UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For Quarterly Period Ended September 30,December 31, 2019

 

or

 

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

 

For the transition period from __________ to __________

 

Commission File Number 000-55236

 

SALEEN AUTOMOTIVE, INC.

(Exact name of registrant issuer as specified in its charter)

 

Nevada 45-2808694

(State or Other Jurisdiction of

Incorporation or Organization)

 

(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 pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
N/A N/A N/A

 

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 [  ] No [X]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [  ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer[  ] Accelerated filer[  ]
Non-accelerated filer[X] Smaller reporting company[X]
   Emerging growth company[  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

The number of shares of registrant’s common stock outstanding as of JuneAugust 1, 2020 was 24,536,963.

 

 

 

 
 

 

SALEEN AUTOMOTIVE, INC.

FORM 10-Q

INDEX

 

   Page
PART I – FINANCIAL INFORMATION
 
ITEM 1.Condensed Consolidated Financial Statements:  
 a)Condensed Consolidated Balance Sheets (Unaudited) F-1
 b)Condensed Consolidated Statements of Operations (Unaudited) F-2
 c)Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited) F-3
 d)Condensed Consolidated Statements of Cash Flows (Unaudited) F-4
 e)Notes to Condensed Consolidated Financial Statements (Unaudited) F-5
ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations 3
ITEM 3.Quantitative and Qualitative Disclosures about Market Risk 9
ITEM 4.Controls and Procedures 9
    
 PART II - OTHER INFORMATION  
ITEM 1Legal Proceedings 10
ITEM 1ARisk Factors 10
ITEM 2Unregistered salesSales of equity securitiesEquity Securities and useUse of proceedsProceeds 10
ITEM 3Defaults upon senior securitiesUpon Senior Securities 10
ITEM 4Mine safety disclosuresSafety Disclosures 10
ITEM 5Other informationInformation 10
ITEM 6Exhibits 11
SIGNATURES  12

2

Saleen Automotive, Inc.

Saleen Automotive, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 

 December 31, 2019 March 31, 2019 
 September 30, 2019 March 31, 2019  (Unaudited)   
ASSETS                
Current Assets                
Cash $4,151,805  $3,374,234  $692,513  $3,374,234 
Accounts receivable (including $0 as of September 30, 2019 and $133,742 as of March 31, 2019 due from related party)  634,755   136,387 
Accounts receivable, net  1,150,174   136,387 
Inventory  264,084   108,498   171,402   108,498 
Other current assets  14,591   -   10,973   - 
Total Current Assets  5,065,235   3,619,119   2,025,062   3,619,119 
                
Property and equipment, net  1,353,003   650,353   1,582,277   650,353 
Intellectual property  1,482,304   -   1,482,304   - 
Right-of-use assets  4,001,449   -   3,943,249   - 
Security deposits  70,780   70,800   70,780   70,800 
Total Long-term Assets  7,078,610   721,153 
TOTAL ASSETS $11,972,771  $4,340,272  $9,103,672  $4,340,272 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
Current Liabilities                
Accounts payable $125,603  $351,726  $871,973  $351,726 
Accrued compensation  455,887   632,689   427,682   632,689 
Customer deposits  99,692   511,081   304,974   511,081 
Accrued liabilities  2,745,134   167,554   -   167,554 
Due to related parties  61,672   519,364   61,672   519,364 
Income taxes payable  1,128,985   503,000   1,225,146   503,000 
Notes payable  87,179   224,159   79,679   224,159 
Convertible note payable, past due  100,000   100,000   100,000   100,000 
Accrued interest on notes payable  37,131   37,131   37,131   37,131 
Contract liabilities  1,323,696   1,068,150 
Contract liability  -   1,068,150 
Deferred rent  -   263,955   -   263,955 
Operating lease liabilities  246,473   -   246,473   - 
Accrued warranties  20,000   20,000   20,000   20,000 
Total Current Liabilities  6,431,452   4,398,809   3,374,730   4,398,809 
Operating lease liabilities – non-current  3,755,622   -   3,696,776   - 
Total Liabilities  10,187,074   4,398,809   7,071,506   4,398,809 
Commitments and Contingencies (Note 11)        
Commitments and Contingencies (Note 9)        
Stockholders’ Equity (Deficit)                
Preferred stock; $0.001 par value; 1,000,000 shares authorized; 667 Series B shares issued and outstanding as of September 30, 2019 and March 31, 2019  1   1 
Common stock; $0.001 par value; 100,000,000 shares authorized; 24,536,963 issued and outstanding as of September 30, 2019 and March 31, 2019  24,537   24,537 
Preferred stock; $0.001 par value; 1,000,000 shares authorized; 667 Series B shares issued and outstanding as of December 31, 2019 and March 31, 2019  1   1 
Common stock; $0.001 par value; 100,000,000 shares authorized; 24,536,963 issued and outstanding as of December 31, 2019 and March 31, 2019  24,537   24,537 
Additional paid-in capital  36,406,842   36,406,842   36,406,842   36,406,842 
Accumulated deficit  (34,645,683)  (36,489,917)  (34,399,214)  (36,489,917)
Total Stockholders’ Equity (Deficit)  1,785,697   (58,537)  2,032,166   (58,537)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $11,972,771  $4,340,272 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $9,103,672  $4,340,272 

 

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

F-1

Saleen Automotive, Inc.

Saleen Automotive, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

 

 

Three Months Ended

September 30,

  Six Months Ended
September 30,
  Three Months Ended
December 31,
  Nine Months Ended
December 31,
 
 2019 2018 2019 2018  2019 2018 2019 2018 
Revenues                                
Services $9,869,690  $3,162,136  $21,102,053  $4,179,011  $2,887,827  $2,845,423  $23,989,880  $7,024,434 
Products  1,955,949   658,297   2,652,169   1,201,626 
Products, net  558,024   607,045   3,210,193   1,808,671 
Royalties  32,656   -   39,623   4,043   15,691   -   55,314   4,043 
Total revenues, net  11,858,295   3,820,433   23,793,845   5,384,680   3,461,542   3,452,468   27,255,387   8,837,148 
                                
Costs of revenues                                
Services  7,465,787   944,332   16,622,538   1,439,618   982,740   -   17,605,278   1,439,618 
Products  1,637,783   742,828   2,035,929   1,149,132   372,668   459,841   2,408,597   1,608,973 
Total costs of revenues  9,103,570   1,687,160   18,658,467   2,588,750   1,355,408   459,841   20,013,875   3,048,591 
                                
Gross profit  2,754,725   2,133,273   5,135,378   2,795,930   2,106,134   2,992,627   7,241,512   5,788,557 
                                
Operating expenses                                
Advertising, sales, and marketing  251,058   167,805   682,488   294,951 
Advertising, sales and marketing  414,181   219,558   1,096,669   514,509 
General and administrative  1,276,530   1,344,326   2,051,785   2,294,811   1,182,360   875,376   3,234,145   3,170,187 
Research and development  -   16,964   -   24,321   7,000   279   7,000   24,600 
Depreciation and amortization  37,168   10,843   97,724   38,530   60,407   23,646   158,131   62,176 
Total operating expenses  1,564,756   1,539,938   2,831,997   2,652,613   1,663,948   1,118,859   4,495,945   3,771,472 
                                
Income from operations  1,189,969   593,335   2,303,381   143,317   442,186   1,873,768   2,745,567   2,017,085 
                                
Other expense                                
Interest and financing costs  101,011   7,809   102,109   17,880 

Interest expense

  99,565   8,211   201,674   26,091 
Total other expense  101,011   7,809   102,109   17,880   99,565   8,211   201,674   26,091 
                                
Net income before income tax expense  1,088,958   585,526   2,201,272   125,437   342,621   1,865,557   2,543,893   1,990,994 
Income tax expense  297,903   -   620,993   -   96,152   -   717,145   - 
Net income $791,055  $585,526  $1,580,279  $125,437  $246,469  $1,865,557  $1,826,748  $1,990,994 
Deemed dividend related to beneficial conversion feature of Series B Preferred Stock  -   -   -   92,000   -   -   -   92,000 
Net income attributable to common stockholders $791,055  $585,526  $1,580,279  $33,437  $246,469  $1,865,557  $1,826,748  $1,898,994 
                                
Net income per share attributable to common stockholders:                                
Basic $0.03  $0.02  $0.06  $0.00  $0.01  $0.08  $0.07  $0.08 
Diluted $0.03  $0.02  $0.06  $0.00  $0.01  $0.07  $0.07  $0.07 
Shares used in computing net income per share attributable to common stockholders:                                
Basic  24,536,963   24,536,963   24,536,963   24,536,963   24,536,963   24,536,963   24,536,963   24,536,963 
Fully diluted  27,036,953   27,036,953   27,036,953   27,036,953 
Diluted  27,036,953   27,036,953   27,036,953   27,036,953 

 

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

F-2

Saleen Automotive, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

For the Nine Months Ended December 31, 2019

              Additional       
  Preferred Shares  Common Stock  Paid-in  Accumulated    
  Shares  Amount  Shares  Amount  Capital  (Deficit)  Total 
                      
Balance at March 31, 2019            667  $           1   24,536,963  $24,537  $36,406,842  $(36,489,917) $(58,537)
                             
Cumulative-effect of change in accounting policy (ASC 842)  -   -   -   -   -   263,955   263,955 
                             
Net income  -   -   -   -   -   789,224   789,224 
                             
Balance at June 30, 2019  667  $1   24,536,963  $24,537  $36,406,842  $(35,436,738) $994,642 
                             
Net income  -   -   -   -   -   791,055   791,055 
                             
Balance at September 30, 2019  667  $1   24,536,963  $24,537  $36,406,842  $(34,645,683) $1,785,697 
                             
Net income  -   -   -   -   -   246,469   246,469 
                             
Balance at December 31, 2019  667  $1   24,536,963  $24,537  $36,406,842  $(34,399,214) $2,032,166 

Saleen Automotive, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

For the SixNine Months Ended September 30, 2019December 31, 2018

 

              Additional       
  Preferred Shares  Common Stock  Paid-in  Accumulated    
  Shares  Amount  Shares  Amount  Capital  (Deficit)  Total 
                      
Balance at March 31, 2019  667  $1   24,536,963  $24,537  $36,406,842  $(36,489,917) $(58,537)
                             
Cumulative-effect of change in accounting policy (ASC 842)  -   -   -   -   -   263,955   263,955 
                             
Net income  -   -   -   -   -   789,224   789,224 
                                       
Balance at June 30, 2019  667   1   24,536,963   24,537   36,406,842   (35,436,738)  994,642 
                             
Net income  -   -   -   -   -   791,055    791,055 
                             
Balance at September 30, 2019  667  $1   24,536,963  $24,537  $36,406,842  $(34,645,683) $1,785,697 

Saleen Automotive, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (Unaudited)

For the Six Months Ended September 30, 2018

          Additional               Additional     
 Preferred Shares  Common Stock  Paid-in  Accumulated     Preferred Shares Common Stock Paid-in Accumulated   
 Shares  Amount  Shares  Amount  Capital  (Deficit)  Total  Shares Amount Shares Amount Capital (Deficit) Total 
                              
Balance at March 31, 2018  -  $-   24,536,963  $24,537  $36,006,843  $(39,001,178) $(2,969,798)              -  $             -   24,536,963  $24,537  $36,006,843  $(39,001,178) $(2,969,798)
                                                        
Net loss  -   -   -   -   -   (460,089)  (460,089
Net income  -   -   -   -   -   (460,089)  (460,089)
                                                        
Balance at June 30, 2018  -   -   24,536,963   24,537   36,006,843   (39,461,267)  (3,429,887)  -  $-   24,536,963  $24,537  $36,006,843  $(39,461,267) $(3,429,887)
                                                        
Cash proceeds from sales of Series B Preferred Stock and warrants in private placement to related party  667   1   -   -   399,999   -   400,000   667   1   

-

   

-

   399,999   

-

   400,000 
Beneficial conversion feature of Series B Preferred Stock  -   -   -   -   92,000   -   92,000   

-

   

-

   

-

   -   92,000   

-

   92,000 
Deemed dividend on beneficial conversion feature of Series B Preferred Stock  -   -   -   -   (92,000)  -   (92,000)  

-

   

-

   

-

   

-

   (92,000)  

-

   (92,000)
Net income  -   -   -   -   -   585,526   585,526   

-

   -   

-

   

-

   -   585,526   585,526 
                                                        
Balance at September 30, 2018  667  $1   24,536,963  $24,537  $36,406,842  $(38,875,741) $(2,444,361)  667  $1   24,536,963  $24,537  $36,406,842  $(38,875,741) $(2,444,361)
                            
Net income  

-

   

-

   

-

   

-

   

-

   1,865,557   1,865,557 
                            
Balance at December 31, 2018  667  $1   24,536,963  $24,537  $36,406,842  $(37,010,184) $(578,804)

 

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

F-3

Saleen Automotive Inc.

Saleen Automotive Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 Six Months Ended September 30,  Nine Months Ended December 31, 
 2019  2018  2019 2018 
          
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income $1,580,279  $125,437  $1,826,748  $1,990,994 
Adjustments to reconcile net income to net cash provided by (used) in operating activities                
Depreciation  97,724   38,530 
Depreciation and amortization of property and equipment  158,131   62,176 
Income tax expense  620,993   -   717,145   - 
Operating lease payments  (57,397)  -   (116,243)  - 
Amortization of right of use assets  58,043   - 
Amortizaiton of right of use assets  116,243   - 
Changes in Assets and Liabilities               
Accounts receivable  (498,368)  36,093   (1,013,787)  (1,610,330)
Inventory  (155,586)  (22,768)  (62,904)  (28,531)
Other current assets  (14,571)  (185,400)  (10,973)  14,600 
Accounts payable  (226,123)  (729,632)  525,268   (834,072)
Accrued compensation  (176,802)  (83,658)  (205,007)  (159,495)
Accrued interest on notes payable  -   (24,618)
Customer deposits  (411,389)  (172,160)  (206,107)  (77,160)
Accrued liabilities  2,582,572   58,776   (167,554)  (47,432)
Contract liabilities  255,546   650,614 
Accrued interest on notes payable      (19,036)
Contract liability  (1,068,150)  509,763 
Net cash provided by (used in) operating activities  3,654,921   (308,786)  492,810   (198,523)
                
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of S7 Supercars assets  (1,482,304)  - 
Purchase of property and equipment  (800,374)  (52,812)  (1,090,055)  (143,630)
Purchase of S7 Supercars asset  (1,482,304)  - 
Net cash (used in) provided by investing activities  (2,282,678)  (52,812)
Net cash (used in) investing activities  (2,572,359)  (143,630)
                
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from sale of Series B Preferred Stock and warrants in private placement to related party  -   400,000   -   400,000 
Due to related parties, net  (457,692)  (103,956)  (457,692)  (67,560)
Repayment of notes payable and advances to related party  -   (200,000)
Repayment of notes payable  (136,980)  (49,000)  (144,480)  (293,500)
Net cash (used in) provided by financing activities $(594,672) $47,044  $(602,172) $38,940 
                
Net change in cash  777,571   (314,554)  (2,681,721)  (303,213)
                
Cash at beginning of the period  3,374,234   523,120   3,374,234   523,120 
                
Cash at end of the period $4,151,805  $208,566  $692,513  $219,907 
                
Supplemental Disclosure of Cash Flow Information                
Cash paid during the period for interest $-  $42,497  $-  $42,497 
                
Fair value of beneficial conversion feature of Series B Preferred Stock $-  $92,000  $-  $92,000 

 

SEE ACCOMPANYING NOTES TO THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

F-4

Saleen Automotive Inc.

Saleen Automotive Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

Basis of Presentation

 

The accompanying condensed consolidated balance sheet as of March 31, 2019, which has been derived from audited consolidated financial statements, and the accompanying interim condensed consolidated financial statements as of September 30,December 31, 2019 and for the three-months and six-monthsnine-months ended September 30,December 31, 2019 and 2018, have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary to present fairly the financial condition, results of operations and cash flows of Saleen Automotive, Inc. (the “Company”) as of and for the periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Operating results for the three-months and sixnine months ended September 30,December 31, 2019 are not necessarily indicative of the results that may be expected for the year ending March 31, 2020, or for any other interim period during such year. Certain information and footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the audited condensed consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019 filed with the SEC on October 4, 2019.

 

Description of the Company

 

Saleen Automotive, Inc. (the “Company”) is an original equipment manufacturer (“OEM”) of high-performance vehicles (“Saleen Original”) that are built from the ground up. The Company also designs, develops, manufactures, and sells high-performance vehicles built from base chassis of major American automobile manufacturers (“Saleen Signature Cars”). The Company also provides engineering, development, and design consulting services on a project basis for automotive manufacturers worldwide. The Company currently has customers worldwide, including muscle and high-performance car enthusiasts, collectors, automotive dealers, exotic car retail dealers, television and motion picture productions, and consumers in the luxury supercar and motorsports markets.

 

Saleen Automotive, Inc. was incorporated under the laws of the State of Nevada on June 24, 2011. On May 23, 2013, the Company entered into a merger agreement with Saleen California Merger Corporation, Saleen Florida Merger Corporation, Saleen Automotive, Inc., and SMS Signature Cars (“SMS”) (collectively, the “Saleen Entities”), and Steve Saleen (“Saleen”). The merger closed on June 26, 2013, and the Saleen Entities merged with the Company and approximately 93% of the Company’s common stock was owned, collectively, by Saleen and the former holders of the outstanding capital stock of Saleen Automotive. 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. In June 2013, the Company amended its articles of incorporation to change its name to Saleen Automotive, Inc.

 

On December 19, 2017, the Company effected a 1-for-2,000 reverse stock split of its common stock (“reverse stock split”) following approval by the Company’s Board of Directors and stockholders. All common stock share and per-share amounts for all periods presented in these condensed consolidated financial statements have been adjusted retroactively to reflect the reverse stock split.

The Company’s common stock is not currently quoted or traded on any market. Prior to deregistration on October 13, 2017, the Company’s common stock traded on the OTC Pink Sheets under the symbol “SLNN.” We intend to apply for quotation of our common stock on the OTCQB, although there is no assurance that our application will be accepted.

 

F-5

Saleen OEM

 

The Company manufacturers the Saleen S7 supercar (“S7”), a limited production supercar with a 1,500-horsepower engine, in the Company’s production facility in Corona, California. The S7 was previously produced under a joint venture agreement with S7 Supercars, LLC (“S7 Supercars”), a related party owned by a significant shareholder, which owned the “S7” name and related intellectual property and assets. Under the agreement, S7 Supercars provided the chassis and all other costs to build the vehicle, and the Company was entitled to a fee for engineering and manufacturing services, plus an additional markup for these services. Separately, upon the sale of the vehicle to the end-users, the Company became entitled to a fee of approximately 33% of the net profit from the sale of the vehicle by S7 Supercars. On May 31, 2019, the Company entered into an asset purchase agreement with S7 Supercars, LLC pursuant to which S7 Supercars sold all of its assets, chassis and other automotive parts relating to the manufacture of the S7 supercar, and related intellectual property, to the Company for an initial purchase price of $1,165,000 comprised of a cash payment of $800,000, and the elimination of an accounts receivable balance of $365,000$682,304 owed to us by S7 Supercars. Furthermore, the amount of accounts receivable balance eliminated increased by $317,304 to $682,304 increasing theSupercars, for a final purchase price to $1,482,304. Given that the purchase assets did not qualify as a business under the definition of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 805 Business Combinations, the Company recognized this transaction as the purchase of an intangible asset consisting of the “S7” tradename. In the previousfirst fiscal quarter, the Company had classified the purchased assets as fixed assets and subsequently reclassified these assets as an intangible asset on the accompanying condensed consolidated balance sheet. In addition, the Company is required to pay S7 Supercars, LLC up to four additional payments of $50,000 each, upon sales by the Company of S7 supercars within the two-year period following the closing, subject to the conditions provided for in the purchase agreement. Currently, none of the additional payments have been accrued as of December 31, 2019. Pursuant to the purchase agreement, the joint venture agreement between the Company and S7 Supercars was terminated, except for indemnification obligations of the Company thereunder. However, the Company does not intend to sell S7s to customers but instead will manufacture S7s for promotional purposes to build its brand. See Note 7X for more details.

 

The Company is also inhas been working on the process of completing the engineering, design, and certificationdevelopment of a new high-performance sports car, the Saleen 1 (or “S1”), under an engineering development and design contract with Jiangsu Saleen Automotive Technology Co. (“JSAT”), an unaffiliated corporation located in China which holds the intellectual property rights related to the S1 developed under the agreement and licenses the Saleen name from Saleen Motors International, an un-related third-party.

Saleen Signature Cars

 

The Company’s Saleen Signature Cars are built from base chassis of major American automobile manufacturers, including Ford Mustangs, Tesla Model S vehicles, and Ford trucks. The Company is a specialist in vehicle design, engineering and manufacturing focusing on the mass customization (the process of customizing automobiles that are mass produced by manufacturers) of 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.

 

Liquidity

 

The Company cannot give assurance that it can maintain its cash balances or limit its cash consumption and maintain sufficient cash balances for its planned operations. Also, future business demands may lead to cash utilization at levels greater than recently experienced or anticipated. While we believe that our existing cash balances will be sufficient to fund our currently planned level of operations and investment activity, we may require additional financing to fund our planned future operations if we encounter unanticipated difficulties, or if our estimates of the amount of cash necessary to operate our business prove to be wrong, and we use our available financial resources faster than we currently expect. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Subject to the foregoing, management and the Board of Directors have adopted a budget that we believe will allow the Company sufficient capital and liquidity to fund its operations for at least one year from the date these condensed consolidated financial statements are issued.

 

In response to the COVID-19 pandemic which impacted operations in early 2020, we have reduced manufacturing schedules to balance production with our demand and our supply chain constraints. We have also taken actions to reduce overhead to mitigate the negative impacts of a reduced manufacturing schedule. While we currently expect any negative impact on sales to be temporary during the COVID-19 pandemic, the actions to contain the pandemic and treat its impacts, and the effects on our operations are highly uncertain and cannot be predicted at this time.

F-6

 

Consolidation Policy

 

The condensed consolidated financial statements include the accounts of the Company and its wholly-ownedwholly owned subsidiaries, Saleen Signature Cars, a California corporation, and Saleen Sales Corporation, a California corporation. All intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated 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, inventory obsolescence, valuation of intangible assets, warranty reserves, and the valuation of deferred tax assets. Actual results could differ from those estimates.

 

Revenue recognition

 

The Company recognizes revenue using ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes

(1) identifying the contracts or agreements with a customer,

(2) identifying performance obligations in the contract or agreement,

(3) determining the transaction price,

(4) allocating the transaction price to the separate performance obligations, and

(5) recognizing revenue as each performance obligation is satisfied.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the services it transfers to its clients.

 

The Company’s revenue consists of primarily from the sale of its Signature Cars and services provided under its engineering and design, and development consulting services contracts.contracts to one customer and sales of signature Cars. See Note 2 for further discussion of Revenues.

 

Cash

 

The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. As of September 30,December 31, 2019, and March 31, 2019, the Company did not have cash equivalents. From time to time, including as of September 30,2019,December 31, 2019 and March 31, 2019, the Company’s cash account balances exceed the balances as covered by federally insured limits. The Company uses high quality financial institutions and believes the risk of loss due to exceeding federally insured limits to be low.

 

Accounts Receivable, net

 

The Company evaluates the collectability of its 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 tradewhen evidence suggests that accounts receivables are not overstated due to lack of collectability. For the most part, the Company generally requires advance payments for its Signature Cars and credit card payments for parts and merchandise. As of September 30,December 31, 2019, and March 31, 2019, the Company deemed an allowance for doubtful accounts was not required against its receivables.

F-7

 

Inventory

 

Inventory are stated at the lower of cost or net realizable value. Cost is determined principally on a first-in-first-out cost basis for automobile parts. Inventory consists of parts for the Company’s Signature Car models. Management has determined that no inventory reserve is required because automobile parts are utilized consistently through the manufacturing process and has a high turnover.

 

 September 30, 2019 March 31, 2019  December 31, 2019 March 31, 2019 
          
Automobile parts $147,623  $108,498  $120,719  $108,498 
Finished goods  116,461   - 
Work-in-progress  42,784   - 
Saleen branded merchandise inventory  7,899   - 
Total inventory $264,084  $108,498  $171,402  $108,498 

 

Property and Equipment, net

 

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Expenditures for major renewals and improvements that extend the useful lives of property and equipment or increase production capacity are capitalized, and expenditures for repairs and maintenance are charged to expense as incurred. The cost of property and equipment is depreciated or amortized on a straight-line basis over the following estimated useful lives:

 

Computer equipment and software 3-7 years
Tooling 3-7 years
Furniture and fixtures 5-7 years
Automobiles and trailer 5-7 years
Machinery and equipment 3-7 years
Leasehold improvement Shorter of the lease term or useful life

Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is an indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. The Company did not record anany impairment losslosses for either the three and sixor nine months ended September 30,December 31, 2019 and September 30,December 31, 2018.

 

The Company’s museum collection of automobiles held for exhibition purposes is not depreciated, as the estimated useful life of the museum collection is so long so that depreciation would not be necessary, and the residual value of such vehicles may exceed their acquisition cost. The Company’s museum collection is currently being exhibited in automobile museums around the country to further market the Company’s brand.

 

F-8

Customer Deposits

 

Sales orders received from customers of Signature Cars generally require customers to make deposits at the time of signing the related sales order. The Company receives either partial or full deposits related to Signature Car sales orders in advance of shipment and is generally paid in full prior to the shipment of the finished Signature Cars. Customer deposits as of September 30,December 31, 2019 and March 31, 2019 comprised of funds received in advance of shipment and amounted to $99,692$304,974 and $511,081, respectively, which will be recorded as revenue upon shipment of finished Signature Cars 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 for its Signature Cars. The vehicle limited warranty applies to installed parts and/or assemblies in new Saleen high performance cars. All of the unalteredUnaltered parts are covered under the original full warranty of the OEM manufacturer of the base vehicles.

 

Advertising, Sales and Marketing Costs

 

Advertising, sales, and marketing costs are expensed as incurred and are included in sales and marketing expenses on the accompanying condensed consolidated statement of operations. During the six-monthsthree-months ended September 30,December 31, 2019 and 2018, advertising, sales and marketing expenses were $682,488$414,181 and $294,951,$219,558, respectively. During the three-monthsnine-months ended September 30,December 31, 2019 and 2018, advertising, sales and marketing expenses were $251,058$1,096,669 and $167,805,$514,509, respectively.

 

Income Taxes

 

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits or that future deductibility is uncertain.

 

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.

 

Fair Value of Financial Instruments

 

The Company accounts for the fair value of financial instruments in accordance with the FASB ASC topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). 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.

 

F-9

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

 

Net Income per Share

 

Basic income per common share is computed by dividing income attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net income per common share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common stock for all potential dilutive common shares outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants and the conversion of convertible notes payable.

 

The following table sets forth the computation of basic and diluted net income per common share for the three-months and sixnine months ended:

 

  Three Months Ended
September 30,
  Six Months Ended
September 30,
 
  2019  2018  2019  2018 
             
Numerator:                
Net income attributable to common stockholders $791,055  $585,526  $1,580,279  $33,437 
                 
Denominator:                
Weighted average number of shares outstanding, basic  24,536,963   24,536,963   24,536,963   24,536,963 
Adjustment for dilutive effects of warrants  1,666,663   1,666,663   1,666,663   1,666,663 
Adjustment for Series B convertible preferred shares  666,660   666,660   666,660   666,660 
Adjustment for dilutive effects of convertible note payable  166,667   166,667   166,667   166,667 
Weighted average number of common shares outstanding, fully diluted  27,036,953   27,036,953   27,036,953   27,036,953 
                 
Net income per common share, basic $0.03  $0.02  $0.06  $0.00 
Net income per common share, fully diluted $0.03  $0.02  $0.06  $0.00 

  Three Months Ended
December 31,
  Nine Months Ended
December 31,
 
  2019  2018  2019  2018 
             
Numerator:                
Net income attributable to common stockholders $246,469  $1,865,557  $1,826,748  $1,898,994 
                 
Denominator:                
Weighted average number of shares outstanding, basic  24,536,963   24,536,963   24,536,963   24,536,963 
Adjustment for dilutive effects of warrants  1,666,663   1,666,663   1,666,663   1,666,663 
Adjustment for Series B convertible preferred shares  666,660   666,660   666,660   666,660 
Adjustment for dilutive effects of convertible note payable  166,667   166,667   166,667   166,667 
Weighted average number of common shares outstanding, fully diluted  27,036,953   27,036,953   27,036,953   27,036,953 
                 
Net income (loss) per common share, basic $0.01  $0.08  $0.07  $0.08 
Net income (loss) per common share, fully diluted $0.01  $0.07  $0.07  $0.07 

The following table sets forth the number of potential common shares excluded from the calculations of net loss per diluted share because their inclusion would be anti-dilutive:

 

 

Three Months Ended

September 30,

  Six Months Ended
September 30,
  Three Months Ended
December 31,
  Nine Months Ended
December 31,
 
 2019 2018 2019 2018  2019 2018 2019 2018 
Outstanding options to purchase common stock  2,602   2,602   2,602   2,602   2,602   2,602   2,602   2,602 
Total  2,602   2,602   2,602   2,602   2,602   2,602   2,602   2,602 

 

Significant Concentrations

 

Sales to China-based customer, JSAT (seeJiangsu Saleen Automotive Technology Co., Ltd (“JSAT”, see Note 2) comprised 68%76% and 76%80% of revenues for the three-months ended September 30,December 31, 2019 and 2018, respectively. Sales to China-based customer, JSAT comprised 78%85% and 71%75% of revenues for the six-monthsnine-months ended September 30,December 31, 2019 and 2018, respectively.

 

F-10

Two customerscustomer comprised 88%100% (72% and 28%) of accounts receivable as of September 30,December 31, 2019. One customer, a related party, comprised 98% of accounts receivable as of March 31, 2019.

 

The Company utilizes automobile platform vehicles for its Signature Cars from major manufacturers including Ford and Tesla and generally receives the base vehicle platforms directly from dealers. The Company enters into sourcing agreements with individual car dealerships but does not have supply agreements with the major manufacturers. Accordingly, the Company’s supply of base vehicle platforms may be limited to the allocation allotted from its source dealerships.

 

Recently Adopted Accounting Standards

 

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases, which was subsequently amended in 2018 by ASU 2018-10, ASU 2018-11, and ASU 2018-20 (collectively, Topic 842). Topic 842 will require the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. Topic 842 is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Topic 842 allows for a cumulative-effect adjustment in the period the new lease standard is adopted and will not require restatement of prior periods. The Company adopted Topic 842 using the modified retrospective approach, using a date of initial application of April 1, 2019. The adoption of this standard on April 1, 2019 resulted in the Company recording right-of-use assets and operating lease liabilities on its condensed consolidated balance sheets as of that date in the amounts of $4,059,492 each. The adoption of this standard did not have a significant effect on the amount of lease expense recognized by the Company.

 

Operating lease assets are included within operating lease right-of-use assets, and the corresponding operating lease liabilities are on our condensed consolidated balance sheet as of September 30,December 31, 2019.

We have elected not to present short-term leases on the condensed consolidated balance sheet as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that we are reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because our leases do not provide an implicit rate of return, we used our incremental borrowing rate of 10% based on the information available at adoption date in determining the present value of lease payments.

 

The cumulative effect of the changes made to our condensed consolidated balance sheet as of January 1, 2019 for the adoption of the new lease standard was as follows:

 

 Balances at
March 31, 2019
 Adjustments
from Adoption
of New Lease
Standard
 Balances at
April 1, 2019
  Balances at
March 31, 2019
 Adjustments
from
Adoption
of New Lease
Standard
 Balances at
April 1, 2019
 
Assets                        
Right-of-use assets  -   4,059,492   4,059,492  $-  $4,059,492  $4,059,492 
Liabilities                        
Deferred rent liability  263,955   (263,955)  -   263,955   (263,955)  - 
Operating lease liability – current  -   246,473   246,473   -   246,473   246,473 
Operating lease liability – non-current  -   3,813,019   3,813,019   -   3,813,019   3,813,019 
Equity                        
Accumulated deficit $(36,489,917)  263,955  $(36,225,962) $(36,489,917) $263,955  $(36,225,962)

 

See Note 118 for details regarding the Company’s operating leases.

 

F-11

Recent accounting pronouncements are not believed by management to have a material impact on the Company’s present or future condensed consolidated financial statements. During the three-months ended September 30,December 31, 2019, there have been no other changes to the Company’s significant accounting policies as described in the Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

 

NOTE 2 – REVENUE FROM CONTRACTS WITH CUSTOMERS

 

The Company recognizes revenue from the following sources:

 

Revenue from services

 

The Company recognizes revenue from its engineering and design contracts and consulting services contracts as the services are provided and accepted by the customer over time. Contract liabilities are recorded for any payments received for services yet to be completed.completed or for amounts billed to customers for which collectability is not reasonably assured. Under the terms of its engineering design and development contract, costs are invoiced as incurred plus a markup.

 

Revenue from Saleen S1

 

The Company provides engineering, design, and development services to Jiangsu Saleen Automotive Technology Co., Ltd (“JSAT”) an unaffiliated corporation located in China, under a consulting agreement entered into in September 2016, and an engineering services contract entered into in April 2018. Under the engineering services contract, the Company agreed to provide engineering, design, and development services for the S1 and an SUV to be distributed in the United States and China. The Company entered into two addendums on the engineering services contract, one dated September 29, 20192018 (the “September Addendum”) and the other dated December 20, 20192018 (the “December Addendum”). Management evaluates contract modifications based on the terms of the modification and determined the appropriate accounting under ASC 606 which results in one of three outcomes: 1) a modification of the original contract with cumulative catch-up adjustment; 2) a modification of the original contract with the change being accounted for prospectively; or 3) a separate and new contract. The September Addendum increased the scope of the contract, price and added distinct deliverables and performance obligations. Based on the terms of September Addendum, management has determined to account for this contract as a completely separate and distinct contract. The December Addendum increased the price but did not add any distinct deliverables, and thus based on management’s evaluation has been accounted for as a modification of the original contract with the change being accounted for prospectively. The Company expectsis currently in discussions and negotiations with the customer to determine if the Company is to complete the engineering, designing and developing of the S1 in the calendar year 2020. Under the terms of the engineering services contract, as amended, the total contract amount is approximately $31,605,000. An early termination fee based on a percentage of the remaining unbilled contract amount will apply in the event the contract is cancelled or in default by JSAT.

The Company also entered into a Saleen S1 Cup Vehicle Development and Production Agreement (“Cup Agreement”) with JSAT in November 2018, as amended in May 2019. Based on management’s evaluation of the amendment, the amendment clarified the terms of the original Cup Agreement and was accounted for as a modification of the original contract. Under the Cup Agreement, the Company agreed to provide engineering, design, and development services for the Saleen S1 racing vehicle, including prototype development and assembly of racing vehicles to be used in the S1 Cup Racing Series in the United States and China. The Cup Agreement provides for aggregate revenues to the Company of approximately $15,631,000.

 

F-12

In addition to these two agreements, the Company provides ad hoc consulting related to JSAT. Furthermore, for logistical expediency, JSAT sometimes requests that the Company pay for some of JSAT’s expenses, and subsequently JSAT reimburses the Company. These reimbursement of expenses to the Company have no mark-up and totaled $2,309,503$781,909 and $0 for the three-months ended September 30,December 31, 2019 and 2018, respectively, and $4,309,503$5,091,412 and $0 for the six-monthsnine-months ended September 30,December 31, 2019 and 2018, respectively.

 

During the three-months ended September 30,December 31, 2019 and 2018, the Company recognized revenue of $2,403,666$2,845,205 and $3,848,927,$2,819,148, respectively, related to its completed performance under the engineering services contract. During the three-months ended September 30,December 31, 2019 and 2018, the Company recognized revenue of $7,456,024$0 and $0, respectively, related to its completed performance under the Cup Agreement. During the three-months ended September 30,December 31, 2019 and 2018, the Company recognized revenue of $0 and $162,048, respectively, of consulting fees related to JSAT.

 

During the six-monthsnine-months ended September 30,December 31, 2019 and 2018, the Company recognized revenue of $2,977,666$7,487,590 and $3,130,611,$6,668,075, respectively, related to its completed performance under the engineering services contract. During the six-monthnine-month periods ended September 30,December 31, 2019 and 2018, the Company recognized revenue of $17,295,719$15,631,000 and $0, respectively, related to its completed performance under the Cup Agreement. During the three-monthsnine-months ended September 30,December 31, 2019 and 2018, the Company recognized revenue of $0 and $162,048, respectively, of consulting fees related to JSAT.

 

Revenue from Saleen S7

 

Prior to the May 31, 2019 purchase of the S7 Supercars assets, the Company recognized revenue for engineering and manufacturing services as these services were performed. Separately, upon the sale by S7 Supercars of an S7 to the end user, the Company recognized a fee of approximately 33% of the net profit from the sale of the vehicle by S7 Supercars when such sale was completed, the title transferred to the buyer, and the buyer has accepted the vehicle. Prior to May 31, 2019 and the purchase of the S7 Supercars assets, the Company recognized revenue from S7 Supercars of $410,535 during the first fiscal quarter ending June 30, 2019. See Note 76 for more details.

 

Revenue from Products

 

Revenue from sale of Signature Cars

 

The Company recognizes revenue from the sale of its Signature Cars when control is transferred which generally occurs upon shipment or delivery of the Signature Cars from its manufacturing facility to the destination specified by the customer. Signature Cars revenue represents the amount of consideration which the Company expects to be entitled in exchange for the delivery of the modified vehicle. The Company determines whether delivery has occurred based on when title transfers and the risks of ownership have transferred to the buyer, which usually occurs when the Company places the cars on the carrier. The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured and generally collects deposits before work is started and final payments are received prior to shipment. Except for warranties, the Company has no post-sales obligations nor does the Company accept returns. During the three-months ended September 30,December 31, 2019 and 2018, the Company recognized revenue of $1,388,018$450,774 and $645,986,$593,803, respectively, from the sale of Signature cars. During the six-monthsnine-months ended September 30,December 31, 2019 and 2018, the Company recognized revenue of $1,872,123$2,329,191 and $1,164,673,$1,771,718, respectively, from sale of Signaturesignature cars.

Revenue from Saleen S7 Product Sales

 

Subsequent to the S7 supercars asset purchase agreement, the Company records the sale of S7 cars upon shipment and delivery of the completed S7 car to the buyer. During the three-months ended September 30,December 31, 2019, the Company recognized revenue of $556,300,$105,844, from the sale of S7 vehicle. During the six-monthsnine-months ended September 30,December 31, 2019, the Company recognized revenue of $764,433,$870,278, from the sale of S7 vehicle.

F-13

 

Contract Liabilities

 

As of September 30,December 31, 2019, and March 31, 2019, the Company’s contract liabilities balances included advances received prior to revenue being recognized of $1,323,696$0 and $1,068,150, respectively related to the engineering services agreement for JSAT. For service contracts where the performance obligation is not completed, contract liabilities is recorded for any payments received in advance of the performance obligation being completed.

 

NOTE 3 – PROPERTY AND EQUIPMENT

 

Property and equipment, net consisted of the following as of September 30,December 31, 2019 and March 31, 2019:

 

 September 30, 2019 March 31, 2019  December 31, 2019 March 31, 2019 
Tooling $1,023,092  $937,554  $1,104,881  $937,554 
Automobiles and trailers  223,030   167,063   424,348   167,063 
Museum collection automobiles  422,466   -   428,526   - 
Machinery and equipment  264,001   100,233   264,348   100,233 
Furniture and fixtures  156,711   147,960   156,711   147,960 
Computer equipment and software  90,729   89,246   90,729   89,246 
Leasehold improvements  142,091   79,691   142,091   79,691 
  2,322,120   1,521,747   2,611,634   1,521,747 
Accumulated depreciation and amortization  (969,117)  (871,394)  (1,029,357)  (871,394)
Total Property and Equipment $1,353,003  $650,353  $1,582,277  $650,353 

 

Depreciation and amortization expense were $37,168$60,407 and $10,843$23,646 for the three-months ended September 30,December 31, 2019 and 2018, respectively. Depreciation and amortization expense were $97,724$158,131 and $38,530$62,176 for the six-monthnine-month periods ended September 30,December 31, 2019 and 2018, respectively.

 

NOTE 4 – NOTES PAYABLE

 

Notes payable consisted of the following as of September 30,December 31, 2019 and March 31, 2019:

 

  September 30, 2019 March 31, 2019   December 31, 2019 March 31, 2019 
(1)Settlement agreement for senior secured note $- $40,000 Settlement agreement for senior secured note $- $40,000 
(2)Unsecured note payable, interest at 5% per annum, due on demand 63,753 67,753 Unsecured note payable, interest at 5% per annum, due on demand 60,753 67,753 
(3)Unsecured note payable, interest at 10% per annum, due July 27, 2017, past due - 83,980 Unsecured note payable, interest at 10% per annum, due July 27, 2017, past due - 83,980 
(4)Payment plan with credit card issuer  23,426  32,426 Payment plan with credit card issuer  18,926  32,426 
Total notes payable $87,179 $224,159 Total notes payable $79,679 $224,159 

 

(1)In December 2016, the Company entered into a settlement agreement with Citizens Business Bank for a $400,000 loan, was initially issued in 2009, and secured by all assets of the Company. On May 17, 2019, the balance of the loan was paid off.
  
(2)In June 2016, the Company entered into an unsecured note payable with its landlord for past due rent of $389,922, covering the period from September 2013 to June 2016. The note bears interest at 5% per annum and is due on demand. As of September 30,December 31, 2019, the landlord has waived interest charges and has not sent any request for interest to be paid on the debt.
  
(3)The note bears interest at 10% per annum, and for the three-month period ended September 30,December 31, 2019, the lender waived interest charges. As of September 30,December 31, 2019, the Company has paid this balance in full.
  
(4)Per a settlement reached with the credit card issuer, the Company makes monthly payments of $1,500 against prior balances due.

F-14

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE, PAST DUE

 

As of September 30,December 31, 2019, and March 31, 2019, the Company had one unsecured convertible note outstanding for $100,000. The note bears interest at 7% per annum, was due in March 2017 and is currently in default. The note is convertible into 166,667 shares of common stock.

NOTE 6 – ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of September 30, 2019 and March 31, 2019:

  September 30, 2019  March 31, 2019 
Accrued expenses related to JSAT contracts $2,215,608  $- 
Deferred vendor consideration  -  $150,000 
Other current payables  529,526   17,544 
  $2,745,134  $167,544 

 

NOTE 76 – RELATED PARTY TRANSACTIONS

 

Jeffrey Kraws, Top Hat Capital, and Crystal Research

 

As of September 30,December 31, 2019, and March 31, 2019, the Company owed Top Hat Capital and Crystal Research, whose co-founder and Managing Partner, Jeffrey Kraws, is a director of the Company, $61,672 for investment advisor and research services provided to the Company.

 

S7 Supercars, LLC

 

The Company served as the OEM for the Saleen S7, a limited production supercar. Prior to May 31, 2019, the S7 was produced under a joint venture with S7 Supercars, LLC, an entity that is controlled by affiliates of two of the Company’s principal shareholders. Under the agreement, S7 Supercars provided the chassis and all other costs to build the vehicle, and the Company was entitled to a fee for engineering and manufacturing services, plus an additional markup for these services. The agreement did not meet the scope for joint venture or equity method accounting under ASC 323-30-15, as neither party could make decisions for the other party and a formal entity was not created. The Company recognized revenue as these engineering and manufacturing services were performed. The cars produced under this agreement were owned by S7 Supercars until title passed to the ultimate buyer. Separately, upon the sale of the vehicle to the end users, the Company became entitled to a fee of approximately 33% of the net profit from the sale of the vehicle by S7 Supercars when such sale was completed, the title transferred to the buyer, and the buyer accepted the vehicle.

During the three and six monthnine-month periods ended SeptemberDecember 31, 2018, the Company recognized revenue from S7 Supercars of $379,969$105,844 and $288,597,$870,278, respectively, for engineering and manufacturing services provided toproduct sales of S7 Supercars, LLC.Supercars. Prior to May 31, 2019 and the purchase of the S7 Supercars assets, the Company recognized revenue from S7 Supercars of $410,535 during the first fiscal quarter ending June 30, 2019. As of September 30,December 31, 2019, and March 31, 2019, the Company had accounts receivable due from S7 Supercars of $0 and $133,742, respectively. As of September 30,December 31, 2019, and March 31, 2019, deposits of $0 and $100,000 from S7 Supercars were included in customer deposits, respectively.

 

On May 31, 2019, the Company entered into an asset purchase agreement with S7 Supercars, LLC pursuant to which S7 Supercars sold all of its assets, consisting of chassis and other automotive parts relating to the manufacture of the S7 supercar, and related intellectual property, to the Company for an initial purchase price of $1,482,304 comprised of a cash payment of $800,000, and the elimination of an accounts receivable balance of $682,304 owed to us by S7 Supercars. Based on management’s analysis, the S7 purchase did not meet the definition of a “business” under ASC 805-10-55, the entire purchase price of $1,482,304 was allocated to the intellectual property purchased, which is a reclassification of the prior fixed assets balance. In addition, the Company is required to pay S7 Supercars, LLC up to four additional payments of $50,000 each, upon sales by the Company of S7 supercars within the two-year period following the closing, subject to the conditions provided for in the purchase agreement. However, the Company does not intend to sell S7s to customers but instead will manufacture S7s for promotional purposes to build its brand. Pursuant to the purchase agreement, the joint venture agreement between the Company and S7 Supercars was terminated, except for indemnification obligations of the Company thereunder.

 

F-15

NOTE 87 – INCOME TAXES

 

For the three and six months-monthsnine-months ended September 30,December 31, 2019 and 2018, a reconciliation of the effective income tax rate to the U.S. statutory rate was as follows:

 

 Three Months Ended
September 30,
  Six Months Ended
September 30,
  Three Months Ended
December 31,
 Nine Months Ended
December 31,
 
 2019  2018  2019  2018  2019 2018 2019 2018 
Tax expense at the U.S. statutory income tax  21%  21%  21%  21% 21% 21% 21% 21%
State tax net of federal tax benefit  7   7   7   7  7 7 7 7 
Other  (1)  -   -   -  - - - - 
Increase (decrease) in the valuation allowance  -   (28)  -   (28)
Increase in the valuation allowance  -  (28)  -  (28)
Effective tax rate  27%  -%  28%  -%  28%  -%  28%  -%

 

In assessing the realizability of the net deferred tax assets, the Company considered all relevant positive and negative evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets was dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. As of September 30, 2019 and March 31, 2019 the Company believed that it is more likely than not that the Company’s deferred income tax assets will not be realized. As such, there isrecorded a full valuation allowance againston the net deferred tax assets, which was primarily the result of net operating losses incurred. For the period ended December 31, 2019, the Company has maintained the valuation allowance on the net operating losses as of September 30,discussed below. No further valuation allowance has been provided in the period ended December 31, 2019 and March 31, 2019.as the company is projecting taxable income for the year.

F-16

 

As of September 30,December 31, 2019, the Company generated regular tax federal net operating losses (“NOLs”) of approximately $19.2 million. The Company’s ability to realize tax benefit from the NOLs is subject to Internal Revenue Code Section 382 (“Section 382”), which generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership. It was previously estimated that the Company could not use the NOLs. For the three and sixnine month period ended September 30,December 31, 2019, the Company did not benefit from or use any NOLs. However, management will be undergoing a study in order to determine if the NOLs are usable for future use which could result in a change to the valuation allowance in future periods.

 

The Company’s operations are based in California and it is subject to Federal and California state income tax. Tax years after 2014 are open to examination by Federal and state tax authorities.

NOTE 98 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

Series B Preferred Stock

 

In August 2018, the Company filed a Certificate of Designation designating the rights and restrictions of its Series B Preferred Stock. Of the 1,000,000 preferred shares authorized at a par value of $0.001, 1,000 were designated as Series B Preferred Stock. The Series B Preferred Stock is convertible at the option of the holder into 1,000 common shares per one share of Series B Preferred Stock. The Series B Preferred Stock provides for liquidation and dividend rights on an as-if-converted basis into equivalent common shares. The Series B Preferred Stockholders have voting rights with the common shareholders on an as-if-converted basis. The holders of Series B Preferred Stock have the right, voting as a separate class, following a “Change of Control” (as defined), to elect a majority of the members of the Company’s Board of Directors and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors.

 

In September 2018, the Company issued 666.66 units of Series B Preferred Stock and warrants for $600 per unit, for total cash proceeds of $400,000 to a related party. Each unit consisted of one share of Series B Preferred Stock that is convertible into 1,000 shares of the Company’s common stock, and a three-year warrant to purchase 500 shares of the Company’s common stock at an exercise price of $.70 per share. A total of 666.66 shares of Series B Preferred Stock convertible into 666,666 shares of common stock and warrants exercisable into 333,330 shares of common stock were issued. The warrants have a term of three years and vested immediately. The aggregate value of the warrants issued was $92,000 and were valued using the Black-Scholes-Merton option valuation model with the following assumptions: risk-free interest rate of 2.83%; dividend yield of 0%; and volatility of 100. The Company also determined that the Series B Preferred Stock contained a beneficial conversion feature of $92,000 which was recorded as a deemed dividend.

 

A portion of the proceeds from the sale of the Series B Preferred Stock was allocated to the warrants based on their relative fair value, which amounted to $92,000, using the Black Scholes option pricing model. The assumptions used in the Black Scholes model were as follows: risk-free interest rate of 2.83%; dividend yield of 0%; and volatility rate of 100%. The $92,000 has been recorded as a deemed dividend to the preferred shareholders and as a charge to additional paid-in capital (as there is a deficit in the Company’s retained earnings).

 

Issuance of Common Stock

 

During the three and six monthsNine Months ended September 30,December 31, 2019 and 2018, there were no shares of common stock issued.

F-17

 

Options

 

Omnibus Incentive Plan

 

In December 2013, the Company’s board of directors approved the 2013 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 14,153 shares of common stock have been authorized for issuance and reserved under the Plan. The Plan was approved by the Company’s stockholders on December 11, 2013.

 

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
 Average Intrinsic
Value
 Weighted
Average Remaining Contractual
Term
(in years)
  Number of
Shares
 Weighted
Average
Exercise
Price per
Share
 Average
Intrinsic
Value
 Weighted
Average
Remaining
Contractual
Term
(in years)
 
Outstanding at April 1, 2018  2,602  $108  $   6.50   2,602  $108  $   6.50 
Granted                        
Cancelled        

   

             
Exercised                        
Outstanding at September 30, 2018  2,602   108      6.50 
Outstanding at December 31, 2018  2,602  $108  $   5.75 
                                
Outstanding at April 1, 2019  2,602   108   

   5.50   2,602  $108  $   5.50 
Granted                        
Cancelled                        
Exercised        

   

             
Outstanding at September 30, 2019  2,602  $108  $   5.0 
Outstanding at December 31, 2019  2,602  $108  $   4.75 

 

The aggregate intrinsic value shown in the table above represents the difference between the fair market value of the Company’s Common Stock per share on September 30,December 31, 2019 and the exercise price of each option.

 

During the six-monthsnine-months ended September 30,December 31, 2019 and 2018, the Company recorded no stock-based compensation expense related to stock options.

 

F-18

Warrants

 

Warrant activity is set forth below:

 

 Number of Shares Weighted Average Exercise Price per Share Average Intrinsic Value Weighted Average Remaining Contractual Term
(in years)
  Number of
Shares
 Weighted
Average
Exercise
Price per
Share
 Average
Intrinsic
Value
 Weighted
Average
Remaining
Contractual
Term
(in years)
 
Outstanding at April 1, 2018  1,333,333  $0.60   -   3.75   1,333,333  $0.60  $    -   3.75 
Granted  333,330   0.70       3.00   333,330   0.70       3.00 
Cancelled  -   -   -   -   -   -   -   - 
Exercised  -   -   -   -   -   -   -   - 
Outstanding at September 30, 2018  1,666,663  $0.62   -   3.25 
Outstanding at December 31, 2018  1,666,663  $0.62  $-   2.75 
                                
Outstanding at April 1, 2019  1,666,663  $0.62   -   2.67   1,666,663  $0.62  $-   2.67 
Granted  -   -   -   -   -   -   -   - 
Cancelled  -   -   -   -   -   -   -   - 
Exercised  -   -   -   -   -   -   -   - 
Outstanding at September 30, 2019  1,666,663  $0.62   -   2.17 
Outstanding at December 31, 2019  1,666,663  $0.62  $-   1.90 

 

In January 2018, warrants exercisable into 1,333,333 shares of common stock were issued by the Company in conjunction with the issuance of 1,333,333 shares of common stock. The warrants have a term of two years and an exercise price of $0.60 per share. In September 2018, warrants exercisable into 333,330 shares of common stock were issued by the Company in conjunction with the issuance of Series B Preferred Stock. The warrants have a term of three years and an exercise price of $.70$0.70 per share. The intrinsic value of the Company’s warrants was nil at September 30,December 31, 2019, March 31, 2019, and March 31, 2018.

NOTE 10 –ROYALTY REVENUE FROM INTELLECTUAL PROPERTY LICENSE

In June 2015, the Company entered into an Intellectual Property License Agreement with Saleen Motors International, LLC (“SMI”), an unrelated party and wholly owned subsidiary of GreenTech Automotive, Inc. The license agreement had an initial term of 10 years. As part of the license agreement, SMI advanced the Company $500,000. In March 2018, SMI filed for bankruptcy and the Company provided notice to SMI of immediate termination of the license agreement. Pursuant to the termination provisions provided in the license agreement, the Company recorded $478,000 as royalty revenue during the year ended March 31, 2018. The Company was later informed that SMI had in fact not filed for bankruptcy. In October 2019, the Company retracted the termination notice.

NOTE 119 – COMMITMENTS AND CONTINGENCIES

 

Facilities Leases

 

In January 2015, the Company entered into lease agreements for the lease of two buildings totaling approximately 76,000 square feet under non-cancellable operating leases (the “Leases”). The Leases were on a triple net basis and required aggregate monthly payments of approximately $45,000 with annual rent escalations as negotiated. The Leases covered the period from February 2015 through January 2018. In September 2017, the Company entered into amendments to the Leases to renew the lease terms for the period from February 1, 2018, through January 31, 2028 (the “New Leases”). The New Leases require monthly payments beginning at approximately $57,000 with annual rent escalations at a negotiated rate plus the usual additional triple net costs. The Company has also entered into a sublease agreement that requires monthly payments of $17,700 from the sub-lessee on a month-to-month basis which terminated in November 2018.

 

Since our leases do not provide an implicit rate of return, we used our incremental borrowing rate of 10% based on the information available at adoption date in determining the present value of lease payments.

 

F-19

The following table sets forth the recorded assets and liabilities related to the Company’s operating leases:

 

 Balances at
March 31, 2019
 Adjustments
from Adoption
of New Lease
Standard
 Balances at
April 1, 2019
  Balances at
March 31, 2019
 Adjustments
from
Adoption
of New Lease
Standard
 Balances at
April 1, 2019
 
Assets                        
Right-of-use assets  -   4,059,492   4,059,492   -   4,059,492   4,059,492 
Liabilities                        
Deferred rent liability  263,955   (263,955)  -   263,955   (263,955)  - 
Operating lease liability – current  -   246,473   246,473   -   246,473   246,473 
Operating lease liability – non-current  -   3,813,019   3,813,019   -   3,813,019   3,813,019 

Stockholders’ Equity (Deficit)

                        
Accumulated deficit $(36,489,917)  263,955  $(36,225,962) $(36,489,917)  263,955  $(36,225,962)

 

 September 30, 2019 March 31, 2019  December 31, 2019 March 31, 2019 
Right-of-use asset $4,001,449  $-  $3,943,249  $- 
                
Deferred rent liability – current $-  $263,955  $-  $263,955 
Operating lease liabilities  246,473  $-   246,473  $- 
Operating lease liabilities – non-current  3,755,622   -   3,696,776   - 
Lease liabilities – total $4,002,095  $263,955  $3,943,249  $263,955 

 

The contractual future maturities of the Company’s operating lease liabilities are as follows:

 

 Lease 
Fiscal Year Lease
Commitment
  Commitment 
2020 $428,153  $161,578 
2021 655,910   655,910 
2022 675,587   675,587 
2023 695,855   695,855 
2024 716,731   716,731 
Thereafter  2,943,233   2,950,697 
Total lease payments 6,115,469   5,856,358 
Less: Future interest expense  2,113,374   1,913,109 
Total $4,002,095  $3,943,249 

 

F-20F-19
 

 

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 condensed consolidated financial statements as other current liabilities or accounts payable. The Company records accruals for contingencies to the extent that management concludes that the occurrence is probable and that the related amount of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. The Company is not currently involved in any legal proceedings that could potentially have a material impact on its statement of operations.

 

NOTE 1210 – SEGMENT REPORTING

 

Our Chief Executive Officer, as the chief operating decision maker (“CODM”), organizes the Company, manages resource allocations, and measures performance among two operating and reportable segments: (i) products and (ii) services. The products segment includes our signature cars, sales of S7 supercars and merchandises. The services segment includes engineering, development, design, and consulting services for JSAT, S7, and other customers.

 

The following table provides information about disaggregated revenue based on revenue by service lines and revenue by area:

 

  

Three-Months Ended

September 30,

  Six-Months Ended
September 30,
 
  2019  2018  2019  2018 
Revenue by service lines:                
Services provided to JSAT $9,859,690  $2,923,151  $20,486,518  $3,848,927 
S7 agreement (related party)  -   238,985   410,535   330,084 
Other  10,000   -   205,000   - 
Services – total  9,869,690   3,162,136   21,102,053   4,179,011 
                 
Products                
S7 Sales (non-related party)  556,300   -   764,433   - 
Signature cars  1,388,018   645,986   1,872,123   1,164,673 
Merchandise  11,631   12,311   15,613   36,953 
Products – total  1,955,949   658,297   2,652,169   1,201,626 
                 
Royalties  32,656   -   39,623   4,043 
Total revenue $11,858,295  $3,820,433  $23,793,845  $5,384,680 

  

Three-Months Ended

September 30,

  

Six-Months Ended

September 30,

 
  2019  2018  2019  2018 
Gross profit                
Services $2,403,903  $2,217,804  $4,479,515  $2,739,393 
Products  318,166   (84,531)  616,240   52,494 
Total $2,722,069  $2,133,273  $5,095,755  $2,791,887 

F-21
  Three-Months Ended
December 31,
  Nine-Months Ended
December 31,
 
  2019  2018  2019  2018 
Revenue by service lines:                
Services provided to JSAT $2,842,827  $2,819,148  $23,334,345  $6,668,075 
S7 agreement (related party)  -   26,275   410,535   356,359 
Other  45,000   -   245,000   - 
Services – total  2,887,827   2,845,423   23,989,880   7,024,434 
                 
Products                
S7 Sales (non-related party)  105,844   -   870,278   - 
Signature cars  450,774   593,803   2,329,191   1,771,718 
Merchandise  1,406   13,242   10,724   36,953 
Products – total  558,024   607,045   3,210,193   1,808,671 
                 
Royalties  15,691   -   55,314   4,043 
Total revenue $3,461,542  $3,452,468  $27,255,387  $8,837,148 
  Three-Months Ended
December 31,
  Nine-Months Ended
December 31,
 
  2019  2018  2019  2018 
Gross profit                
Services $1,905,087  $2,845,423  $6,384,602  $5,584,816 
Products  185,356   147,204   801,596   199,698 
Royalties  15,691   -   55,314   4,043 
Total $2,106,134  $2,992,627  $7,241,512  $5,788,557 

 

NOTE 1311 – SUBSEQUENT EVENTS

 

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States. Although the Company is not currently required to suspend all of its business under local or federal laws, the Company has allowed certain non-essential employees to work remotely. Nonetheless, the Company s faces certain risks caused by COVID-19, including, without limitation:

 

 Interruptions of production due to supply chain disruptions;
 Reduced customer demand due to the overall state of the economy; and
 Delayed cash collections (most notably, from JSAT and automobile dealerships).

 

All of the above will have a material adverse impact on the Company. While the disruption is currently expected to be temporary, there is uncertainty around the duration. Therefore, while we expect this matter to negatively impact our business, results of operations, and financial position, the extent of this impact cannot be reasonably estimated at this time. In the interim, the Company has furloughed some employees in expectation of reduced business and may consider other mitigating actions in the short-term.

 

In April 2020, the Company received a loan in the amount of approximately $894,000 (the “PPP Loan”) under the new Paycheck Protection Program legislation administered by the U.S. Small Business Administration. The proceeds of the PPP Loan must be used for payroll costs, lease payments on agreements before February 15, 2020 and utility payments under agreements before February 1, 2020. At least 60% of the proceeds must be used for payroll costs and certain other expenses, and no more than 40% on non-payroll expenses. Proceeds from the PPP Loan used by the Company for the approved expense categories will generally be fully forgiven by the lender if the Company satisfies applicable employee headcount and compensation requirements. The Company currently believes that a majority of the PPP Loan proceeds will qualify for debt forgiveness; however, there can be no assurance that we will qualify for forgiveness from the Small Business Administration until it occurs.

F-22

Since April 2020, the Company has been in negotiations with JSAT regarding their outstanding receivable balances and the current balance on engineering contract and addendums with them. Since April, the Company has been unable to come to any resolution regarding balances outstanding and whether the Company will continue to progress on the engineering contract. The Company is currently evaluating alternatives including filing a lawsuit, but the Company’s management continues to engage in negotiations with JSAT and is hoping to come to a resolution regarding this matter.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and cash flows of the Company for the three and six-monthsnine-months ended September 30,December 31, 2019 and 2018. You should read this discussion together with the condensed consolidated financial statements, related notes and other financial information included in this Form 10-Q. Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward looking statements that involve risks and uncertainties and are based upon judgments concerning various factors that are beyond our control. Such forward-looking statements include any expectation of earnings, revenues or other financial items; any statements regarding the use of working capital, anticipated growth strategies and the development of and applications for new technology; factors that may affect our operating results; statements concerning our customers and expansion of our customer base; statements concerning new products; statements related to future economic conditions or performance; and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” or “plan,” and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Actual events or results may differ materially from our expectations. Important factors that could cause actual results to differ materially from those stated or implied by our forward-looking statements include, but are not limited to the risks as set forth under “Part I, Item 1A – Risk Factors” which are included in our Report on Form 10-K for the year ended March 31, 2019 as filed on October 4, 2019. These risks could cause our actual results to differ materially from any future performance suggested below.

 

Overview

 

The Company provides engineering, development, and design consulting services on a project basis for automotive manufacturers worldwide. The Company’s engineering, development and design consulting service portfolio includes projects for major American automobile manufacturers and international start-up. The Company is also an OEM of high-performance vehicles that are built from the ground up. The Company also designs, develops, manufactures, and sells high-performance vehicles built from base chassis of major American automobile manufacturers. The Company currently has customers worldwide, including muscle and high-performance car enthusiasts, collectors, automotive dealers, exotic car retail dealers, television and motion picture productions, and consumers in the luxury supercar and motorsports markets.

 

Critical Accounting Policies and Estimates

 

The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

 

For a description of the Company, the basis of presentation, and the Company’s critical accounting policies and estimates, refer to Note 1, Nature of Business and Basis of Presentation, to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

3

Results of Operations

 

Comparison of the Three Months Ended September 30,December 31, 2019 to the Three Months Ended September 30,December 31, 2018

 

Our revenue, operating expenses, and net income from operations for the three-month period ended September 30,December 31, 2019, as compared to the three-month period ended September 30,December 31, 2018, were as follows:

 

  Three Months Ended
September 30, 2019
  Three Months Ended
September 30, 2018
     Percentage Change 
  $  % of Sales  $  % of Sales  Change  Inc. (Dec.) 
Revenues                        
Services  9,869,690   83%  3,162,136   83%  6,707,554   212%
Products, net  1,955,949   16%  658,297   17%  1,297,652   197%
Royalties  32,656   0%  -   0%  32,656   100%
Total revenues, net  11,858,295   100%  3,820,433   100%  8,037,862   210%
                         
Cost of revenues                        
Services  7,465,787   63%  944,332   25%  6,521,455   691%
Products  1,637,783   14%  742,828   19%  894,955   120%
Total cost of revenues  9,103,570   77%  1,687,160   44%  7,416,410   440%
Gross profit  2,754,725   23%  2,133,273   56%  621,452   29%
                         
Operating expenses                        
Advertising, sales, and marketing  251,058   2%  167,805   4%  83,253   50%
General and administrative  1,276,530   11%  1,344,326   35%  (67,796)  -5%
Research and development  -   0%  16,964   0%  (16,964)  -100%
Depreciation and amortization  37,168   0%  10,843   0%  26,325   243%
Total operating expenses  1,564,756   13%  1,539,938   40%  24,818   2%
Income from operations  1,189,969   10%  593,335   16%  596,634   101%
Other expense                        
Interest and financing costs  101,011   1%  7,809   0%  93,202   1194%
Total other expense  101,011   1%  7,809   0%  93,202   1194%
Net income before income tax expense  1,088,958   9%  585,526   15%  503,432   86%
Income tax expense  297,903       -   0%  297,903   100%
Net income  791,055   7%  585,526   15%  205,529   35%
                         
Net income attributable to common shareholders  791,055   7%  585,526   15%  205,529   35%

4
  Three Months Ended
December 31, 2019
  Three Months Ended
December 31, 2018
     Percentage
Change
 
  $  % of Sales  $  % of Sales  Change  Inc. (Dec.) 
Revenues                        
Services  2,887,827   83%  2,845,423   82%  42,404   1%
Products, net  558,024   16%  607,045   18%  (49,021)  -8%
Royalties  15,691   0%  -   0%  15,691   100%
Total revenues, net  3,461,542   100%  3,452,468   100%  9,074   0%
                         
Cost of revenues                        
Services  982,740   28%  -   0%  982,740   100%
Products  372,668   11%  459,841   13%  (87,173)  -19%
Total cost of revenues  1,355,408   39%  459,841   13%  895,567   195%
Gross profit  2,106,134   61%  2,992,627   87%  (886,493)  -30%
                         
Operating expenses                        
Advertising, sales and marketing  414,181   12%  219,558   6%  194,623   89%
General and administrative  1,182,360   34%  875,376   25%  306,984   35%
Research and development  7,000   0%  279   0%  6,721   2409%
Depreciation and amortization  60,407   2%  23,646   1%  36,761   155%
Total operating expenses  1,663,948   48%  1,118,859   32%  545,089   49%
Income from operations  442,186   13%  1,873,768   54%  (1,431,582)  -76%
Other expense                        
Interest and financing costs  99,565   3%  8,211   0%  91,354   1113%
Total other expense  99,565   3%  8,211   0%  91,354   1113%
Net income before income tax expense  342,621   10%  1,865,557   54%  (1,522,936)  -82%
Income tax expense  96,152   3%  -   0%  96,152   100%
Net income  246,469   7%  1,865,557   54%  (1,619,088)  -87%
                         
Net income attributable to common shareholders  246,469   7%  1,865,557   54%  (1,619,088)  -87%

 

Revenue

 

Revenue, net increased by approximately $8,037,000 (210%$42,404 (1%) to approximately $11,858,000$2,887,827 for the three-months ended September 30,December 31, 2019, compared to approximately $3,820,000$2,845,423 for the three-months ended September 30,December 31, 2018. The majority of the increasedecrease in revenue was attributable to increasedmanagement’s reevaluation of JSAT delay in payment timing and the fact that management no longer deems the JSAT engineering contracts to meet the step one definition of contract for revenue from the Cup Vehicle Development and Production Agreement (“Cup Agreement”) with JSAT.recognition. Revenue from JSAT increased by $6,941,539 (237%$23,679 (1%) to $9,864,690$2,842,827 for the three-months ended September 30,December 31, 2019, compared to $2,9213,151$2,819,148 for the three-months ended September 30,December 31, 2018. The increase relates to the Cup Agreement. Revenue from the Cup Agreement was $7,456,024 and $0 for the three-months ended September 30, 2019 and September 30, 2018, respectively.

 

Revenue for products increaseddecreased mainly due to increaseddecreased product revenue from our Signature Cars and S7. Revenue from Signature Cars increaseddecreased by 732,989 (113%143,029 (24%) to $1,383,018$450,774 for the three-month period ended September 30,December 31, 2019, compared to $650,029$593,803 for the three-month period ended September 30,December 31, 2018. Revenue from S7 increased by $556,300$105,844 (100%) to $556,300$105,844 for the three-month period ended September 30,December 31, 2019, compared to $0 for the three-month period ended September 30,December 31, 2018.

Cost of Revenue

 

Cost of revenue for our Signature Cars, and S7 supercar consists primarily of parts, labor and manufacturing overhead related to shop and warehouse supplies and expenses. Cost of revenue for our S1 supercars consists primarily of labor and outside service costs related to the engineering and design of the S1, and overhead related to our facilities costs and contract administration. Lifestyle accessories and other Saleen-branded products are purchased directly from third-party vendors. Cost of revenue increased by approximately $7,416,410 (440%$895,567 (195%) to $9,103,570$1,355,408 for the three-month period ended September 30,December 31, 2019, compared to $1,687,160$459,842 for the three-month period ended September 30,December 31, 2018. The increase in the cost of revenue was primarily attributable to increased costs related to JSAT.JSAT of $982,740 offset by a decrease in costs of $87,173 for products.

 

Gross Profit

 

Gross profit as a percentage of net revenue decreased by 33%30% to 23%61% for the three-month period ended September 30,December 31, 2019, compared to 56%87% for the three-month period ended September 30,December 31, 2018. The decrease in gross profit percentage related to the increased revenue from JSAT which had a lower gross profit percentage as to compared to our product revenue.

 

Operating Expenses

 

Operating costs include research and design, sales and marketing, general and administrative, non-cash stock-based compensation and depreciation.

 

Advertising, sales, and marketing expenses increased $83,253 (50%$194,623 (89%) to $251,058$414,181 during the three-month period ended September 30,December 31, 2019, compared to $167,805$219,558 during the three-month period ended September 30,December 31, 2018. The increase relates to new advertising efforts that were not in place in 2018 and increased sales salaries and marketing costs related to promotional events and car shows.

 

General and administrative expenses decreased $67,796 (5%increased $306,984 (35%) to $1,276,530$1,182,360 during the three-month period ended September 30,December 31, 2019, compared to $1,344,326$875,376 during the three-month period ended September 30,December 31, 2018. The decreaseincrease in general and administrative expenses was due primarily to decreased officer salaries,increased administrative personnel, accounting, and legal fees during the quarter.

 

We had no$7,000 of research and development costs during the three-month period ended September 30,December 31, 2019, compared to $16,964$279 during the three-month period ended September 30,December 31, 2018.

 

Depreciation and amortization expense increased by $26,325 (243%$36,761 (155%) to $37,168$60,407 for the three-month period ended September 30,December 31, 2019, compared to $10,843$23,646 for the three-month period ended September 30,December 31, 2018.

5

 

Income from Operations

 

During the three-month period ended September 30,December 31, 2019, we generated income from operations of $1,189,969,$442,186, compared to income from operations of $593,335$1,873,768 we generated during the three-month period ended September 30,December 31, 2018. Income from operations for the three-month period ended September 30,December 31, 2019, was due primarily to increased revenue and gross profit, offset in part by increased operating expenses.

 

Other Expense

 

Other expenses include interest and financing costs. Interest and financing costs increase $93,202 (1194%$91,354 (1113%) to $101,011$99,565 during the three-month period ended September 30,December 31, 2019, compared to $7,809$8,211 during the three-month period ended September 30,December 31, 2018. The increase in interest and financing costs during the three-month period ended September 30,December 31, 2019, was due primarily to changes related to adoption of the new lease standard offset by an overall reduction in debt and two debtors that have waived interest.

Income Tax Expense

 

During the three-month period ended September 30,December 31, 2019, we reported income tax expense of $297,903.$96,152. We had no income tax expense during the three-month period ended September 30,December 31, 2018.

 

Comparison of the SixNine Months Ended September 30,December 31, 2019 to the SixNine Months Ended September 30,December 31, 2018

 

Our revenue, operating expenses, and net income from operations for the six-monthsnine-months ended September 30,December 31, 2019, as compared to the six-monthsnine-months ended September 30,December 31, 2018, were as follows:

 

 

Six Months Ended

September 30, 2019

 

Six Months Ended

September 30, 2018

   Percentage Change  Nine Months Ended
December 31, 2019
  Nine Months Ended
December 31, 2018
    Percentage Change 
 $  % of Sales  $  % of Sales  Change Inc. (Dec.)  $  % of Sales  $  % of Sales  Change Inc. (Dec.) 
                          
Revenues                                                
Services  21,102,053   89%  4,179,011   78%  16,923,042   405%  23,989,880   88%  7,024,434   79%  16,965,446   242%
Products, net  2,652,169   11%  1,201,626   

22

%  1,450,543   121%  3,210,193   12%  1,808,671   20%  1,401,522   77%
Royalties  39,623   0%  4,043   0%  35,580   880%  55,314   0%  4,043   0%  51,271   1268%
Total revenues, net  23,793,845   100%  5,384,680   100%  18,409,165   342%  27,255,387   100%  8,837,148   100%  18,418,239   208%
                                              
Cost of revenues                          -       -             
Services  16,622,538   70%  1,439,618   27%  15,182,920   1055%  17,605,278   65%  1,439,618   16%  16,165,660   1123%
Products  2,035,929   9%  1,149,132   21%  886,797   77%  2,408,597   9%  1,608,973   18%  799,624   50%
Total cost of revenues  18,658,467   78%  2,588,750   48%  16,069,717   621%  20,013,875   73%  3,048,591   34%  16,965,284   556%
Gross profit  5,135,378   22%  2,795,930   52%  2,339,448   84%  7,241,512   27%  5,788,557   66%  1,452,955   25%
                                                
Operating expenses                          -                     
Advertising, sales, and marketing  682,488   3%  294,951   5%  387,537   131%
Advertising, sales and marketing  1,096,669   4%  514,509   6%  582,160   113%
General and administrative  2,051,785   9%  2,294,811   43%  (243,026)  -11%  3,234,145   12%  3,170,187   36%  63,958   2%
Research and development  -   -%  24,321   0%  (24,321)  -100%  7,000   0%  24,600   0%  (17,600)  -72%
Depreciation and amortization  97,724   0%  38,530   1%  59,194   154%  158,131   1%  62,176   1%  95,955   154%
Total operating expenses  2,831,997   12%  2,652,613   49%  179,384   7%  4,495,945   16%  3,771,472   43%  724,473   19%
Income from operations  2,303,381   10%  143,317   3%  2,160,064   1507%  2,745,567   10%  2,017,085   23%  728,482   36%
Other expense                                                
Interest and financing costs  102,109   0%  17,880   0%  84,229   471%  201,674   1%  26,091   0%  175,583   673%
Total other expense  102,109   0%  17,880   0%  84,229   471%  201,674   1%  26,091   0%  175,583   673%
Net income before income tax expense  2,201,272   9%  125,437   2%  2,075,835   1655%  2,543,893   9%  1,990,994   23%  552,899   28%
Income tax expense  620,993   3%  -   -%  620,993   100%  717,145   3%  -   0%  717,145   100%
Net income  1,580,279   7%  125,437   2%  1,454,842   1160%  1,826,748   7%  1,990,994   23%  (164,246)  -8%
                                                
Net income attributable to common shareholders  1,580,279   7%  33,437   1%  1,546,842   4626%  1,826,748   7%  1,898,994   21%  (72,246)  -4%

 

6
 

 

Revenue

 

Revenue, net increased by $16,923,042 (405%$16,965,446 (242%) to $21,102,053$23,989,880 for the six-monthsnine-months ended September 30,December 31, 2019, compared to $4,179,011$7,024,434 for the three-monthsnine-months ended September 30,December 31, 2018. The majority of the increase in revenue was attributable to increased revenue from JSAT under the Cup Agreement. Revenue from JSAT increased by $16,637,591 (432%$16,666,270 (242%) to $20,483,518$23,334,345 for the six-monthsnine-months ended September 30,December 31, 2019, compared to $3,848,927$6,668,075 for the six-monthsnine-months ended September 30,December 31, 2018. Revenue from the Cup Agreement was $17,295,719 and $0 for the three-months ended September 30, 2019 and September 30, 2018, respectively.

 

Revenue for products increased mainly due to increased revenue from our Signature Cars and S7. Revenue from Signature Cars increased by $703,407 (60%$557,473 (31%) to $1,872,123$2,329,191 for the six-monthsnine-months ended September 30,December 31, 2019, compared to $1,168,716$1,771,718 for the six-monthsnine-months ended September 30,December 31, 2018. Product revenue from S7 increased by $764,433$870,278 (100%) to $764,433$870,278 for the six-monthsnine-months ended September 30,December 31, 2019, compared to $0 for the six-monthsnine-months ended September 30,December 31, 2018.

 

Cost of Revenue

 

Cost of Revenue for our Signature Cars, and S7 supercar consists primarily of parts, labor and manufacturing overhead related to shop and warehouse supplies and expenses. Cost of revenue for our S1 supercars consists primarily of labor and outside service costs related to the engineering and design of the S1, and overhead related to our facilities costs and administration. Lifestyle accessories and other Saleen-branded products are purchased directly from third-party vendors. Cost of revenue increased by approximately $16,069,717 (621%$16,965,284 (556%) to $18,658,467$20,013,875 for the six-monthsnine-months ended September 30,December 31, 2019, compared to $2,588,750$3,048,591 for the six-monthsnine-months ended September 30,December 31, 2018. The increase in the cost of revenue was primarily attributable to increased costs related to JSAT.

 

Gross Profit

 

Gross profit as a percentage of net revenue decreased by 30%11% to 43%27% for the six-monthsnine-months ended September 30,December 31, 2019, compared to 73%66% for the six-monthsnine-months ended September 30,December 31, 2018. The decrease in gross profit percentage related to the increased revenue to JSAT which had a lower gross profit percentage as to compared to our product revenue.

7

Operating Expenses

 

Operating costs include research and design, sales and marketing, general and administrative, non-cash stock-based compensation and depreciation.

 

Advertising, sales, and marketing expense increased $387,537 (131%$582,160 (113%) to $682,488$1,096,669 during the six-monthsnine-months ended September 30,December 31, 2019, compared to $294,951$514,509 during the six-monthsnine-months ended September 30,December 31, 2018. The increase relates to new advertising efforts that were not in place in 2018.

 

General and administrative expenses decreased $243,026 (11%$63,958 (2%) to $2,051,785$3,234,145 during the six-monthsnine-months ended September 30,December 31, 2019, compared to $2,294,811$3,170,187 during the six-monthsnine-months ended September 30,December 31, 2018. The decrease in general and administrative expenses was due primarily to decreased officer and general and administrative employee salaries and headcount and a decrease in accounting fees for the period.

 

We had no$7,000 of research and development costs during the six-monthsnine-months ended September 30,December 31, 2019, compared to $24,321$24,600 during the six-monthsnine-months ended September 30,December 31, 2018.

Depreciation and amortization expense increased by $59,194$95,955 (154%) to $97,724$158,131 for the six-monthsnine-months ended September 30,December 31, 2019, compared to $38,530$62,176 for the six-monthsnine-months ended September 30,December 31, 2018.

 

Income from Operations

 

During the six-monthsnine-months ended September 30,December 31, 2019, we generated income from operations of $2,303,381,$2,745,567 compared to income from operations of $143,317$2,017,085 incurred during the six-monthsnine-months ended September 30,December 31, 2018. Income from operations for the six-monthsnine-months ended September 30,December 31, 2019, was due primarily to increased revenue and gross profit, offset in part by increased sales and marketing efforts.

 

Other Expense

 

Other expenses include interest and financing costs. Interest and financing costs increased $84,229 (471%$175,583 (673%) to $102,109$201,674 during the six-monthsnine-months ended September 30,December 31, 2019, compared to $17,880$26,091 during the six-monthsnine-months ended September 30,December 31, 2018. The increase in interest and financing costs during the six-monthsnine-months ended September 30,December 31, 2019, was due primarily to changes related to adoption of the new lease standard offset by an overall reduction in debt and two debtors that have waived interest.

 

Income Tax Expense

 

During the six-monthsnine-months ended September 30,December 31, 2019, we reported income tax expense of $620,993.$717,145. We had no income tax expense during the six-monthsnine-months ended September 30,December 31, 2018.

 

Liquidity and Capital Resources

 

Our working capital deficiency as of September 30,December 31, 2019, and March 31, 2018, was as follows:

 

  As of  As of 
  September 30, 2019  March 31, 2019 
       
Current assets $5,065,235  $3,619,119 
Current liabilities  6,431,452   4,398,809 
Net working capital deficiency $(1,366,217) $(779,690)

8
  As of  As of 
  December 31, 2019  March 31, 2019 
       
Current assets $2,025,062  $3,619,119 
Current liabilities  3,374,730   4,398,809 
Net working capital deficiency $(1,349,668) $(779,690)

 

The following summarizes our cash flow activity for the six-monthsnine-months ended September 30,December 31, 2019, and 2018:

 

Cash Flows

 

 Six-Months Six-Months  Nine-Months Nine-Months 
 Ended Ended  Ended Ended 
 September 30, 2019 September 30, 2018  December 31, 2019 December 31, 2018 
          
Net cash provided by (used in) Operating Activities $3,654,921  $(308,786) $492,810  $(198,523)
Net cash used in Investing Activities (2,282,678) (52,812) (2,572,359) (143,630)
Net cash (used in) provided by Financing Activities  (594,672)  47,044   (602,172)  38,940 
Change in Cash during the period 777,571 (314,554)
Change in cash during the period (2,681,721) (303,213)
Cash, Beginning of Period  3,374,234  523,120   3,374,234  523,120 
Cash, End of Period $4,151,805 $208,566  $692,513 $219,907 

 

The Company has incurred significant net losses since inception. However,inception however, during the six-monthsnine-months ended September 30,December 31, 2019, the Company’s financial performance significantly improved, and we recorded net income of $1,878,181$1,826,748 and generated cash flows from operations of $3,197,229,$492,810, primarily due to revenues from JSAT. Our ability to continue to generate net income and positive cash flows from operations is primarily dependent on our ability to continue to generate revenue from our contracts with JSAT and to generate revenue from the sale of our Signature Cars.

The Company cannot give assurance that it can maintain its cash balances or limit its cash consumption and maintain sufficient cash balances for its planned operations. Also, future business demands may lead to cash utilization at levels greater than recently experienced or anticipated. While we believe that our existing cash balances will be sufficient to fund our currently planned level of operations and investment activity, we may require additional financing to fund our planned future operations if we encounter unanticipated difficulties, or if our estimates of the amount of cash necessary to operate our business prove to be wrong, and we use our available financial resources faster than we currently expect. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Subject to the foregoing, we believe the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of filing of this Quarterly Report on Form 10-Q.

 

New Accounting Standards

 

See Note 1 of the condensed consolidated financial statements for a discussion of recent accounting pronouncements.

 

Off-Balance Sheet Arrangements

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

A smaller reporting company is not required to provide any information in response to Item 305 of Regulation S-K.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

As of September 30,December 31, 2019, 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, as a result in the delay in filing this Quarterly Report on 10-Q, and notwithstanding that there were no accounting errors with respect to our financial statements, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of that date to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

9

Our disclosure controls or internal controls over financial reporting were designed to provide only reasonable assurance that such disclosure controls or internal control over financial reporting will prevent all errors or all instances of fraud, even as the same are improved to address any deficiencies. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be only reasonable, not absolute assurance that any design will succeed in achieving its stated goals under all potential future conditions. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

 

Changes in Internal Control

 

Effective June 21, 2019, Amy Boylan resigned as the President and Chief Operating Officer of the Company.

 

Effective October 31, 2019, Lawrence Balingit was appointed the Chief Financial Officer and Chief Operating Officer of the Company. On March 6, 2020, Lawrence Balingit resigned as the Company’s Chief Financial Officer.

 

Effective April 30, 2020, Michael Roe was appointed the Chief Financial Officer of the Company.

 

Other than the items discussed above, during the three and six-monthsnine-months ended September 30,December 31, 2019, there were no changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

Effective June 21, 2019, Amy Boylan resigned as the President and Chief Operating Officer of the Company.

 

Effective October 31, 2019, Lawrence Balingit was appointed the Chief Financial Officer and Chief Operating Officer of the Company. On March 6, 2020, Lawrence Balingit resigned as the Company’s Chief Financial Officer.

 

Effective April 30, 2020, Michael Roe was appointed the Chief Financial Officer of the Company.

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ITEM 6. EXHIBITS.

 

Exhibit Description
3.1 Articles of Incorporation. Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 18, 2011.
3.2 Certificate of Amendment of Articles of Incorporation. Incorporated by reference to Exhibit A to the Preliminary Information Statement on Schedule 14C filed with the Securities and Exchange Commission on December 13, 2013.
3.3 Articles of Merger effective June 17, 2013. Incorporated by reference to Exhibit 3.1.3 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 27, 2013.
3.4 Certificate of Amendment to Articles of Incorporation. Incorporated by reference to Exhibit A to the Preliminary Information Statement on Schedule 14C filed with the Securities and Exchange Commission on September 30, 2016December 31, 2013
3.5 Certificate of Amendment to Articles of Incorporation filed December 7, 2017. Incorporated by reference to Exhibit 3.1.5 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 8, 2019.
3.6 Certificate of Amendment to Articles of Incorporation filed December 19, 2017. Incorporated by reference to Exhibit 3.1.6 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 8, 2019.
3.7 Certificate of Amendment to Articles of Incorporation filed December 21, 2017. Incorporated by reference to Exhibit 3.1.7 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 8, 2019.
3.7 Certificate of Designation of the Series B Preferred Stock of Saleen Automotive, Inc. Incorporated by reference to Exhibit 4.2 to the Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 8, 2019.
3.9 Bylaws. Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 18, 2011.
10.1 Asset Purchase Agreement, dated as of May 31, 2019, between Saleen Automotive, Inc. and S7 Supercars LLC. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on June 27, 2019.
31.1* Section 302 Certification of Chief Executive Officer and Chief Financial Officer
32.1* Section 906 Certification of Chief Executive Officer and Chief Financial Officer
101.INS* XBRL Instance Document
101.SCH* XBRL Schema Document
101.CAL* XBRL Calculation Linkbase Document
101.DEF* XBRL Definition Linkbase Document
101.LAB* XBRL Labels Linkbase Document
101.PRE* XBRL Presentation Linkbase Document

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: July 8,August 13, 2020

 

 SALEEN AUTOMOTIVE, INC.
   
 By:/s/ Steve Saleen
 Name:Steve Saleen
 Title:Chief Executive and Chief Financial Officer

 

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