member] Standard Product Warranty Accrual, Number of Miles Covered Standard Product Warranty, Period Steve Saleen [Member]. Stock Issued During Period, Related Party, Shares Issued for Fees Stock Issued During Period, Related Party, Shares Issued for Services Stock Issued During Period, Related Party, Values Issued for Fees Stock Issued During Period, Related Party, Values Issued for Services. Stock Issued During Period Conversion of Super Voting Preferred to Common Stock, shares Stock Issued During Period Shares Issued For Exercise Of Warrants. Stock Issued During Period Shares Issued For Interest On Notes Payables. Shares issued as principal payments on notes payable, shares. Stock Issued During Period Shares Issued For Payments Of Accounts Payables. Stock Issued During PeriodShares Issued For Settlement. Stock Issued During Period Shares Issued For Settlement Of Accounts Payable. Stock Issued During Period Shares Issued In Exchange For Extinguishment Of Amount Owned. Stock Issued During Period Shares of Conversion of Convertible Notes and Accrued Interest. 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Unsecured Revolving Promissory Note [Member] Unsecured Ten Percent Notes Payable One [Member] Unsecured Ten Percent Notes Payable Two [Member] WNet Fund Llp [Member]. Warrant Policy Policies Text Block. Warrants exercise price, Per share. Warrants term. Warrants to purchase of shares of common stock. Warrants To Purchase Of Shares Of Common Stock With Cash. Working capital deficit. Conversion Price Equal Lesser Price Per Share. Convertible notes payable gross. Convertible notes payable discount. Significant Concentrations [Policy Text Block]. Customer Deposits [Policy Text Block]. Deferred Vendor Consideration Current. Fair Value Of Shares Issued For Services. Allowance for Doubtful Accounts [Policy Text Block]. Gain Loss on Extinguishment of Derivative Liability. Number of outstanding captial stock shares exchanged for shares of super voting preferred stock. Conversion Of Super Voting Preferred Into Common Stock. Amounts payable settled through the issuance of equity securities. Amounts payable settled through the issuance of equity securities, shares. Fair value of conversion feature associated with debt extinguishment. Fair value of derivative liability extinguished upon modification of convertible note. Gain on extinguishment of derivative liability Fair value of derivative liability extinguished upon modification. Beneficial conversion feature associated with convertible debt financing. Fair value of beneficial conversion feature recorded as note discount. Hollywood Movie Producer [Member]. Fair value of common stock. Debt Due Date One [Member]. Debt Due Date Two [Member]. Two Thousand Sixteen [Member] Two Thousand Seventeen [Member]. Two Thousand Eighteen [Member]. Two Thousand Nighteen [Member]. Two Thousand Tweenty [Member]. Related Party [Member]. Value of shares issued as principal. Value of shares issued as interest. Loss on issuance of stock under agreement. Options exercise price. Stock option vesting period. Stock option expiration period. Warrants to purchase common stock. Accounts Receivable One [Member]. Issuance of Common Stock on conversion of secured convertible Notes Payable and accrued interest. Stock Issued During Period Shares Issued For Amendments Of Convertible Notes. Stock Issued During Period Value Issued For Amendments Of Convertible Notes. Royalities advance recevied from an intellectual property agreement. Secured Debt [Member] BondMember SeniorSecuredConvertibleNotesOneMember BoardMemberThreeMember UnsecuredDebtTwoMember Stock Compensation Plan [Member] JanauaryTwoThousandFifteenMember SevenPercentUnsecuredConvertibleNotesMember Machinery and Equipment [Member] Tools, Dies and Molds [Member] SaleenMustangSaleenChallangerAndSaleenCamaroMember Assets, Current Assets Liabilities, Current Derivative Liability, Noncurrent Liabilities Stockholders' Equity Attributable to Parent Liabilities and Equity Revenues Gross Profit Operating Expenses Interest Expense, Other CostsOfReverseMergerTransaction Weighted Average Number of Shares Outstanding, Basic and Diluted Shares, Outstanding Stock Issued During Period, Value, Issued for Services Preferred Stock Dividends and Other Adjustments GainLossOnSettlementOfNotesPayableAndAccountsPayableRelatedParty FairValueOfSharesIssuedForServices Increase (Decrease) in Accounts Receivable Increase (Decrease) in Inventories Increase (Decrease) in Prepaid Expense and Other Assets Increase (Decrease) in Accounts Payable Increase (Decrease) in Due to Related Parties, Current Increase (Decrease) in Customer Deposits IncreaseDecreaseInDeferredVendorConsideration AccountsToBeSettledByIssuanceOfEquitySecurities Net Cash Provided by (Used in) Operating Activities Net Cash Provided by (Used in) Investing Activities Net Cash Provided by (Used in) Financing Activities Cash and Cash Equivalents, Period Increase (Decrease) BeneficialConversionFeatureAssociatedWithConvertibleDebtFinancing Commitments and Contingencies Disclosure [Text Block] Income Tax, Policy [Policy Text Block] Property, Plant and Equipment, Policy [Policy Text Block] Accounts Payable Product Warranty Accrual Property, Plant and Equipment, Gross Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment Debt Instrument, Interest Rate During Period Notes Payable [Default Label] Increase (Decrease) in Derivative Liabilities Deferred Tax Assets, Operating Loss Carryforwards Deferred Tax Assets, Valuation Allowance Deferred Tax Assets, Net Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Number of Exercisable Options Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Outstanding Options, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Intrinsic Value Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number ShareBasedCompensationArrangementByShareBasedPaymentAwardNonOptionOutstandingWeightedAverageNumberOfShare DeferredVendorConsideration Accounts Payable and Accrued Liabilities, Noncurrent Operating Leases, Future Minimum Payments Due, Next Twelve Months Operating Leases, Future Minimum Payments, Due in Two Years Operating Leases, Future Minimum Payments, Due in Three Years Operating Leases, Future Minimum Payments Due EX-101.PRE 18 slnn-20150331_pre.xml XBRL PRESENTATION FILE XML 19 R39.htm IDEA: XBRL DOCUMENT v3.2.0.727
Notes Payable - Schedule of Secured and Unsecured Notes Payable (Details) (Parenthetical)
12 Months Ended
Apr. 13, 2012
Mar. 31, 2015
Mar. 31, 2014
Debt instruments maturity date Aug. 31, 2014    
Notes Payable One [Member]      
Debt instruments maturity date   Mar. 31, 2015 Mar. 31, 2015
Notes Payable Two [Member]      
Debt instruments interest rate   6.00% 6.00%
Notes Payable Three [Member]      
Debt instruments interest rate   6.00% 6.00%
Debt instruments maturity date   Mar. 16, 2010 Mar. 16, 2010
Notes Payable Four [Member]      
Debt instruments maturity date   Oct. 25, 2013 Oct. 25, 2013
Notes Payable Six [Member]      
Debt instruments interest rate   10.00% 10.00%
Debt instruments maturity date   Mar. 31, 2010 Mar. 31, 2010
Notes Payable Seven [Member]      
Debt instruments interest rate   6.00% 6.00%
XML 20 R54.htm IDEA: XBRL DOCUMENT v3.2.0.727
Stockholders' Equity (Details Narrative) - USD ($)
1 Months Ended 12 Months Ended
Jul. 09, 2013
Jan. 31, 2014
Mar. 31, 2015
Mar. 31, 2014
Jan. 13, 2014
Class of Stock [Line Items]          
Common stock, shares authorized   500,000,000 500,000,000 500,000,000 500,000,000
Common stock, par value     $ 0.001 $ 0.001  
Preferred stock, shares authorized     1,000,000 1,000,000  
Preferred stock, par value     $ 0.001 $ 0.001  
Number of outstanding captial stock shares exchanged for shares of super voting preferred stock     554,057    
Number of super voting perferred stock shares issued 696,000   341,943    
Conversion of Super Voting Preferred to Common Stock 87,000,000   125    
Number of common stock shares issued for settlement of accounts payable     1,285,460    
Number of common stock value issued for settlement of accounts payable     $ 470,534    
Reclassified amount of liability     $ 470,534    
Common stock shares issued price per share     $ 0.15    
Proceeds from issuance of stock     $ 185,000 $ 1,312,500  
Shares issued for services     1,000,000    
Shares issued for services, value     $ 170,000 $ 429,831  
Stock compensation expense     $ 650,351    
Fair market value of the Company's common stock     $ 0.01    
Unearned compensation     $ 345,000    
Compensation recognized, weighted average period     1 year 7 days    
Shares issued as consideration for the amendments of convertible notes, shares     747,066    
Shares issued as consideration for the amendments of convertible notes     $ 112,059    
Common Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services     1,000,000 530,000  
Shares issued for services, value     $ 1,000 $ 530  
Shares issued as consideration for the amendments of convertible notes, shares     747,066    
Shares issued as consideration for the amendments of convertible notes     $ 747    
Common Stock [Member] | Subscription Agreements [Member]          
Class of Stock [Line Items]          
Shares issued for services, value     $ 223,678    
Number of common stock shares issued in exchange for extinguishment of amount owned     7,567,980    
Number of common stock value issued in exchange for extinguishment of amount owned     $ 168,154    
Loss on issuance of stock under agreement     $ 55,524    
Warrant [Member]          
Class of Stock [Line Items]          
Warrants to purchase common stock     1,183,334    
Warrant [Member] | Subscription Agreements [Member]          
Class of Stock [Line Items]          
Warrants exercise price, Per share     $ 0.21    
Shares issued for services, value     $ 82,662    
Warrants to purchase common stock     527,520    
Fair value assumptions of dividend yield percentage     0.00%    
Fair value assumptions of expected volatility rate     100.00%    
Fair value assumptions of risk free interest rate     1.75%    
Fair value assumptions of expected term of life     5 years    
Notes Payable [Member] | Common Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services     5,494,787    
Shares issued for services, value     $ 582,691    
Convertible Notes Payable [Member] | Common Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services     19,817,900    
Shares issued for services, value     $ 932,923    
Warrant [Member]          
Class of Stock [Line Items]          
Warrants intrinsic value          
Super Voting Preferred Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services   896,000   5,899  
Shares issued for services, value       $ 473,581  
Super Voting Preferred Stock [Member] | Common Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services   112,000,000 1,000,000    
Shares issued for services, value     $ 170,000    
Super Voting Preferred Stock [Member] | Restricted Common Stock [Member] | Subscription Agreements [Member]          
Class of Stock [Line Items]          
Common stock shares issued price per share       $ 0.15  
Proceeds from issuance of stock       $ 1,312,500  
Shares issued for services       8,793,337  
Super Voting Preferred Stock [Member] | Warrant [Member] | Subscription Agreements [Member]          
Class of Stock [Line Items]          
Common stock shares issued price per share       $ 0.15  
Shares issued for services       8,793,337  
Super Voting Preferred Stock [Member] | Notes Payable [Member]          
Class of Stock [Line Items]          
Shares issued for services       481  
Value of shares issued as principal       $ 22,803  
Super Voting Preferred Stock [Member] | Notes Payable [Member] | Common Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services       521  
Value of shares issued as interest       $ 24,697  
Super Voting Preferred Stock [Member] | Accounts Payable [Member]          
Class of Stock [Line Items]          
Shares issued for services       2,508,908  
Shares issued for services, value       $ 1,120,382  
Super Voting Preferred Stock [Member] | Accounts Payable [Member] | Common Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services       325,128  
Shares issued for services, value       $ 103,191  
Super Voting Preferred Stock [Member] | Convertible Notes [Member]          
Class of Stock [Line Items]          
Shares issued for services       5,553,128  
Value of shares issued as interest       $ 416,486  
Research and Development [Member]          
Class of Stock [Line Items]          
Stock compensation expense     66,067    
Sales and Marketing [Member]          
Class of Stock [Line Items]          
Stock compensation expense     268,610    
General and Administrative Expenses [Member]          
Class of Stock [Line Items]          
Stock compensation expense     $ 315,674    
Omnibus Incentive Plan [Member]          
Class of Stock [Line Items]          
Grants of stock plans, term description     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 Companys 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 Companys Common Stock on the date the option is granted (110% of the fair market value if the grant is to a 10% owner).    
Shares authorized for issuance and reserved under Plan     28,905,763    
Warrant [Member]          
Class of Stock [Line Items]          
Warrants to purchase of shares of common stock     50,000    
Proceeds from exercise of warrants     $ 7,500    
Number of warrants exercisable     13,313,099    
Employee And Non-Employees Stock Option Member [Member]          
Class of Stock [Line Items]          
Shares issued for services, value     $ 1,028,417    
Shares authorized for issuance and reserved under Plan     14,104,000    
Stock option vesting period     3 years    
Stock option expiration period     10 years    
Employee And Non-Employees Stock Option Member [Member] | Minimum [Member]          
Class of Stock [Line Items]          
Options exercise price     $ 0.03    
Employee And Non-Employees Stock Option Member [Member] | Maximum [Member]          
Class of Stock [Line Items]          
Options exercise price     $ 0.10    
Mr Jonathan Michaels [Member] | Super Voting Preferred Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services       5,277  
Shares issued for services, value       $ 250,000  
Mr. Robert Miranda [Member] | Super Voting Preferred Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services       5,277  
Shares issued for services, value       $ 250,000  
Related Party [Member] | Super Voting Preferred Stock [Member]          
Class of Stock [Line Items]          
Shares issued for services       923  
Shares issued for services, value       $ 473,581  
Subscription Agreements [Member] | Accredited Investors [Member]          
Class of Stock [Line Items]          
Restricted common stock     1,183,334    
Common stock shares issued price per share     $ 0.15    
Proceeds from issuance of stock     $ 177,500    
Warrants to purchase of shares of common stock     1,183,334    
Warrants exercise price, Per share     $ 0.15    
Settlement of Claims Conditions of Employment Directors Fees and Payment of Information Technology Services [Member]          
Class of Stock [Line Items]          
Shares issued for services       1,522,250  
Shares issued for services, value       $ 576,981  
XML 21 R48.htm IDEA: XBRL DOCUMENT v3.2.0.727
Derivative Liability - Schedule of Derivative Liabilities (Details) - Merton [Member] - USD ($)
4 Months Ended 12 Months Ended
Jun. 17, 2014
Dec. 31, 2014
Mar. 31, 2015
Mar. 31, 2014
Risk-free interest rate 0.02% 0.02%   0.05%
Expected volatility 106.00%   179.00% 100.00%
Expected life (in years) 3 years     3 months
Expected dividend yield        
Conversion feature $ 3,908,950 $ 1,306,455 $ 1,268,588 $ 5,032,786
Minimum [Member]        
Risk-free interest rate     0.04%  
Expected volatility   124.00%    
Expected life (in years)   9 months 2 months 12 days  
Maximum [Member]        
Risk-free interest rate     1.33%  
Expected volatility   139.00%    
Expected life (in years)   2 years 1 year 7 months 6 days  
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Stockholders' Equity - Schedule of Stock Option Plan Activity (Details) - 12 months ended Mar. 31, 2015 - USD ($)
Total
Weighted Average Exercise Price per Share, Options granted during the period $ 0.01
Omnibus Incentive Plan [Member]  
Number of shares, Outstanding, Beginning balance  
Number of shares, Options granted during the period 14,104,000
Number of shares, Options cancelled during the period 645,000
Number of shares, Options exercised during the period  
Number of shares, Outstanding, Ending balance 13,459,000
Number of shares, Options Exercisable 7,271,333
Number of shares, Options Expected to vest 5,826,793
Weighted Average Exercise Price per Share, Outstanding, Beginning balance  
Weighted Average Exercise Price per Share, Options granted during the period $ 0.10
Weighted Average Exercise Price per Share, Options cancelled during the period $ 0.10
Weighted Average Exercise Price per Share, Options exercised during the period  
Weighted Average Exercise Price per Share, Outstanding, Ending balance $ 0.10
Weighted Average Exercise Price per Share, Exercisable 0.10
Weighted Average Exercise Price per Share, Expected to vest $ 0.10
Aggregate Intrinsic Value, Options Outstanding $ 0
Aggregate Intrinsic Value, Options Exercisable 0
Aggregate Intrinsic Value, Options Expected to vest $ 0
Weighted-Average Remaining Contractual Term (in years), Options Outstanding 9 years 8 months 1 day
Weighted-Average Remaining Contractual Term (in years), Options Exercisable 9 years 5 months 19 days
Weighted-Average Remaining Contractual Term (in years), Options Expected to vest 9 years 5 months 19 days

XML 24 R46.htm IDEA: XBRL DOCUMENT v3.2.0.727
Convertible Notes Payable - Summary of Convertible Notes Payable (Details) - USD ($)
Mar. 31, 2015
Apr. 13, 2012
Debt Disclosure [Abstract]    
2016 $ 1,556,974  
2017 $ 4,201,720  
2018    
2019 $ 499,893  
2020    
Convertible Notes Payable $ 6,258,587 $ 45,500
XML 25 R33.htm IDEA: XBRL DOCUMENT v3.2.0.727
Nature of the Business and Significant Accounting Policies - Schedule of Changes in Product Warranty Accrual (Details) - USD ($)
12 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Accounting Policies [Abstract]    
Balance at Beginning of Fiscal Year $ 20,000  
Warranty Expenditures (7,077) $ (16,763)
Provision for Estimated Warranty Cost 27,077 36,763
Balance at End of Fiscal Year $ 20,000 $ 20,000
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Commitments and Contingencies (Details Narrative)
1 Months Ended 3 Months Ended 8 Months Ended 12 Months Ended
Apr. 13, 2012
USD ($)
Mar. 31, 2015
USD ($)
ft²
Buildings
Dec. 31, 2014
USD ($)
May. 31, 2014
USD ($)
Apr. 30, 2014
USD ($)
Jul. 31, 2014
USD ($)
Mar. 31, 2015
USD ($)
ft²
Buildings
Mar. 31, 2015
USD ($)
ft²
Buildings
Mar. 31, 2014
USD ($)
Number of rented buildings | Buildings   2         2 2  
Area of square feet | ft²   76,000         76,000 76,000  
Lease expiration date               Jan. 31, 2018  
Rent expenses               $ 524,339 $ 508,802
Percentage of annual escalation in rent               3.00%  
Deferred vendor consideration   $ 275,000         $ 275,000 $ 275,000  
Litigation settlement expense $ 200,000                
Litigation settlement amount $ 112,500                
Debt instrument maturity date Aug. 31, 2014                
Debt settlement amount $ 45,500 6,258,587         6,258,587 6,258,587  
Debt extended period 18 months                
Accounts payable on settlement $ 68,950                
Citizens Business Bank [Member]                  
Payment of principle and unpaid fees         $ 124,000   90,000    
Payment of remaining balance due to bank           $ 443,000      
Citizens Business Bank [Member] | Loan Agreement [Member]                  
Indebtedness for principal and interest   $ 369,302         $ 369,302 $ 369,302  
Finish Master, Inc [Member]                  
Purchase commitment of BASF Products       $ 1,555,000          
Deferred vendor consideration       $ 25,000          
Purchase commitment milestones description      

In consideration for the Company's exclusive use of FinishMasters 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.

         
Payment of additional amount upon achievement of purchase level milestones       $ 25,000          
Payment upon not completing set purchase level milestone       $ 11,475          
Green Global Automotive B.V [Member]                  
Contract and economic damages     $ 50,000            
Ford of Escondido [Member]                  
Damages sought description   Specifically, Ford of Escondido seeks payment of seven (7) Ford Mustangs for a total of $222,871 plus interest and attorneys&fees, less any amounts to be credited pursuant to proceeds of sale. As of March 31, 2015, the Company has included in accounts payable the amount owed for four (4) vehicles which the Company believes are owed to Ford of Escondido. As such, the Company believes that Ford of Escondido's claims with respect to the remaining three (3) vehicles are without merit and have responded to the Complaint including claims that Ford of Escondido breached the supply agreement with the Company. There has been no response received from Ford of Escondido to the Company's position and the outcome is uncertain; however, the Company believes this matter will not have a material impact, if any, on its financial statements.              
Proceeds from sale of vechicles   $ 222,871              
BASF Products [Member]                  
Purchase commitment of BASF Products         $ 4,131,000        
Purchase commitments time period description         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 Companys exclusive use of BASF products and fulfilling this purchase commitment, BASF paid the Company $250,000, which was recorded as deferred vendor consideration.        
Purchase commitments amortization over period         36 months        
Deferred vendor consideration         $ 250,000        
BASF Products One [Member]                  
Purchase commitment of BASF Products         $ 1,697,000        
Past Rent [Member]                  
Lease expiration date               Feb. 28, 2015  
Lease term               20 months  
Payment of rent               $ 5,300  
Rent initial starting date               Jun. 30, 2014  
Minimum [Member]                  
Lease term               36 months  
Maximum [Member]                  
Lease term               60 months  
XML 28 R25.htm IDEA: XBRL DOCUMENT v3.2.0.727
Convertible Notes Payable (Tables)
12 Months Ended
Mar. 31, 2015
Debt Disclosure [Abstract]  
Schedule of Senior Secured Convertible Notes Payable

Convertible notes are comprised as follows:

 

    March 31, 2015     March 31, 2014  
3% Senior secured convertible notes payable to a private accredited investor group, convertible at $0.075 per share, subject to adjustment, $2,001,720 due in June 2017 and $499,892 due in January 2019.   $ 2,501,612     $ 2,586,732  
                 
7% Unsecured convertible notes payable to private accredited investor group, convertible into 82,484,267 shares of Common Stock (including accrued interest) as of March 31, 2015, interest accrued at 7% per annum, notes mature in March 2017     2,200,000       2,250,000  
                 
Unsecured convertible notes payable to eight separate private accredited investors, convertible into 35,782,732 shares of Common Stock (including accrued interest) as of March 31, 2015, interest accrued at 8% to 12% per annum, notes mature on various dates from April 2015 to December 2016, in default     618,225        
      5,319,837       4,836,732  
Less: discount on notes payable     (1,836,828 )     (3,498,981 )
Notes payable, net of discount     3,483,009       1,337,751  
Less: notes payable, current     (267,332 )      
Notes payable, long-term   $ 3,215,677     $ 1,337,751  

Summary of Convertible Notes Payable

The aggregate future obligations under the Convertible Notes Payable herein and notes payable described in Notes 3 and 4 are as follows:

 

Year Ending March 31,   Amount  
2016   $ 1,556,974  
2017     4,201,720  
2018     -  
2019     499,893  
2020        
    $ 6,258,587  

XML 29 R50.htm IDEA: XBRL DOCUMENT v3.2.0.727
Related Party Transactions - Amounts of Accounts Payable to Related Parties (Details) - USD ($)
Mar. 31, 2015
Mar. 31, 2014
Accounts payable to related parties $ 326,512 $ 172,534
Steve Saleen [Member]    
Accounts payable to related parties [1] $ 223,455 100,000
Michaels Law Group [Member]    
Accounts payable to related parties [2]   23,954
Top Hat Capital [Member]    
Accounts payable to related parties [3] $ 62,500 $ 25,000
Crystal Research [Member]    
Accounts payable to related parties [4] 6,343  
Molly Saleen, Inc [Member]    
Accounts payable to related parties [5] $ 34,214 $ 23,580
[1] During the year ended March 31, 2015, the Company incurred $125,654 in officers' salary expense that is due and payable to its Director, Chairman and CEO, Mr. Steve Saleen. As of March 31, 2015 and 2014 the Company owed $223,455 and $100,000, respectively, to Mr. Saleen for his unpaid officers' salary. In March 2014, Mr. Saleen agreed to forgive $353,787 of amounts owed for loans given by Mr. Saleen to the Company and unpaid salary, which the Company recognized as a gain and offset to settlement expenses in the Statement of Operations. In June 2015, the Company issued 220,000 shares of Super Voting Preferred Stock for payment of $220,000 owed to Mr. Saleen (see Note 11).
[2] During the year ended March 31, 2015 and 2014, the Company incurred $69,418 and $365,251, respectively, in General Counsel Services and legal fees expense with Michaels Law Group, a firm owned by a former Director and General Counsel, Mr. Jonathan Michaels. In January 2015, the Company entered into a Fee Reduction Agreement with Michaels Law Group whereby Michaels Law Group reduced the amount owed to $75,000 and the Company issued 2,500,000 shares of Common Stock to Michaels Law Group as full payment. The value of the Common Stock issued of $75,000 was based on a fair value of $0.03 per share. During the year ended March 31, 2015 the Company paid $550 to Michaels Law Group. In March 2014, the Company entered into a Retainer Agreement whereby the Company issued 1,447,500 shares of Common Stock and five year warrants to purchase 1,447,500 shares of Common Stock at an exercise price of $0.15 per share along with cash of $36,459 in exchange for amounts owed through February 2014. The value of the Common Stock issued was $405,300 based on a stock price of $0.28 on date of settlement. The Company valued the warrants at $332,491 using the Black-Scholes option pricing model using the following assumptions: (i) fair market value of stock of $0.28; (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 Company recognized a loss of $521,558 included in settlement expenses in the Statement of Operations for the year ended March 31, 2014 based on the difference between the value of the common shares and stock warrants issued plus $36,459 cash paid and the amount owed of $252,692. During the year ended March 31, 2014, the Company paid $110,000 to Michaels Law Group. As of March 31, 2014, $23,954 was payable to Michaels Law Group services the rendered.
[3] During the year ended March 31, 2015 and 2014, the Company incurred $50,000 and $35,000, respectively, of which the Company paid $12,500 and $10,000, respectively, during the years ended March 31, 2015 and 2014, 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 March 31, 2015 and 2014, $62,500 and $25,000, respectively, was payable to TopHat Capital for these services.
[4] During the year ended March 31 2015, 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 March 31, 2015, $6,343 was payable to Crystal Research Associates for these services.
[5] During the year ended March 31, 2015 and 2014, the Company purchased $12,650 and $43,325, respectively, of which the Company paid $2,016 and $12,650, respectively, during the years ended March 31, 2015 and 2014, in purchases of apparel and accessories from Molly Saleen, Inc. dba Mollypop. Molly Saleen, the Chief Executive Officer of Mollypop, is the daughter of Steve Saleen, the Company's Chief Executive Officer and President. As of March 31, 2015 and 2014, $34,214 and $23,580, respectively, was outstanding. On June 22, 2015, the Company issued 19,077.777 shares of Super Voting Preferred Stock for payment of $34,214 outstanding (see Note 11).
XML 30 R42.htm IDEA: XBRL DOCUMENT v3.2.0.727
Notes Payable to Related Parties - Schedule of Notes Payable Secured and Unsecured Related parties (Details) (Parenthetical) - USD ($)
12 Months Ended
Apr. 13, 2012
Mar. 31, 2015
Mar. 31, 2014
Debt instrument maturity date Aug. 31, 2014    
Unsecured Note Payable To a Stockholder, Due on April 1, 2014, Currently in Default [Member]      
Debt instrument maturity date   Apr. 01, 2014 Apr. 01, 2014
Unsecured Note Payable To a Stockholder, Interest At 10% Per Annum Payable At Various Maturity Dates, Settled in April 2014 [Member]      
Debt instruments interest rate   10.00% 10.00%
Unsecured Payable To A Stockholder At 10% Per Annum, Payable on Demand [Member]      
Debt instruments interest rate   10.00% 10.00%
Unsecured $100,000 Revolving Promissory Note to a Stockholder, Interest At 10% Per Annum Payable in Full on November 2014 [Member]      
Debt instruments interest rate   10.00% 10.00%
Debt instrument maturity date   Nov. 30, 2014 Nov. 30, 2014
Unsecured Debt   $ 100,000 $ 100,000
XML 31 R37.htm IDEA: XBRL DOCUMENT v3.2.0.727
Notes Payable (Details Narrative) - USD ($)
1 Months Ended 12 Months Ended
May. 07, 2014
Mar. 31, 2015
Feb. 28, 2015
Apr. 30, 2014
Mar. 31, 2015
Mar. 31, 2014
Mar. 25, 2015
Aug. 19, 2013
Apr. 13, 2012
Payment of loans payable       $ 124,000          
Debt settlement amount   $ 6,258,587     $ 6,258,587       $ 45,500
Loss of statement of operations         (5,321,929) $ (6,778,111)      
Outstanding debt amount   2,501,612     2,501,612        
Payments of notes payable         349,043 318,558      
Interest payable $ 187,535 $ 387,005     $ 387,005 380,257      
Repayment of related party debt           $ 703,245      
Equity issuance price per share   $ 0.15     $ 0.15        
Gain on settlement of debt         $ 153,754        
Thomas Del Franco [Member]                  
Repayment of related party debt $ 250,000                
Issuance of common stock for notes payable 2,250,000                
Issuance of common stock for notes payable value $ 382,500                
Equity issuance price per share $ 0.17                
Maximum limit of settlement shares issuance during period 200,000                
Settlement And Mutual General Release Agreement [Member] | Marsh [Member]                  
Outstanding debt amount   $ 100,000     100,000        
Interest payable   $ 53,374     $ 53,374        
Equity issuance price per share   $ 0.14     $ 0.14        
Settlement And Mutual General Release Agreement [Member] | Marsh [Member]                  
Repayment of related party debt   $ 35,000              
Issuance of common stock for notes payable   800,000              
Issuance of common stock for notes payable value   $ 112,000              
Bond [Member]                  
Debt instruments interest rate   6.00%     6.00%        
Notes Payable [Member]                  
Debt instruments interest rate   10.00%     10.00%   6.00%    
Number of common stock shares conversation of outstanding debt     2,272,727            
Common stock note price per share     $ 0.022            
Exchange for cancellation of all amounts owed and mutual general release     $ 50,000            
Unsecured Notes Payable [Member]                  
Debt instruments interest rate               6.00%  
Subordinated 6% Bond [Member]                  
Debt instruments interest rate           6.00%      
Outstanding debt amount           $ 317,500      
10% Notes Payable [Member]                  
Debt instruments interest rate           10.00%      
Loss of statement of operations           $ 7,235      
Outstanding debt amount           200,000      
$100,000 Unsecured 10% Notes Payable [Member]                  
Outstanding debt amount           100,000      
$20,000 Unsecured 10% Notes Payable [Member]                  
Outstanding debt amount           $ 20,000      
Other Notes Payable [Member]                  
Outstanding debt amount   $ 20,000     $ 20,000        
Unpaid Remaining cash payments   $ 35,000     $ 35,000        
Senior Secured Convertible Notes [Member]                  
Debt instruments interest rate   3.00%     3.00%        
August 2014 to March 31, 2015 [Member]                  
Debt settlement amount       $ 90,000          
XML 32 R52.htm IDEA: XBRL DOCUMENT v3.2.0.727
Income Taxes - Schedule of Tax Benefits Loss Carry-forwards Valuation Allowance (Details) - USD ($)
Mar. 31, 2015
Mar. 31, 2014
Income Tax Disclosure [Abstract]    
Net operating loss carry-forward $ 5,800,000 $ 4,773,000
Valuation allowance $ (5,800,000) $ (4,773,000)
Net deferred income tax asset    
XML 33 R47.htm IDEA: XBRL DOCUMENT v3.2.0.727
Derivative Liability (Details Narrative) - USD ($)
12 Months Ended
Dec. 31, 2014
Jun. 30, 2014
Mar. 31, 2015
Mar. 31, 2014
Change in fair value of derivative liabilities     $ 1,111,389  
Gain in extinguishment of derivative liability     $ 50,314  
Secured Convertible Note [Member]        
Change in fair value of derivative liabilities $ 1,306,455      
Gain in extinguishment of derivative liability       $ 1,268,588
Secured Convertible Note [Member] | First Amendment [Member]        
Interest percentage of secured convertible note   3.00%    
Change in fair value of derivative liabilities   $ 3,908,950    
XML 34 R9.htm IDEA: XBRL DOCUMENT v3.2.0.727
Nature of the Business and Significant Accounting Policies
12 Months Ended
Mar. 31, 2015
Accounting Policies [Abstract]  
Nature of the Business and Significant Accounting Policies

NOTE 1 – NATURE OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

Description of the Company

 

Saleen Automotive, Inc. (formerly W270, Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on June 24, 2011. The Company designs, develops, manufactures and sells high performance vehicles built from base chassis’ of Ford Mustangs, Chevrolet Camaros, Dodge Challengers and Tesla Model S vehicles. The Company is a low volume vehicle design, engineering and manufacturing company focusing on the mass customization (the process of customizing automobiles that are mass produced by the manufacturers (Ford, Chevrolet, Dodge and Tesla) of OEM American sports and electric vehicles. A high performance car is an automobile that is designed and constructed specifically for speed and performance. The design and construction of a high performance car involves not only providing a capable power train but also providing the handling, aerodynamics and braking systems to support it. The Company’s Saleen-branded products include a complete line of upgraded high performance vehicles, automotive aftermarket specialty parts and lifestyle accessories.

 

Merger

 

On May 23, 2013, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Saleen California Merger Corporation, its wholly-owned subsidiary, Saleen Florida Merger Corporation, its wholly-owned subsidiary, Saleen Automotive, Inc. (“Saleen Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive, the “Saleen Entities”) and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”). The closing (the “Closing”) of the transactions contemplated by the Merger Agreement (the “Merger”) occurred on June 26, 2013. At the Closing (a) Saleen California Merger Corporation was merged with and into SMS with SMS surviving as one of the Company’s wholly-owned subsidiaries; (b) Saleen Florida Merger Corporation was merged with and into Saleen Automotive with Saleen Automotive surviving as one of the Company’s wholly-owned subsidiaries; (c) holders of the outstanding capital stock of Saleen Automotive received an aggregate of 554,057 shares of the Company’s Super Voting Preferred Stock, which was subsequently converted into 69,257,125 shares of the Company’s Common Stock and holders of the outstanding capital stock of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of the Company’s Common Stock (on a fully-diluted basis) was owned, collectively, by Saleen (including 341,943 shares of the Company’s Super Voting Preferred Stock, which was subsequently converted into 42,742,875 shares of the Company’s Common Stock, issued to Saleen pursuant to the Assignment and License Agreement) and the former holders of the outstanding capital stock of Saleen Automotive. As a result of the Merger the Company is solely engaged in the Saleen Entities’ business, Saleen Automotive’s then officers became the Company’s officers and Saleen Automotive’s then three directors became members of the Company’s five-member board of directors. On June 17, 2013, the Company consummated a merger with WSTY Subsidiary Corporation, its wholly-owned subsidiary, pursuant to which the Company amended its articles of incorporation to change its name to Saleen Automotive, Inc. In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars. In January 2014, the Company effected an increase in the number of its common shares authorized to 500,000,000 and all the remaining shares of Super Voting Preferred Stock were converted into Common Stock of the Company and the Super Voting Preferred Stock ceased to be a designated series of the Company’s preferred stock.

 

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 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 reverse merger transaction in the accompanying Statement of Operations for the year ended March 31, 2014.

 

Consolidation Policy

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Saleen Automotive, Inc., a Florida corporation, Saleen Signature Cars, a California corporation and Saleen Sales Corporation, a California corporation. Intercompany transactions and balances have been eliminated in consolidation.

 

Reclassification of Certain Prior Year Information

 

The Company has reclassified certain prior year amounts to conform to the current year presentation. This included reclassification of promotional trade discount expenses of $172,661 for the twelve month period ended March 31, 2014 to revenue from sales and marketing expenses. The Company has also reclassified $23,580 of accounts payable owed to Molly Saleen Inc. as of March 31, 2014 from Accounts Payable to Due to Related Parties and has reclassified $139,300 of taxes payable as of March 31, 2014 from Other current liabilities to Payroll and other taxes payable. The reclassification of these amounts had no impact on consolidated net loss or cash flows.

 

Going Concern

 

The Company’s 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 year ended March 31, 2015, the Company incurred an operating loss of $5,321,929 and utilized $2,549,895 of cash in operations. The Company also had a stockholders’ deficit and working capital deficit of $9,669,225 and $7,050,644, respectively, as of March 31, 2015, and as of that date, the Company owed $745,503 in past unpaid payroll and other taxes; $933,271 of outstanding notes payable were in default; $1,204,840 of accounts payable was greater than 90 days past due; and $288,900 is owed on past due rent. In addition, in May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanding full payment of principal, interest and fees of $369,302. A default under the loan agreement triggers a cross default under the Company’s 3% Senior Secured Convertible Notes and 7% Convertible Notes (see Note 5) enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of the Company’s indebtedness. In addition, the Company does not currently maintain workers’ compensation, product liability and other general insurance.

 

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve sustainable revenues and profit from operations. At March 31, 2015 and July 13, 2015 the Company had cash on hand in the amount of $143,083 and approximately $21,000, respectively, and is not generating sufficient funds to cover current production and operations. The Company has utilized funding to operate the business during the year ended March 31, 2015 with funds obtained from customer deposits received in advance of shipment of $1,702,656; received $500,000 in advance royalties from an Intellectual Property Agreement (Note 11) raised $1,289,409 through the issuance of convertible notes; received $295,000 through the issuance of notes payable of which $195,000 came from related parties; and obtained cash from sales of Common Stock through entering into Subscription Agreements with individual accredited investors (the “Subscribers”) pursuant to which the Subscribers purchased from the Company an aggregate of 1,183,334 restricted common shares at a per share price of $0.15 for aggregate proceeds of $177,500. The Company will need and is currently seeking additional funds, primarily through the issuance of debt or equity securities for production and to operate its business through and beyond the date of this Form 10-K filing. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions and covenants on its operations, in the case of debt financing or cause substantial dilution for its stockholders in the case of convertible debt and equity financing.

 

Use of Estimates

 

Financial statements prepared in accordance with accounting principles generally accepted in the United States require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management estimates include the estimated collectability of its accounts receivable, the valuation of long lived assets, warranty reserves, the assumptions used to calculate derivative liabilities, and equity instruments issued for financing and compensation. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company accounts for the fair value of financial instruments in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements”. ASC 820 defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

 

Authoritative guidance provided by the FASB defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

 

Level 1 Quoted prices in active markets for identical assets or liabilities.

 

Level 2 Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly.

 

Level 3 Unobservable inputs based on the Company’s assumptions.

 

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, accrued liabilities, customer deposits, and notes payable. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

As of March 31, 2015 and 2014, the Company’s consolidated balance sheets included the fair value of derivative liabilities of $1,268,588 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 March 31, 2015 and 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 consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

To determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, the Company uses a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, the Company reviews its convertible securities to determine their classification is appropriate.

 

Allowance for Doubtful Accounts

 

The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding.

 

The Company recognizes an allowance for doubtful accounts to ensure trade receivables are not overstated due to uncollectability. For the most part, the Company generally requires advance payments for cars and credit card payments for parts. As of March 31, 2014 the Company had an allowance for doubtful accounts of $271,658. There was no such allowance at March 31, 2015.

 

Inventories

 

Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventories consist primarily of parts for both resale and conversion of automotive chassis. The Company will typically buy the automobile chassis of the vehicle to be converted from the Ford, Chevrolet and Dodge dealers and then modify the vehicle as ordered. The Company typically has no finished goods inventory, as the Company builds to order, other than parts held for resale.

 

    March 31, 2015     March 31, 2014  
             
Parts and chassis   $ 176,718     $ 183,941  
Work in process     298,969       -  
S7 Supercar held for sale     250,000       250,000  
Total inventories   $ 725,687     $ 433,941  

 

Long-lived Assets

 

In accordance with ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.

 

The Company had no such asset impairments at March 31, 2015 or March 31, 2014. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets.

 

Revenue Recognition

 

Sales of High Performance Cars and Parts

 

The Company generates revenues primarily from the sale of high performance automobiles and parts. The Company recognizes revenue from the sale of completed high performance cars and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably assured, all of which generally occurs upon shipment of the Company’s product or delivery of the product to the destination specified by the customer. In cases where the Company is the primary obligor related to the purchase of base Ford Mustang, Chevrolet Camaro and Dodge Challenger vehicles, the Company recognizes revenue related to the cost of the chassis plus markup, if any.

 

The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the cars or products on the carrier. The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured and generally collects before shipment. Except for warranties, the Company has no post-sales obligations nor does the Company accept returns.

 

Contract Revenue and Cost Recognition on Design Services

 

During the year ended March 31, 2014, the Company realized revenue from a contract with a major Hollywood movie producer of $121,500 for the design and replica production of supercar racing automobiles for the Need for Speed movie, which was released in March 2014. The Company did not have any design contracts during the year ended March 31, 2015.

 

Customer Deposits

 

The Company’s sales orders generally require customers to put deposits on vehicles at the time of signing a sales order. Typically, the Company receives either partial or full deposits related to such sales orders in advance of shipment and is generally paid in full prior to shipment of customers’ orders. Customer deposits as of March 31, 2015 and 2014 comprised of funds received in advance of shipment and were $1,896,568 and $193,912, respectively, which will be recorded as revenue upon shipment of related customers’ orders and satisfaction of the revenue recognition requirements discussed above.

 

Warranty Policy

 

The Company provides a three-year or 36,000 miles New Vehicle Limited Warranty with every Saleen 302 Mustang, Saleen 570 Challenger, Saleen 620 Camaro high performance vehicle and Saleen GTX. The vehicle limited warranty applies to installed parts and/or assemblies in new Saleen high performance cars. All of the unaltered parts are covered under the original full warranty of the OEM manufacturer of the base vehicles (Ford, Chevrolet, and Dodge). Changes in the product warranty accrual for the fiscal years ended March 31, 2015 and 2014 were as follows:

 

    Balance at
Beginning
of Fiscal Year
    Warranty
Expenditures
    Provision for
Estimated
Warranty Cost
    Balance at End
of Fiscal Year
 
Fiscal 2015   $ -     $ (7,077 )   $ 27,077     $ 20,000  
Fiscal 2014   $ -     $ (16,763 )   $ 36,763     $ 20,000  

 

Business Segments

 

The Company currently has one operating business segment that is converting automobiles into high performance vehicles and selling related parts.

 

Research and Development Costs

 

Research and development costs consist of expenditures for the research and development of new products and technology and are expensed as incurred. Research and development costs were $747,833 and $766,996 during the years ended March 31, 2015 and 2014, respectively.

 

Advertising, Sales and Marketing Costs

 

Advertising, sales and marketing costs are expensed as incurred and are included in sales and marketing expenses. During the year ended March 31, 2015, advertising, sales and marketing expenses were $3,679, $126,185, and $472,969, respectively. During the year ended March 31, 2014, advertising, sales and marketing expenses were $59,993, $110,275, and $414,555, respectively.

 

Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“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 the related deferred tax asset. Any change in the valuation allowance will 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.

 

The Company also uses the provisions of ASC 505-50, “Equity Based Payments to Non-Employees,” to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50.

 

Loss per Share

 

The basic EPS is calculated by dividing the Company’s net loss available to Common Stockholders by the weighted average number of common shares during the period. The diluted EPS is calculated by dividing the Company’s net loss available to Common Stockholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity securities unless the effects thereof are anti-dilutive, that is inclusion of such shares would reduce the net loss or increase the net income. For the years ended March 31, 2015 and 2014, the basic and diluted shares outstanding were the same, as potentially dilutive shares were considered anti-dilutive.

 

As of March 31, 2015, stock options and warrants exercisable for 13,459,000, and 13,313,099, shares of Common Stock, respectively, have been excluded from diluted loss per share because they are anti-dilutive.

 

As of March 31, 2014, warrants exercisable for 11,252,245 shares of Common Stock, and Notes convertible into 66,632,617 shares of Common Stock have been excluded from diluted loss per share because they are anti-dilutive.

 

Significant Concentrations

 

Sales to one customer comprised 11% of revenues for the year ended March 31, 2015. No customers comprised revenues in excess of 10% during the year ended March 31, 2014 and no customers comprised accounts receivable in excess of 10% at March 31, 2015 and 2014.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash, to the extent balances exceeded limits that were insured by the Federal Deposit Insurance Corporation and accounts receivable. The Company does not require collateral and maintains reserves for potential credit losses. Such losses have historically been immaterial and have been within management’s expectations.

 

Property and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized on the straight-line method over the following estimated useful lives:

 

Computer equipment and software   3 years
Furniture   3 years
Machinery   3-10 years
Tooling   10 years

 

Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term.

 

Recently Issued Accounting Standards

 

On May 28, 2014, the Financial Accounting Standards Board (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. We will apply the new revenue recognition standard in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. 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 November 2014, the FASB issued Accounting Standards Update No. 2014-16 (ASU 2014-16), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in this ASU do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. The ASU applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. Management is currently evaluating the impact, if any, of adopting ASU 2014-16 on the Company’s results of operations or financial condition.

 

In January 2015, the FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), as part of its initiative to reduce complexity in accounting standards. ASU No. 2015-01 eliminates from generally accepted accounting principles the concept of extraordinary items. ASU No. 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with earlier adoption permitted. A reporting entity may apply the provisions of ASU No. 2015-01 prospectively or retrospectively to all prior periods presented in the financial statements. The Company does not expect the adoption of ASU No. 2015-01 to have a material effect on it results of operations or financial condition.

 

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 consolidated financial statements.

XML 35 R43.htm IDEA: XBRL DOCUMENT v3.2.0.727
Convertible Notes Payable (Details Narrative)
1 Months Ended 4 Months Ended 12 Months Ended
Jan. 26, 2015
USD ($)
Buildings
$ / shares
Jan. 23, 2015
USD ($)
$ / shares
Nov. 30, 2013
USD ($)
Buildings
Jun. 26, 2013
USD ($)
Buildings
Jun. 30, 2014
USD ($)
$ / shares
shares
Apr. 30, 2014
USD ($)
Mar. 31, 2014
USD ($)
Dec. 31, 2014
USD ($)
Buildings
Mar. 31, 2015
USD ($)
$ / shares
shares
Mar. 31, 2014
USD ($)
Debt principal amount                 $ 585,012  
Conversion of convertible debt amount                 $ 11,942  
Number of stock shares issued for exchange | shares                 527,520  
Beneficial conversion feature associated with convertible debt financing $ 77,483               $ 327,483  
Proceeds from issuance of note                 100,000  
Loss on extinguishment of convertible debt                 1,257,468  
Fair value of conversion feature associated with debt extinguishment                 572,493  
Repayments of bank debt           $ 124,000        
Amortization of debt discount                 1,942,885 $ 411,675
Unamortized of valuation discount amount             $ 1,248,984   $ 74,021 1,248,984
Conversion of debt, shares issued | shares                 8,032,186  
Outstanding debt amount                 $ 2,501,612  
Convertible notes outstanding             1,337,751   3,483,009 1,337,751
Derivative liabilities             5,032,786   1,268,588 5,032,786
Steve Saleen [Member] | May 2015 [Member]                    
Repayments of bank debt                 $ 369,302  
Percentage of outstanding principal plus                 120.00%  
Percentage of accrued and unpaid interest plus                 100.00%  
Accrued debt interest rate                 12.00%  
3% Senior Secured Convertible Notes [Member]                    
Debt principal amount $ 499,892     $ 3,000,000            
Number of investors | Buildings 2   1 12            
Debt instrument, maturity period 4 years                  
Debt instruments interest rate 3.00%                  
Debt issuance date description June 2017 and January 2019                  
Conversion of convertible debt amount     $ 98,708              
Common stock conversion price per share | $ / shares $ 0.075                  
3% Senior Secured Convertible Notes [Member] | First Amendment [Member]                    
Number of stock shares issued for exchange | shares         389,923          
Equity issued for private placements         $ 58,488          
Common stock issuance cost | $ / shares         $ 0.15          
3% Senior Secured Convertible Notes [Member] | Second Amendments [Member]                    
Common stock conversion price per share | $ / shares   $ 0.02                
Conversion price equal lesser price per share | $ / shares   $ 0.075                
Percentage of lowest volume weighted average prices   70.00%                
Loss on extinguishment of convertible debt   $ 1,257,468                
Expences on extinguishment of debt   684,975                
Fair value of conversion feature associated with debt extinguishment   $ 572,493                
7% Unsecured Convertible Notes [Member]                    
Debt principal amount           250,000 $ 2,250,000   $ 300,000 $ 2,250,000
Debt instrument, maturity period                 3 years  
Debt instruments interest rate             7.00%     7.00%
Conversion of convertible debt amount                 $ 15,808  
Beneficial conversion feature associated with convertible debt financing           $ 250,000 $ 2,250,000   $ 1,050,700  
Conversion of debt, shares issued | shares                 10,000,000  
Conversion of debt description                 Each 7% Note is initially convertible at any time into the Company's Common Stock at a conversion price, which is adjustable to the lower of $0.07 or the three lowest daily volume weighted average prices of the Company's Common Stock during the twenty consecutive trading days immediately preceding any conversion date. However, in no event shall the conversion price be lower than $0.03 per share. In addition, the conversion price adjusts for standard anti-dilution provisions whereby if the Company consummates a reorganization transaction, pays dividends or enters into a stock split of its common shares the conversion price would adjust proportionally.  
Convertible debt outstanding amount                 $ 2,200,000  
7% Unsecured Convertible Notes [Member] | Steve Saleen [Member] | May 2015 [Member]                    
Repayments of bank debt                 $ 369,302  
Percentage of outstanding principal plus                 120.00%  
Accrued debt interest rate                 24.00%  
7% Unsecured Convertible Notes [Member] | First Amendment [Member]                    
Common stock conversion price per share | $ / shares         0.03          
Common stock issuance cost | $ / shares         $ 0.15          
Issuance of stock for exchange, value         $ 53,571          
Issuance of stock for exchange | shares         357,143          
3 Investors [Member]                    
Unsecured debt       $ 2,000,000            
5 Investors [Member]                    
Unsecured debt       $ 2,000,000            
Unsecured Convertible Notes [Member]                    
Number of investors | Buildings               8    
Debt issuance date description               April 2015 to December 2016    
Conversion of convertible debt amount                 $ 20,000  
Equity issued for private placements                 668,230  
Beneficial conversion feature associated with convertible debt financing                 1,306,455  
Amortization of debt discount                 $ 374,661  
Conversion of debt, shares issued | shares                 1,785,714  
Outstanding debt amount                 $ 161  
Convertible notes outstanding                 $ 618,225  
Conversion of debt description                 The principal amount of the Notes along with, at the holders option, any unpaid interest and penalties, are convertible at price per share discounts ranging from 42% 38% of the Companys common stock trading market price during certain time period , as defined in the agreement. Further, the conversion prices are subject to a floor such that the conversion prices will not be less than a certain price, as defined in the agreement, with such floor prices ranging from $0.001 to $0.00005 per share.  
Convertible debt outstanding amount               $ 10,600 $ 618,225  
Proceeds from convertible debt               $ 638,225    
Unsecured Convertible Notes [Member] | Minimum [Member]                    
Debt instruments interest rate               8.00%    
Debt default, percentage of increase in original amount owed                 135.00%  
Debt non-payment, interest rate increase from date due until paid                 20.00%  
Percentage of convertible price discount                 38.00%  
Agreement floor price per share | $ / shares                 $ 0.00005  
Additional floor price per share | $ / shares                 $ 0.00001  
Unsecured Convertible Notes [Member] | Maximum [Member]                    
Debt instruments interest rate               12.00%    
Debt default, percentage of increase in original amount owed                 150.00%  
Debt non-payment, interest rate increase from date due until paid                 25.00%  
Percentage of convertible price discount                 42.00%  
Agreement floor price per share | $ / shares                 $ 0.001  
Additional floor price per share | $ / shares                 $ 0.001  
XML 36 R29.htm IDEA: XBRL DOCUMENT v3.2.0.727
Stockholders' Equity (Tables)
12 Months Ended
Mar. 31, 2015
Equity [Abstract]  
Schedule of Stock Option Plan Activity

Stock option activity is set forth below:

 

    Number of
Shares
    Weighted
Average
Exercise Price
per Share
    Aggregate
Intrinsic
Value
    Weighted-Average
Remaining
Contractual Term
(in years)
 
Balance at March 31, 2014         $     $        
Options granted during the period     14,104,000       0.10              
Options cancelled during the period     645,000       0.10              
Options exercised during the period                        
Balance at March 31, 2015     13,459,000       0.10     $ 0       9.67  
Exercisable at March 31, 2015     7,271,333       0.10     $ 0       9.47  
Expected to vest after March 31, 2015     5,826,793       0.10     $ 0       9.47  

Summary of Warrant Activity

The following summarizes warrant activity for the Company during the year ended March 31, 2015:

 

    Warrants     Weighted Average
Exercise Price
    Weighted Average
Remaining
Contractual Term
 
Outstanding March 31, 2013                  
Issued during the period     11,252,245       0.15       4.8  
Outstanding March 31, 2014     11,252,245     $ 0.15       4.8  
Issued during the period     2,110,854       0.15       4.1  
Exercised during the period     (50,000 )     0.15        
Outstanding March 31, 2015     13,313,099     $ 0.15       3.9  

XML 37 R28.htm IDEA: XBRL DOCUMENT v3.2.0.727
Income Taxes (Tables)
12 Months Ended
Mar. 31, 2015
Income Tax Disclosure [Abstract]  
Schedule of Tax Benefits Loss Carry-forwards Valuation Allowance

Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation allowance of the same amount.

 

    March 31, 2015     March 31, 2014  
Deferred income tax asset:                
Net operating loss carry forward   $ 5,800,000     $ 4,773,000  
Valuation allowance     (5,800,000 )     (4,773,000 )
Net deferred income tax asset   $     $  

Schedule of Effective Income Tax Rate Reconciliation

Reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:

 

    March 31, 2015     March 31, 2014  
Tax expense at the U.S. statutory income tax     (34.00 )%     (34.00 )%
State tax net of federal tax benefit     (5.80 )%     (5.80 )%
Increase in the valuation allowance     39.8 %     39.8 %
Effective tax rate     %     %

XML 38 R56.htm IDEA: XBRL DOCUMENT v3.2.0.727
Stockholders' Equity - Summary of Warrant Activity (Details) - Warrant [Member] - $ / shares
12 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Number of Warrants, Beginning 11,252,245  
Number of Warrants, Issued 2,110,854 11,252,245
Number of Warrants, Exercised (50,000)  
Number of Warrants, Ending 13,313,099 11,252,245
Weighted Average Exercise Price, Beginning $ 0.15  
Weighted Average Exercise Price, Issued 0.15 $ 0.15
Weighted Average Exercise Price, Exercised 0.15  
Weighted Average Exercise Price, Ending $ 0.15 $ 0.15
Weighted Average Remaining Contractual Term, Issued 4 years 1 month 6 days 4 years 9 months 18 days
Weighted Average Remaining Contractual Term, Ending 3 years 10 months 24 days 4 years 9 months 18 days
XML 39 R44.htm IDEA: XBRL DOCUMENT v3.2.0.727
Convertible Notes Payable - Schedule of Senior Secured Convertible Notes Payable (Details) - Debt Instrument Name Domain - USD ($)
Mar. 31, 2015
Mar. 31, 2014
Convertible notes payable $ 5,319,837 $ 4,836,732
Less: discount on notes payable (1,836,828) (3,498,981)
Notes payable, net of discount 3,483,009 $ 1,337,751
Less: notes payable, current (267,332)  
Notes payable, long-term 3,215,677 $ 1,337,751
3% Senior Secured Convertible Notes [Member]    
Convertible notes payable 2,501,612 2,586,732
7% Unsecured Convertible Notes [Member]    
Convertible notes payable 2,200,000 $ 2,250,000
Unsecured Convertible Notes [Member]    
Convertible notes payable $ 618,225  
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.2.0.727
Commitments and Contingincies (Tables)
12 Months Ended
Mar. 31, 2015
Commitments and Contingencies Disclosure [Abstract]  
Schedule of Future Minimum Rental Payments for Operating Leases

The future minimum rental payments required under the non-cancelable operating leases described above as of March 31, 2015 are as follows:

 

Years ending March 31:     Lease Commitment  
2016     $ 583,671  
2017       599,689  
2018       512,172  
      $ 1,695,532  

XML 41 R31.htm IDEA: XBRL DOCUMENT v3.2.0.727
Nature of the Business and Significant Accounting Policies (Details Narrative)
12 Months Ended
Jun. 26, 2013
shares
May. 23, 2013
USD ($)
Investor
Mar. 31, 2015
USD ($)
mi
$ / shares
shares
Mar. 31, 2014
USD ($)
shares
Jul. 13, 2015
USD ($)
Jan. 31, 2014
shares
Jan. 13, 2014
shares
Mar. 31, 2013
USD ($)
Related Party Transaction [Line Items]                
Number of shares issued for conversion | shares     355,460          
Common stock, shares authorized | shares     500,000,000 500,000,000   500,000,000 500,000,000  
Preferred stock, shares issued | shares                
Preferred stock, shares outstanding | shares                
Number of board members | Investor   3            
Number of directors comprising board | Investor   5            
Debt assume, reflected as a cost   $ 39,547            
Legal and closing costs   46,000            
Dividend paid to stockholders, reflected as a cost   $ 280,000            
Loss from operations     $ 5,321,929 $ 6,778,111        
Net cash provided by operating activities     2,549,895 4,316,576        
Stockholders' equity attributable to parent     9,669,225 9,296,629       $ 4,148,287
Working capital deficit     7,050,644          
Unpaid payroll and other taxes     745,503          
Outstanding notes payable in default     933,271          
Accounts payable     1,204,840          
Owned on past due rent     288,900          
Payment of principal interest and fees     369,302          
Cash     143,083 1,499,889 $ 21,000     $ 4,434
Customer deposits received in advance of shipment from order placed by customers     1,702,656          
Royalities advance recevied from an intellectual property agreement     500,000          
Raised issuance of convertible notes     1,289,409          
Issuance of unsecured convertible notes     638,225 250,000        
Issuance of notes payable to related parties     195,000 575,000        
Fair value of derivative liabilities     1,268,588 5,032,786        
Allowance for doubtful accounts     0 $ 271,658        
Asset impairments     0          
Customer deposits received in advance of shipment     1,896,568 $ 193,912        
Research and development costs     747,833 766,996        
Advertising expenses     3,679 59,993        
Sales expenses     126,185 110,275        
Marketing expenses     $ 472,969 $ 414,555        
Diluted effect of potentially dilutive stock options | shares     13,459,000          
Diluted effect of potentially dilutive warrants exercisable | shares     13,313,099 11,252,245        
Diluted effect of potentially dilutive convertible notes | shares       66,632,617        
Accounts Receivable One [Member]                
Related Party Transaction [Line Items]                
Percentage of excess customers revenue     10.00% 10.00%        
Customer [Member]                
Related Party Transaction [Line Items]                
Percentage of excess customers revenue     11.00% 10.00%        
Saleen 302 and 302SC Mustang, Saleen 570 Challenger, and Saleen 620 Camaro [Member]                
Related Party Transaction [Line Items]                
Standard product warranty accrual, number of miles covered | mi     36,000          
Standard product warranty, period     3 years          
Senior Secured Convertible Notes [Member]                
Related Party Transaction [Line Items]                
Debt instruments interest rate     3.00%          
Convertible Notes [Member]                
Related Party Transaction [Line Items]                
Debt instruments interest rate     7.00%          
Molly Saleen Inc [Member]                
Related Party Transaction [Line Items]                
Reclassified accounts payable       $ 23,580        
Other current liabilities to payroll and taxes payable       139,300        
Hollywood Movie Producer [Member]                
Related Party Transaction [Line Items]                
Contract revenue       121,500        
Promotional Trade Discount Expenses Reclassified To Revenue from Sales and Marketing Expenses [Member]                
Related Party Transaction [Line Items]                
Reclassified trade discount expenses       172,661        
Saleen Automotive [Member]                
Related Party Transaction [Line Items]                
Percentage of beneficial ownership of common stock 93.00%              
Super Voting Preferred Stock [Member]                
Related Party Transaction [Line Items]                
Number of shares issued for conversion | shares 554,057              
Super Voting Preferred Stock [Member] | Saleen Parties [Member]                
Related Party Transaction [Line Items]                
Number of shares issued for conversion | shares 341,943              
Common Stock [Member]                
Related Party Transaction [Line Items]                
Number of shares converted | shares 69,257,125              
Stockholders' equity attributable to parent     $ (174,856) $ (137,710)        
Common Stock [Member] | Saleen Parties [Member]                
Related Party Transaction [Line Items]                
Number of shares converted | shares 42,742,875              
Restricted Common Stock [Member]                
Related Party Transaction [Line Items]                
Stock issued during the period, shares | shares     1,183,334          
Equity issuance price per share | $ / shares     $ 0.15          
Stock issued value during period     $ 177,500          
XML 42 R8.htm IDEA: XBRL DOCUMENT v3.2.0.727
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Cash flows from operating activities    
Net loss $ (8,508,758) $ (11,121,982)
Adjustments to reconcile net (loss) to net cash used in operating activities    
Depreciation and amortization 181,983 97,061
Change in fair value of derivative liabilities (1,111,389) 3,608,288
Gain on extinguishment of derivative liability (50,314) (236,158)
Loss (gain) on settlement of notes payable and accounts payable, related party (12,237) $ 739,572
Loss on extinguishment of debt 1,257,468  
Amortization of discount on convertible notes 1,942,885 $ 411,675
Fair value of share based compensation 650,351  
Costs of Private placement costs $ 780,290  
Fair value of shares issued for directors fees to related parties   $ 250,000
Fair value of shares issued for services $ 170,000 473,581
(Increase) Decrease in:    
Cash held in trust account   175,000
Accounts receivable $ 193,593 (193,186)
Inventory (291,746) 104,283
Prepaid expenses and other assets 103,751 (84,989)
Increase (Decrease) in:    
Accounts payable (176,538) 1,484,769
Due to related parties 153,978 (179,553)
Payroll and taxes payable (63,372) 562,800
Accrued interest 288,657 89,335
Customer deposits 1,702,656 $ (748,947)
Deferred vendor consideration 275,000  
Other liabilities $ (36,153) $ (218,660)
Accounts to be settled by issuance of equity securities   470,535
Net cash used in operating activities $ (2,549,895) (4,316,576)
Cash flows from investing activities    
Purchases of property and equipment (227,277) (303,666)
Net cash used in investing activities (227,277) (303,666)
Cash flows from financing activities    
Proceeds from senior secured notes payable 401,184 3,000,000
Proceeds from unsecured convertible notes 638,225 250,000
Proceeds from unsecured convertible notes - related parties 250,000 2,000,000
Proceeds from notes payable - related parties 195,000 $ 575,000
Proceeds from issuance of notes payable $ 100,000  
Principal payments on notes payable - related parties   $ (703,245)
Principal payments on notes payable $ (349,043) (318,558)
Proceeds from issuance of Common Stock 185,000 1,312,500
Net cash provided by financing activities 1,420,366 6,115,697
Net (decrease) increase in cash (1,356,806) 1,495,455
Cash at beginning of period 1,499,889 4,434
Cash at end of period 143,083 1,499,889
Supplemental schedule of non-cash financing activities:    
Derivative liability related to conversion feature 1,306,455 $ 1,660,056
Fair value of derivative liability extinguished upon modification 3,908,950  
Issuance of Common Stock on conversion of secured convertible Notes Payable and accrued interest 932,923 $ 416,485
Issuance of Common Stock on conversion of unsecured convertible Notes payable and accrued interest 582,691 24,697
Issuance of Common Stock as principal on Notes Payable to related parties   22,803
Beneficial conversion feature associated with convertible debt financing   2,250,000
Issuance of Common Stock as settlement of accounts payable 223,678 $ 103,241
Fair value of beneficial conversion feature recorded as note discount 327,483  
Amounts payable settled through the issuance of equity securities 470,534  
Cash paid during the year for    
Interest $ 34,114 $ 36,412
Income taxes    
XML 43 R32.htm IDEA: XBRL DOCUMENT v3.2.0.727
Nature of the Business and Significant Accounting Policies - Schedule of Inventories (Details) - USD ($)
Mar. 31, 2015
Mar. 31, 2014
Accounting Policies [Abstract]    
Parts and chassis $ 176,718 $ 183,941
Work in process 298,969  
S7 Supercar held for sale 250,000 $ 250,000
Total inventories $ 725,687 $ 433,941
XML 44 R40.htm IDEA: XBRL DOCUMENT v3.2.0.727
Notes Payable to Related Parties (Details Narrative) - Settlement Agreement Domain - USD ($)
12 Months Ended
Apr. 13, 2012
Nov. 03, 2008
Mar. 31, 2015
Mar. 31, 2014
Related Party Transaction [Line Items]        
Note payable     $ 671,750 $ 1,275,774
Debt principal amount     $ 585,012  
Debt instrument maturity date Aug. 31, 2014      
Issuance of warrants to purchase of common stock     527,520  
Term of Warrant     5 years  
Common stock issued     $ 172,060  
Fair value of common stock     38,191  
Notes payable     32,452  
Unpaid interest     $ 1,960  
Stock issued to notes holders     355,460  
Equity issuance price per share     $ 0.15  
Loss on settlement of debt     $ 153,754  
January 2015 [Member]        
Related Party Transaction [Line Items]        
Debt instruments interest rate     3.00%  
Debt principal amount     $ 98,708  
Unsecured Notes Payable [Member]        
Related Party Transaction [Line Items]        
Note payable   $ 60,000    
Debt instruments interest rate   10.00%    
Debt instrument maturity date   Feb. 10, 2009    
XML 45 R53.htm IDEA: XBRL DOCUMENT v3.2.0.727
Income Taxes - Schedule of Effective Income Tax Rate Reconciliation (Details)
12 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Income Tax Disclosure [Abstract]    
Tax expense at the U.S. statutory income tax (34.00%) (34.00%)
State tax net of federal tax benefit (5.80%) (5.80%)
Increase in the valuation allowance 39.80% 39.80%
Effective tax rate 0.00% 0.00%
XML 46 R2.htm IDEA: XBRL DOCUMENT v3.2.0.727
Consolidated Balance Sheets - USD ($)
Mar. 31, 2015
Mar. 31, 2014
Current Assets    
Cash $ 143,083 $ 1,499,889
Accounts receivable, net of allowance for doubtful accounts of $271,658 as of March 31, 2014 4,945 198,538
Inventory 725,687 433,941
Prepaid expenses and other current assets 37,079 97,926
Total Current Assets 910,794 2,230,294
Property and equipment, net 592,116 546,824
Other assets 5,000 47,904
TOTAL ASSETS 1,507,910 2,825,022
Current Liabilities    
Accounts payable 1,677,309 2,024,730
Due to related parties 326,512 172,534
Notes payable 671,750 $ 1,275,774
Current portion of convertible notes, net of discount of $250,892 at March 31, 2015 267,332  
Notes payable to related parties 267,000 $ 209,452
Payroll and other taxes payable 745,503 808,875
Accrued interest on notes payable 387,005 380,257
Customer deposits 1,896,568 $ 193,912
Deferred vendor consideration 275,000  
Derivative liability 1,268,588  
Other current liabilities 178,891 $ 215,046
Total Current Liabilities $ 7,961,458 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 $1,585,935 and $3,498,981 at March 31, 2015 and 2014, respectively $ 3,215,677 1,337,751
Total Liabilities $ 11,177,135 $ 12,121,651
Commitments and Contingencies    
Stockholders' Deficit    
Common Stock; $0.001 par value; 500,000,000 shares authorized; 174,857,028 and 137,710,501 issued and outstanding as of March 31, 2015 and 2014, respectively $ 174,856 $ 137,710
Preferred stock; $0.001 par value; 1,000,000 shares authorized; none issued and outstanding    
Additional paid in capital $ 18,530,191 $ 10,431,175
Accumulated deficit (28,374,272) (19,865,514)
Total Stockholders' Deficit (9,669,225) (9,296,629)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,507,910 $ 2,825,022
XML 47 R45.htm IDEA: XBRL DOCUMENT v3.2.0.727
Convertible Notes Payable - Schedule of Senior Secured Convertible Notes Payable (Details) (Parenthetical) - USD ($)
12 Months Ended
Apr. 13, 2012
Mar. 31, 2015
Mar. 31, 2014
Debt instrument maturity date Aug. 31, 2014    
June 2017 [Member]      
Caversion value subject to adjustment   $ 2,001,720  
January2019 [Member]      
Caversion value subject to adjustment   $ 499,892  
Unsecured Convertible Notes [Member] | Maximum [Member]      
Debt instruments interest rate   8.00%  
Unsecured Convertible Notes [Member] | Minimum [Member]      
Debt instruments interest rate   12.00%  
3% Senior Secured Convertible Notes [Member]      
Debt instruments interest rate   3.00% 3.00%
Conversion price per share   $ 0.075 $ 0.075
7% Unsecured Convertible Notes [Member]      
Convertible shares of common stock   82,484,267 82,484,267
Debt instruments interest rate   7.00% 7.00%
Debt instrument maturity date   Mar. 31, 2017 Mar. 31, 2017
Unsecured Convertible Notes [Member]      
Convertible shares of common stock   35,782,732 35,782,732
Unsecured Convertible Notes [Member] | Maximum [Member]      
Debt instrument maturity date   Dec. 31, 2016  
Unsecured Convertible Notes [Member] | Minimum [Member]      
Debt instrument maturity date   Apr. 30, 2015  
XML 48 R6.htm IDEA: XBRL DOCUMENT v3.2.0.727
Consolidated Statement of Stockholders' Deficit - USD ($)
Common Stock [Member]
Preferred Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Deficit [Member]
Total
Balance at Mar. 31, 2013   $ 10,269 $ 4,584,976 $ (8,743,532) $ (4,148,287)
Balance, shares at Mar. 31, 2013   883,822      
Shares issued upon reverse merger $ 8,000 $ (8,000)      
Shares issued upon reverse merger, shares 8,000,000        
Shares issued for directors fees   $ 5 249,995   $ 250,000
Shares issued for directors fees, shares   5,277      
Shares issued for services to related parties   $ 1 43,749   43,750
Shares issued for services to related parties, shares   923      
Fair value of shares issued for services $ 530 $ 5 429,296   429,831
Fair value of shares issued for services, shares 530,000 4,976      
Shares issued as principal payments on notes payable     22,803   22,803
Shares issued as principal payments on notes payable, shares   481      
Shares issued as interest on notes payable   $ 1 24,696   24,697
Shares issued as interest on notes payable, shares   521      
Shares issued for payment of accounts payable $ 325   102,866   103,191
Shares issued for payment of accounts payable, shares 325,128        
Shares and warrants issued for payments of accounts payable - related parties $ 2,509   1,117,873   1,120,382
Shares and warrants issued for payments of accounts payable - related parties, shares 2,508,908        
Shares issued for cash $ 8,793   1,303,707   $ 1,312,500
Shares issued for cash, shares 8,793,337        
Adjustment of super voting preferred   $ (1,385) 1,385    
Conversion of super voting preferred to common stock $ 112,000 $ (896) (111,104)    
Conversion of super voting preferred to common stock, shares 112,000,000 (896,000)      
Conversion of convertible debt to common stock $ 5,553   410,933   $ 416,486
Conversion of convertible debt to common stock, shares 5,553,128        
Beneficial conversion feature associated with convertible debt financing     2,250,000   $ 2,250,000
Amounts payable settled through the issuance of equity securities          
Net loss       (11,121,982) $ (11,121,982)
Balance at Mar. 31, 2014 $ 137,710   10,431,175 (19,865,514) (9,296,629)
Balance, shares at Mar. 31, 2014 137,710,501        
Fair value of shares issued for services $ 1,000   169,000   $ 170,000
Fair value of shares issued for services, shares 1,000,000       1,000,000
Shares issued for cash $ 1,183   176,317   $ 177,500
Shares issued for cash, shares 1,183,334       527,520
Conversion of super voting preferred to common stock         $ 125
Beneficial conversion feature associated with convertible debt financing         250,000
Amounts payable settled through the issuance of equity securities $ 1,285   $ 469,249   $ 470,534
Amounts payable settled through the issuance of equity securities, shares 1,285,460        
Shares issued upon exercise of warrants 50   7,450   7,500
Shares issued upon exercise of warrants, shares 50,000        
Shares issued as consideration for the amendments of convertible notes $ 747   $ 111,312   $ 112,059
Shares issued as consideration for the amendments of convertible notes, shares 747,066       747,066
Fair value of shares issued upon conversion of convertible notes and accrued interest $ 19,818   913,105   $ 932,923
Fair value of shares issued upon conversion of convertible notes and accrued interest, shares 19,817,900        
Fair value of shares issued as payments on notes payable and accrued interest $ 5,495   577,196   582,691
Fair value of shares issued as payments on notes payable and accrued interest, shares 5,494,787        
Fair value of shares issued upon settlement of accounts payable $ 7,568   216,110   223,678
Fair value of shares issued upon settlement of accounts payable, shares 7,567,980        
Fair value of beneficial conversion feature associated with convertible debt financing     327,483   327,483
Fair value of conversion feature associated with debt extinguishment     572,493   572,493
Fair value of derivative liability extinguished upon modification of convertible note     3,908,950   3,908,950
Fair value of stock-based compensation     650,351   650,351
Net loss       (8,508,758) (8,508,758)
Balance at Mar. 31, 2015 $ 174,856   $ 18,530,191 $ (28,374,272) $ (9,669,225)
Balance, shares at Mar. 31, 2015 174,857,028        
XML 49 R59.htm IDEA: XBRL DOCUMENT v3.2.0.727
Subsequent Events (Details Narrative) - USD ($)
1 Months Ended 12 Months Ended
Jun. 22, 2015
Jun. 19, 2015
Jun. 16, 2015
Jun. 12, 2015
May. 13, 2015
Jul. 09, 2013
Apr. 13, 2012
Jun. 30, 2015
Apr. 30, 2015
Mar. 31, 2015
Mar. 31, 2015
Mar. 31, 2014
Jan. 31, 2014
Jan. 13, 2014
Proceeds from issuance of Notes                     $ 100,000      
Note maturity date             Aug. 31, 2014              
Convertible note principal amount                   $ 2,501,612 $ 2,501,612      
Common stock, shares authorized                   500,000,000 500,000,000 500,000,000 500,000,000 500,000,000
Preferred stock, shares authorized                   1,000,000 1,000,000 1,000,000    
Preferred stock, par value                   $ 0.001 $ 0.001 $ 0.001    
Conversion of Super Voting Preferred to Common Stock           87,000,000         125      
Common stock shares issued price per share                   0.15 $ 0.15      
Value of shares acquired                            
Number of super voting perferred stock shares issued           696,000         341,943      
Note convertible into shares                     8,032,186      
Michaels Law Group [Member]                            
Common stock shares issued price per share                   $ 0.03 $ 0.03      
10.0% First Lien Convertible Note [Member] | Securities Purchase Agreement [Member] | Greentech Consulting [Member]                            
Notes conversion amount                   $ 100,000        
Subsequent Event [Member]                            
License agreement initial term               10 years            
Common stock, shares authorized               500,000,000            
Maximum number of shares authorized to issue               2,500,000,000            
Conversion of Super Voting Preferred to Common Stock       1,000                    
Subsequent Event [Member] | Chief Executive Officer and President [Member]                            
Number of common stock shares conversation of outstanding debt       82,133,875                    
Subsequent Event [Member] | Mr. Saleen [Member]                            
Conversion of Super Voting Preferred to Common Stock       82,133,875                    
Subsequent Event [Member] | Board of Directors [Member]                            
Number of common stock shares conversation of outstanding debt   1,000                        
Common stock shares issued price per share   $ 0.0018                        
Subsequent Event [Member] | Super Voting Preferred Stock [Member]                            
Preferred stock, shares authorized       1,000,000                    
Preferred stock, par value       $ 0.001                    
Subsequent Event [Member] | Super Voting Preferred Stock [Member] | Mr. Saleen [Member]                            
Number of common stock shares conversation of outstanding debt     1,000                      
Number of shares of super voting preferred stock issued for payment of debt owed     220,000                      
Number of shares of super voting preferred stock issued for payment of debt owed, value     $ 220,000                      
Common stock shares issued price per share     $ 0.001                      
Subsequent Event [Member] | Super Voting Preferred Stock [Member] | Molly Saleen, Inc [Member]                            
Issuance of shares during acquisition 19,008                          
Value of shares acquired $ 34,214                          
Subsequent Event [Member] | Michaels Law Group [Member]                            
Number of super voting perferred stock shares issued 63,000                          
Subsequent Event [Member] | 10.0% First Lien Convertible Note [Member] | Securities Purchase Agreement [Member]                            
Convertible note principal amount               $ 500,000            
Subsequent Event [Member] | 10.0% First Lien Convertible Note [Member] | Securities Purchase Agreement [Member] | Greentech Consulting [Member]                            
Proceeds from issuance of Notes         $ 500,000                  
Note maturity date         Aug. 17, 2015                  
Subsequent Event [Member] | Unsecured Convertible Notes Holders [Member] | Note Agreements [Member]                            
Notes conversion amount                 $ 372,514          
Note convertible into shares                 367,751,194          
XML 50 R35.htm IDEA: XBRL DOCUMENT v3.2.0.727
Property and Equipment (Details Narrative) - USD ($)
12 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Property, Plant and Equipment [Abstract]    
Depreciation and amortization expense $ 181,983 $ 97,061
XML 51 R22.htm IDEA: XBRL DOCUMENT v3.2.0.727
Property and Equipment (Tables)
12 Months Ended
Mar. 31, 2015
Property, Plant and Equipment [Abstract]  
Schedule of Property and Equipment

Property and equipment consisted of the following at March 31, 2015 and March 31, 2014:

 

    March 31, 2015     March 31, 2014  
Tooling   $ 641,324     $ 470,399  
Equipment     321,189       264,837  
Leasehold improvements     203,310       203,312  
Total, cost     1,165,823       938,548  
Accumulated depreciation and amortization     (573,707 )     (391,724 )
Total Property and Equipment   $ 592,116     $ 546,824  

XML 52 R36.htm IDEA: XBRL DOCUMENT v3.2.0.727
Property and Equipment - Schedule of Property and Equipment (Details) - USD ($)
Mar. 31, 2015
Mar. 31, 2014
Property, Plant and Equipment [Abstract]    
Tooling $ 641,324 $ 470,399
Equipment 321,189 264,837
Leasehold improvements 203,310 203,312
Total, cost 165,823 938,548
Accumulated depreciation and amortization (573,707) (391,724)
Total Property and Equipment $ 592,116 $ 546,824
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Notes Payable to Related Parties (Tables)
12 Months Ended
Mar. 31, 2015
Debt Disclosure [Abstract]  
Schedule of Notes Payable Secured and Unsecured Related Parties

Notes payable to related parties are as follows:

 

    March 31, 2015     March 31, 2014  
Unsecured note payable to a stockholder, due on April 1, 2014, currently in default.   $ 102,000     $ 102,000  
Unsecured note payable to a stockholder, interest at 10% per annum payable at various maturity dates, settled in April 2014. (1)           32,452  
Unsecured payable to a stockholder at 10% per annum, payable on demand     165,000        
Unsecured $100,000 revolving promissory note to a stockholder, interest at 10% per annum payable in full in November 2014. (2)           75,000  
Total notes payable, related parties   $ 267,000     $ 209,452  

 

(1) 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 issued 172,060 shares of its Common Stock with a fair value of $38,191 as settlement of the note payable of $32,452 and unpaid interest of $1,960. In addition, the Company also granted the note holder 355,460 shares of common stock with a fair value of along with a five-year warrant to purchase 527,520 shares of its Common Stock at an exercise price of $0.15 per share. The loss on the settlement of this note of $153,754 was provided for and accrued for as of March 31, 2014 as part of Accounts to be settled by issuance of equity securities in the accompanying balance sheet.
   
(2) In January 2015, the note holder and the Company agreed to cancel this revolver and role the then principal and interest outstanding of $98,708 into a convertible note under the same terms as the 3% Senior secured convertible notes discussed in Note 5.

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Consolidated Statement of Stockholders' Deficit (Parenthetical) - $ / shares
Mar. 31, 2015
Mar. 31, 2014
Statement of Stockholders' Equity [Abstract]    
Common stock, par value $ 0.001 $ 0.001
Preferred stock, par value $ 0.001 $ 0.001
XML 56 R3.htm IDEA: XBRL DOCUMENT v3.2.0.727
Consolidated Balance Sheets (Parenthetical) - USD ($)
Mar. 31, 2015
Mar. 31, 2014
Statement of Financial Position [Abstract]    
Accounts receivable, allowance for doubtful accounts   $ 271,658
Current portion of convertible notes, discount $ 250,892  
Convertible notes payable, discount $ 1,585,935 $ 3,498,981
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 500,000,000 500,000,000
Common stock, shares issued 174,857,028 137,710,501
Common stock, shares outstanding 174,857,028 137,710,501
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 1,000,000 1,000,000
Preferred stock, shares issued    
Preferred stock, shares outstanding    
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Stockholders' Equity
12 Months Ended
Mar. 31, 2015
Equity [Abstract]  
Stockholders' Equity

NOTE 9 – STOCKHOLDERS’ EQUITY

 

The Company is authorized under its articles of incorporation, as amended, to issue 500,000,000 shares of Common Stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share. Under the terms of the Merger Agreement, all of the outstanding shares of capital stock held by Saleen Automotive’s former shareholders were exchanged for 554,057 shares of the Company’s Super Voting Preferred Stock, and under the terms of the Assignment and License Agreement, as amended, the Company issued to Saleen 341,943 shares of its Super Voting Preferred Stock. Each share of the Company’s Super Voting Preferred Stock was convertible into 125 shares of its Common Stock.

 

On July 9, 2013, holders of a majority of the outstanding shares of the Company’s Super Voting Preferred Stock voted to convert, 696,000 shares of its Super Voting Preferred Stock into 87,000,000 shares of its Common Stock. Such conversion became effective on July 18, 2013, upon the filing of the amendment to the Certificate of Designations.

 

On January 13, 2014, pursuant to an amendment to the Company’s articles of incorporation increasing the authorized shares of its Common Stock to 500,000,000, all of the remaining outstanding shares of its Super Voting Preferred Stock automatically converted into shares of its Common Stock, and the Super Voting Preferred Stock ceased to be a designated series of preferred stock.

 

During the year ended March 31, 2014, 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.

 

Issuance of Common Stock

 

Shares Issued During Year Ended March 31, 2014

 

During the year ended March 31, 2014, we issued 5,277 shares of Super Voting Preferred Stock to Jonathan Michaels, a former board member and general counsel for the company, and Robert Miranda, a form board member and chief financial officer of the Company. The shares issued were valued at $250,000, which was based on the trading price at the date of agreement.

 

During the year ended March 31, 2014, we issued 5,899 shares of Super Voting Preferred Stock, of which 923 were issued to related parties, valued at $473,581 in exchange for services. The shares issued were valued based on the trading price at the date of agreement.

 

During the year ended March 31, 2014, we issued 481 and 521 shares of Super Voting Preferred Stock for shares issued as principal of $22,803 and interest of $24,697, respectively, related to notes payable. The shares issued were valued based on the trading price at the date of agreement.

 

During the year ended March 31, 2014, we issued 325,128 shares of Common Stock as payment of accounts payable. The shares issued were valued at $103,191, which was based on the trading price at the date of agreement.

 

During the year ended March 31, 2014, we issued 2,508,908 shares of Common Stock and warrants for payment of accounts payable owed to related parties. The shares and warrants issued were valued at $1,120,382, which was based on the trading price at the date of agreement for the shares, and using the fair market value for the warrants based on the Black-Scholes option pricing model (see Note 7).

 

During the year ended March 31, 2014, the Company entered into Subscription Agreements with individual accredited investors (the “Subscribers”) pursuant to which the Subscribers purchased an aggregate of 8,793,337 restricted shares of the Company’s Common Stock at a per share price of $0.15 for aggregate proceeds of $1,312,500, and also received five year, fully vested Common Stock Purchase Warrants to purchase 8,793,337 shares of the Company’s Common Stock at an exercise price of $0.15 per share. The warrants were valued based on the Black-Scholes option pricing model noted below.

 

In conjunction with the Company’s increase in its common shares authorized in January 2014 to 500,000,000 shares, all then remaining shares of Super Voting Preferred Stock of 896,000 shares were converted into 112,000,000 shares of Common Stock of the Company and the Super Voting Preferred Stock ceased to be a designated series of the Company’s preferred stock.

 

During the year ended March 31, 2014, the Company issued an aggregate of 5,553,128 shares of common stock upon conversion of the Company’s convertible notes payable and accrued interest amounting to $416,486 (see Note 5).

 

Shares Issued During Year Ended March 31, 2015

 

During the year ended March 31, 2015, the Company issued 1,000,000 shares of Common Stock valued at $170,000 in in exchange for services. The shares issued were valued based on the trading price at the date of the agreement.

 

During the year ended March 31, 2015, the Company issued 1,285,460 shares of Common Stock and warrants to purchase 527,520 shares of common stock with an aggregate fair value of $470,534 to settle 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 year ended March 31, 2015.

 

During the year ended March 31, 2015, the Company entered into Subscription Agreements with individual accredited investors 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 five year, fully vested 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. The warrants were valued based on the Black-Scholes option pricing model noted below.

 

During the year ended March 31, 2015, the Company issued 50,000 shares of common stock upon exercise of warrants which resulted in net proceeds of $7,500.

 

During the year ended March 31, 2015, the Company issued an aggregate of 747,066 shares of common stock with a fair value of $112,059 to induce amendments of the Company’s convertible notes (see Note 5). The shares issued were valued based on the trading price at the date of the agreement.

 

During the year ended March 31, 2015, the Company issued an aggregate of 19,817,900 shares of common stock upon conversion of the Company’s convertible notes payable and accrued interest amounting to $932,923 (see Note 5).

 

During the year ended March 31, 2015, the Company issued an aggregate of 5,494,787 shares of common stock with a fair value of $582,691 as settlement of notes payable and a note payable to a related party (see Note 3 and Note 4). The shares issued were valued based on the trading price at the date of the settlement.

 

During the year ended March 31, 2015, the Company entered into Settlement Agreement and Mutual Release agreements with three separate vendors whereby the Company issued and aggregate of 7,567,980 shares of Common Stock with a fair value of $223,678 in exchange for extinguishment of amount owed of $168,154. The value of the Common Stock was based on the market price of the Company’s Common Stock as of the date of agreements. As a result, the Company recorded a loss on settlement of $55,524 to account the fair value of the shares issued.

 

Omnibus Incentive Plan

 

In January 2014, the Company’s board of directors approved the 2014 Omnibus Incentive Plan (the “Plan”), which is administered by the Company’s board of directors or a committee thereof (the “Administrator”) as set forth in the Plan. The Plan provides for the granting of stock options, stock appreciation rights, restricted share awards and restricted stock units to employees, directors (including non-employee directors), advisors and consultants. Grants under the Plan vest and expire based on periods determined by the Administrator, but in no event can the expiration date be later than ten years from the date of grant (five years after the date of grant if the grant is an incentive stock option to an employee who owns more than 10% of the total combined voting power of all classes of the Company’s capital stock (a “10% owner”)). Grants of stock options may be either incentive stock options or nonqualified stock options. The per share exercise price on an option, other than with respect to substitute awards, shall not be less than 100% of the fair market value of the Company’s Common Stock on the date the option is granted (110% of the fair market value if the grant is to a 10% owner). A total of 28,905,763 shares of Common Stock have been authorized for issuance and reserved under the Plan. The Plan was approved by the Company’s stockholders on January 13, 2014.

 

The Company utilizes the Black-Scholes option valuation model to estimate the fair value of stock options granted. The Company’s assessment of the estimated fair value of stock options is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables and the related tax impact.

 

Stock option activity is set forth below:

 

    Number of
Shares
    Weighted
Average
Exercise Price
per Share
    Aggregate
Intrinsic
Value
    Weighted-Average
Remaining
Contractual Term
(in years)
 
Balance at March 31, 2014         $     $        
Options granted during the period     14,104,000       0.10              
Options cancelled during the period     645,000       0.10              
Options exercised during the period                        
Balance at March 31, 2015     13,459,000       0.10     $ 0       9.67  
Exercisable at March 31, 2015     7,271,333       0.10     $ 0       9.47  
Expected to vest after March 31, 2015     5,826,793       0.10     $ 0       9.47  

 

The aggregate intrinsic value shown in the table above represents the difference between the fair market value of the Company’s Common Stock of $0.01 on March 31, 2015 and the exercise price of each option.

 

During the year ended March 31, 2015, the Company granted options to purchase a total of 14,104,000 shares of common stock to employees and non-employees. The stock options are exercisable at $0.03/share up to $0.10/share, vest over a period of three years, expire in ten years and with a fair value of $1,028,417. As a result, the Company recorded stock compensation expense of $650,351 of which $66,067, $268,610, and $315,674 was included in research and development, sales and marketing, and general and administrative expenses, respectively based upon the vesting of these stock options.

 

Unearned compensation of approximately $345,000 at March 31, 2015, related to non-vested stock options, will be recognized into expense over a weighted average period of 1.02 years.

 

Warrants

 

The following summarizes warrant activity for the Company during the year ended March 31, 2015:

 

    Warrants     Weighted Average
Exercise Price
    Weighted Average
Remaining
Contractual Term
 
Outstanding March 31, 2013                  
Issued during the period     11,252,245       0.15       4.8  
Outstanding March 31, 2014     11,252,245     $ 0.15       4.8  
Issued during the period     2,110,854       0.15       4.1  
Exercised during the period     (50,000 )     0.15        
Outstanding March 31, 2015     13,313,099     $ 0.15       3.9  

 

During the year ended March 31, 2015, the Company granted warrants to purchase total of 1,183,334 shares of common stock pursuant to the sale of the Company’s common stock for cash.

 

During the year ended March 31, 2015, the Company granted warrants to purchase 527,520 shares of common stock pursuant to settlement agreement with a fair value of $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 fair value of the warrants was included as part of amounts payable settled through the issuance of equity securities in the accompanying Statement of Stockholders’ Deficit.

 

During the year ended March 31, 2015 warrants to purchase 50,000 shares of the Company’s Common Stock were exercised for total proceeds of $7,500.

 

As of March 31, 2015, 13,313,099 warrants were exercisable and the intrinsic value of the warrants was nil.

XML 59 R1.htm IDEA: XBRL DOCUMENT v3.2.0.727
Document and Entity Information - USD ($)
12 Months Ended
Mar. 31, 2015
Jul. 13, 2015
Sep. 30, 2014
Document And Entity Information      
Entity Registrant Name Saleen Automotive, Inc.    
Entity Central Index Key 0001528098    
Document Type 10-K    
Document Period End Date Mar. 31, 2015    
Amendment Flag false    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filer No    
Entity Current Reporting Status Yes    
Current Fiscal Year End Date --03-31    
Entity Filer Category Smaller Reporting Company    
Entity Public Float     $ 12,239,251
Entity Common Stock, Shares Outstanding   460,556,796  
Trading Symbol SLNN    
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2015    
XML 60 R18.htm IDEA: XBRL DOCUMENT v3.2.0.727
Commitments and Contingencies
12 Months Ended
Mar. 31, 2015
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 10 – COMMITMENTS AND CONTINGINCIES

 

Facilities Leases

 

The Company rents two buildings totaling approximately 76,000 square feet on triple net leases through January, 2018. Rent expense during the year ended March 31, 2015 and 2014 was $524,339 and $508,802, respectively.

 

The current lease provides for an annual escalation of 3% in the rent each February and provides for one option to extend beyond January 2018 for periods from 36 to 60 months. Past rent will be made up with the payment of an additional $5,300 for 20 months starting in June, 2014, which expired in February 2015.

 

The future minimum rental payments required under the non-cancelable operating leases described above as of March 31, 2015 are as follows:

 

Years ending March 31:     Lease Commitment  
2016     $ 583,671  
2017       599,689  
2018       512,172  
      $ 1,695,532  

 

Purchase Commitments

 

In April 2014, the Company entered into an agreement with BASF to exclusively use BASF’s products for paint work. The agreement continues from May 2014 until the Company purchases in aggregate $4,131,000 of BASF products. If the aggregate purchases of BASF products are less than $1,697,000 over a period of 36 consecutive months, the Company is required to repay BASF 6.1% of the shortfall between $1,697,000 and the amount it actually purchased over this period. In consideration for the Company’s exclusive use of BASF’s products and fulfilling this purchase commitment, BASF paid the Company $250,000, which was recorded as deferred vendor consideration. This amount will be recorded as a reduction of cost of services based on a systematic and rational allocation of the cash consideration offered to the underlying transaction.

 

In May 2014, the Company entered into an agreement with FinishMaster, Inc. (“FinishMaster”) to exclusively use FinishMaster’s paint material supplies. The agreement continues from May 2014 until the Company purchases in aggregate $1,555,000 of FinishMaster products. In consideration for the Company’s exclusive use of FinishMaster’s products and fulfilling this purchase commitment, FinishMaster paid the Company $25,000, which was recorded as deferred vendor consideration, and FinishMaster will pay an additional $25,000 upon the achievement of purchase level milestones, as outlined in the agreement. Should the Company not complete a set purchase level milestone, the Company would be required to re-pay the $25,000 along with $11,475 compensation to FinishMaster. This initial amount paid will be recorded as a reduction of cost of services based on a systematic and rational allocation of the cash consideration offered to the underlying transaction.

 

Litigation

 

The Company is involved in certain legal proceedings that arise from time to time in the ordinary course of its business. The Company is currently a party to several legal proceedings related to claims for payment that are currently accrued for in its financial statements as accrued liabilities, accounts or notes payable. Except for income tax contingencies (commencing April 1, 2009), the Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. Material legal proceedings that are currently pending are as follows:

 

The Company is a defendant in a case filed by MSY Trading, Inc. on April 13, 2012 in the California Superior Court, Riverside County, that claimed breach of contract related to an engine installed by a third party vendor. The suit claimed $200,000 in damages plus interest, legal fees and costs of litigation. SSC filed a cross complaint against MSY Trading, Inc. for breach of warranty, negligence, and indemnification. On January 10, 2014, the Company settled this claim by agreeing to pay of $112,500 over a period of 18 months of which we paid $45,500 through August 2014. Subsequent to this date the Company defaulted on payments. On October 30, 2014, a judgment was entered against SSC in the amount of $68,950, which the Company accrued for in accounts payable.

 

In December 2014, the Saleen Automotive, Inc. (formerly Saleen Electric Automotive, Inc.), our wholly-owned subsidiary, received a Complaint from Green Global Automotive B.V. (“GAA”) alleging causes of action for breach of contract and breach of the covenant of good faith and fair dealing, related to a European Distribution Agreement entered into in December 2011 between GAA and Saleen Automotive. The suit seeks contract and economic damages of $50,000 along with compensatory damages, restoration, lost profits and attorneys’ fees. The Company is currently evaluating the merits of this case, if any, and is working to ascertain the impact on its financial statements.

 

In December 2014, the Company received a Complaint from Ford of Escondido for 1) claim and delivery of personal property, 2) money due on a contract, and 3) common count. Home Heller Ford, which was merged into Ford of Escondido, is a party to a supply agreement with us entered into in May 2013. Specifically, Ford of Escondido seeks payment of seven (7) Ford Mustangs for a total of $222,871 plus interest and attorneys’ fees, less any amounts to be credited pursuant to proceeds of sale. As of March 31, 2015, the Company has included in accounts payable the amount owed for four (4) vehicles which the Company believes are owed to Ford of Escondido. As such, the Company believes that Ford of Escondido’s claims with respect to the remaining three (3) vehicles are without merit and have responded to the Complaint including claims that Ford of Escondido breached the supply agreement with the Company. There has been no response received from Ford of Escondido to the Company’s position and the outcome is uncertain; however, the Company believes this matter will not have a material impact, if any, on its financial statements.

 

In February 2014, SSC received a Complaint from a Citizens Business Bank (the “Bank”) alleging, among other matters, breach of contract due to non-timely payment of November and December 2013 principal amounts owed, which were paid as of December 31, 2013, and the occurrence of a change in control as a result of the Merger. In April 2014, the Bank agreed to dismiss the suit in exchange for payment of $124,000 that was applied towards principal and unpaid fees along with advance loan principal and interest for May, June and July 2014, and the agreement to pay the remaining recorded balance due of $443,000 to the Bank in August 2014. From August 2014 to March 31, 2015, in exchange for payments totaling $90,000, the Bank agreed to extend this arrangement through various dates with the last date being March 2015. The Company did not pay the then outstanding principal and interest in March 2015 and the Bank did not agree to an additional extension. In May 2015, the Company was notified of a lawsuit filed by the Bank in the Superior Court of the State of California, County of Riverside, alleging breach of the Loan Agreement with the Bank (“Loan Agreement”), breach of a commercial guaranty by Steve Saleen and indebtedness for principal and interest of at least $369,302, and seeking appointment, which has not been granted by the court as of the date of this filing, of a limited purpose receiver and a temporary restraining order enjoining the Company from transferring the collateral securing the loan, which related to SSC. The main complaint by the Bank stems from the Company’s reverse merger that occurred in June 2013 whereby the Bank deemed this event to constitute a change in control, as defined in the loan agreement. The Company disagrees with the Bank’s interpretation and believes the claims by the bank are without merit. Although the Company currently believes that resolving claims against the Company, individually or in aggregate, will not have a material adverse impact on the Company’s financial statements, these matters are subject to inherent uncertainties and management’s views of these matters may change in the future. See Note 3

 

Insurance

 

Due to the Company’s cash constraints, the Company currently does not maintain insurance ordinarily customary for businesses it’s size and type such as workers’ compensation, garage and general liability insurance. As such, the Company may incur losses against it such as employee worker accidents, losses due to natural disasters or other business risks for which the Company is not insured. Such damages could have a material adverse effect on its business and results of operations. There can be no assurance that the Company will be able to obtain, afford or qualify for insurance to address such potential risks or if such insurance will adequately cover any potential matters encountered.

XML 61 R4.htm IDEA: XBRL DOCUMENT v3.2.0.727
Consolidated Statements of Operations - USD ($)
12 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Revenue    
Vehicles and parts $ 3,800,390 $ 4,985,726
Design Services   121,500
Total revenue $ 3,800,390 5,107,226
Costs of goods sold 3,366,437 4,277,039
Gross profit 433,953 830,187
Operating expenses    
Research and development 747,833 766,996
Sales and marketing 1,656,797 1,537,228
General and administrative 3,181,542 4,261,612
Settlement (gain) costs (including $385,785 from related parties during the year ended March 31, 2014) (12,273) 945,401
Depreciation and amortization 181,983 97,061
Total operating expenses 5,755,882 7,608,298
Loss from operations (5,321,929) (6,778,111)
Other income (expenses)    
Interest expense $ (2,310,774) (606,194)
Costs of reverse merger transaction   $ (365,547)
Private placement costs $ (780,290)  
Loss on extinguishment of convertible debt (1,257,468)  
Gain on extinguishment of derivative liability 50,314 $ 236,158
Change in fair value of derivative liabilities 1,111,389 (3,608,288)
Net loss $ (8,508,758) $ (11,121,982)
Net loss per share:    
Basic and diluted $ (0.05) $ (0.09)
Shares used in computing net loss per share:    
Basic and diluted 158,673,334 123,377,666
XML 62 R12.htm IDEA: XBRL DOCUMENT v3.2.0.727
Notes Payable to Related Parties
12 Months Ended
Mar. 31, 2015
Debt Disclosure [Abstract]  
Notes Payable to Related Parties

NOTE 4 – NOTES PAYABLE TO RELATED PARTIES

 

Notes payable to related parties are as follows:

 

    March 31, 2015     March 31, 2014  
Unsecured note payable to a stockholder, due on April 1, 2014, currently in default.   $ 102,000     $ 102,000  
Unsecured note payable to a stockholder, interest at 10% per annum payable at various maturity dates, settled in April 2014. (1)           32,452  
Unsecured payable to a stockholder at 10% per annum, payable on demand     165,000        
Unsecured $100,000 revolving promissory note to a stockholder, interest at 10% per annum payable in full in November 2014. (2)           75,000  
Total notes payable, related parties   $ 267,000     $ 209,452  

 

(1) 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 issued 172,060 shares of its Common Stock with a fair value of $38,191 as settlement of the note payable of $32,452 and unpaid interest of $1,960. In addition, the Company also granted the note holder 355,460 shares of common stock with a fair value of along with a five-year warrant to purchase 527,520 shares of its Common Stock at an exercise price of $0.15 per share. The loss on the settlement of this note of $153,754 was provided for and accrued for as of March 31, 2014 as part of Accounts to be settled by issuance of equity securities in the accompanying balance sheet.
   
(2) In January 2015, the note holder and the Company agreed to cancel this revolver and role the then principal and interest outstanding of $98,708 into a convertible note under the same terms as the 3% Senior secured convertible notes discussed in Note 5.

XML 63 R11.htm IDEA: XBRL DOCUMENT v3.2.0.727
Notes Payable
12 Months Ended
Mar. 31, 2015
Debt Disclosure [Abstract]  
Notes Payable

NOTE 3 – NOTES PAYABLE

 

Notes payable are comprised as follows:

 

    March 31, 2015     March 31, 2014  
Senior secured note payable to a bank, secured by all assets of Saleen Signature Cars, guaranteed by the U.S. Small Business Administration and personally guaranteed by the Company’s CEO, payable in full in March 2015 (1)   $ 358,704     $ 442,479  
Subordinated secured bonds payable, interest at 6% per annum payable at various maturity dates, currently in default (2)     97,000       97,000  
Subordinated secured note payable, interest at 6% per annum, payable March 16, 2010, currently in default (3)     61,046       61,046  
Subordinated secured note payable for legal services rendered, non-interest bearing, payable on October 25, 2013, in default at March 31, 2014 (4)     -       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  
Promissory note, interest at 6%, secured by a vehicle (7)     100,000       -  
Total notes payable   $ 671,750     $ 1,275,774  

 

(1) On February 6, 2014, Saleen Signature Cars received a Complaint from the bank filed in California Superior Court, Riverside County alleging, among other matters, breach of contract due to non-timely payment of November and December 2013 principal amounts owed, which were paid as of March 31, 2014, and the occurrence of a change in control as a result of the Merger. The bank sought full payment of principal and interest owed. In April 2014, the Company entered into a settlement arrangement with the bank whereby the bank dismissed this case in exchange for payment of $124,000 that was applied towards principal and unpaid fees along with advance loan principal and interest through July 2014. From August 2014 to March 31, 2015, in exchange for payments totaling $90,000, the bank agreed to extend this arrangement through various dates with the last date being March 2015. The bank has not agreed to an additional extension in conjunction with the bank’s claim of default. On April 29, 2015, the bank filed a claim against the Company alleging breach of the loan agreement, breach of a commercial guaranty by Steve Saleen, Chairman and CEO, and the bank demanded full payment of principal and interest outstanding (see Note 10).
   
(2) Bonds and notes issued on March 1, 2008, 2009 and 2010, payable in full upon one year from issuance. The Bonds accrue interest at 6% per annum and are secured by the personal property of Saleen Signature Cars. As of March 31, 2015 and 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 March 31, 2015 and 2014 due to non-payment.
   
(4) Non-interest bearing note payable dated January 25, 2013 due in full on October 25, 2013 or earlier upon the occurrence of certain events. The note is secured by certain intellectual property of the Company. The note was in default as of March 31, 2014 due to non-payment. In February 2015, the Company entered into a Settlement Agreement and Mutual General Release with this note holder whereby the Company agreed to issue 2,272,727 shares of its Common Stock at a price of $0.022 per share, or $50,000, in exchange for cancellation of all amounts owed and a mutual general release. The Company recognized a loss on settlement of $7,235 that is reflected in the Statement of Operations during the year ended March 31, 2015 to account for the difference between the fair value of the common shares issued and the amount recorded owed as of the date of settlement.

 

(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, Chairman and CEO, 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/share. 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 on settlement of $72,265 in the Statement of Operations during the year ended March 31, 2015 to account for the difference between the fair value of the common shares issued 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 March 31, 2015. In addition, another separate note for $20,000 remains outstanding as of March 31, 2015 and is in default due to non-payment.
   
(7) Note payable issued on March 25, 2015 bearing interest at a rate of 6% per annum. The note was secured by a vehicle provided to the borrower by the Company and was due on demand after 60 days following the date the secured vehicle was returned to the Company. In May 2015, the borrower agreed to cancel this note and convert the then principal and interest outstanding into a convertible note under the same terms as the 3% Senior secured convertible notes discussed in Note 5. In June 2015, the Company entered into an intellectual property agreement with the note holder. In connection with this agreement, the note was cancelled. See Note 11 for further discussion.

XML 64 R23.htm IDEA: XBRL DOCUMENT v3.2.0.727
Notes Payable (Tables)
12 Months Ended
Mar. 31, 2015
Debt Disclosure [Abstract]  
Schedule of Secured and Unsecured Notes Payable

Notes payable are comprised as follows:

 

    March 31, 2015     March 31, 2014  
Senior secured note payable to a bank, secured by all assets of Saleen Signature Cars, guaranteed by the U.S. Small Business Administration and personally guaranteed by the Company’s CEO, payable in full in March 2015 (1)   $ 358,704     $ 442,479  
Subordinated secured bonds payable, interest at 6% per annum payable at various maturity dates, currently in default (2)     97,000       97,000  
Subordinated secured note payable, interest at 6% per annum, payable March 16, 2010, currently in default (3)     61,046       61,046  
Subordinated secured note payable for legal services rendered, non-interest bearing, payable on October 25, 2013, in default at March 31, 2014 (4)     -       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  
Promissory note, interest at 6%, secured by a vehicle (7)     100,000       -  
Total notes payable   $ 671,750     $ 1,275,774  

 

(1) On February 6, 2014, Saleen Signature Cars received a Complaint from the bank filed in California Superior Court, Riverside County alleging, among other matters, breach of contract due to non-timely payment of November and December 2013 principal amounts owed, which were paid as of March 31, 2014, and the occurrence of a change in control as a result of the Merger. The bank sought full payment of principal and interest owed. In April 2014, the Company entered into a settlement arrangement with the bank whereby the bank dismissed this case in exchange for payment of $124,000 that was applied towards principal and unpaid fees along with advance loan principal and interest through July 2014. From August 2014 to March 31, 2015, in exchange for payments totaling $90,000, the bank agreed to extend this arrangement through various dates with the last date being March 2015. The bank has not agreed to an additional extension in conjunction with the bank’s claim of default. On April 29, 2015, the bank filed a claim against the Company alleging breach of the loan agreement, breach of a commercial guaranty by Steve Saleen, Chairman and CEO, and the bank demanded full payment of principal and interest outstanding (see Note 10).
   
(2) Bonds and notes issued on March 1, 2008, 2009 and 2010, payable in full upon one year from issuance. The Bonds accrue interest at 6% per annum and are secured by the personal property of Saleen Signature Cars. As of March 31, 2015 and 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 March 31, 2015 and 2014 due to non-payment.
   
(4) Non-interest bearing note payable dated January 25, 2013 due in full on October 25, 2013 or earlier upon the occurrence of certain events. The note is secured by certain intellectual property of the Company. The note was in default as of March 31, 2014 due to non-payment. In February 2015, the Company entered into a Settlement Agreement and Mutual General Release with this note holder whereby the Company agreed to issue 2,272,727 shares of its Common Stock at a price of $0.022 per share, or $50,000, in exchange for cancellation of all amounts owed and a mutual general release. The Company recognized a loss on settlement of $7,235 that is reflected in the Statement of Operations during the year ended March 31, 2015 to account for the difference between the fair value of the common shares issued and the amount recorded owed as of the date of settlement.

 

(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, Chairman and CEO, 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/share. 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 on settlement of $72,265 in the Statement of Operations during the year ended March 31, 2015 to account for the difference between the fair value of the common shares issued 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 March 31, 2015. In addition, another separate note for $20,000 remains outstanding as of March 31, 2015 and is in default due to non-payment.
   
(7) Note payable issued on March 25, 2015 bearing interest at a rate of 6% per annum. The note was secured by a vehicle provided to the borrower by the Company and was due on demand after 60 days following the date the secured vehicle was returned to the Company. In May 2015, the borrower agreed to cancel this note and convert the then principal and interest outstanding into a convertible note under the same terms as the 3% Senior secured convertible notes discussed in Note 5. In June 2015, the Company entered into an intellectual property agreement with the note holder. In connection with this agreement, the note was cancelled. See Note 11 for further discussion.

XML 65 R19.htm IDEA: XBRL DOCUMENT v3.2.0.727
Subsequent Events
12 Months Ended
Mar. 31, 2015
Subsequent Events [Abstract]  
Subsequent Events

NOTE 11 – SUBSEQUENT EVENTS

 

10% Senior Secured Convertible Notes

 

On May 13, 2015, the Company entered into a 10.0% First Lien Convertible Note (“10% Note”) and Securities Purchase Agreement (“SPA”) by and among the Company and GreenTech Automotive, Inc. (“GTA”), whereby GreenTech agreed to provide for the issuance of up to $500,000 under the 10% Note for a period up to August 17, 2015 under the same terms as the June 2013 Notes (see note 5). In conjunction with this 10% Note, $100,000 was converted from a note entered into in March 2015 with GreenTech (see Note 3). These Notes have subsequently been converted to a license agreement as described below.

 

Intellectual Property License Agreement

 

In June 2015, the Company entered into an Intellectual Property License Agreement (the “License Agreement”) with Saleen Motors International, LLC, a Delaware limited liability company (“SMI”) and a wholly owned subsidiary of GTA and non-affiliated subsidiary of the Company. Pursuant to the License Agreement, the Company granted to SMI an irrevocable, fully paid-up (subject to certain royalty fees), sublicensable license during the term of the License Agreement to use all of the Company’s intellectual property on an exclusive basis worldwide other than in North America, Europe, Middle East and Australia (as applicable, the “Territory”), to make, promote, sell and otherwise exploit the Company’s intellectual property in the Territory. The License Agreement has an initial term of 10 years, with automatic renewal for periods of five years at SMI’s election provided that the number of Saleen branded vehicles sold by SMI in the prior 12-month period is not less than the average number of Saleen-branded vehicles sold by the Company and subsidiaries in the most recently available three-year period. The License Agreement may be terminated by mutual written agreement, upon a material breach, which remains uncured (with SMI having the right to cure no more than 3 breaches of its obligation to pay royalties) for 15 days after written notice of such breach, or in the event of SMI’s bankruptcy.

 

In consideration of the license SMI shall pay royalties, within 15 days after the product shipment date and in all events at least quarterly, based on a fee per Saleen-branded vehicle sold by SMI depending on its sales volume as set forth in the License Agreement, and shall pay royalties based on a percentage of SMI’s gross revenues for parts and merchandise (in each case net of discounts, returns, taxes and similar amounts) received on Saleen-branded non-vehicle products.

 

The parties to the License Agreement, along with GTA, agreed that the $500,000 10% Notes made by GTA pursuant to the SPA and the 10.0% First Lien Convertible Note entered into in May 2015, was deemed satisfied upon the execution of the License Agreement.

 

Except for the transactions under the agreements described above and the Company’s Joint Branding, Marketing, and Distribution Agreement with WM Industries Corp. (an affiliate of SMI and GTA) dated March 2014, none of the Company or its subsidiaries had any material relationship with SMI, GTA and its affiliates.

 

Authorized Shares

 

In June 2015, the board of directors approved an increase in our authorized shares from 500,000,000 to 2,500,000,000. The increase in authorized shares is pending our filing and approval of an Information Statement.

 

Super Voting Preferred

 

On June 12, 2015, the Company filed a Certificate of Designation designating the rights and restrictions of 1,000,000 shares of Super Voting Preferred Stock, par value $0.001 per share, pursuant to resolutions approved by the Company’s Board of Directors on June 11, 2015.

 

The holders of Super Voting Preferred Stock are entitled to vote together with the holders of Common Stock, as a single class, upon all matters submitted to holders of Common Stock for a vote. Each share of Super Voting Preferred Stock is entitled to a number of votes equal to the number of shares of our Common Stock into which it is convertible at the applicable record date. Each share of our Super Voting Preferred Stock will immediately and automatically convert into 1,000 shares (subject to adjustment for splits, dividends and similar transaction) of Common Stock at such time that the Company files, at such time as determined by the Company’s board of directors, an amendment to its articles of incorporation effecting a reverse stock split of Common Stock or effecting an increase in the authorized shares of Common Stock, in each case so that the Company has a sufficient number of authorized and unissued shares of Common Stock to permit the conversion of all then outstanding shares of Super Voting Preferred Stock into Common Stock.

 

In the event of any liquidation, dissolution or winding up of the Company, the assets available for distribution to the stockholders will be distributed among the holders of the Super Voting Preferred Stock and the holders of Common Stock, pro rata, on an as-converted-to-common-stock basis. The holders of Super Voting Preferred Stock are entitled to dividends in the event that the Company pays cash or other dividends in property to holders of outstanding shares of Common Stock, which dividends would be made pro rata, on an as-converted-to-common-stock basis.

 

On June 16, 2015, in order to make available additional shares of Common Stock to facilitate the conversion of outstanding debt, the Company issued to Steve Saleen, the Company’s Chief Executive Officer and President, 82,133.875 shares of Super Voting Preferred Stock in exchange for 82,133,875 shares of Common Stock held by Mr. Saleen.

 

On June 16, 2015, the Company issued 220,000 shares of Super Voting Preferred Stock to Mr. Saleen in satisfaction of $220,000 of debt owed to Mr. Saleen. The per share price of Super Voting Preferred Stock issued to Mr. Saleen was based on the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by the per share closing price ($0.001) of Common Stock as of June 11, 2015, the date the issuance was approved by the Company’s Board of Directors.

 

On June 22, 2015, the Company issued to Molly Saleen, Inc., dba Mollypop, 19,007.777 shares of Super Voting Preferred Stock to reimburse Mollypop for $34,214 of merchandise purchased by Mollypop on the Company’s behalf. Molly Saleen, the Chief Executive Officer of Mollypop, is the daughter of Steve Saleen. On June 22, 2015, the Company also issued 63,000 shares of Super Voting Preferred Stock to Michaels Law Group, APLC (“MLG”) as a retainer for legal services to be provided by MLG in connection with various outstanding claims and suits in which the Company is plaintiff, and for other legal matters. Jonathan Michaels, the founding member of MLG, previously served as a member of the Company’s Board of Directors and as our general counsel.

 

The per share price of Super Voting Preferred Stock issued to Mollypop and MLG was based on the conversion ratio of Super Voting Preferred Stock into 1,000 shares of Common Stock, multiplied by the per share closing price ($0.0018) of Common Stock as of June 19, 2015, the date the issuance was approved by the Board of Directors.

 

Common Stock Issued in Conjunction with Unsecured Convertible Notes

 

From April 1, 2015 to the date of this Form 10-K filing, unsecured convertible note holders (see note 5) converted $372,514 of principal and unpaid interest into 367,751,194 shares of Common Stock. As discussed in Note 5, the note agreements require the Company to maintain a reserve of Common Stock, as determined based on a formula stated in the note agreements, which, upon request by the note holder, can be adjusted based on the formula and the then share price of the Company’s Common Stock as of the date of request. The note holder can convert up to the number of the then shares reserved for conversion of their related note. As of the date of this filing of Form 10-K, the Company is in default of the Common Stock reserve requirements due to insufficient availability of authorized shares to fulfill the note holders’ reserve requests.

XML 66 R15.htm IDEA: XBRL DOCUMENT v3.2.0.727
Related Party Transactions
12 Months Ended
Mar. 31, 2015
Related Party Transactions [Abstract]  
Related Party Transactions

NOTE 7 – RELATED PARTY TRANSACTIONS

 

The amounts of accounts payable to related parties as of March 31, 2015 and 2014 are as follows:

 

Related Party:   March 31, 2015     March 31, 2014  
Steve Saleen (a)   $ 223,455     $ 100,000  
Michaels Law Group (b)           23,954  
Top Hat Capital (c)     62,500       25,000  
Crystal Research (d)     6,343        
Molly Saleen, Inc. (e)     34,214       23,580  
    $ 326,512     $ 172,534  

 

(a) During the year ended March 31, 2015, the Company incurred $125,654 in officers’ salary expense that is due and payable to its Director, Chairman and CEO, Mr. Steve Saleen. As of March 31, 2015 and 2014 the Company owed $223,455 and $100,000, respectively, to Mr. Saleen for his unpaid officers’ salary. In March 2014, Mr. Saleen agreed to forgive $353,787 of amounts owed for loans given by Mr. Saleen to the Company and unpaid salary, which the Company recognized as a gain and offset to settlement expenses in the Statement of Operations. In June 2015, the Company issued 220,000 shares of Super Voting Preferred Stock for payment of $220,000 owed to Mr. Saleen (see Note 11).
   
(b)

During the year ended March 31, 2015 and 2014, the Company incurred $69,418 and $365,251, respectively, in General Counsel Services and legal fees expense with Michaels Law Group, a firm owned by a former Director and General Counsel, Mr. Jonathan Michaels. In January 2015, the Company entered into a Fee Reduction Agreement with Michaels Law Group whereby Michaels Law Group reduced the amount owed to $75,000 and the Company issued 2,500,000 shares of Common Stock to Michaels Law Group as full payment. The value of the Common Stock issued of $75,000 was based on a fair value of $0.03 per share. During the year ended March 31, 2015 the Company paid $550 to Michaels Law Group.

 

In March 2014, the Company entered into a Retainer Agreement whereby the Company issued 1,447,500 shares of Common Stock and five year warrants to purchase 1,447,500 shares of Common Stock at an exercise price of $0.15 per share along with cash of $36,459 in exchange for amounts owed through February 2014. The value of the Common Stock issued was $405,300 based on a stock price of $0.28 on date of settlement. The Company valued the warrants at $332,491 using the Black-Scholes option pricing model using the following assumptions: (i) fair market value of stock of $0.28; (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 Company recognized a loss of $521,558 included in settlement expenses in the Statement of Operations for the year ended March 31, 2014 based on the difference between the value of the common shares and stock warrants issued plus $36,459 cash paid and the amount owed of $252,692. During the year ended March 31, 2014, the Company paid $110,000 to Michaels Law Group. As of March 31, 2014, $23,954 was payable to Michaels Law Group services for rendered.

   
(c) During the year ended March 31, 2015 and 2014, the Company incurred $50,000 and $35,000, respectively, of which the Company paid $12,500 and $10,000, respectively, during the years ended March 31, 2015 and 2014, 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 March 31, 2015 and 2014, $62,500 and $25,000, respectively, was payable to TopHat Capital for these services.
   
(d) During the year ended March 31 2015, 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 March 31, 2015, $6,343 was payable to Crystal Research Associates for these services.
   
(e) During the year ended March 31, 2015 and 2014, the Company purchased $12,650 and $43,325, respectively, of which the Company paid $2,016 and $12,650, respectively, during the years ended March 31, 2015 and 2014, in purchases of apparel and accessories from Molly Saleen, Inc. dba Mollypop. Molly Saleen, the Chief Executive Officer of Mollypop, is the daughter of Steve Saleen, the Company’s Chief Executive Officer and President. As of March 31, 2015 and 2014, $34,214 and $23,580, respectively, was outstanding. On June 22, 2015, the Company issued 19,077.777 shares of Super Voting Preferred Stock for payment of $34,214 outstanding (see Note 11).

 

Other Transactions

 

During the year ended March 31, 2014, the Company incurred and paid $259,534 and $252,663, respectively, in accounting advisory and CFO services with Miranda & Associates, a firm owned by its former Chief Financial Officer, Mr. Robert Miranda. In March 2014, the Company entered into a Separation Agreement and General Release whereby in settlement of all remaining amounts due him, the Company issued 1,061,408 shares of Common Stock and five year warrants to purchase 1,061,408 shares of Common Stock at an exercise price of $0.15 per share along with cash of $10,000 in exchange for amounts owed as of March 31, 2014. The value of the Common Stock issued was $212,282 based on a stock price of $0.20 on date of settlement. The Company valued the warrants at $169,825 using the Black-Scholes option pricing model using the following assumptions: (i) fair market value of stock of $0.20; (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 Company recognized a loss of $218,014 in the Statement of Operations for the year ended March 31, 2014 based on the difference between the value of the common shares and stock warrants issued plus $10,000 cash paid and the amount owed of $174,093.

 

During the year ended March 31, 2014, 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.

XML 67 R13.htm IDEA: XBRL DOCUMENT v3.2.0.727
Convertble Notes Payable
12 Months Ended
Mar. 31, 2015
Debt Disclosure [Abstract]  
Convertible Notes Payable

NOTE 5 – CONVERTIBLE NOTES PAYABLE

 

Convertible notes are comprised as follows:

 

    March 31, 2015     March 31, 2014  
3% Senior secured convertible notes payable to a private accredited investor group, convertible at $0.075 per share, subject to adjustment, $2,001,720 due in June 2017 and $499,892 due in January 2019.   $ 2,501,612     $ 2,586,732  
                 
7% Unsecured convertible notes payable to private accredited investor group, convertible into 82,484,267 shares of Common Stock (including accrued interest) as of March 31, 2015, interest accrued at 7% per annum, notes mature in March 2017     2,200,000       2,250,000  
                 
Unsecured convertible notes payable to eight separate private accredited investors, convertible into 35,782,732 shares of Common Stock (including accrued interest) as of March 31, 2015, interest accrued at 8% to 12% per annum, notes mature on various dates from April 2015 to December 2016, in default     618,225        
      5,319,837       4,836,732  
Less: discount on notes payable     (1,836,828 )     (3,498,981 )
Notes payable, net of discount     3,483,009       1,337,751  
Less: notes payable, current     (267,332 )      
Notes payable, long-term   $ 3,215,677     $ 1,337,751  

 

3% Senior secured convertible notes

 

On June 26, 2013, pursuant to a Securities Purchase Agreement, as amended, the Company issued senior secured convertible notes, as amended, having a total principal amount of $3,000,000, to 12 accredited investors (“2013 Notes). The 3% Notes pay 3.0% interest per annum with a maturity of 4 years from the date of issuance (June 2017 and January 2019) and are secured by all assets and intellectual property of the Company. No cash interest payments will be required, except that accrued and unconverted interest shall be due on the maturity date and on each conversion date with respect to the principal amount being converted, provided that such interest may be added to and included with the principal amount being converted.

 

Each 3% Note is convertible at any time into Common Stock at a specified conversion price, which initially was $0.075 per share. Prior to June 2014, the 2013 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 of such and the agreements included an anti-dilution provisions that allows for the automatic reset of the conversion or exercise price upon any future sale of Common Stock instruments at or below the current exercise price. If the Company’s shares are issued, except in specified exempt issuances, for consideration which is less than the then existing 2013 Note conversion price, then such conversion price would be reduced by full ratchet anti-dilution adjustments that would reduce the conversion price to equal the price in the dilutive issuance, regardless of the size of the dilutive issuance.

 

Pursuant to FASB guidance on “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock, the Company determined that the conversion prices of the 2013 Notes were not a fixed amount because they were subject to fluctuation 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. See Note 6 for further discussion.

 

In June 2014, the Company entered into a First Amendment to Saleen Automotive, Inc. 3.0% Secured Convertible Note (“3% First Amendment”) and removed all specified adjustments to the conversion price except for standard anti-dilution provisions whereby if the Company consummates a reorganization transaction pays dividends or enters into a stock split of its common shares the conversion price would adjust proportionally. In addition, if a Fundamental Transaction, as defined in the 2013 Note agreement, were to occur the potential liquidated damage was set to a fixed amount. As an inducement for the amendment, the Company issued an aggregate of 389,923 shares of Common Stock with a fair value of $58,488. The Company recorded $58,488 as private placement costs determined based on the market value of the Company’s Common Stock of $0.15 as of the date of issuance.

 

The Company determined that the amendment of the Saleen Automotive, Inc. 3.0% Secured Convertible Note resulted in a modification for accounting purposes, and as such, the derivative liability recorded when the note was originally issued was deemed extinguished (see Note 6).

 

On January 23, 2015, the Company entered into a Second Amendment to 3% Senior Secured Convertible Notes whereby the conversion price of the 2013 Notes was amended to be the lesser of (a) $0.075 and (b) 70% of the average of the three lowest VWAPs occurring during the twenty consecutive trading days immediately preceding the applicable conversion date on which the note holders elects to convert all or part of the note. However, in no event shall the conversion price be less than $0.02. As a result of this amendment, the Company considered this to be an extinguishment of debt for accounting purposes, and recognized a loss on the extinguishment of $1,257,468, which comprised of $684,975 of expensing the remaining debt discount and $572,493 related to the beneficial conversion feature that resulted from the incremental change in the potential shares of common stock to be issued and the conversion price.

 

On January 26, 2015 the Company entered into two additional 3% Senior Secured Convertible Notes in the principal amount of $499,892 with two accredited investors who participated in the June 26, 2013 offering (“2015 Notes” and collectively “3% Notes”) of which $98,708 was converted from note payable previously entered into with one investor in November 2013. The Company determined that 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 2015 Notes. As such, the Company determined that there was deemed a beneficial conversion feature of $77,483 at the issuance date of the 2015 Notes and recorded such amount as valuation discount and as additional paid-in capital. The value of the beneficial conversion feature is being amortized as additional interest expense over the term of the 2015 Notes.

 

In May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanded full payment of principal, interest and fees of $369,302 (see Note 3). A default under the loan agreement triggers a cross default under the 2013 Notes and 2015 Notes enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of the indebtedness under the 3% Notes requiring the Company to pay, upon such acceleration, the sum of (1) 120% of the outstanding principal plus (2) 100% of all accrued and unpaid interest plus (3) all other amounts due under the 3% Notes. Upon the occurrence of an event of default under the 3% Notes interest accrues at the rate of 12% per annum.

 

During the years ended March 31, 2015 and 2014, the Company amortized $517,524 and $411,675, respectively, of the valuation discount, and the remaining unamortized valuation discount of $74,021 and $1,248,984 as of March 31, 2015 and 2014, respectively, has been offset against the face amount of the notes for financial statement purposes.

 

During the year ended March 31, 2015, certain note holders converted $585,012 of principal and $11,942 of interest into 8,032,186 shares the Common Stock. As of March 31, 2015, the principal balance of the convertible Notes outstanding was $2,501,612.

 

7% Unsecured convertible notes

 

In March and April 2014, as amended in June 2014, the Company issued 7% Unsecured Convertible Notes (the “7% Notes”), having a total principal amount of $2,250,000 and $250,000, respectively, to 5 accredited investors of which $2,000,000 was received from 3 investors who participated in the June 26, 2013 offering above. The 7% Notes pay interest at 7% per annum with a maturity of 3 years (March and April, 2017). No cash payments are required, except that unconverted outstanding principal and accrued interest shall be due and payable on the maturity date. Each 7% Note is initially convertible at any time into the Company’s Common Stock at a conversion price, which is adjustable to the lower of $0.07 or the three lowest daily volume weighted average prices of the Company’s Common Stock during the twenty consecutive trading days immediately preceding any conversion date. However, in no event shall the conversion price be lower than $0.03 per share. In addition, the conversion price adjusts for standard anti-dilution provisions whereby if the Company consummates a reorganization transaction, pays dividends or enters into a stock split of its common shares the conversion price would adjust proportionally.

 

In June 2014, the Company entered into a First Amendment to Saleen Automotive, Inc. 7% Convertible Note whereby effective as of March 31, 2014 or the applicable issuance date for notes issued thereafter, the conversion price would in no event adjust below $0.03 per share. In addition, if a Fundamental Transaction, as defined, were to occur the potential liquidated damages was set to a fixed amount. As an inducement, the Company issued an aggregate of 357,143 shares of its Common Stock with a fair value of $53,571 based on the market value of the Company’s Common Stock of $0.15 as of the date of issuance and was recorded as part of private placement costs in the accompanying Statement of Operations.

 

As the initial conversion price of $0.07 reflected a price discount below the fair market value of the Company’s Common Stock as of the issuance date of the 7% Notes, the Company determined that there was deemed a beneficial conversion feature associated with these 7% Notes. As such, the Company recorded $2,250,000 and $250,000 in March 2014 and April 2014, respectively, representing the intrinsic value of the beneficial conversion feature at the issuance date of the 7% Notes in additional paid-in capital. The value of the beneficial conversion feature is being amortized as additional interest expense over the term of the 7% Notes, which totaled $1,050,700 for the year ended March 31, 2015. As of March 31, 2015 and 2014, the remaining unamortized valuation discount of $1,449,300 and $2,250,000, respectively, has been offset against the face amount of the notes for financial statement purposes.

 

In May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanded full payment of principal, interest and fees of $369,302 (see Note 3). If the bank is successful in their claim of default, such default would trigger a cross default under the 7.0% Notes enabling the holders thereof to, at their election, accelerate the maturity of the outstanding indebtedness under the 7% Notes requiring the Company to pay, upon such acceleration, the greater of (1) 120% of the outstanding principal (plus all accrued and unpaid interest) and (2) the product of (a) the highest closing price for the five trading immediately preceding the holder’s acceleration and (b) a fraction, of which the numerator is the entire outstanding principal, and of which the denominator is the then applicable conversion price. Upon the occurrence of an event of default under the 7% Notes interest accrues at the rate of 24% per annum.

 

During the year ended March 31, 2015, one note holder converted $300,000 of principal and $15,808 of accrued interest into 10,000,000 shares of the Company’s Common Stock. As of March 31, 2015, the principal balance of the convertible Notes outstanding was $2,200,000.

 

Unsecured convertible notes

 

From September 2014 to December 2014, the Company issued Convertible Promissory Notes (“Notes”) in the aggregate principal amount of $638,225 to eight separate accredited investors. The Notes bear interest ranging from 8% to 12% per annum and mature on various dates from April 2015 to December 2016. The Company is currently in default of payment for a Note that matured in April 2015 in the principal amount outstanding of $10,600. The Company may not prepay the Notes without the Note holder’s consent. Further, the Notes contain provisions that under certain events of default, as defined in the agreements, the amount owed could increase by amounts ranging from 135% to 150% depending on the event of default. In addition, in the event of non-payment when due, the interest rates would increase to between 20% and 25% per annum from the date due until paid.

 

The Notes are convertible into shares of Common Stock of the Company at the option of the holder commencing on various dates following the issuance date of the Notes and ending on the later of the maturity date or date of full payment of principal and interest. The principal amount of the Notes along with, at the holder’s option, any unpaid interest and penalties, are convertible at price per share discounts ranging from 42% to 38% of the Company’s Common Stock trading market price during a certain time period, as defined in the agreement. Further, the conversion prices are subject to a floor such that the conversion prices will not be less than a certain price, as defined in the agreement, with such floor prices ranging from $0.001 to $0.00005 per share. In addition, the conversion prices are subject to adjustment in certain events, such as in conjunction with any sale, conveyance or disposition of all or substantially all of the Company’s assets or consummation of a transaction or series of related transactions in which the Company is not the surviving entity. The note agreements also require the Company to maintain a reserve of Common Stock, as determined based on a formula stated in the note agreements, which, upon request by the note holder, can be adjusted based on the formula and the then share price of the Company’s Common Stock as of the date of request. The note holder can convert up to the number of the then shares reserved for conversion of their related note. As of March 31, 2015, the Company was in compliance with the Common Stock reserve provisions; however, as of the date of this filing, the Company is in default of such reserve requirements due to insufficient availability of authorized shares to fulfill the note holders’ reserve requests.

 

The Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. In addition, the Company determined that instruments with floor prices ranging from $0.001 to $0.00001 were de minimis and in substance not indexed to the Company’s own stock. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded conversion feature was $1,306,455. As such, the Company recorded a $1,306,455 derivative liability, of which $638,225 was recorded as debt discount offsetting the fair value of the Notes and the remainder of $668,230 recorded as private placement costs in the Consolidated Statement of Operations for the year ended March 31, 2015. As of March 31, 2015, the Company amortized $374,661 of the valuation discount, and the remaining unamortized valuation discount of $313,507 as of March 31, 2015 has been offset against the face amount of the Notes for financial statement purposes. The remainder of the valuation discount will be amortized as interest expense over the remaining term of the Notes. The derivative liability is re-measured at the end of every reporting period with the change in value reported in the statement of operations (see Note 6).

 

During the year ended March 31, 2015, one Note holder converted $20,000 of principal and $161 of accrued interest into 1,785,714 shares of the Company’s Common Stock. As of March 31, 2015, the principal balance of the convertible Notes outstanding was $618,225.

 

The aggregate future obligations under the Convertible Notes Payable herein and notes payable described in Notes 3 and 4 are as follows:

 

Year Ending March 31,   Amount  
2016   $ 1,556,974  
2017     4,201,720  
2018     -  
2019     499,893  
2020        
    $ 6,258,587  

XML 68 R14.htm IDEA: XBRL DOCUMENT v3.2.0.727
Derivative Liability
12 Months Ended
Mar. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Liability

NOTE 6 – DERIVATIVE LIABILITY

 

Pursuant to FASB authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock, instruments, which do not have fixed settlement provisions, are deemed to be derivative instruments. The conversion feature of the Company’s senior secured convertible notes and unsecured convertible notes (described in Note 5 above), did not have fixed settlement provisions because their conversion prices could be lowered if the Company issues securities at lower prices in the future or the ultimate determination of shares to be issued could exceed current available authorized shares. In accordance with the FASB authoritative guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and recognized as a derivative instrument. The conversion feature of the notes had been characterized as a derivative liability and was re-measured at the end of every reporting period with the change in value reported in the statement of operations.

 

The derivative liabilities were valued at the following dates using a probability weighted-average Black-Scholes-Merton model with the following assumptions:

 

    March 31, 2015     September to
December, 2014
(Dates of Inception)
    June 17, 2014
(Note Amendment
and
Restatement Date)
    March 31, 2014  
Conversion feature:                                
Risk-free interest rate     0.04 – 1.33 %     0.02 %     0.02 %     0.05 %
Expected volatility     179 %     124 – 139 %     106 %     100 %
Expected life (in years)     .2 – 1.6 years       .75 to 2.0 years       3 years       .25 years  
Expected dividend yield                        
                                 
Fair Value:                                
Conversion feature   $ 1,268,588     $ 1,306,455     $ 3,908,950     $ 5,032,786  

 

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company used its own stock’s volatility as the estimated volatility. The expected life of the conversion feature of the notes was based on the remaining terms of the notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends to its holders of Common Stock in the past and does not expect to pay dividends to holders of its Common Stock in the future.

 

In June 2014, pursuant to the First Amendment to Saleen Automotive, Inc. 3.0% Secured Convertible Note as discussed in Note 5, the Company determined the conversion features of the note was no longer required to be accounted for as a derivative liability due to the elimination of the price-based anti-dilution provisions contained in the note. As a result, the Company recognized the fair value of the derivative liability at the date of extinguishment of $3,908,950 an addition to contributed paid in capital.

 

From September 2014 to December 2014, in conjunction with the issuance of the Company’s Unsecured Convertible Note as discussed in Note 5, the Company recognized derivative liability of $1,306,455.

 

During the year ended March 31, 2015, the Company recognized a gain of $1,111,389 to account for the change in fair value of the derivative liability and gain of $50,314 due to extinguishment of the derivative liability upon conversion of a note to equity. At March 31, 2015, the fair value of the derivative liability amounted to $1,268,588.

XML 69 R16.htm IDEA: XBRL DOCUMENT v3.2.0.727
Income Taxes
12 Months Ended
Mar. 31, 2015
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 8 – INCOME TAXES

 

As of March 31, 2015, the Company had net operating loss carry forwards for income tax reporting purposes of approximately $19,000,000 that may be offset against future taxable income. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs or a change in the nature of the business. The utilization of the losses is also limited by the fact that the combined companies prior to the reverse merger file on a separate basis and losses on one cannot offset profits on the other. Therefore, the amount available to offset future taxable income may be limited.

 

No tax benefit has been reported in the financial statements for the realization of loss carry forwards, as the Company believes based on the Company’s past operations that there is no evidence or assurance that the carry forwards will be utilized. Accordingly, the potential tax benefits of the loss carry forwards are offset by a valuation allowance of the same amount.

 

    March 31, 2015     March 31, 2014  
Deferred income tax asset:                
Net operating loss carry forward   $ 5,800,000     $ 4,773,000  
Valuation allowance     (5,800,000 )     (4,773,000 )
Net deferred income tax asset   $     $  

 

Reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:

 

    March 31, 2015     March 31, 2014  
Tax expense at the U.S. statutory income tax     (34.00 )%     (34.00 )%
State tax net of federal tax benefit     (5.80 )%     (5.80 )%
Increase in the valuation allowance     39.8 %     39.8 %
Effective tax rate     %     %

 

The Company is primarily subject to U.S. federal and state income tax. As a result of the implementation of certain provisions of ASC 740, Income Taxes, (formerly FIN 48, Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109), the Company performed an analysis of its tax liabilities and determined that there were no positions taken that it considered uncertain. Therefore, there were no unrecognized tax benefits as of March 31, 2015 and March 31, 2014, respectively.

 

Future changes in the unrecognized tax benefit are not expected to have an impact on the effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change within the next twelve months. The Company will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in its statements of operations. The Company has incurred no interest or penalties as of March 31, 2015 and March 31, 2014.

XML 70 R34.htm IDEA: XBRL DOCUMENT v3.2.0.727
Nature of the Business and Significant Accounting Policies - Schedule of Estimated Useful Lives (Details)
12 Months Ended
Mar. 31, 2015
Computer Equipment And Software [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 3 years
Furniture [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 3 years
Machinery [Member] | Minimum [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 3 years
Machinery [Member] | Maximum [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 10 years
Tooling [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 10 years
XML 71 R51.htm IDEA: XBRL DOCUMENT v3.2.0.727
Income Taxes (Details Narrative) - USD ($)
12 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Income Tax Disclosure [Abstract]    
Net operating loss carry-forward $ 19,000,000  
Unrecognized tax benefits    
Penalties interest expenses    
XML 72 R21.htm IDEA: XBRL DOCUMENT v3.2.0.727
Nature of the Business and Significant Accounting Policies (Tables)
12 Months Ended
Mar. 31, 2015
Accounting Policies [Abstract]  
Schedule of Inventories

The Company typically has no finished goods inventory, as the Company builds to order, other than parts held for resale.

 

    March 31, 2015     March 31, 2014  
             
Parts and chassis   $ 176,718     $ 183,941  
Work in process     298,969       -  
S7 Supercar held for sale     250,000       250,000  
Total inventories   $ 725,687     $ 433,941  

Schedule of Changes in Product Warranty Accrual

Changes in the product warranty accrual for the fiscal years ended March 31, 2015 and 2014 were as follows:

 

    Balance at
Beginning
of Fiscal Year
    Warranty
Expenditures
    Provision for
Estimated
Warranty Cost
    Balance at End
of Fiscal Year
 
Fiscal 2015   $ -     $ (7,077 )   $ 27,077     $ 20,000  
Fiscal 2014   $ -     $ (16,763 )   $ 36,763     $ 20,000  

Schedule of Estimated Useful Lives

The cost of property and equipment is depreciated or amortized on the straight-line method over the following estimated useful lives:

 

Computer equipment and software   3 years
Furniture   3 years
Machinery   3-10 years
Tooling   10 years

XML 73 R26.htm IDEA: XBRL DOCUMENT v3.2.0.727
Derivative Liability (Tables)
12 Months Ended
Mar. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of Derivative Liabilities

The derivative liabilities were valued at the following dates using a probability weighted-average Black-Scholes-Merton model with the following assumptions:

 

    March 31, 2015     September to
December, 2014
(Dates of Inception)
    June 17, 2014
(Note Amendment
and
Restatement Date)
    March 31, 2014  
Conversion feature:                                
Risk-free interest rate     0.04 – 1.33 %     0.02 %     0.02 %     0.05 %
Expected volatility     179 %     124 – 139 %     106 %     100 %
Expected life (in years)     .2 – 1.6 years       .75 to 2.0 years       3 years       .25 years  
Expected dividend yield                        
                                 
Fair Value:                                
Conversion feature   $ 1,268,588     $ 1,306,455     $ 3,908,950     $ 5,032,786  

XML 74 R49.htm IDEA: XBRL DOCUMENT v3.2.0.727
Related Party Transactions (Details Narrative) - USD ($)
1 Months Ended 12 Months Ended
Jul. 09, 2013
Mar. 31, 2014
Mar. 31, 2015
Mar. 31, 2014
Amount due to related parties   $ 172,534 $ 326,512 $ 172,534
Amount paid to related parties       $ 703,245
Value of shares acquired        
Common stock shares issued price per share     $ 0.15  
Recognized a loss on settlement expenses     $ 153,754  
Payment of apparels and accessories     $ 227,277 $ 303,666
Number of super voting perferred stock shares issued 696,000   341,943  
Number of common stock shares issued for services     1,000,000  
Directors fees expenses     $ 650,351  
Top Hat Capital [Member]        
Related party transaction amount     50,000 $ 35,000
Amount paid to related parties     12,500 10,000
Crystal Research [Member]        
Amount paid to related parties     $ 31,343 25,000
Michaels Law Group [Member]        
Amount due to related parties [1]   23,954   23,954
General Counsel Services and legal fees     $ 69,418 365,251
Related party transaction amount     $ 550 $ 110,000
Common stock shares issued price per share     $ 0.03  
Michaels Law Group [Member] | Fee Reduction Agreement [Member]        
Related party transaction amount     $ 75,000  
Issuance of shares during acquisition     2,500,000  
Value of shares acquired     $ 75,000  
Michaels Law Group [Member] | Retainer Agreement [Member]        
Related party transaction amount   $ 252,692    
Common stock shares issued price per share   $ 0.15   $ 0.15
Number of common stock shares issued   1,447,500    
Warrants term   5 years    
Warrants to purchase of shares of common stock   1,447,500    
Warrants to purchase of shares of common stock with cash   $ 36,459    
Number of common stock shares issued for settlement   405,300    
Stock price per share   $ 0.28   0.28
Fair value of warrants   $ 332,491    
Fair market value of stock price per share   $ 0.28   $ 0.28
Fair value of dividend yield   0.00%    
Fair value of volatility rate   100.00%    
Fair value of risk free rate   1.75%    
Fair value of expected term (Years)   5 years    
Recognized a loss on settlement expenses   $ 521,558    
Issued of common stock and warrants   36,459    
Top Hat Capital [Member]        
Amount due to related parties [2]   $ 25,000 62,500 $ 25,000
Crystal Research [Member]        
Amount due to related parties [3]     6,343  
Molly Saleen [Member]        
Amount due to related parties   $ 23,580 34,214 $ 23,580
Purchases of apparel and accessories     12,650 43,325
Payment of apparels and accessories     $ 2,016 12,650
Miranda & Associates [Member]        
Related party transaction amount       259,534
Amount paid to related parties       252,663
Miranda & Associates [Member] | Separation Agreement and General Release [Member]        
Related party transaction amount       $ 174,093
Common stock shares issued price per share   $ 0.15   $ 0.15
Number of common stock shares issued       1,061,408
Warrants term       5 years
Warrants to purchase of shares of common stock       1,061,408
Warrants to purchase of shares of common stock with cash       $ 10,000
Number of common stock shares issued for settlement       212,282
Stock price per share   0.20   $ 0.20
Fair value of warrants       $ 169,825
Fair market value of stock price per share   $ 0.20   $ 0.20
Fair value of dividend yield       0.00%
Fair value of volatility rate       100.00%
Fair value of risk free rate       1.75%
Fair value of expected term (Years)       5 years
Recognized a loss on settlement expenses       $ 218,014
Issued of common stock and warrants       $ 10,000
Robert J. Miranda and Jonathan Michaels [Member]        
Number of super voting perferred stock shares issued       5,277
Number of common stock shares issued for services       659,625
Directors fees expenses       $ 250,000
Robert J Miranda [Member]        
Number of common stock shares issued for services       329,811
Jonathan Michaels [Member]        
Number of common stock shares issued for services       329,811
June 22, 2015 [Member] | Molly Saleen [Member]        
Number of shares of super voting preferred stock issued for payment of owed     19,077.777  
Number of shares of super voting preferred stock issued for payment of owed, value     $ 34,214  
Mr. Steve Saleen [Member]        
Office compensation     125,654  
Amount due to related parties   $ 100,000 $ 223,455 $ 100,000
Forgive of amounts owed for loans       $ 353,787
Mr. Steve Saleen [Member] | June 2015 [Member]        
Number of shares of super voting preferred stock issued for payment of owed     220,000  
Number of shares of super voting preferred stock issued for payment of owed, value     $ 220,000  
[1] During the year ended March 31, 2015 and 2014, the Company incurred $69,418 and $365,251, respectively, in General Counsel Services and legal fees expense with Michaels Law Group, a firm owned by a former Director and General Counsel, Mr. Jonathan Michaels. In January 2015, the Company entered into a Fee Reduction Agreement with Michaels Law Group whereby Michaels Law Group reduced the amount owed to $75,000 and the Company issued 2,500,000 shares of Common Stock to Michaels Law Group as full payment. The value of the Common Stock issued of $75,000 was based on a fair value of $0.03 per share. During the year ended March 31, 2015 the Company paid $550 to Michaels Law Group. In March 2014, the Company entered into a Retainer Agreement whereby the Company issued 1,447,500 shares of Common Stock and five year warrants to purchase 1,447,500 shares of Common Stock at an exercise price of $0.15 per share along with cash of $36,459 in exchange for amounts owed through February 2014. The value of the Common Stock issued was $405,300 based on a stock price of $0.28 on date of settlement. The Company valued the warrants at $332,491 using the Black-Scholes option pricing model using the following assumptions: (i) fair market value of stock of $0.28; (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 Company recognized a loss of $521,558 included in settlement expenses in the Statement of Operations for the year ended March 31, 2014 based on the difference between the value of the common shares and stock warrants issued plus $36,459 cash paid and the amount owed of $252,692. During the year ended March 31, 2014, the Company paid $110,000 to Michaels Law Group. As of March 31, 2014, $23,954 was payable to Michaels Law Group services the rendered.
[2] During the year ended March 31, 2015 and 2014, the Company incurred $50,000 and $35,000, respectively, of which the Company paid $12,500 and $10,000, respectively, during the years ended March 31, 2015 and 2014, 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 March 31, 2015 and 2014, $62,500 and $25,000, respectively, was payable to TopHat Capital for these services.
[3] During the year ended March 31 2015, 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 March 31, 2015, $6,343 was payable to Crystal Research Associates for these services.
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Notes Payable to Related Parties - Schedule of Notes Payable Secured and Unsecured Related parties (Details) - USD ($)
Mar. 31, 2015
Mar. 31, 2014
Current portion of notes payable to Related Parties $ 267,000 $ 209,452
Unsecured Note Payable To a Stockholder, Due on April 1, 2014, Currently in Default [Member]    
Current portion of notes payable to Related Parties $ 102,000 102,000
Unsecured Note Payable To a Stockholder, Interest At 10% Per Annum Payable At Various Maturity Dates, Settled in April 2014 [Member]    
Current portion of notes payable to Related Parties [1]   $ 32,452
Unsecured Payable To A Stockholder At 10% Per Annum, Payable on Demand [Member]    
Current portion of notes payable to Related Parties $ 165,000  
Unsecured $100,000 Revolving Promissory Note to a Stockholder, Interest At 10% Per Annum Payable in Full on November 2014 [Member]    
Current portion of notes payable to Related Parties [2]   $ 75,000
[1] 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 issued 172,060 shares of its Common Stock with a fair value of $38,191 as settlement of the note payable of $32,452 and unpaid interest of $1,960. In addition, the Company also granted the note holder 355,460 shares of common stock with a fair value of along with a five-year warrant to purchase 527,520 shares of its Common Stock at an exercise price of $0.15 per share. The loss on the settlement of this note of $153,754 was provided for and accrued for as of March 31, 2014 as part of Accounts to be settled by issuance of equity securities in the accompanying balance sheet.
[2] In January 2015, the note holder and the Company agreed to cancel this revolver and role the then principal and interest outstanding of $98,708 into a convertible note under the same terms as the 3% Senior secured convertible notes discussed in Note 5.
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Consolidated Statements of Operations (Parenthetical)
12 Months Ended
Mar. 31, 2014
USD ($)
Income Statement [Abstract]  
Settlement costs from related parties $ 385,785
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Property and Equipment
12 Months Ended
Mar. 31, 2015
Property, Plant and Equipment [Abstract]  
Property and Equipment

NOTE 2 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following at March 31, 2015 and March 31, 2014:

 

    March 31, 2015     March 31, 2014  
Tooling   $ 641,324     $ 470,399  
Equipment     321,189       264,837  
Leasehold improvements     203,310       203,312  
Total, cost     1,165,823       938,548  
Accumulated depreciation and amortization     (573,707 )     (391,724 )
Total Property and Equipment   $ 592,116     $ 546,824  

 

Depreciation and amortization expense for the years ended March 31, 2015 and 2014 was $181,983 and $97,061, respectively.

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Commitments and Contingencies - Schedule of Future Minimum Rental Payments for Operating Leases (Details)
Mar. 31, 2015
USD ($)
Commitments and Contingencies Disclosure [Abstract]  
2016 $ 583,671
2017 599,689
2018 512,172
Total Lease Commitment $ 1,695,532
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Related Party Transactions (Tables)
12 Months Ended
Mar. 31, 2015
Related Party Transactions [Abstract]  
Amounts of Accounts Payable to Related Parties

The amounts of accounts payable to related parties as of March 31, 2015 and 2014 are as follows:

 

Related Party:   March 31, 2015     March 31, 2014  
Steve Saleen (a)   $ 223,455     $ 100,000  
Michaels Law Group (b)           23,954  
Top Hat Capital (c)     62,500       25,000  
Crystal Research (d)     6,343        
Molly Saleen, Inc. (e)     34,214       23,580  
    $ 326,512     $ 172,534  

 

(a) During the year ended March 31, 2015, the Company incurred $125,654 in officers’ salary expense that is due and payable to its Director, Chairman and CEO, Mr. Steve Saleen. As of March 31, 2015 and 2014 the Company owed $223,455 and $100,000, respectively, to Mr. Saleen for his unpaid officers’ salary. In March 2014, Mr. Saleen agreed to forgive $353,787 of amounts owed for loans given by Mr. Saleen to the Company and unpaid salary, which the Company recognized as a gain and offset to settlement expenses in the Statement of Operations. In June 2015, the Company issued 220,000 shares of Super Voting Preferred Stock for payment of $220,000 owed to Mr. Saleen (see Note 11).
   
(b)

During the year ended March 31, 2015 and 2014, the Company incurred $69,418 and $365,251, respectively, in General Counsel Services and legal fees expense with Michaels Law Group, a firm owned by a former Director and General Counsel, Mr. Jonathan Michaels. In January 2015, the Company entered into a Fee Reduction Agreement with Michaels Law Group whereby Michaels Law Group reduced the amount owed to $75,000 and the Company issued 2,500,000 shares of Common Stock to Michaels Law Group as full payment. The value of the Common Stock issued of $75,000 was based on a fair value of $0.03 per share. During the year ended March 31, 2015 the Company paid $550 to Michaels Law Group.

 

In March 2014, the Company entered into a Retainer Agreement whereby the Company issued 1,447,500 shares of Common Stock and five year warrants to purchase 1,447,500 shares of Common Stock at an exercise price of $0.15 per share along with cash of $36,459 in exchange for amounts owed through February 2014. The value of the Common Stock issued was $405,300 based on a stock price of $0.28 on date of settlement. The Company valued the warrants at $332,491 using the Black-Scholes option pricing model using the following assumptions: (i) fair market value of stock of $0.28; (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 Company recognized a loss of $521,558 included in settlement expenses in the Statement of Operations for the year ended March 31, 2014 based on the difference between the value of the common shares and stock warrants issued plus $36,459 cash paid and the amount owed of $252,692. During the year ended March 31, 2014, the Company paid $110,000 to Michaels Law Group. As of March 31, 2014, $23,954 was payable to Michaels Law Group services for rendered.

   
(c) During the year ended March 31, 2015 and 2014, the Company incurred $50,000 and $35,000, respectively, of which the Company paid $12,500 and $10,000, respectively, during the years ended March 31, 2015 and 2014, 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 March 31, 2015 and 2014, $62,500 and $25,000, respectively, was payable to TopHat Capital for these services.
   
(d) During the year ended March 31 2015, 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 March 31, 2015, $6,343 was payable to Crystal Research Associates for these services.
   
(e) During the year ended March 31, 2015 and 2014, the Company purchased $12,650 and $43,325, respectively, of which the Company paid $2,016 and $12,650, respectively, during the years ended March 31, 2015 and 2014, in purchases of apparel and accessories from Molly Saleen, Inc. dba Mollypop. Molly Saleen, the Chief Executive Officer of Mollypop, is the daughter of Steve Saleen, the Company’s Chief Executive Officer and President. As of March 31, 2015 and 2014, $34,214 and $23,580, respectively, was outstanding. On June 22, 2015, the Company issued 19,077.777 shares of Super Voting Preferred Stock for payment of $34,214 outstanding (see Note 11).

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In ''Consolidated Balance Sheets (Parenthetical)'', column(s) 7, 8 are contained in other reports, so were removed by flow through suppression. slnn-20150331.xml slnn-20150331_cal.xml slnn-20150331_def.xml slnn-20150331_lab.xml slnn-20150331_pre.xml slnn-20150331.xsd true true XML 81 R38.htm IDEA: XBRL DOCUMENT v3.2.0.727
Notes Payable - Schedule of Secured and Unsecured Notes Payable (Details) - USD ($)
Mar. 31, 2015
Mar. 31, 2014
Total notes payable $ 671,750 $ 1,275,774
Notes Payable One [Member]    
Total notes payable [1] 358,704 442,479
Notes Payable Two [Member]    
Total notes payable [2] 97,000 97,000
Notes Payable Three [Member]    
Total notes payable [3] $ 61,046 61,046
Notes Payable Four [Member]    
Total notes payable [4]   37,749
Notes Payable Five [Member]    
Total notes payable [5]   517,500
Notes Payable Six [Member]    
Total notes payable [6] $ 55,000 $ 120,000
Notes Payable Seven [Member]    
Total notes payable [7] $ 100,000  
[1] On February 6, 2014, Saleen Signature Cars received a Complaint from the bank filed in California Superior Court, Riverside County alleging, among other matters, breach of contract due to non-timely payment of November and December 2013 principal amounts owed, which were paid as of March 31, 2014, and the occurrence of a change in control as a result of the Merger. The bank sought full payment of principal and interest owed. In April 2014, the Company entered into a settlement arrangement with the bank whereby the bank dismissed this case in exchange for payment of $124,000 that was applied towards principal and unpaid fees along with advance loan principal and interest through July 2014. From August 2014 to March 31, 2015, in exchange for payments totaling $90,000, the bank agreed to extend this arrangement through various dates with the last date being March 2015. The bank has not agreed to an additional extension in conjunction with the bank's claim of default. On April 29, 2015, the bank filed a claim against the Company alleging breach of the loan agreement, breach of a commercial guaranty by Steve Saleen, Chairman and CEO, and the bank demanded full payment of principal and interest outstanding (see Note 10).
[2] Bonds and notes issued on March 1, 2008, 2009 and 2010, payable in full upon one year from issuance. The Bonds accrue interest at 6% per annum and are secured by the personal property of Saleen Signature Cars. As of March 31, 2015 and 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 March 31, 2015 and 2014 due to non-payment.
[4] Non-interest bearing note payable dated January 25, 2013 due in full on October 25, 2013 or earlier upon the occurrence of certain events. The note is secured by certain intellectual property of the Company. The note was in default as of March 31, 2014 due to non-payment. In February 2015, the Company entered into a Settlement Agreement and Mutual General Release with this note holder whereby the Company agreed to issue 2,272,727 shares of its Common Stock at a price of $0.022 per share, or $50,000, in exchange for cancellation of all amounts owed and a mutual general release. The Company recognized a loss on settlement of $7,235 that is reflected in the Statement of Operations during the year ended March 31, 2015 to account for the difference between the fair value of the common shares issued and the amount recorded owed as of the date of settlement.
[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, Chairman and CEO, 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/share. 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 on settlement of $72,265 in the Statement of Operations during the year ended March 31, 2015 to account for the difference between the fair value of the common shares issued 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 March 31, 2015. In addition, another separate note for $20,000 remains outstanding as of March 31, 2015 and is in default due to non-payment.
[7] Note payable issued on March 25, 2015 bearing interest at a rate of 6% per annum. The note was secured by a vehicle provided to the borrower by the Company and was due on demand after 60 days following the date the secured vehicle was returned to the Company. In May 2015, the borrower agreed to cancel this note and convert the then principal and interest outstanding into a convertible note under the same terms as the 3% Senior secured convertible notes discussed in Note 5. In June 2015, the Company entered into an intellectual property agreement with the note holder. In connection with this agreement, the note was cancelled. See Note 11 for further discussion.
XML 82 R20.htm IDEA: XBRL DOCUMENT v3.2.0.727
Nature of the Business and Significant Accounting Policies (Policies)
12 Months Ended
Mar. 31, 2015
Accounting Policies [Abstract]  
Description of the Company

Description of the Company

 

Saleen Automotive, Inc. (formerly W270, Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on June 24, 2011. The Company designs, develops, manufactures and sells high performance vehicles built from base chassis’ of Ford Mustangs, Chevrolet Camaros, Dodge Challengers and Tesla Model S vehicles. The Company is a low volume vehicle design, engineering and manufacturing company focusing on the mass customization (the process of customizing automobiles that are mass produced by the manufacturers (Ford, Chevrolet, Dodge and Tesla) of OEM American sports and electric vehicles. A high performance car is an automobile that is designed and constructed specifically for speed and performance. The design and construction of a high performance car involves not only providing a capable power train but also providing the handling, aerodynamics and braking systems to support it. The Company’s Saleen-branded products include a complete line of upgraded high performance vehicles, automotive aftermarket specialty parts and lifestyle accessories.

Merger

Merger

 

On May 23, 2013, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Saleen California Merger Corporation, its wholly-owned subsidiary, Saleen Florida Merger Corporation, its wholly-owned subsidiary, Saleen Automotive, Inc. (“Saleen Automotive”), SMS Signature Cars (“SMS” and together with Saleen Automotive, the “Saleen Entities”) and Steve Saleen (“Saleen” and together with the Saleen Entities, the “Saleen Parties”). The closing (the “Closing”) of the transactions contemplated by the Merger Agreement (the “Merger”) occurred on June 26, 2013. At the Closing (a) Saleen California Merger Corporation was merged with and into SMS with SMS surviving as one of the Company’s wholly-owned subsidiaries; (b) Saleen Florida Merger Corporation was merged with and into Saleen Automotive with Saleen Automotive surviving as one of the Company’s wholly-owned subsidiaries; (c) holders of the outstanding capital stock of Saleen Automotive received an aggregate of 554,057 shares of the Company’s Super Voting Preferred Stock, which was subsequently converted into 69,257,125 shares of the Company’s Common Stock and holders of the outstanding capital stock of SMS received no consideration for their shares; and (d) approximately 93% of the beneficial ownership of the Company’s Common Stock (on a fully-diluted basis) was owned, collectively, by Saleen (including 341,943 shares of the Company’s Super Voting Preferred Stock, which was subsequently converted into 42,742,875 shares of the Company’s Common Stock, issued to Saleen pursuant to the Assignment and License Agreement) and the former holders of the outstanding capital stock of Saleen Automotive. As a result of the Merger the Company is solely engaged in the Saleen Entities’ business, Saleen Automotive’s then officers became the Company’s officers and Saleen Automotive’s then three directors became members of the Company’s five-member board of directors. On June 17, 2013, the Company consummated a merger with WSTY Subsidiary Corporation, its wholly-owned subsidiary, pursuant to which the Company amended its articles of incorporation to change its name to Saleen Automotive, Inc. In October 2013, SMS effected an amendment to its articles of incorporation to change its name to Saleen Signature Cars. In January 2014, the Company effected an increase in the number of its common shares authorized to 500,000,000 and all the remaining shares of Super Voting Preferred Stock were converted into Common Stock of the Company and the Super Voting Preferred Stock ceased to be a designated series of the Company’s preferred stock.

 

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 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 reverse merger transaction in the accompanying Statement of Operations for the year ended March 31, 2014.

Consolidation Policy

Consolidation Policy

 

The 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

Reclassification of Certain Prior Year Information

 

The Company has reclassified certain prior year amounts to conform to the current year presentation. This included reclassification of promotional trade discount expenses of $172,661 for the twelve month period ended March 31, 2014 to revenue from sales and marketing expenses. The Company has also reclassified $23,580 of accounts payable owed to Molly Saleen Inc. as of March 31, 2014 from Accounts Payable to Due to Related Parties and has reclassified $139,300 of taxes payable as of March 31, 2014 from Other current liabilities to Payroll and other taxes payable. The reclassification of these amounts had no impact on consolidated net loss or cash flows.

Going Concern

Going Concern

 

The Company’s 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 year ended March 31, 2015, the Company incurred an operating loss of $5,321,929 and utilized $2,549,895 of cash in operations. The Company also had a stockholders’ deficit and working capital deficit of $9,669,225 and $7,050,644, respectively, as of March 31, 2015, and as of that date, the Company owed $745,503 in past unpaid payroll and other taxes; $933,271 of outstanding notes payable were in default; $1,204,840 of accounts payable was greater than 90 days past due; and $288,900 is owed on past due rent. In addition, in May 2015, the Company received a complaint from a bank alleging breach of the loan agreement and breach of a commercial guaranty by Steve Saleen and demanding full payment of principal, interest and fees of $369,302. A default under the loan agreement triggers a cross default under the Company’s 3% Senior Secured Convertible Notes and 7% Convertible Notes (see Note 5) enabling the holders thereof to, at their election until the later of 30 days after such default is cured or otherwise resolved or the holder becomes aware of such cure or resolution, accelerate the maturity of the Company’s indebtedness. In addition, the Company does not currently maintain workers’ compensation, product liability and other general insurance.

 

These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to ultimately achieve sustainable revenues and profit from operations. At March 31, 2015 and July 13, 2015 the Company had cash on hand in the amount of $143,083 and approximately $21,000, respectively, and is not generating sufficient funds to cover current production and operations. The Company has utilized funding to operate the business during the year ended March 31, 2015 with funds obtained from customer deposits received in advance of shipment of $1,702,656; received $500,000 in advance royalties from an Intellectual Property Agreement (Note 11) raised $1,289,409 through the issuance of convertible notes; received $295,000 through the issuance of notes payable of which $195,000 came from related parties; and obtained cash from sales of Common Stock through entering into Subscription Agreements with individual accredited investors (the “Subscribers”) pursuant to which the Subscribers purchased from the Company an aggregate of 1,183,334 restricted common shares at a per share price of $0.15 for aggregate proceeds of $177,500. The Company will need and is currently seeking additional funds, primarily through the issuance of debt or equity securities for production and to operate its business through and beyond the date of this Form 10-K filing. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions and covenants on its operations, in the case of debt financing or cause substantial dilution for its stockholders in the case of convertible debt and equity financing.

Use of Estimates

Use of Estimates

 

Financial statements prepared in accordance with accounting principles generally accepted in the United States require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among other things, management estimates include the estimated collectability of its accounts receivable, the valuation of long lived assets, warranty reserves, the assumptions used to calculate derivative liabilities, and equity instruments issued for financing and compensation. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

The Company accounts for the fair value of financial instruments in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) topic 820, “Fair Value Measurements and Disclosures” (ASC 820), formerly SFAS No. 157 “Fair Value Measurements”. ASC 820 defines “fair value” as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

 

Authoritative guidance provided by the FASB defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

 

Level 1 Quoted prices in active markets for identical assets or liabilities.

 

Level 2 Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly.

 

Level 3 Unobservable inputs based on the Company’s assumptions.

 

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, accrued liabilities, customer deposits, and notes payable. The carrying amounts of such financial instruments in the accompanying balance sheets approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

As of March 31, 2015 and 2014, the Company’s consolidated balance sheets included the fair value of derivative liabilities of $1,268,588 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 March 31, 2015 and 2014.

Derivative Financial Instruments

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 consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

To determine the number of authorized but unissued shares available to satisfy outstanding convertible securities, the Company uses a sequencing method to prioritize its convertible securities as prescribed by ASC 815-40-35. At each reporting date, the Company reviews its convertible securities to determine their classification is appropriate.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

 

The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding.

 

The Company recognizes an allowance for doubtful accounts to ensure trade receivables are not overstated due to uncollectability. For the most part, the Company generally requires advance payments for cars and credit card payments for parts. As of March 31, 2014 the Company had an allowance for doubtful accounts of $271,658. There was no such allowance at March 31, 2015.

Inventories

Inventories

 

Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis. Inventories consist primarily of parts for both resale and conversion of automotive chassis. The Company will typically buy the automobile chassis of the vehicle to be converted from the Ford, Chevrolet and Dodge dealers and then modify the vehicle as ordered. The Company typically has no finished goods inventory, as the Company builds to order, other than parts held for resale.

 

    March 31, 2015     March 31, 2014  
             
Parts and chassis   $ 176,718     $ 183,941  
Work in process     298,969       -  
S7 Supercar held for sale     250,000       250,000  
Total inventories   $ 725,687     $ 433,941  

Long-Lived Assets

Long-lived Assets

 

In accordance with ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.

 

The Company had no such asset impairments at March 31, 2015 or March 31, 2014. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets.

Revenue Recognition

Revenue Recognition

 

Sales of High Performance Cars and Parts

 

The Company generates revenues primarily from the sale of high performance automobiles and parts. The Company recognizes revenue from the sale of completed high performance cars and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably assured, all of which generally occurs upon shipment of the Company’s product or delivery of the product to the destination specified by the customer. In cases where the Company is the primary obligor related to the purchase of base Ford Mustang, Chevrolet Camaro and Dodge Challenger vehicles, the Company recognizes revenue related to the cost of the chassis plus markup, if any.

 

The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the cars or products on the carrier. The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured and generally collects before shipment. Except for warranties, the Company has no post-sales obligations nor does the Company accept returns.

 

Contract Revenue and Cost Recognition on Design Services

 

During the year ended March 31, 2014, the Company realized revenue from a contract with a major Hollywood movie producer of $121,500 for the design and replica production of supercar racing automobiles for the Need for Speed movie, which was released in March 2014. The Company did not have any design contracts during the year ended March 31, 2015.

Customer Deposits

Customer Deposits

 

The Company’s sales orders generally require customers to put deposits on vehicles at the time of signing a sales order. Typically, the Company receives either partial or full deposits related to such sales orders in advance of shipment and is generally paid in full prior to shipment of customers’ orders. Customer deposits as of March 31, 2015 and 2014 comprised of funds received in advance of shipment and were $1,896,568 and $193,912, respectively, which will be recorded as revenue upon shipment of related customers’ orders and satisfaction of the revenue recognition requirements discussed above.

Warrant Policy

Warranty Policy

 

The Company provides a three-year or 36,000 miles New Vehicle Limited Warranty with every Saleen 302 Mustang, Saleen 570 Challenger, Saleen 620 Camaro high performance vehicle and Saleen GTX. The vehicle limited warranty applies to installed parts and/or assemblies in new Saleen high performance cars. All of the unaltered parts are covered under the original full warranty of the OEM manufacturer of the base vehicles (Ford, Chevrolet, and Dodge). Changes in the product warranty accrual for the fiscal years ended March 31, 2015 and 2014 were as follows:

 

    Balance at
Beginning
of Fiscal Year
    Warranty
Expenditures
    Provision for
Estimated
Warranty Cost
    Balance at End
of Fiscal Year
 
Fiscal 2015   $ -     $ (7,077 )   $ 27,077     $ 20,000  
Fiscal 2014   $ -     $ (16,763 )   $ 36,763     $ 20,000  

Business Segments

Business Segments

 

The Company currently has one operating business segment that is converting automobiles into high performance vehicles and selling related parts.

Research and Developments Costs

Research and Development Costs

 

Research and development costs consist of expenditures for the research and development of new products and technology and are expensed as incurred. Research and development costs were $747,833 and $766,996 during the years ended March 31, 2015 and 2014, respectively.

Advertising Sales and Marketing Costs

Advertising, Sales and Marketing Costs

 

Advertising, sales and marketing costs are expensed as incurred and are included in sales and marketing expenses. During the year ended March 31, 2015, advertising, sales and marketing expenses were $3,679, $126,185, and $472,969, respectively. During the year ended March 31, 2014, advertising, sales and marketing expenses were $59,993, $110,275, and $414,555, respectively.

Income Taxes

Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“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 the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.

Stock Compensation

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.

 

The Company also uses the provisions of ASC 505-50, “Equity Based Payments to Non-Employees,” to account for stock-based compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50.

Loss Per Share

Loss per Share

 

The basic EPS is calculated by dividing the Company’s net loss available to Common Stockholders by the weighted average number of common shares during the period. The diluted EPS is calculated by dividing the Company’s net loss available to Common Stockholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted average number of shares adjusted for any potentially dilutive debt or equity securities unless the effects thereof are anti-dilutive, that is inclusion of such shares would reduce the net loss or increase the net income. For the years ended March 31, 2015 and 2014, the basic and diluted shares outstanding were the same, as potentially dilutive shares were considered anti-dilutive.

 

As of March 31, 2015, stock options and warrants exercisable for 13,459,000, and 13,313,099, shares of Common Stock, respectively, have been excluded from diluted loss per share because they are anti-dilutive.

 

As of March 31, 2014, warrants exercisable for 11,252,245 shares of Common Stock, and Notes convertible into 66,632,617 shares of Common Stock have been excluded from diluted loss per share because they are anti-dilutive.

Significant Concentrations

Significant Concentrations

 

Sales to one customer comprised 11% of revenues for the year ended March 31, 2015. No customers comprised revenues in excess of 10% during the year ended March 31, 2014 and no customers comprised accounts receivable in excess of 10% at March 31, 2015 and 2014.

Concentrations of Credit Risk

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consisted primarily of cash, to the extent balances exceeded limits that were insured by the Federal Deposit Insurance Corporation and accounts receivable. The Company does not require collateral and maintains reserves for potential credit losses. Such losses have historically been immaterial and have been within management’s expectations.

Property and Equipment

Property and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized on the straight-line method over the following estimated useful lives:

 

Computer equipment and software   3 years
Furniture   3 years
Machinery   3-10 years
Tooling   10 years

 

Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

 

On May 28, 2014, the Financial Accounting Standards Board (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. We will apply the new revenue recognition standard in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application would be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. 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 November 2014, the FASB issued Accounting Standards Update No. 2014-16 (ASU 2014-16), Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in this ASU do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. The ASU applies to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share and is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. Management is currently evaluating the impact, if any, of adopting ASU 2014-16 on the Company’s results of operations or financial condition.

 

In January 2015, the FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), as part of its initiative to reduce complexity in accounting standards. ASU No. 2015-01 eliminates from generally accepted accounting principles the concept of extraordinary items. ASU No. 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with earlier adoption permitted. A reporting entity may apply the provisions of ASU No. 2015-01 prospectively or retrospectively to all prior periods presented in the financial statements. The Company does not expect the adoption of ASU No. 2015-01 to have a material effect on it results of operations or financial condition.

 

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 consolidated financial statements.